HEICO CORP (HEI-A)

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.

Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2025. There have been no material changes to our critical accounting policies during the six months ended April 30, 2026.

Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.

Our results of operations for the six and three months ended April 30, 2026 have been affected by the fiscal 2025 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2025 and the fiscal 2026 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to the Condensed Consolidated Financial Statements of this quarterly report.

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Results of Operations

The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):

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Comparison of First Six Months of Fiscal 2026 to First Six Months of Fiscal 2025

Net Sales

Our consolidated net sales in the first six months of fiscal 2026 increased by 20% to a record $2,554.3 million, up from net sales of $2,128.0 million in the first six months of fiscal 2025. The increase in consolidated net sales principally reflects an increase of $269.2 million (an 18% increase) to a record $1,749.4 million in net sales of the FSG and an increase of $157.7 million (a 23% increase) to a record $830.2 million in net sales of the ETG. The net sales increase in the FSG reflects robust organic growth of 16% and net sales of $36.1 million contributed by fiscal 2025 and 2026 acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines resulting in net sales increases of $161.9 million, $40.3 million, and $30.5 million, respectively. The net sales increase in the ETG reflects very strong organic growth of 12% and net sales of $79.8 million contributed by fiscal 2025 and 2026 acquisitions. The ETG's organic net sales growth is mainly attributable to increased demand for its other electronics, aerospace, and defense products resulting in net sales increases of $30.7 million, $21.8 million, and $19.9 million, respectively. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first six months of fiscal 2026.

Gross Profit and Operating Expenses

Our consolidated gross profit margin improved to 40.1% in the first six months of fiscal 2026, up from 39.6% in the first six months of fiscal 2025, principally reflecting a .6% increase in the FSG’s gross profit margin. The increase in the FSG's gross profit margin principally reflects a more favorable product mix within its aftermarket replacement parts product line. Total new product research and development expenses included within our consolidated cost of sales were $68.4 million in the first six months of fiscal 2026, up from $56.3 million in the first six months of fiscal 2025.

Our consolidated selling, general and administrative ("SG&A") expenses were $414.2 million in the first six months of fiscal 2026, as compared to $368.5 million in the first six months of fiscal 2025. The increase in consolidated SG&A expenses reflects $19.3 million attributable to our fiscal 2025 and 2026 acquisitions, an $11.3 million increase in share-based compensation expense, and costs incurred to support the previously mentioned net sales growth, which resulted in increases of $11.8 million and $3.2 million in other selling expenses and other general and administrative expenses, respectively.

Our consolidated SG&A expenses as a percentage of net sales improved to 16.2% in the first six months of fiscal 2026, down from 17.3% in the first six months of fiscal 2025. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth.

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Operating Income

Our consolidated operating income increased by 29% to a record $610.3 million in the first six months of fiscal 2026, up from $475.0 million in the first six months of fiscal 2025. The increase in consolidated operating income principally reflects a $92.7 million increase (a 26% increase) to a record $443.8 million in operating income of the FSG and a $40.7 million increase (a 26% increase) to a record $195.1 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and the previously mentioned improved gross profit margin. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and SG&A expense efficiencies realized from the net sales growth.

Our consolidated operating income as a percentage of net sales improved to 23.9% in the first six months of fiscal 2026, up from 22.3% in the first six months of fiscal 2025. The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the FSG’s operating income as a percentage of net sales to 25.4% in the first six months of fiscal 2026, up from 23.7% in the first six months of fiscal 2025, and an increase in the ETG's operating income as a percentage of net sales to 23.5% in the first six months of fiscal 2026, up from 23.0% in the first six months of fiscal 2025. The increase in the FSG's operating income as a percentage of net sales reflects a 1.1% impact from a decrease in SG&A expenses as a percentage of net sales, mainly due to the previously mentioned SG&A expense efficiencies and the previously mentioned improved gross profit margin. The increase in the ETG's operating income as a percentage of net sales principally reflects the previously mentioned SG&A expense efficiencies.

Interest Expense

Interest expense decreased to $63.6 million in the first six months of fiscal 2026, down from $65.3 million in the first six months of fiscal 2025. The decrease in interest expense was principally due to a lower weighted-average interest rate on outstanding borrowings under our revolving credit facility, partially offset by an increase in the amount of debt outstanding.

Other Income

Other income in the first six months of fiscal 2026 and 2025 was not material.

Income Tax Expense

Our effective tax rate was 17.1% in the first six months of fiscal 2026, as compared to 14.4% in the first six months of fiscal 2025. The increase in our effective tax rate principally reflects a smaller tax benefit from stock option exercises recognized in the first quarter of fiscal 2026. We recognized a discrete tax benefit from stock option exercises in the first quarter of fiscal 2026 and 2025 of $22.3 million and $27.2 million, respectively.

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Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $31.1 million in the first six months of fiscal 2026, as compared to $27.3 million in the first six months of fiscal 2025. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries in which noncontrolling interests are held.

Net Income Attributable to HEICO

Net income attributable to HEICO increased by 31% to a record $424.0 million, or $3.01 per diluted share, in the first six months of fiscal 2026, up from $324.7 million, or $2.31 per diluted share, in the first six months of fiscal 2025, principally reflecting the previously mentioned higher consolidated operating income.

Comparison of Second Quarter of Fiscal 2026 to Second Quarter of Fiscal 2025

Net Sales

Our consolidated net sales in the second quarter of fiscal 2026 increased by 25% to a record $1,375.7 million, up from net sales of $1,097.8 million in the second quarter of fiscal 2025. The increase in consolidated net sales principally reflects an increase of $162.4 million (a 21% increase) to a record $929.4 million in net sales of the FSG and an increase of $117.4 million (a 34%

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Item 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our business is comprised of two operating segments, the Flight Support Group (“FSG”) and the Electronic Technologies Group (“ETG”).

The FSG consists of HEICO Aerospace Holdings Corp. (“HEICO Aerospace”), which is 80% owned, and HEICO Flight Support Corp., which is wholly owned, and their collective subsidiaries, which primarily:

•Designs, Manufactures, Repairs, Overhauls and Distributes Jet Engine and Aircraft Component Replacement Parts. The FSG designs and manufactures jet engine and aircraft component replacement parts, which are approved by the Federal Aviation Administration (“FAA”). In addition, the FSG repairs, overhauls and distributes jet engine and aircraft components, avionics and instruments for domestic and foreign commercial air carriers and aircraft repair companies as well as military and business aircraft operators. The FSG also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the United States ("U.S.") government. Additionally, the FSG is a leading supplier, distributor, and integrator of military aircraft parts and support services primarily to the U.S. Department of Defense, defense prime contractors, and foreign military organizations allied with the U.S. Further, the FSG is a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation, defense and space applications. The FSG also engineers, designs and manufactures thermal insulation blankets and parts as well as removable/reusable insulation systems for aerospace, defense, commercial and industrial applications; manufactures expanded foil mesh for lightning strike protection in fixed and rotary wing aircraft; distributes aviation electrical interconnect products and electromechanical parts; overhauls industrial pumps, motors, and other hydraulic units with a focus on the support of legacy systems for the U.S. Navy; performs tight-tolerance machining, brazing, fabricating and welding services for aerospace, defense and other industrial applications; and manufactures emergency descent devices ("EDDs") and personnel and cargo parachute products.

The ETG consists of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its subsidiaries, which primarily:

•Designs and Manufactures Electronic, Microwave, Electro-Optical and Other Power Equipment, High-Speed Interface Products, High Voltage Interconnection Devices, EMI

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and RFI Shielding and Filters, High Voltage Advanced Power Electronics, Power Conversion Products, Underwater Locator Beacons, Memory Products, Self-Sealing Auxiliary Fuel Systems, Active Antenna Systems, Airborne Antennas, TSCM Equipment, High Reliability ("Hi-Rel") Electronic Components, In-Flight Entertainment Products, and Cockpit displays and Other Avionics Components. The ETG collectively designs, manufactures and sells various types of electronic, data and microwave, and electro-optical products, including infrared simulation and test equipment, laser rangefinder receivers, electrical power supplies, back-up power supplies, power conversion products, underwater locator beacons, emergency locator transmission beacons, flight deck annunciators, panels, indicators, electromagnetic and radio frequency interference shielding and filters, high power capacitor charging power supplies, amplifiers, traveling wave tube amplifiers, photodetectors, amplifier modules, microwave power modules, flash lamp drivers, laser diode drivers, arc lamp power supplies, custom power supply designs, cable assemblies, high voltage power supplies, high voltage interconnection devices and wire, high voltage energy generators, high frequency power delivery systems; memory products, including three-dimensional microelectronic and stacked memory, static random-access memory (SRAM) and electronically erasable programmable read-only memory (EEPROM); harsh environment electronic connectors and other interconnect products, RF and microwave amplifiers, transmitters, and receivers and integrated assemblies, sub-assemblies and components; RF sources, detectors and controllers, wireless cabin control systems, solid state power distribution and management systems, proprietary in-cabin power and entertainment components and subsystems, cockpit displays and other avionics components, crashworthy and ballistically self-sealing auxiliary fuel systems, nuclear radiation detectors, communications and electronic intercept receivers and tuners, fuel level sensing systems, high-speed interface products that link devices, high performance active antenna systems and airborne antennas for commercial and military aircraft, precision guided munitions, other defense applications and commercial uses; silicone material for a variety of demanding applications; precision power analog monolithic, hybrid and open frame components; high-reliability ceramic-to-metal feedthroughs and connectors, technical surveillance countermeasures (TSCM) equipment to detect devices used for espionage and information theft; rugged small-form factor embedded computing solutions; custom high power filters and filter assemblies; test sockets and adapters for both engineering and production use of semiconductor devices; radiation assurance services and products; and Hi-Rel, complex, passive electronic components and rotary joint assemblies for mostly aerospace and defense applications, in addition to other high-end applications, such as medical and energy uses including emerging "clean energy" and electrification applications.

Additionally, our results of operations in fiscal 2025 have been affected by recent acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements.

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Presentation of Results of Operations and Liquidity and Capital Resources

The following discussion and analysis of our Results of Operations and Liquidity and Capital Resources includes a comparison of fiscal 2025 to fiscal 2024. A similar discussion and analysis that compares fiscal 2024 to fiscal 2023 may be found in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Form 10-K for the fiscal year ended October 31, 2024.

Results of Operations

The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Consolidated Statements of Operations (in thousands):

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Comparison of Fiscal 2025 to Fiscal 2024

Net Sales

Our consolidated net sales in fiscal 2025 increased by 16% to a record $4,485.0 million, up from net sales of $3,857.7 million in fiscal 2024. The increase in consolidated net sales principally reflects an increase of $477.9 million (an 18% increase) to a record $3,117.3 million in net sales of the FSG and an increase of $149.5 million (a 12% increase) to a record $1,413.1 million in net sales of the ETG. The net sales increase in the FSG reflects strong organic growth of 14% and net sales of $110.6 million contributed by fiscal 2025 and 2024 acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines resulting in net sales increases of $263.9 million, $67.8 million and $35.6 million, respectively. The net sales increase in the ETG reflects strong organic growth of 7% and net sales of $63.9 million contributed by fiscal 2025 and 2024 acquisitions. The ETG's organic net sales growth is mainly attributable to increased demand for its defense, space, other electronics, and aerospace products resulting in net sales increases of $29.6 million, $28.4 million, $20.6 million, and $16.2 million, respectively, partially offset by decreased demand for its medical products resulting in a net sales decrease of $9.4 million. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in fiscal 2025.

Our net sales in fiscal 2025 and 2024 by market consisted of approximately 58% and 56% from the commercial aviation industry, respectively, 31% and 32% from the defense and space industries, respectively, and 11% and 12% from other industrial markets including electronics, medical and telecommunications, respectively.

Gross Profit and Operating Expenses

Our consolidated gross profit margin improved to 39.8% in fiscal 2025, up from 38.9% in fiscal 2024, principally reflecting a 1.5% increase in the FSG's gross profit margin. The increase in the FSG's gross profit margin principally reflects the previously mentioned net sales growth within its repair and overhaul parts and services product line and a more favorable product mix within the specialty products product line. Total new product research and development expenses included within our consolidated cost of sales were $120.9 million in fiscal 2025, up from $111.3 million in fiscal 2024.

Our consolidated selling, general and administrative ("SG&A") expenses were $767.5 million in fiscal 2025, as compared to $677.3 million in fiscal 2024. The increase in consolidated SG&A expenses principally reflects $31.0 million attributable to our fiscal 2025 and 2024 acquisitions, $22.8 million due to changes in the estimated fair value of accrued contingent consideration, $17.5 million of higher other selling expenses, and a $15.6 million increase in share-based compensation expense.

Our consolidated SG&A expenses as a percentage of net sales improved to 17.1% in fiscal 2025, down from 17.6% in fiscal 2024. The decrease in consolidated SG&A expenses as a

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percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth, partially offset by a .5% impact from the previously mentioned changes in the estimated fair value of accrued contingent consideration.

Operating Income

Our consolidated operating income increased by 24% to a record $1,019.0 million in fiscal 2025, up from $824.5 million in fiscal 2024. The increase in consolidated operating income principally reflects a $157.3 million increase (a 27% increase) to a record $750.4 million in operating income of the FSG and a $36.8 million increase (a 13% increase) to a record $325.0 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth,

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