HEICO CORP (HEI-A) FY 2024 MD&A

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 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 and High Reliability ("Hi-Rel") Electronic Components. The ETG collectively designs, manufactures and sells various types of electronic, data and microwave, and electro-optical

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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 and 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, 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, and 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 2024 have been affected by recent acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements.

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 2024 to fiscal 2023. A similar discussion and analysis that compares fiscal 2023 to fiscal 2022 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, 2023.

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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 Consolidated Statements of Operations (in thousands):

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Comparison of Fiscal 2024 to Fiscal 2023

Net Sales

Our consolidated net sales in fiscal 2024 increased by 30% to a record $3,857.7 million, up from net sales of $2,968.1 million in fiscal 2023. The increase in consolidated net sales principally reflects an increase of $869.2 million (a 49% increase) to a record $2,639.4 million in net sales of the FSG and an increase of $38.4 million (a 3% increase) to a record $1,263.6 million in net sales of the ETG. The net sales increase in the FSG reflects $643.5 million contributed by fiscal 2023 and 2024 acquisitions as well as strong organic growth of 13%. 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 $172.1 million, $33.5 million and $20.1 million, respectively. The net sales increase in the ETG includes $40.7 million contributed by fiscal 2023 and 2024 acquisitions, partially offset by a 2% organic net sales decline. The ETG's organic net sales decline is mainly attributable to decreased demand for its other electronics and medical products resulting in net sales decreases of $45.0 million and $14.0 million, respectively, partially offset by increased demand for its defense and aerospace products resulting in net sales increases of $24.4 million and $12.9 million, respectively. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in fiscal 2024.

Our net sales in fiscal 2024 and 2023 by market consisted of approximately 56% and 48% from the commercial aviation industry, respectively, 32% and 35% from the defense and space industries, respectively, and 12% and 17% from other industrial markets including electronics, medical and telecommunications, respectively.

Gross Profit and Operating Expenses

Our consolidated gross profit margin was 38.9% in both fiscal 2024 and 2023 and reflects increases of .5% in both the FSG’s and ETG’s gross profit margin. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines. The increase in the ETG's gross profit margin principally reflects the previously mentioned higher net sales of defense and aerospace products, partially offset by the previously mentioned decrease in net sales of other electronics and medical products. Total new product research and development expenses included within our consolidated cost of sales were $111.3 million in fiscal 2024, up from $95.8 million in fiscal 2023.

Our consolidated selling, general and administrative ("SG&A") expenses were $677.3 million in fiscal 2024, as compared to $528.1 million in fiscal 2023. The increase in consolidated SG&A expenses principally reflects $118.4 million attributable to our fiscal 2023 and 2024 acquisitions, inclusive of $32.9 million of intangible asset amortization expense. Additionally, the increase in consolidated SG&A expenses includes costs incurred to support the previously mentioned net sales growth resulting in increases of $23.7 million and $10.2 million in other general and administrative expenses and other selling expenses, respectively, a $9.1

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million prior year impact from the amendment and termination of a contingent consideration agreement pertaining to a fiscal 2021 acquisition and a $7.6 million increase in performance-based compensation expense, partially offset by a $19.8 million decrease in acquisition costs.

Our consolidated SG&A expenses as a percentage of net sales decreased to 17.6% in fiscal 2024, down from 17.8% in fiscal 2023. The decrease in consolidated SG&A expenses as a percentage of net sales principally reflects a .7% impact from the previously mentioned lower acquisition costs, partially offset by a .3% impact from both the previously mentioned higher intangible asset amortization expense and amendment and termination of a contingent consideration agreement.

Operating Income

Our consolidated operating income increased by 32% to a record $824.5 million in fiscal 2024, up from $625.3 million in fiscal 2023. The increase in consolidated operating income principally reflects a $205.8 million increase (a 53% increase) to a record $593.1 million in operating income of the FSG and a $3.1 million increase (a 1% increase) to a record $288.2 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, a $15.0 million decrease in acquisition costs and the previously mentioned improved gross profit margin, partially offset by a $36.6 million increase in intangible asset amortization expense, a $15.9 million increase in performance-based compensation expense and a $9.1 million prior year impact from the previously mentioned termination of a contingent consideration agreement. The increase in operating income of the ETG principally reflects the previously mentioned net sales growth and improved gross profit margin, partially offset by a lower level of SG&A efficiencies.

Our consolidated operating income as a percentage of net sales improved to 21.4% in fiscal 2024, up from 21.1% in fiscal 2023. 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 22.5% in fiscal 2024, up from 21.9% in fiscal 2023, partially offset by a decrease in the ETG's operating income as a percentage of net sales to 22.8% in fiscal 2024, as compared to 23.3% in fiscal 2023. The increase in the FSG’s operating income as a percentage of net sales principally reflects a .9% impact from lower acquisition costs, a .5% impact from the previously mentioned improved gross profit margin and a .4% impact from lower performance-based compensation expense as a percentage of net sales, partially offset by a .7% impact from the previously mentioned higher intangible asset amortization expense and a .5% prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement. The decrease in the ETG's operating income as a percentage of net sales principally reflects a 1.0% impact from an increase in SG&A expenses as a percentage of net sales principally reflecting the previously mentioned lower level of efficiencies, which was partially offset by the previously mentioned improved gross profit margin.

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Interest Expense

Interest expense increased to $149.3 million in fiscal 2024, as compared to $73.0 million in fiscal 2023. The increase in interest expense was principally due to an increase in the amount of outstanding debt related to fiscal 2023 acquisitions.

Other Income

Other income in fiscal 2024 and 2023 was not material.

Income Tax Expense

Our effective tax rate decreased to 17.5% in fiscal 2024, down from 20.0% in fiscal 2023. The decrease in our effective tax rate reflects a larger tax benefit from stock option exercises recognized in the first quarter of fiscal 2024. We recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2024 and 2023 of $13.6 million and $6.2 million, respectively. Additionally, the decrease in our effective tax rate reflects a larger favorable impact from tax-exempt unrealized gains in the cash surrender values of life insurance policies related to the HEICO Leadership Compensation Plan (the “LCP”) in fiscal 2024, net of the nondeductible portion of the related gains in the LCP accounts of certain executive officers, as well as increased foreign-derived intangible income, which is subject to a lower tax rate.

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 $45.0 million in fiscal 2024, as compared to $40.8 million in fiscal 2023. The increase in net income attributable to noncontrolling interests principally reflects improved operating results of certain subsidiaries of the FSG and ETG in which noncontrolling interests are held.

Net Income Attributable to HEICO

Net income attributable to HEICO increased by 27% to a record $514.1 million, or $3.67 per diluted share, in fiscal 2024, up from $403.6 million, or $2.91 per diluted share, in fiscal 2023 principally reflecting the previously mentioned higher consolidated operating income, partially offset by the previously mentioned higher interest expense.

Outlook

As we look ahead to fiscal 2025, we anticipate net sales growth in both the FSG and ETG, driven primarily by organic growth supported by strong demand for the majority of our products. Additionally, we plan to drive growth through our recently completed acquisitions while positioning ourselves to capitalize on potential opportunities from future acquisitions. Our

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priorities include advancing the development of new products and services, further expanding market penetration, and maintaining our financial strength and flexibility, all with a strong emphasis on delivering long-term value to our shareholders.

Inflation

We have generally experienced increases in our costs of labor, materials and services consistent with overall rates of inflation. The impact of such increases on net income attributable to HEICO has been generally minimized by efforts to lower costs through manufacturing efficiencies and cost reductions as well as selective price increases.

Liquidity and Capital Resources

The following table summarizes our capitalization (in thousands):

Our principal uses of cash include acquisitions, capital expenditures, interest payments, cash dividends, distributions to noncontrolling interests and working capital needs. Capital expenditures in fiscal 2025 are anticipated to be approximately $65 to $70 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility.

As of December 18, 2024, we had approximately $995 million of unused committed availability under the terms of our revolving credit facility. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months.

Operating Activities

Net cash provided by operating activities was $672.4 million in fiscal 2024 and consisted primarily of net income from consolidated operations of $559.1 million, depreciation and amortization expense of $175.3 million (a non-cash item), net changes of $53.5 million included in the "Other" caption (principally the receipt of advance deposits on certain long-term customer contracts), net changes in other long-term liabilities and assets related to the HEICO Corporation Leadership Compensation Plan (the "LCP") of $21.6 million (principally participant deferrals and employer contributions), and $7.5 million of intangible asset impairment expense (a non-

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cash item), partially offset by a $143.0 million increase in net working capital. The increase in net working capital principally reflects a $132.9 million increase in inventories to support an increase in consolidated backlog.

Net cash provided by operating activities increased by $223.6 million (a 50% increase) in fiscal 2024, up from $448.7 million in fiscal 2023. The increase is principally attributable to a $114.7 million increase in net income from consolidated operations, a $63.5 million increase in the "Other" caption mainly from the previously mentioned receipt of advance long-term customer deposits in fiscal 2024, a $45.3 million increase in depreciation and amortization expense, a $9.1 million prior year impact from the amendment and termination of a contingent consideration agreement, an $8.1 million increase in net changes in other long-term liabilities and assets related to the LCP and a $7.5 million impact from intangible asset impairment expense, partially offset by a $25.6 million increase in net working capital mainly reflecting a $50.5 million increase in accrued expenses and other current liabilities and a $28.6 million increase in prepaid expenses and other current assets partially offset by a $44.8 million decrease in accounts receivable.

Net cash provided by operating activities was $448.7 million in fiscal 2023 and consisted primarily of net income from consolidated operations of $444.4 million, depreciation and amortization expense of $130.0 million (a non-cash item), $15.5 million in share-based compensation expense (a non-cash item) and $15.3 million in employer contributions to the HEICO Savings and Investment Plan (a non-cash item), partially offset by a $117.4 million increase in net working capital, a $26.5 million deferred income tax benefit (a non-cash item), and a $9.1 million impact from the amendment and termination of a contingent consideration agreement (a non-cash item). The increase in net working capital is inclusive of a $124.8 million increase in inventories to support an increase in consolidated backlog and a $65.6 million increase in accounts receivable resulting from the previously mentioned higher net sales and the timing of collections, partially offset by a $72.6 million increase in accrued expenses and other current liabilities principally from a higher level of accrued performance based-compensation due to the improved operating results and an increase in contract liabilities.

Investing Activities

Net cash used in investing activities totaled $293.2 million in fiscal 2024 and related primarily to acquisitions of $219.3 million, capital expenditures of $58.3 million, and LCP funding of $19.9 million. Further details regarding our acquisitions may be found in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements.

Net cash used in investing activities totaled $2,484.5 million in fiscal 2023 and related primarily to acquisitions of $2,421.8 million, capital expenditures of $49.4 million, and LCP funding of $18.9 million.

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Financing Activities

Net cash used in financing activities in fiscal 2024 totaled $389.4 million. During fiscal 2024, we made $365.0 million of payments on our revolving credit facility and $34.3 million of distributions to noncontrolling interests, redeemed $29.9 million of common stock related to stock option exercises, paid $29.1 million of cash dividends on our common stock and $26.6 million to acquire certain noncontrolling interests, and made $24.8 million of contingent consideration payments and $13.9 million of net payments on short-term debt, partially offset by $130.0 million of borrowings on our revolving credit facility to fund certain fiscal 2024 acquisitions.

Net cash provided by financing activities in fiscal 2023 totaled $2,065.0 million. During fiscal 2023, we borrowed $1,964.0 million under our revolving credit facility and received $1,189.5 million in proceeds from the issuance of senior unsecured notes, which were partially offset by $989.0 million in payments made on our revolving credit facility, $36.6 million of distributions to noncontrolling interests, $27.4 million of cash dividends on our common stock, redemptions of common stock related to stock option exercises aggregating $14.8 million, $12.6 million of contingent consideration payments, and $10.1 million paid of debt issuance costs.

Revolving Credit Facility

In November 2017, we entered into a $1.3 billion Revolving Credit Facility Agreement ("Credit Facility") with a bank syndicate. The Credit Facility may be used to finance acquisitions and for working capital and other general corporate purposes, including capital expenditures. In December 2020, we entered into an amendment to increase the capacity by $200 million to $1.5 billion. In April 2022, we entered into an amendment to extend the maturity date of our Credit Facility by one year to November 2024 and to replace the Eurocurrency Rate with Adjusted Term SOFR as an election in which borrowings under the Credit Facility accrue interest, as such capitalized terms are defined in the Credit Facility. In July 2023, we entered into a third amendment to our Credit Facility, to, among other things, (i) increase the capacity by $500 million to $2.0 billion, (ii) extend the maturity date to July 2028, and (iii) increase the applicable rate with respect to certain total leverage ratio tiers in the pricing grid. The Credit Facility includes a feature that will allow us to increase the capacity by $750 million to become a $2.75 billion facility through increased commitments from existing lenders.

Borrowings under the Credit Facility accrue interest at our election of the Base Rate or Adjusted Term SOFR, plus in each case, the Applicable Rate (based on the Company’s Total Leverage Ratio), as such capitalized terms are defined in the Credit Facility. The Base Rate for any day is a fluctuating rate per annum equal to the highest of (i) the Prime Rate; (ii) the Federal Funds Rate plus .50%; and (iii) Adjusted Term SOFR for an Interest Period of one month plus 100 basis points. Adjusted Term SOFR is the rate per annum equal to Term SOFR plus a Term SOFR Adjustment of .10%; provided that Adjusted Term SOFR as so determined shall never be less than 0%. The Applicable Rate for SOFR Loans ranges from 1.125% to 2.00%. The Applicable Rate for Base Rate Loans ranges from .125% to 1.00%. A fee is charged on the amount of the unused commitment ranging from .15% to .35% (depending on the Company’s

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Total Leverage Ratio). The Credit Facility also includes a $200 million sublimit for swingline borrowings and $100 million sublimits for borrowings made in foreign currencies and for letters of credit. Outstanding principal, accrued and unpaid interest and other amounts payable under the Credit Facility may be accelerated upon an event of default, as such events are described in the Credit Facility. The Credit Facility is unsecured and contains covenants that require, among other things, the maintenance of a Total Leverage Ratio and an Interest Coverage Ratio, as such capitalized terms are defined in the Credit Facility. We were in compliance with all financial and nonfinancial covenants of the Credit Facility as of October 31, 2024.

Senior Unsecured Notes

On July 27, 2023, we completed the public offer and sale of senior unsecured notes, which consisted of $600 million principal amount of 5.25% Senior Notes due August 1, 2028 (the "2028 Notes") and $600 million principal amount of 5.35% Senior Notes due August 1, 2033 (the "2033 Notes" and, collectively with the 2028 Notes, the "Notes"). Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, and commenced on February 1, 2024. The 2028 Notes and 2033 Notes each have an effective interest rate of 5.5%. The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that guarantee our obligations under the Credit Facility (the “Guarantor Group”).

Other Obligations and Commitments

The holders of equity interests in certain of our subsidiaries have rights (“Put Rights”) that require us to provide cash consideration for their equity interests (the “Redemption Amount”) at fair value or at a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. As of October 31, 2024, management’s estimate of the aggregate Redemption Amount of all Put Rights that we could be required to pay is approximately $366.2 million, which is included within redeemable noncontrolling interests in our Consolidated Balance Sheet. The estimated aggregate Redemption Amount of the Put Rights that are currently puttable, previously put, or becoming puttable during fiscal 2025 is approximately $194.2 million, of which approximately $91.0 million would be payable in fiscal 2025 should all of the eligible associated noncontrolling interest holders elect to exercise their Put Rights during fiscal 2025. See Note 13, Redeemable Noncontrolling Interests, of the Notes to Consolidated Financial Statements for further information.

See Note 5, Short-Term and Long-Term Debt, of the Notes to Consolidated Financial Statements for information regarding our long-term debt obligations.

See Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements for information pertaining to contingent consideration obligations. As of October 31, 2024, the estimated fair value of contingent consideration payable in fiscal 2025 was $8.4 million.

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See Note 9, Leases, of the Notes to Consolidated Financial Statements for information pertaining to future minimum lease payments relating to the Company’s operating and finance lease obligations.

Guarantor Group Summarized Financial Information

The Notes were issued pursuant to an Indenture, dated as of July 27, 2023 (the “Base Indenture”), between HEICO and certain of its subsidiaries (collectively, the "Subsidiary Guarantors") and Truist Bank, as trustee (the “Trustee”), as supplemented by a First Supplemental Indenture, dated as of July 27, 2023 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between us, the Subsidiary Guarantors and the Trustee. The Notes are direct, unsecured senior obligations of HEICO and rank equally in right of payment with all of our existing and future senior unsecured indebtedness. Each Subsidiary Guarantor is owned either directly or indirectly by the Company and jointly and severally guarantee our obligations under the Notes. None of the Subsidiary Guarantors are organized outside of the U.S. A list of the Subsidiary Guarantors is set forth in Exhibit 22 to this Annual Report on Form 10-K.

Under the Indenture, holders of the Notes will be deemed to have consented to the release of a subsidiary guarantee provided by a subsidiary guarantor, without any action required on the part of the Trustee or any holder of the Notes, upon such subsidiary guarantor ceasing to guarantee or to be an obligor with respect to the Credit Facility. Accordingly, if the lenders under the Credit Facility release a subsidiary guarantor from its guarantee of, or obligations as a borrower under, the Credit Facility, the obligations of the subsidiary guarantors to guarantee the Notes will immediately terminate. If any of our future subsidiaries incur obligations under the Credit Facility while the Notes are outstanding, then such subsidiary will be required to guarantee the Notes.

In addition, a subsidiary guarantor will be released and relieved from all its obligations under its subsidiary guarantee in the following circumstances, each of which is permitted by the indenture:

•upon the sale or other disposition (including by way of consolidation or merger), in one transaction or a series of related transactions, of a majority of the total voting stock of such subsidiary guarantor (other than to us or any of our affiliates); or

•upon the sale or disposition of all or substantially all the property of such subsidiary guarantor (other than to any of our affiliates or another subsidiary guarantor);

provided, however, that, in each case, such transaction is permitted by the Credit Facility and after giving effect to such transaction, such subsidiary guarantor is no longer liable for any subsidiary guarantee or other obligations in respect of the Credit Facility. The subsidiary guarantee of a subsidiary guarantor also will be released if we exercise our legal defeasance, covenant defeasance option or discharge the Indenture.

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We conduct our operations almost entirely through our subsidiaries. Accordingly, the Guarantor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Guarantor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities will have a direct claim only against the Guarantor Group.

The following tables include summarized financial information for the Guarantor Group (in thousands). The information for the Guarantor Group is presented on a combined basis, excluding intercompany balances and transactions between us and the Guarantor Group and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Guarantor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

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Critical Accounting Estimates

We believe that the following are our most critical accounting estimates, which require management to make judgments about matters that are inherently uncertain.

Assumptions utilized to determine fair value in connection with business combinations, contingent consideration arrangements and in goodwill and intangible assets impairment tests are highly judgmental. If there is a material change in such assumptions or if there is a material change in the conditions or circumstances influencing fair value, we could be required to recognize a material impairment charge. See Item 1A., Risk Factors, for a list of factors which may cause our actual results to differ materially from anticipated results.

Valuation of Inventory

Inventory is reported at the lower of cost or net realizable value, determined using either the first-in, first-out method or the average cost basis. Any losses are recognized entirely in the period of identification.

We regularly assess the carrying value of inventory, considering factors such as its physical condition, sales trends, and anticipated future demand to estimate provisions for slow-moving, obsolete, or damaged inventory. Our inventory valuation reserves are established through analysis and estimates that consider many factors such as current order levels, forecasted demand, market conditions, and expected product life cycles. Changes in business or economic conditions, consumer confidence, market dynamics, demand fluctuations, evolving technology, or inaccurate demand projections may necessitate adjustments to these reserves. Should actual market conditions deviate from management's expectations, additional provisions for excess and obsolete inventory could be required and may be material to our results of operations. Changes in estimates did not have a material effect on net income from consolidated operations in fiscal 2024, 2023 and 2022.

Business Combinations

We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values, with any excess recorded as goodwill. Determining the fair value of assets acquired and liabilities and noncontrolling interests assumed requires management’s judgment and often involves the use of significant estimates and assumptions. For example, the fair value of intangible assets acquired considers forecasts of future cash flows, revenue, earnings, royalty rates, discount rates and asset lives. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.

As part of the agreement to acquire certain subsidiaries, we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition. As of the acquisition date, contingent consideration is recorded at fair value as determined through the use of a probability-based scenario analysis approach. Under

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this method, a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario. A probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of HEICO. Changes in either the revenue growth rates, related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued. As of October 31, 2024 and 2023, $30.2 million and $71.1 million of contingent consideration was accrued within our Consolidated Balance Sheets, respectively. During fiscal 2024, 2023 and 2022, such fair value measurement adjustments resulted in net decreases to SG&A expenses of ($9.9) million, ($.7) million and ($7.6) million, respectively. For further information regarding our contingent consideration arrangements, see Note 8, Fair Value Measurements, of the Notes to Consolidated Financial Statements.

Valuation of Goodwill and Other Intangible Assets

We test goodwill for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may exceed its fair value. When testing goodwill for impairment, we may perform a qualitative assessment as the initial step for all or selected reporting units. We are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired.

When performing the qualitative test, we consider factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test. When performing the quantitative impairment test, we compare the fair value of each of our reporting units to its carrying value to determine potential impairment and an impairment loss is recognized in the amount by which the carrying value of a reporting unit’s goodwill exceeds its fair value. The fair values of our reporting units are determined using a weighted average of a market approach and an income approach. The market approach estimates the value of reporting units by comparing to guideline public companies or guideline transactions. Various valuation multiples are calculated utilizing financial data of companies that are economically and operationally similar resulting in ranges of multiples. Judgmental adjustments are often necessary to ensure comparability. The selection of the appropriate multiple within a range requires judgement, considering various qualitative and quantitative factors. Changes in assumptions or estimates could materially affect the estimated fair value of our reporting units and the potential for impairment. The income approach estimates fair value by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital. Assumptions used in the analysis include estimated future revenues and expenses, the weighted average cost of working capital, capital expenditures, and other variables. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Based on the annual goodwill impairment test as of October 31,

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2024, 2023 and 2022, we determined there was no impairment of our goodwill. The fair value of each of our reporting units calculated as part of our quantitative impairment test significantly exceeded its carrying value as of October 31, 2024.

We test each non-amortizing intangible asset (principally trade names) for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the asset might be impaired. To derive the fair value of our trade names, we utilize an income approach, which relies upon management's assumptions of royalty rates, projected revenues and discount rates. We also test each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be impaired. The test consists of determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. The determination of fair value requires us to make a number of estimates, assumptions and judgments of underlying factors such as projected revenues and related earnings as well as discount rates. Based on the intangible impairment tests conducted, we recognized an aggregate impairment loss of $7.5 million during fiscal 2024, an immaterial impairment loss in fiscal 2023 and no impairment loss in fiscal 2022. The impairment loss we recognized in fiscal 2024 related to the write-down of trade names at two ETG subsidiaries due to a reduction in the expected future cash flows associated with such intangible assets. The impairment loss was recorded as a component of SG&A expenses in the Company's Consolidated Statement of Operations. See Note 8, Fair Value Measurements, for additional information regarding the Company’s fiscal 2024 impairment loss.

New Accounting Pronouncements

See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, of the Notes to Consolidated Financial Statements for additional information.

Forward-Looking Statements

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future

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costs, using currently available information. Therefore, actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include:

•The severity, magnitude and duration of public health threats, such as the COVID-19 pandemic;

•Our liquidity and the amount and timing of cash generation;

•Lower commercial air travel, 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 to our costs to complete contracts;

•Governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or 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;

•Cybersecurity events or other disruptions of our information technology systems could adversely affect our business; and

•Our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals, and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; and 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.

For further information on these and other factors that potentially could materially affect our financial results, see Item 1A, Risk Factors. 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.

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