Welcome to the HEICO Corporation fourth quarter and full year fiscal 2021 financial results call. My name is Renz, and I'll be your operator for today's call. Certain statements in today's call will constitute forward-looking statements which are subject to risks, uncertainties, and contingencies.
HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including the severity, magnitude, and duration of the COVID-19 pandemic, HEICO's liquidity and the amount and timing of cash generation, lower commercial air travel caused by the COVID-19 pandemic and its aftermath, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase in costs to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and our foreign customers or competition from existing and new competitors,
which could reduce our sales, our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales, our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange, and income tax rates, economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues, and defense spending or budget cuts, which could reduce our defense-related revenue.
Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to filings on Form 10-K, Form 10-Q, and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. As we begin the call now, I turn the call over to Laurans Mendelson, HEICO's Chairman and Chief Executive Officer.
Thank you, Renz, and good morning to everybody on this call. We thank you for joining us, and we welcome you to HEICO's fourth quarter and full-year fiscal 2021 earnings announcement teleconference. I'm Laurans Mendelson, Chairman and CEO of HEICO Corporation, and I'm joined here this morning by Eric Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Before reviewing operating results in detail, I'd like to take a moment to thank all of HEICO's talented team members for delivering another outstanding year. Your continued focus on exceeding customer expectations and operational excellence has translated into another year of outstanding results for shareholders.
I am encouraged that our success will continue into the next fiscal year, and that will be driven by the confidence and respect that I have for all of HEICO's exceptional team members. Now summarizing the highlights of our fourth quarter and full-year fiscal results. We are pleased to report much improved quarterly operating results within both Flight Support and Electronic Technologies. Consolidated operating income and net sales in the fourth quarter of fiscal 2021 improved 29% and 20%, respectively, as compared to the fourth quarter of fiscal 2020. Our performance principally reflects quarterly consolidated organic net sales growth of 16% and the favorable impact from our fiscal 2021 and 2020 acquisitions. The Flight Support Group reported quarterly increases of 126% and 34% in operating income and net sales, respectively, as compared to the fourth quarter of fiscal 2020.
These substantial increases principally reflect increased demand for the majority of our commercial aerospace products and services, resulting from some recovery in global commercial air travel as compared with the prior year. This marks the fifth consecutive quarter of sequential growth in net sales and operating income at the Flight Support Group. ETG reported quarterly increases of 7% and 4% in net sales and operating income, respectively, compared to the fourth quarter of fiscal 2020. These record results principally reflect the impact from our profitable fiscal 2021 and 2020 acquisitions, as well as strong organic net sales growth for the majority of our products. Our total debt to shareholders' equity improved to 10.3% as of October 31, 2021, and that compared to 36.8% as of October 31, 2020.
Our net debt, which is total debt less cash and cash equivalents of $128.2 million as of October 31, 2021, compared to shareholders' equity ratio improved to a very low 5.6% as of October 31, 2021. That was down from 16.6% as of October 31, 2020. Our net debt to EBITDA ratio improved to 0.26x as of October 31, 2021, and that was down from 0.71x as of October 31, 2020. During fiscal 2021, we successfully completed six acquisitions, and we have no significant debt maturities until fiscal 2024. We plan to utilize our financial strength and flexibility to aggressively pursue high-quality acquisitions of various sizes to accelerate growth and to maximize shareholder returns.
Cash flow provided by operating activities remained strong, totaling about $110 million in both the fourth quarter of fiscal 2021 and 2020. Cash flow provided by operating activities increased 9% to $444.1 million in fiscal 2021, and that was up from $409.1 million in fiscal 2020. I'd like to now discuss acquisition, recent acquisition activity. In October 2021, we acquired all of the outstanding stock of Paciwave, which is a designer and manufacturer of radio frequency and microwave components and integrated assemblies, specializing particularly in PIN diode switches, PIN attenuators, PIN limiters, switching assemblies, and integrated subsystems found in defense and other complex electronic applications. Paciwave is part of the ETG group, and we expect this acquisition to be accretive to our earnings per share within the first 12 months following closing.
In September 2021, we acquired 80.1% of the stock of RH Laboratories, which designs and manufactures state-of-the-art radio frequency and microwave integrated assemblies, subassemblies, and components used in a broad range of demanding defense applications operating in harsh environments, including space. The remaining 19.9% interest continues to be owned by certain members of RH Laboratories management team. RH is part of the ETG group, and we expect this acquisition to be accretive to our earnings per share within the first 12 months following closing. As I discussed during the third quarter earnings teleconference, in August 2021, we acquired 89% of the equity interest of Ridge Holding HoldCo, which owns all of Ridge Engineering and Bechdon Company. They perform tight tolerance machining and brazing of large-sized parts in mission-critical defense and aerospace applications.
Bechdon provides machining, fabricating, and welding services for aerospace and defense and other industrial applications. The remaining 11% interest continued to be owned by certain members of Ridge's and Bechdon's management teams. These companies are part of Flight Support Group, and we expect the acquisitions of these companies to be accretive to our earnings per share within the first 12 months following closing. Later on, we will comment on the pipeline for acquisitions, which at this moment I can tell you is very strong and we're optimistic on that score and the outlook for additional acquisitions. We cannot predict with certainty when they will be closed because we are in substantial due diligence. At this time, I'd like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group, and he will discuss the results of the Flight Support Group.
Thank you. The Flight Support Group's net sales increased 34% to $260.4 million in the fourth quarter of fiscal 2021, up from $193.6 million in the fourth quarter of fiscal 2020. The net sales increase in the fourth quarter of fiscal 2021 is principally from organic growth of 28%, as well as the impact from our profitable fiscal 2021 acquisitions. The organic growth is mainly attributable to increased demand for our commercial aerospace products across all of our product lines.
The Flight Support Group's net sales increased to $927.1 million in fiscal year 2021, up from $924.8 million in fiscal year 2020. The net sales increase in fiscal year 2021 principally reflects the impact from our profitable fiscal 2021 and 2020 acquisitions, partially offset by lower demand for the majority of our commercial aerospace products and services, resulting from a decline in the global commercial air travel attributable to the pandemic. The Flight Support Group's operating income increased 126% to $48.6 million in the fourth quarter of fiscal 2021, up from $21.5 million in the fourth quarter of fiscal 2020. The operating income increase in the fourth quarter of fiscal 2021 principally reflects the previously mentioned net sales growth and an improved gross profit margin.
The improved gross profit margin principally reflects the higher net sales, a more favorable product mix across all of our product lines, and a decrease in inventory obsolescence expense. The Flight Support Group recognized higher inventory obsolescence expense in the fourth and third quarters of fiscal 2020, following the announced retirement of certain aircraft types and engine platforms by our commercial aerospace customers due to the pandemic's financial impact. The Flight Support Group's operating income increased 6% to $151.9 million in fiscal year 2021, up from $143.1 million in fiscal year 2020. The operating income increase in fiscal year 2021 principally reflects lower bad debt expense due to certain commercial aviation customers filing for bankruptcy protection in fiscal 2020.
As a result of the pandemic's financial impact, the previously mentioned decrease in inventory obsolescence expense and an improved gross profit margin, partially offset by higher performance-based compensation expense. The Flight Support Group's operating margin improved to 18.7% in the fourth quarter of fiscal 2021, up from 11.1% in the fourth quarter of fiscal 2020. The operating margin increase in the fourth quarter of fiscal 2021 principally reflects the previously mentioned higher net sales, improved gross profit margin, and lower inventory obsolescence expense. The Flight Support Group's operating margin improved to 16.4% in fiscal year 2021, up from 15.5% in fiscal year 2020. The operating margin increase in fiscal year 2021 principally reflects the previously mentioned lower bad debt expense and inventory obsolescence expense, partially offset by higher performance-based compensation expense.
Now, I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the results of the Electronic Technologies Group.
Eric, thank you. The Electronic Technologies Group's net sales increased 7% to a record $253 million in the fourth quarter of fiscal 2021, up from $236.7 million in the fourth quarter of fiscal 2020. The net sales increase in the fourth quarter of fiscal 2021 principally resulted from organic growth of 5% as well as the impact from our fiscal 2021 and 2020 acquisitions. The organic growth principally reflects increased demand for our other specialized electronic, medical, and commercial aerospace products, partially offset by lower defense products net sales in some subsidiaries. The Electronic Technologies Group's net sales increased 10% to a record $959.2 million in fiscal 2021, up from $875 million in fiscal 2020.
The net sales increase in fiscal 2021 principally reflects our fiscal 2020 and 2021 acquisitions, as well as organic growth of 3%. The organic growth was mostly driven by increased demand for our other specialized electronic and medical products, partially offset by decreased commercial aerospace and space products net sales. The Electronic Technologies Group's operating income increased 4% to a record $76.9 million in the fourth quarter of fiscal 2021, up from $73.9 million in the fourth quarter of fiscal 2020. The operating income increase in the fourth quarter of fiscal 2021 principally reflects the previously mentioned net sales growth, partially offset by a lower gross profit margin, mainly from lower net sales of defense products, partially offset by an increase in net sales of other specialized electronic, commercial, aerospace, and medical products.
The Electronic Technologies Group's operating income increased 7% to a record $277.3 million in FY 2021, up from $258.8 million in FY 2020. The operating income increase in full FY 2021 principally reflects the previously mentioned net sales growth, partially offset by a lower gross profit margin, mainly from a decrease in defense and space products net sales, partially offset by the increase in other specialized electronic products net sales. The Electronic Technologies Group's operating margin was a very strong 30.4% in the fourth quarter of FY 2021, as compared to 31.2% in the fourth quarter of FY 2020. The operating margin decrease in the fourth quarter of FY 2021 principally reflects the previously mentioned lower gross profit as well as higher performance-based compensation expense.
The Electronic Technologies Group's operating margin was 28.9% in fiscal year 2021 as compared to 29.6% in fiscal 2020. The operating margin decrease in fiscal 2021 full year principally reflects the previously mentioned lower gross profit margin. I turn the call back over to Laurans .
Thank you, Victor. Moving on to earnings per share. Consolidated net income per diluted share increased 38% to $0.62 in the fourth quarter of fiscal 2021, and that was up nicely from $0.45 in the fourth quarter of fiscal 2020. The increase in the fourth quarter of fiscal 2021 principally reflects previously mentioned higher operating income at both operating segments. Consolidated net income per diluted share was $2.21 in fiscal 2021, and that compared to $2.29 in fiscal 2020. The decrease in fiscal 2021 principally reflects higher income tax expense, partially offset by previously mentioned increase in the operating income of ETG and Flight Support and lower interest expense. Depreciation and amortization expense totaled $24.2 million in the fourth quarter of fiscal 2021.
That was up slightly from $23.3 million in the fourth quarter of fiscal 2020 and totaled $93 million in fiscal 2021, which was up slightly from $88.6 million in fiscal 2020. The increase in the fourth quarter of fiscal 2021 principally reflects incremental impact from our fiscal 2020 and fiscal 2021 acquisitions. Research and development expense increased to $16.7 million or 3.3% of net sales in the fourth quarter of fiscal 2021, and that was up slightly from $16.6 million or 3.9% of net sales in the fourth quarter of fiscal 2020. R&D expense increased to $68.9 million or 3.7% of net sales in fiscal 2021, and that was up from $65.6 million or again 3.7% of net sales in fiscal 2020.
As traditionally has been the case, significant ongoing new product development efforts are continuing at both Electronic Technologies and the Flight Support Group. SG&A expense was $89.5 million in the fourth quarter of fiscal 2021, and that compared to $72.6 million in the fourth quarter of fiscal 2020. The increase in consolidated SG&A expense in the fourth quarter of fiscal 2021 principally reflects higher performance-based compensation, higher other SG&A expenses, higher selling expenses, as well as the impact from our fiscal 2020 and 2021 acquisitions, partially offset by lower bad debt expense. Our consolidated SG&A expenses were $334.5 million in fiscal 2021, and that compared to $305.5 million in fiscal 2020.
The increase in consolidated SG&A expense in fiscal 2021 principally reflects higher performance-based compensation expense as well as the impact from our fiscal 2020 and 2021 acquisitions, again, partially offset by a reduction in bad debt expense. The company recognized higher bad debt expense in fiscal 2020 due to potential collection difficulties from certain commercial aviation customers that filed bankruptcy protection during fiscal 2020, and that was a result of the pandemic's financial impact on those airlines. Consolidated SG&A expense as a percentage of net sales was 17.6% in the fourth quarter of fiscal 2021. That was up slightly from 17% in the fourth quarter of fiscal 2020. Again, consolidated SG&A expense as a percentage of net sales was 17.9% in fiscal 2021, compared to 17.1% in fiscal 2020.
The increase in consolidated SG&A expense as a percentage of net sales in the fourth quarter and fiscal 2021 principally reflects the previously mentioned higher performance-based compensation expense, partially offset by lower bad debt expenses. Interest expense decreased to $1 million in the fourth quarter of fiscal 2021. That was down from $2.5 million in the fourth quarter of fiscal 2020. That decrease was principally due to lower weighted average balance of borrowings outstanding under our revolving credit facility. Interest expense decreased to $7.3 million in the fiscal year 2021, down from $13.2 million in fiscal 2020. That decrease was principally due to lower weighted average interest rate as well as a lower weighted average balance of borrowings outstanding under our revolving credit facility.
Other income in the fourth quarter of fiscal 2021 and fiscal year 2021 was not significant. Moving on to comments about income taxes. Our effective rate in fiscal 2021 was 14.8% as compared to 7.9% in fiscal 2020. As previously discussed in prior quarterly teleconferences, HEICO recognized a larger discrete tax benefit from stock option exercises in the first quarter of fiscal 2020 compared to 2021, and that accounted for a majority of the increase in the effective tax rate. Furthermore, our effective tax rate in fiscal 2021 reflects the favorable impact of higher tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Corporation Leadership Compensation Plan.
Our effective tax rate was 18.3% in the fourth quarter of fiscal 2021, down from 22.3% in the fourth quarter of fiscal 2020, and the decrease principally reflects the favorable impact of higher tax-exempt unrealized gain in cash surrender values of life insurance policies, again related to the HEICO Corporation Leadership Compensation Plan. Income attributable to non-controlling interest was $7.3 million in the fourth quarter of fiscal 2021, and that compared to $5.3 million in the fourth quarter of fiscal 2020. The increase in net income attributable to non-controlling interest in the fourth quarter of fiscal 2021 principally reflects an increase in the operating results of certain subsidiaries of the Flight Support Group in which non-controlling interests are held. Net income attributable to non-controlling interest was $25.5 million in fiscal 2021.
That compared to $21.9 million in fiscal 2020. That increase in net income attributable to non-controlling interest in fiscal 2021 principally reflect higher allocations of net income to non-controlling interest as a result of certain fiscal 2020 and 2021 acquisitions, as well as an increase in the operating results of certain subsidiaries of Flight Support and ETG in which non-controlling interests are held. For the full fiscal year 2022, we anticipate a combined tax and non-controlling interest rate as a percentage of net income to be approximately 25%-27%. Moving on to our balance sheet and cash flow. As we previously mentioned, cash flow provided by operating activities remained strong at $110 million in both the fourth quarter of fiscal 2021 as well as 2020.
Cash flow provided by operating activities increased 9% to $444.1 million in fiscal 2021, and that was up from $409.1 million in fiscal 2020. Our working capital ratio, current assets divided by current liabilities, was 3.2 in October 31, 2021, compared to 4.8 as of October 31, 2020. DSOs of receivables improved to 44 days as of October 31, 2021, compared to 45 days October 31, 2020. We continue to closely monitor receivable collection efforts in order to limit our credit exposure. No one customer accounted for more than 10% of net sales, and our five customers represented approximately 22% and 24% of consolidated net sales in fiscal 2021 and 2020, respectively.
Inventory turnover rate was 153 days for the year ended October 31, 2021, as well as October 31, 2020. The outlook. As we look ahead to fiscal 2022, we expect the commercial air travel recovery to continue, particularly in certain domestic travel markets, while perhaps slightly less so in international markets, even though the pandemic will likely continue to adversely affect commercial aerospace industry as well as HEICO. International markets have not recovered to the extent of domestic markets, and while we are very confident of their future recovery and the potential sales increase, timing at this moment is uncertain. We said basically the same thing last year, and we were proven correct, and we're predicting the same thing this year.
We remain cautiously optimistic that the ongoing worldwide COVID-19 vaccine rollouts, including boosters, will continue to positively influence commercial air travel and benefit the markets we serve. As we have all continued to see and learn, it's difficult to predict the pandemic's path and effect, including new factors such as new variants, vaccination rates, government activities, government shutdowns, travel restrictions, and everything under the sun, which can all impact our key markets. Therefore, we feel it would not be responsible to provide fiscal 2022 net sales and earnings guidance at this time.
Our ongoing conservative policies, extremely strong balance sheet, high degree of liquidity enable us to invest in new research and development and execute on our successful acquisition program and position HEICO for market share gains. I would like to end my remarks by again thanking our team members for their continued support and commitment to HEICO during these professionally and personally challenging times. Our executive team continues to be focused on your safety and your professional success. Collectively, we believe we've had great success in 2021, and we look forward to all the opportunities ahead in fiscal 2022. That's the extent of our prepared remarks, and I'd like to open the floor for questions.
Thank you. At this time, we would like to take any questions you might have for us today. If you would like to ask a question, simply press star one on your telephone keypad. Again, that would be star one on your telephone keypad. We have our first question from the line of Pete Skibitski with Alembic. Your line is now open.
Hey, good morning, everyone.
Good morning.
Guys, I wanted to ask about supply chain issues. You seem to be avoiding some of the worst case issues that some of your peers are having, you know, with regard to things like sourcing semiconductors and even sourcing labor. Are you guys seeing any issues like that at all? Or if so, how have you been able to kind of mitigate the impact?
Hey, Pete, it's Eric speaking. Thanks for your question. You know, with regard to that, we've been able to handle it. I think that HEICO's model of decentralized approach to business, where we've got entrepreneurial people running these businesses, running all the functions within the businesses, it's their responsibility to figure out how to get it done. You can see from the fourth quarter numbers, they've done that. Now, obviously, it's becoming a bigger challenge. We all read about that in the newspaper, and there definitely will be bumps in the road. You know, we've seen prices go up, we've seen shortages in various areas, but we're just dealing with it. You know, frankly, the numbers would have been the sales and the earnings would have been even better had we not had some of this.
I think overall, we are optimistic that we're going to be able to manage it. Victor Mendelson can update on the Electronic Technologies Group.
Yeah. You know, overall, the situation, as you know, we've talked about in prior calls, it's been manageable with very limited shipping delays for us out to our customers. You know, some subsidiaries are seeing minimal to no impact, while it's more pronounced at others. It really varies across the business. You know, companies generally within HEICO entered this shortage with sufficient stock and were ordering ahead, you know, which is really, as Eric pointed out, a benefit of our decentralized model, where our subsidiaries decide what to do. As you've heard us say on this call before or these calls, we're not a big believer in just-in-time inventory management.
We let our companies decide what they need to have and to project, and that's worked out very well. I would expect maybe it becomes a little more pronounced as we get into 2022, but we found that we have a lot of ways to deal with it. Some of our companies have been able to design around with replacement components as well. The lead times vary by subsidiaries, but overall, we've been able to manage those pretty well. I'll just make a comment too, because the natural follow on to that is, well, are you seeing price increases on your components and on your material? You know, the answer to that, of course, is yes. We're like everybody else. You read in the newspapers. I think we've managed those pretty well.
Sometimes those price increases are fairly low, sometimes they're much more, again, depending on the product and the subsidiary. Generally speaking, our customers understand that. They're seeing this across their supply chains, and they're dealing with it in their own pricing. They've accepted where we've adjusted prices, and I expect that we'll have to continue to do that. That of course will continue over the year ahead. Of course, as an aside, it is very important for us to keep offering this great value proposition that we offer. What we're not doing is taking advantage of our customers for it. We're making sure that we continue to offer an excellent value, but we do expect to be compensated for our cost increases as well as to sustain our margins on those increases.
Also, Pete, just to close, this is Eric again. We have a number of our team members on the call, and I wanna call them out specifically for their outstanding effort and results and dedication in making this happen. HEICO, while we're not afraid to invest in inventory, we've got very acceptable inventory turns. I think unlike our, you know, many other peers and competitors in the industry, HEICO did not take a big one-time inventory reserve in 2020, you know, special inventory reserve like so many other companies did. We are able to support our customers by having proper, and I would say, lean inventories because we buy the right stuff.
I think that is very, very rare in industry today. Our people work extraordinarily hard to make sure they buy the right stuff. If you look across the industry, there are plenty of companies who've taken big one-time charges, and they blame it on all sorts of, you know, once every 10-year events, like a financial crisis or COVID or 9/11, or all sorts of things that happen. If you look back at HEICO's history over the last 32 years, never have we taken such a charge. Yes, we do have inventory obsolescence, and we handle that within our normal results.
Really, you know, I get very emotional and passionate about this because our people really do a phenomenal job by focusing on the details, making sure we got the right parts on the shelf, and we don't take these big one-time charges, whereas it seems to be standard in the industry outside of HEICO.
Yeah. That's very helpful, guys. I really appreciate it. Maybe one last quick one for me. Maybe this one more for Eric. This Omicron variant seems so recent, almost really after the quarter closed. Just, can you give us a sense if you've gotten any feedback from your customers yet about how that could impact kind of near-term demand? Is it having any impact at all, or is it really kind of a black box right now, I think. Would love to get your feedback.
Yeah, I did. It's a great question. I'm sure people, you know, it's a burning question. People wanna know, what's going on with that. I did my quarterly reviews with our sales heads last week, and as of last week, we did not see an impact. However, I don't think you have to really be a genius to figure out that this is going to impact the industry in some way. I think it's reasonable to assume that it will, and we are prepared for it. I think things, you know, we're still very, very optimistic. There's a lot of growth potential because not all of our markets have recovered.
We still have a very big potential in the international markets and, in particular in Asia, and to a lesser extent in Europe and South America to see recovery. I think that we've got plenty of, if you will, green shoots ahead of us. There's no question that the Omicron will hold back the industry. We'll have to see really what happens over the coming days and weeks due to the severity and transmissiveness of the variant. We think that with HEICO's structure of strong capital structure as well as really focusing on the customer, focusing on the details, that we're gonna be fine, and we're just gonna get right through this.
This is really just gonna be business as usual. I mean, there's no reason to think that, you know, this virus is going to disappear anytime soon. We just gotta be ready, and HEICO's resilient, and we'll handle it. Our people are very resilient. You know, it's not gonna hold us back.
Great. Thanks so much for the context, guys.
Thanks.
Thank you. Our next question comes from the line of Peter Arment with Baird. Your line is open.
Yeah, thanks. Good morning, Laurans, Victor, Eric, Carlos.
Good morning.
Yeah, happy holidays, everyone. Hey, Carlos, I wanted to start with you really just if we could talk a little bit just about incremental margins. I know if you look at FSG, I think you finished the year in the kind of the mid-40s%, ETG in the low 20s%. How should we think about kind of what a good normalization rate is for both segments? Do they both trend back to the low 30s or any puts and takes we should be thinking about?
I think that, you know, as far as 2021 went, I was pleasantly surprised with how the segments performed. You know, as we've talked about in the past, the FSG is on a glide path. We're not expecting huge incremental bumps in their OI percentage of revenues. We're expecting more of a glide path back up to pre-pandemic levels. You know, pre-pandemic levels, we expected the FSG's operating margin to approach 20%, and I think that that's our target. That's where we're heading back to. From that point forward, we ought to see what history has told us, that the segment has, you know, growth leverage, if you would, on their cost base, and you eke out little improvements in the margin as you go along and pile on more sales.
You know, in my opinion, I think that's the direction we're heading with the FSG. ETG is a very mix-sensitive segment. You know, the margin can bounce around. You know, this year, we posted 30% margins, and I'm tickled to death with our fourth quarter performance, but we could easily have posted less or more. It is that mix sensitive, and it's very acquisition sensitive. You know, on an annual basis, it's really hard to predict with great degree of certainty where that margin could be. I would tell you that, you know, if it's been 27%-30% for a long time, I expect it to stay within that bandwidth. But during quarters, it could vacillate, and it could be due to things such as acquisitions.
For example, if we bought a company with a 22% operating margin, I assume as an investor, you'd be very happy with this, but that would be dilutive to the overall segment margin. You know, as long as it's still on a ton of cash, we would be indifferent to that, but we'd get questions about the margin, right? That's how we're approaching it. By the way, the alternatives could happen. We could buy a company with 40% margin, and it can pull it up. That is what I believe the future holds for the ETG.
We principally look at it as a cash return segment. The EBITDA margin or the EBITDA margin in that segment is fantastic. It's in the low 30s%, and I believe that will continue. Does that help?
Uh-huh. That's helpful. Yeah, no, that's very helpful. I appreciate that. Then maybe just as a quick follow-up, Eric, maybe you could just talk about maybe any of what you're seeing out of your larger customers. I know that FSG, I think the top kind of handful of customers represent at least a quarter or a third of your sales. So maybe what you're seeing there and the opportunities for you guys to continue to grow share? Thanks.
Yeah. It's a great question. I met with our folks last week, and we're doing extraordinarily well with our top customers. Actually, as a matter of fact, I think we're doing extremely well with all of our customers. They seem, through the pandemic, to be more committed than ever to HEICO. I think we've supported them extraordinarily well. We maintained our new product development. You know, we maintained our workforce. We maintained, you know, our standard development rates. We're satisfying them with all sorts of new and product adjacency products. They're extremely supportive of us, so I feel very good, and I think that we are growing market share with them and with everybody. I don't know if that's sort of the color that you were looking for.
I don't know anything else you'd like to know. Please let me know.
No, that's helpful, Eric. I appreciate it. Thanks for all the details, guys.
Thank you.
Thank you. The next one, we have the line of Larry Solow with CJS Securities. Please go ahead.
Great. Good morning, guys, and thanks for a good quarter, and thanks for taking the questions. Just a couple sort of follow-ups. You know, obviously, the macro, still some crosswinds there, but it does look like passenger traffic, as you mentioned, continues to recover on a, you know, fairly consistent basis. Just trying to, you know, gauge the pace of recovery within HEICO. Obviously, it seems like you guys are certainly a little bit ahead of, you know, you're still, you know, behind 2019 levels pre-pandemic, but your recovery seems to be a little bit ahead of, you know, the general market. Just trying to, you know, gauge more, you know, what you're seeing from customers and, you know, your market share gains and your expectations going forward, particularly on the PMA side.
Yeah. A great question, Larry. We do continue to see market share gains. I can tell you that our people are extremely bullish. In 32 years of doing this, I've never seen a group more pumped up about the future than the folks I met with last week. We went over things in great detail, and they are extraordinarily bullish. They're also bullish because there's plenty of opportunity out there. You know, there are areas that haven't recovered yet, and we're optimistic that we're going to see recovery in some of those areas in 2022. Our customers are really encouraging us to produce more and to do more and develop more. I would say the future outlook is very, very good.
I mean, when you go through a crisis like this, there's no logical reason why people shouldn't buy more from us. I mean, we have the best customer service, and we've got the most competitive prices. You know, it's from a company with an $18 billion market cap. You're not dealing with a little startup. You're dealing with somebody who can go ahead and invest and put the right inventory on the shelf and pay people and develop product, stand behind that product. I think, frankly, the wind is to HEICO's back right now. You know, I would anticipate that that's gonna continue. I'm very bullish for the future. You know, that's specifically with the aftermarket.
With our businesses that are more exposed to the OEM build cycle, we have not seen as much recovery in those areas. Frankly, that provides also a great optimism and potential for the future because those markets have not recovered. You know, if you look narrow body market isn't expected, you know, on the new build side to recover until, you know, pick a year, 2024, say, and on the wide body until maybe 2028. Of course, the wide body peaked, you know, the new build production, I think, peaked back in the 2015 area. I think we've got plenty of upside in those markets as well. Our people have worked extraordinarily hard, in, of course, across all of our businesses.
The ones that are more OEM exposed have not seen the success that the ones that have been more aftermarket exposed have seen. You know, I know that they're working extremely hard. They're pumped up. They see it's coming down the road. You know, we gotta hang in there. Of course, with HEICO at our, you know, strong levels and, you know, strong levels of sales and customer relationships and customer service and basically no debt, I think we're in a very good position to take advantage of all this.
Right. No, I appreciate that color. How about just, Eric, while you got the mic there, just on the sort of—I know you're not giving guidance, but near term, I know usually sort of your Q1, you get the seasonal slowdown as, you know, it's the peak season, obviously, most planes are getting out in the air and getting only the real need maintenance. Do we see that slowdown? Do you expect that this quarter, or is it seasonality a little bit skewed because of, you know, the overall ramp and spending and whatnot?
Yeah, that's a good question. It's, you know, I'm not trying to not answer it, but.
Right
The truth is, I really don't know. I mean, my sense, you know, my sense is it's gonna be fine, but yes, you'll see that traditional seasonality. Of course, the Omicron isn't going to help things.
Right
My guess is that you would see it. That truly is a guess and, you know, not based on sales through, you know, 45 days into the quarter. Instead, you know, just based on having done this for so many years. Yes, I think you'll see the seasonality and it should be, you know, standard in that regard.
Gotcha. Just one quickie for Victor. It sounds like just at least for this quarter, maybe the last couple of quarters, just defense and space sort of flattish and a lot of your growth's been coming from the medical and the other electronics and industrial piece, which I know has been really strong. Is that sort of where you think sort of, you know, without really giving guidance, but from a high level, 2022 will kind of shape out with similar trends?
Yeah. Larry, so you may recall in a couple of the last calls, I'd mentioned that our specialized electronic, high-end electronic and other markets were strong for us, and I expected that to continue. I would expect that to continue into 2022 based on the budgets rather that we've received from our subsidiaries. In terms of defense, as I've also talked about in a number of the calls, we kind of expected that to flatten out, maybe turn down a little bit. I would expect to see that trend continue at least in the near term.
I think commercial space, probably it's a little early to say for sure, but I would say that trend is more flattening and, you know, after we've had a lot of strength there.
Okay. Gotcha. Great. Thanks much, guys. I appreciate it.
Welcome.
Are there any other questions?
The next one, we have the line of Kristine Liwag with Morgan Stanley. Your line is open.
Hey, guys. Thank you for the question here. I guess looking at the M&A pipeline, has Omicron affected the opportunities that you're seeing? Are you seeing more opportunities or less opportunities as we kind of see this uncertain period prolong?
The answer is, I don't think Omicron has affected this at all. We have a very strong pipeline. As a matter of fact, I would have to say it's almost too strong, because we are wrapped up in doing due diligence constantly. We have a number of transactions that are in the pipeline. As you know, we can't predict if it's gonna close. I mean, historically, if we go by past experience, we know most of them probably will close, but we can't guarantee it. But I think the ones we are looking at are all well within HEICO's normal pricing and the fact that we would expect them to be accretive in the first year and so forth if they close. And there are plenty of opportunities out there.
I don't think we've seen any change because of this situation.
Great, thanks. Maybe a question for Victor. Victor, on space, can you speak to any trends that you're seeing? We've seen more space companies successfully raise capital, and many have de-SPACed in the past few months. Does that increase the addressable market for you, especially now you've got this new pool of customers that could potentially pay their suppliers?
Kristine, it's a very good question. We think it does increase our potential market, and we are dealing with some of these companies. The key, of course, is to be able to do it profitably and to do it in a production rate that makes sense for our businesses. That's, you know, in space, that is always the challenge. So at this point, I would say in terms of your question on trends, then, trends overall, I would expect to see more of these smaller or startup businesses addressing newer parts of the market. Hopefully, that gives us some more opportunity on some of our higher-end products in particular.
Where we're not interested really in going of the market just to capture sales.
Great. Thank you very much, and I hope you guys have a great holiday.
You're welcome.
Thank you, and you too.
Thank you.
Thank you. The next one, we have the line of Robert Stallard with Vertical Research. Please go ahead.
Thanks so much. Good morning.
Good morning.
Good morning, Robert.
Maybe we should go back to the market share situation. I was wondering if there was any particular product areas or aircraft types where you're seeing more success than others.
I would say that it really is pretty much across the board, Rob. You know, we're seeing it in all of our traditional and historic markets. I would just say that it's very broad-based. As you know, we're reluctant to go into specifics with regard to customers, geography, product types. You know, as we've got competitors on the call, and you know, I'm sure you and our investors recognize and appreciate that. It is very broad-based. I would say it's across all of our product types and really in all geographies.
Okay. On the M&A pipeline, I was wondering if there's any weighting on the Flight Support Group versus the electronics, or are they both seeing a lot of interest?
I think they're both very strong. Both businesses are very strong. We're very busy in each area. You know, fortunately, HEICO's got the firepower where we can afford to deploy capital in both, so it's not mutually exclusive. It's really more opportunistic.
Okay. That's great. Thank you very much.
Thank you.
Thank you. The next one we have Kenneth Herbert with RBC Capital Markets. Please go ahead.
Yes. Hi, good morning, everybody.
Good morning.
Hey, Eric. I wanted to start with you first. I wanted to follow up on the comments and everything we're seeing regarding the faster recovery for domestic travel versus international travel. Is it fair to say that when you look at your airline customers here in the United States or North America and Europe, that their maintenance spending with you for their domestic fleet in 2022, your fiscal 2022, can be back to sort of pre-COVID levels? I mean, how do we think about the business recovery for you and the timing for, you know, predominantly the narrow body versus wide body or domestic versus international fleets?
Yeah. Great question, Ken. I would say, you know, I don't think it's likely that the domestic narrow body will be back to 2019 levels in 2022. You know, if it is, I think it's more towards the end of 2022. We're doing extremely well, but I wanna be really careful to, you know, not get ahead of ourselves here. You know, there are certain fleets that have been retired, so that's going to be a bit of a headwind. So, you know, maybe if it happens, it's by the end of the year. But it certainly. You know, I'm at this point not anticipating that the domestic narrow body would be back to levels that it was at in 2019.
You know, I think 2023 is probably a more reasonable guess. You know, I think we've gotta be conservative, I mean, with regard to Omicron and, you know, who knows what comes next. You know, we're assuming that this virus is gonna be here for a while, and everybody's gonna have to live with it. I think that's probably a more prudent thing. In terms of the international, you know, Asia is still very low. Europe is, you know, likewise also, you know, struggling more so than the North American market. I do think that we've got a good upside potential in those markets.
Okay, thanks for the detail there. I wanted to ask about your cargo exposure. I mean, air cargo's clearly been very strong obviously through this downturn. You know, the cargo fleet tends to be older, tends to represent, you know, roughly sort of 10% of the total fleet, for the larger aircraft. How is your cargo exposure, and can you comment about, you know, if that's maybe a nice opportunity where you're seeing greater growth, or how do we think about you relative to the cargo markets?
Yeah, another great question. We're doing very well in the cargo markets, very strong. For all of the obvious reasons, we anticipate that is going to continue. The cargo market should continue to stay strong as a result of all the questions going on out there. We've got very good relationships with those customers, where we offer a very broad product line. I have to say, I feel really good about the cargo markets.
If you have any friends that are
Okay. If Ken-
If you have any friends that are running those cargo companies, make sure they know that they can save a lot of money with HEICO, and that if you wanna still get free delivery with your purchases, they should come look to HEICO for some solutions.
Absolutely.
I'll definitely pass it on. If I could, just one final question for you, Eric. Obviously the trend line would imply that you sort of get back to 20% EBIT margins at some point in fiscal 2022, just looking at the strong performance of the business. Is there any reason at some point this year you don't hit that level, or are there other maybe headwinds we should keep in mind as we think about sort of modeling out segment margins for you?
Ken, it's Carlos. Let me take that one. As we're sitting here today, other than time, there's no real headwind that I see. I mean, all three of the product divisions, if you would, within flight support, are doing quite nicely, as Eric said. You know, the specialty products group is lagging a bit for the OEM cycle. I do think that once we get back to the 2019 levels, and then the key is back to the 2019 levels. Once we get to that point, we ought to start approaching that 20% margin. As Eric just mentioned, we're not real sure if we're gonna see that in 2022. Once we do, I feel very strongly that we ought to be at those levels.
It's a timing issue, Ken, not an impediment to getting there. It's just time.
Perfect. Thanks, Carlos. Nice quarter. Thanks, guys.
Thanks, Ken.
Thanks, Ken.
Thank you. The next one we have the line of Michael Ciarmoli with Truist Securities. Please go ahead.
Hey, good morning, guys. Nice results, and thanks for taking the questions. Maybe Eric or Carlos, just to stay on Ken's line of questioning there on the domestic versus international. You know, I think, Carlos, you may have mentioned or maybe it's come up that possibly you could exit, you know, fiscal 2022 here in FSG at somewhere close to that quarterly run rate. If we think about international where, you know, I think we're still down 30% on takeoffs and landings, and, you know, Omicron is gonna have an impact. Do you need that international and that wide body activity and, you know, your customers to start spending on our wide body fleet to get back to that quarterly run rate in 2019 in FSG?
Yeah. I think that would be a reasonable expectation. I mean, we anticipate the wide body and the international markets are gonna come back, and they're gonna come back with a vengeance. So I think we're gonna do very well. You know, to be honest with you, we have not modeled a bifurcated recovery and figuring out all the combinations and permutations of the recovery. We feel strongly. We know that it is gonna come back. It is an important market for us. You know, and I think we're gonna do very well.
We continue to develop product for it, so if that gives you any, you know, a feeling of our confidence in it, you know, we're still very confident in it.
Of course, I would say, Michael.
Did you think-
I would also-
Yeah. Go ahead, Carlos.
I guess I would just add to that I am feeling very good about our market share gains in the segment. I think that our sales folks have done a good job of going out and being accessible to our customers, finding new product, helping them find new product that will help them be more successful. So that's a bit of a wild card because I can't quantify it for you, but it's something that we're seeing. That could be additive, which, you know, could get us there, could get us there a little sooner.
Got it. Eric, are you hearing anything from your customers? I mean, sure, as we sit here today and Omicron, but, you know, obviously these airlines are thinking six, seven, eight months ahead. I mean, do you think there's a scenario where they start to really prep the wide body fleet for a heavier summer travel season in international markets? and could that be a significant tailwind maybe as, you know, soon as late 1Q and then into the second quarter where you really see a lot of that prep work being done?
Yeah. I think that's entirely possible. You know, my feeling is people are gonna travel next summer regardless of Omicron. Yes, I think that is reasonable.
Okay.
They definitely are going to prepare in advance.
Got it. I'll just try one on some of the new product development. We're gonna start seeing some of the LEAP engines, GTFs start to come in for shop visits. Do you guys have content on those platforms? Should we expect that could be sort of accretive business to you as those engines start coming in?
Yeah. Normally, as you know, we don't develop products. You know, we don't have significant sales of products this soon in the life cycle. You know, we don't like to comment on specific products. Normally, you know, this is soon in the life cycle. That would not be something of material.
Okay. Got it. All right, guys. Thanks a lot. I'll jump back in the queue.
Thank you.
Thank you. We have the line of Gautam Khanna with Cowen. Your line is open.
Hey, good morning, guys. How are you doing?
Good morning.
Good morning.
How are you today?
Doing well. Thanks. Happy holidays in advance.
Likewise.
wanted to thank you. Just wanted to follow up on a couple questions that have been asked. Any sense for? Well, first of all, within the sub-segments at FSG, I don't know if you covered this, but kind of the relative sequential growth, so by PMA, you know, aftermarket parts versus R&O, repair, component repair versus specialized products, how do those differ, if at all? And what are you seeing kind of, you know, where do you have better visibility of how trends are moving into the next quarter or two? Is R&O picking up or what can you say? Thanks.
I guess if you're talking about the recent quarter sort of trends or where things are pointing, you know, it's coming off a pretty weak Q4 2020, but the growth has been very strong in our parts, our distribution, and our repair. They have grown in tandem. You know, one quarter, one is a little more strong, and then next quarter it flips. But the trend in those two businesses are very similar, and it's very strong. They're coming back. Eric mentioned earlier that, you know, specialty products, which houses some defense and a lot of our OEM business within the Flight Support Group.
That business is doing quite nicely. We had a nice organic growth in Q4. I'd say for the year, it's lagged a little for the reasons that Eric gave. You know, I think that business generally is tied to the new build activity and how those tier ones are purchasing to go into the big guys, the Boeings and Airbus, and that has been softer. To Eric's point earlier, that is the part of the FSG that I think we'll see some improvement in in 2022 on top of all of the continued growth and strength within the parts and repair business. Does that help, Gautam?
Yeah, it does. Just to be a finer point on it, sequentially, did component repair kind of track that of the aftermarket parts?
Yeah.
For the sequential
Yes.
Okay.
Yes.
That's good to see. All right. Just switching to M&A, you mentioned the pipeline is pretty busy these days. Anything promising that might be more consequential from a size perspective, or do you kind of anticipate it's gonna be still kind of like last year, the last two years where it's been more, smaller tuck-ins? Or are you seeing bigger opportunities?
We look at opportunities of all size. We are looking at a variety of sizes now. You know, it really remains to be seen which ones. Of course, we have to be careful, frankly, at this point because who we're talking with, we don't want anybody on this call to start figuring out that kind of thing. Suffice it to say that we'll continue to look at transactions that are small ones and in the hundreds of millions and frankly, even in the billions. Although, again, our criteria remains the same for the acquisition. We're not going to go buy something just for the sake of putting up revenue that's not accretive. As you know, to us, it's all about the cash generation and net income.
Okay. That's helpful. Maybe one for Eric, just on over the next 12, 18 months, how many new PMA parts do you anticipate adding to the portfolio?
Yeah, it would be consistent with what we've done in the past. You know, we're typically in that 400-500 area per year. I think it's gonna be consistent with that.
Thanks very much, gang.
The number, just so you know, the numbers can go up and down a little bit depending on complexity and the type of product and all that. Obviously, more complex products could take, you know, do take longer, so there would be fewer of them. You know, it moves around in that area.
Terrific. Thanks a lot.
Thanks, Gautam.
Thank you. The next one, we have the line of Noah Poponak with Goldman Sachs.
Hey, good morning, everyone. It's Noah Poponak.
Good morning, Noah.
Nice to hear from you. Where would you pin the likelihood that the cash spent on acquisitions line item on the cash flow statement in fiscal 2022 is the highest number that the company, you know, deployed in a given year in its history?
I'm not sure I understand the question.
I think what Noah's asking is, are we gonna spend more on acquisitions in this one?
The answer is no, we never know. I mean, we're open to making acquisitions, though, and we wanna make very large acquisitions. It all depends on the opportunities. We are an opportunistic acquirer, and we'll spend in the billions, or we'll spend in the hundreds of millions. We really don't know the answer.
I can tell you, we are working very hard, and, you know, we would love nothing more than to be able to deploy more capital in 2022 than we've ever done in any single year.
Yeah.
It's, you know, as Laurans said, to estimate on what's gonna happen, you know, we've got to do our homework, and we're very careful with HEICO's money because, you know, it belongs to the shareholders. Of course, we're, you know, some of the larger shareholders, and we wanna make sure that we're spending people's money correctly. But we're-
Yeah.
We're very much focused, and we would love for it to be the biggest year in our history.
Noah, I think I mentioned before, we are looking at a number of transactions. The problem is we never know until we get to the closing table whether they're really gonna close. We run into due diligence glitches, data glitches where we ask for material. Since we do a very, very thorough due diligence, because again, we're spending, in my mind, we're spending our money, and the shareholders are our partners, and we're spending our money, which is their money, and we don't wanna make mistakes. You know, on the surface.
Yep.
I would say that we've earmarked. Obviously, we have $1.5 billion revolver, unsecured revolver that we can draw on. Of course, the banks have said to us, they will give us many multiples of that should we want it. It's just very hard to tell, but we would like to do it if the deals that are presented to us.
fit in our wheelhouse if they meet the standards. You know the standards we look at are the cash payback in seven-10 years, and, you know, we don't want to pay 14 x EBITDA with pie in the sky in the future and so forth. That strategy has served us very well, and we're gonna continue that strategy. It's really impossible to give you the answer I know you'd want. I'd love to know the answer myself. We're trying to spend as much as will possibly be effective for the HEICO program.
No, and I'm looking for that commentary along the spectrum of possible outcomes. That's everything you guys provided there is super helpful, and I appreciate it. Just one other one for me is back to this conversation around international and corporate travel, since that's, you know, kind of the million-dollar question here for the industry in terms of when that kicks in. I mean, it seems to be very much up to government restrictions and policies on cross-border. I just wondered if you are hearing any light you can help shed here from your teams or your customers on how that plays out. Like, what has to happen? Is it Asia going away from zero COVID? Or are there cross-border, you know, discussions that are taking place with the airlines right now?
Is it just cases? Can you just never know? I mean, just given how obviously close you guys are to the industry, I wondered if there was any, incremental insight you can provide there on how that can actually play out logistically?
Yeah, I think the airlines are very much focused, obviously, on this matter. They want to do everything they possibly can in order to encourage travel and encourage you know, vaccinations and testing and all that stuff. I think they're going to be very flexible. As you know, different governments come out with different requirements, they're going to. They need to be resilient and figure out just how to handle it. I think that-
Okay
The industry is maturing to a point where, you know, we're all prepared for COVID to hang around for a while, and we've just got to do the best we can to really get through this.
Yeah. Yeah
and you know, keep everybody traveling. So they're very, you know, resilient and creative when it comes to that.
It sounds like we're still without a lot of specifics on how cross-border can evolve from here, and you just have to manage the business across, you know, a range of possible outcomes.
Exactly. You got it.
Yeah. Yeah.
Yeah.
All right. Thank you guys so much.
Thanks so much.
Appreciate it.
Thanks so much.
Okay. Thanks.
Thank you. The next question, we have the line of Colin Ducharme with Sterling Capital Management.
Hi. Good morning. Thanks for taking the question. I got a couple for Carlos. Carlos, maybe I'll just start quickly on some of the cash flow deltas. What I'm trying to do here is just link the through-the-windshield demand environment to what you're hearing at the subsidiary level, and then kind of link that to the three kind of deltas on the cash flow statement, AR being one, inventory being two, and then your change in current liabilities being three. You know, can you maybe just anecdotally tell us what you're hearing from the subsidiary level on the increase in AR? I'm assuming that's just increased improved demand environment specifically on the FSG side. Then linking that to your change in current liabilities, is that deferred revenue build mapping to that same trend?
I got a quick follow-up for you.
All right. Well, there's a lot to unpack there. Let me start with receivables. As you pointed out, during the fourth quarter, which receivables for us generally is a function of quarter sales in the FSG were up 34% over 2020. You know, what you're seeing is a little bit of build in receivables to deal or the growth in receivables to deal with that growth in sales, which in my judgment is a good thing. When we look at the quality of those receivables, they're in real good shape. Nothing from the subsidiaries is bubbling up, saying there's any problems there. I'm very pleased with the quality of the receivables. I think the growth is attenuated compared to our revenue growth.
You know, look, the inventory build with with sales increasing, again, you know, inventory to a great extent is also a quarterly function, right? It ebbs and flows kind of in three-month increments. With 20% growth in the overall business, occurring in Q4 on the sales side, you know, the build in inventory of $10 million or whatever it was is not so bad, you know, year-over-year. I was actually quite pleased with that. You know, if you heard earlier on the call, we have encouraged our subsidiaries, if they need to go long on inventory to deal with any potential lead time issues or shortages. I'm actually. You know, the working capital management in that regard, I'm very pleased with.
You know, I think the liabilities that you're pointing out, the current liability trend, remember, in fiscal 2020, the company did not have, in the FSG, any discernible performance-based compensation. You know, there may have been pockets of it, but for the most part, it was not much to zero. This year, what you have, on top of the, what I consider the outstanding performance for the segment, you have bonuses, performance-based pay, plus you have commissions.
That may not have been around last year for sales growth. You have a lot of that selling activity that gets jammed into pools at year-end until you pay it out. A lot of the movement in that caption is performance-based comp related. Does that answer your question?
Okay. Yeah, that's very helpful. I appreciate the detail. I guess a little bit different than what I had, than what I was kind of expecting and mapping out here. Maybe I'll just leave you with a quick follow-up, higher level here, capital structure and just, you know, conservative posture here. You guys are. You have a lot of dry powder, arguably more than you've had in many, many years. You talk about a healthy M&A pipeline. Is that an either/or, meaning the healthy M&A pipeline and the ability to put the balance sheet to work there versus getting more aggressive with perhaps a share repurchase program, something along those lines? You're in an EBITDA growth scenario, you're gonna naturally de-lever in the medium term.
Why not put the balance sheets, you know, a step towards a more aggressive posture, yet still overall, you know, stepping back, be situated very, very conservatively? If you can just speak to capital structure and view on glide path over the medium term. You guys are just very, very under-levered at the moment today here. Thank you.
The answer is we do not work in the short term. HEICO is a long-term, medium, long-term investment. You are correct, we are under-levered, and we understand that. Earlier in the call, I mentioned that there are many acquisitions that are in the pipeline. We're looking at many. We do not hope, and we do not intend to stay under-levered this way. We don't have any thoughts about share purchase, repurchase to shrink the company. We always believed in growing the company, and that's the strategy that we have followed for 31 years, which has resulted in extraordinary growth for the shareholders. We're not gonna change the basic policy, the discipline that we use, and we're not going to shrink the company, shrink the capitalization, to please speculators and traders and everything else.
We're gonna grow this company for long-term shareholders and of which we're probably the largest one, and all the shareholders are our partners, so we feel that it's in the best interest. The other thing is, the response of the shareholder community to our shares at the multiple that it sells at. Apparently, I believe, and after we speak to many of these institutional shareholders, they are very pleased with, you know, that policy. Again, we're gonna stick to it, we're not gonna shrink it, and hopefully we're gonna grow it, aggressively. I hope that answers your question.
Yes, that's very helpful, and I totally respect that posture and the history and all the value you guys have generated. If I, in all due respect, might press on you, Laurans, you know, we're long-term shareholders as well. While we, you know, totally respect that history in the view of not an either/or, but putting a balance sheet to work, without kind of shrinking the company, but thinking in the guise of per share ownership. That's essentially what we're talking about in terms of shrinking the denominator, creating value on a per share basis over time. That would just be a you know, a quick press. Again, I say that with all due respect of all the strategy and value that you've created. Thank you.
Okay.
We hear you, and look, you know, we're always running all sorts of scenarios. We look at everything. I can promise you we're very, very thorough in our analysis, but, you know, very optimistic on acquisitions at the moment.
Thank you. Again, as a reminder, if you would like to ask a question, simply press star one on your telephone keypad. We have our next question from the line of Louis Raffetto with UBS. Your line's open.
Hey, good morning, guys.
Good morning.
Good morning.
I wanna sort of come back to this M&A from two points. First, can I just confirm, it looks like for 2021, acquired sales is about $70 million. As we look at 2022, based on what's already closed, is it gonna be sort of about that, maybe a little bit less?
You're asking what the acquired sales are for the year, Louis?
Yes. I think 2021 was about $70 million, and I think based on what you've already completed, not what you might or might not complete, just again, it looks like maybe it'll be a little bit less than that already for 2022.
You're right on the number, and I think that if things go according to plan, we would hope to have more. Again, what we've been saying is we plan on deploying capital and we plan on acquiring, so hopefully we can do that and have larger acquired sales next year.
Oh, that's fine. I mean, I'm just looking for what's done because to your... You know, to Laurans point, you don't know when you'll be able to close things. If we sort of do step to that side of the M&A, side. For the deals that you haven't been able to, you know, to sort of complete, what has been at the end of the day, is it just that the due diligence comes back? Is it somebody else outbids you? Any color you can provide there?
There are all kinds of reasons for this, Louis. We can't give you one single reason. Lots of different things happen. Things you discover in due diligence terms, all kinds of reasons.
Business can change.
Business can change.
There can be regulatory things like that.
Their projections. All kinds of things that happen.
I can say this, we don't have many. It's very few that we get to serious due diligence and contract negotiations that don't close. That's pretty rare for us, not unheard of. Once we usually get to a certain point, the deals tend to close.
Okay, great. That's awesome, Eric. Thank you. Carlos, just one for you around cash flow. Obviously cash flow in fiscal 2021 was actually, I think the highest it's ever been. Understanding you're not giving guidance for 2022, but any reason that it wouldn't necessarily grow in 2022? Any idea around the CapEx? I know you've given. You know, you tend to give that in the past.
You know, we like to grow the company every year 15%-20% in normal times. Next to that would be growth in operating cash flow. We really don't want to have earnings and no cash flow, right? That growth we like to see work in tandem, you know, which is a function of good management on the working capital side, right? That all that net income earning falls to cash in the cash provided by operating activity. I would expect that to continue, Louis. In my judgment right now, there's no impediments to that occurring next year. What was your second part?
Oh, just around CapEx next year. You know, in the past you have at least. I mean, are we-
Right.
This year was up a little bit, but.
Yeah, you know, we just finished our CapEx budget so long ago. I think we could be somewhere around $45 million next year. It's kinda my guess right now. You know, that could ebb and flow, but that's kind of the peg we have in the ground at the moment.
All right, great. Thank you very much.
You're welcome.
Thank you. The next one, we have the line of Sheila Kahyaoglu with Jefferies. Please go ahead.
Hey, guys. Thank you for the time. Maybe two for Eric, if that's okay.
Sure.
Eric, I think we talked about ETG pricing a little bit in the beginning of the call. I was wondering about FSG. You know, you tend to keep a 40%-50% discount. Just given, you know, I'm guessing suppliers and OEMs are raising their prices. How are you thinking about price? You know, how are you gauging that, especially I'm sure you're seeing cost headwinds and labor headwinds as well. If you could just talk about the pricing environment.
Yeah. A great question, Sheila. Yes, we are seeing, you know, cost pressures. We are very focused to make sure we maintain our margins. I think we're going to move along with the industry, and we're gonna do what the industry does. You know, but clearly it's our intention to pass along those increases as long as they exist. You know, we don't wanna take advantage of our customers, but we need to make sure that we get our, you know, whatever cost increases we've had passed on. Sometimes there can be a little lag if there's a contract. However, you know, it's totally our intention to move along with the industry.
Okay. Maybe just one on Omicron and, like, this last variant. You guys have been through two variants now. How do you guys think about, like, the peak of, you know, whatever, cases versus your revenues? Like, do you guys see any changes in airline behavior? You know, how does that work for you guys?
Yeah. I mean, we haven't thus far. You know, there's natural variation, so you know, in the day-to-day ordering patterns, so it's hard to see. I mean, look, our sales and bookings have been extraordinarily strong. I think it is reasonable to assume that Omicron is going to impact us, and it really depends on you know, the severity of the cases as well as the transmissiveness of the variant. We're watching it closely. We're not changing any of our business practices as a result of it. We're making sure that we've got the parts on the shelf. You know, we assume that it will hit different regions at different times, and it will sort of spread around the world.
It's nice to see that there have been a number of therapeutics that have been developed to be able to assist, you know, and complement the vaccines. I don't think anybody anticipates that this is going to be a showstopper or as dramatic as Delta or, you know, other variants were. It's just something that we're gonna have to live with. We're just gonna have to run the business accordingly. We're working through it, and it's not really changing any of our behavior. Fortunately, since we have a very strong balance sheet and, you know, even more importantly, a phenomenal group of people, we're gonna get right through this. It's not causing us to lose any sleep whatsoever.
You know, frankly, the more strain the airlines have, I think the better position HEICO is in to pick up share.
Okay, great. Thanks for that color, Eric. Thank you all.
Thanks, Sheila.
Thanks, Sheila.
Thank you. We don't have any further questions at this time. Presenters, please continue.
This is Laurans Mendelson again. I wanna thank everybody on this call for your interest in HEICO, and we appreciate it. We are available to answer questions. You can call Victor, Eric, Carlos, myself. We look forward to the next call, which will be, I guess, in-
End of February.
End of February for the first quarter of 2022, fiscal 2022. I wish everybody a very happy and healthy holiday season. Good health. Stay healthy. Stay away from COVID. We will speak to you in late February. Thanks very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.