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Heico Corp (NYSE:HEI)
Q2 2019 Earnings Call
Aug 28, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the HEICO Corporation Third Quarter Fiscal 2019 Earnings Conference Call.

[Operator Instructions]

Your host for today's call is Laurans A. Mendelson, Chairman and Chief Executive Officer of HEICO Corporation.

Before the conference call begins, I will read the following statement. Certain statements in this conference call 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 lower demand for commercial air travel or 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 US 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 cost 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 within and outside of aviation, defense, space, medical, telecommunication and electronic 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 or reading transcript of 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.

Thank you. I will now turn the call over to Laurans Mendelson.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Well, thank you very much, and good morning to everyone on the call. We thank you for joining us and we welcome you to the HEICO third quarter fiscal '19 earnings announcement teleconference. I'm Larry Mendelson, I'm Chairman and CEO of HEICO Corporation. 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 our record third quarter operating results in detail, I would like to take a minute and make a few important comments about our Company. In my opinion, the HEICO team members are really directly responsible for the success through their dedication and their professional handling of all matters within the Company. We have a very talented group that continues to deliver industry-leading growth and new product innovation, all while maintaining HEICO's unique entrepreneurial culture of excellence.

We continue to win in the marketplace through a simple strategy, putting our customers first. Our record-setting results prove that when you respect your customer, treat them fairly, deliver on time, high-quality products and don't push prices to unaffordable levels, you can sustain positive growth, build long lasting and mutually beneficial business relationships and that is the HEICO culture.

Business conditions and end markets we serve continue to be strong. While we haven't completed our budgeting forecast and process for next year, current business conditions at HEICO remain excellent. I mentioned in the last call that I had never seen business condition stronger and that has followed through in the third quarter and we are very optimistic for the future. Our end markets consisting principally of commercial aerospace, defense and space remain very healthy and continue to provide HEICO with broad growth opportunities to generate shareholder value.

I'll now take a few moments to summarize the highlights of our third quarter and year-to-date results. Consolidated third quarter fiscal 2019 operating income and net sales represent record results for HEICO, driven principally by record net sales at both operating segments. Consolidated net income increased 21% to $81.1 million or $0.59 per diluted share in the third quarter of fiscal '19 and that was up from $67.1 million or $0.49 per diluted share in the third quarter of fiscal '18.

Consolidated net income increased 26% to a record $242.2 million or $1.76 per diluted share in the first nine months of fiscal '19 and that was up from $191.9 million or $1.40 per diluted share in the first nine months of fiscal '18.

Consolidated operating margin improved to a strong 22.4% in the third quarter of fiscal '19, up from 21.8% in the third quarter of fiscal '18. The operating margin also improved to a strong 22.2% in the first nine months of fiscal '19 and that was up from 21% in the first nine months of fiscal '18. All these growth percentages to me seemed really extraordinarily great performance on the part of our team.

The ETG Group set an all-time quarterly net sales record in the third quarter of fiscal '19 increasing 16% over the third quarter of fiscal '18. The increase resulted from single high digit organic net sales growth and the excellent operating performance of our fiscal '19 acquisitions.

Flight Support set all-time quarterly net sales and operating income records in the third quarter of fiscal '19 improving 12% and 18%, respectively, over the third quarter of fiscal '18. These increases principally reflect strong double-digit organic net sales growth, mainly attributable to increased demand and new product offerings within our aftermarket replacement parts and specialty products lines.

Cash flow, that's my favorite, provided by operating income, operating activities is very strong increased 46% to $313.4 million in the first nine months of fiscal '19 up from $214.8 million in the first nine months of fiscal '18, and we continue to forecast strong cash flow from operations for the rest of fiscal '19.

During fiscal '19, we successfully completed six acquisitions and we've completed seven acquisitions over the past year. As a result of these acquisitions, partially offset by the impact of our strong cash flows, our total debt to shareholders' equity increased to 39% as of July 31, 2019, and that was up slightly from 35.4% as of October 31, 2018. But it remains at a low level giving us great financial flexibility.

Our net debt, which we define as total debt less cash and equivalents, of $581.1 million to shareholders' equity ratio increased to 35.4% as of July 31, 2019, and that was up slightly from 31.5% as of October 31, 2018.

Our net debt to EBITDA ratio increased to 1.11 times as of July 31, 2019, and that was up from 1.04 times as of October 31, 2018. I think you will all agree that that is a very, very low level of debt for a company that is growing bottom line close to 20% annually. We continue to avoid high debt levels and leverage, and I remind you that in no time in our history, have we even been at 2 times debt to EBITDA.

We have no significant debt maturities until fiscal '23 and we plan to utilize financial flexibility to aggressively pursue high-quality acquisitions to accelerate growth and maximize shareholder returns. I remind you that we are a very disciplined acquirer, we do not pay huge multiples for purchases and that is just our DNA and our -- the way we do things and it has proven to be a successful strategy and we will stick to that model.

In July 2019, we paid a regular semiannual cash dividend of $0.07 a share and that represented our 82nd consecutive semiannual cash dividend. In June 2019, we acquired 75% of the membership interest of REI, which is Research Electronics International, a designer and manufacturer of technical surveillance countermeasures equipment to detect devices used for espionage and information theft. REI is a part of our ETG Group and we expect the acquisition to be accretive to earnings within the first 12 months following closing. By the way, if any shareholders out there are concerned about other people bugging their premises or conference rooms, bedrooms, hotel rooms, please get in touch with Victor Mendelson, he'll put you in touch with REI because REI will be able to pinpoint and shutdown that operation instantly. So I put in a pitch for a fantastic company -- a fantastic acquisition that we made recently.

In July '19 -- 2019, we acquired substantially all of the assets of a French company called BERNIER, a designer and manufacturer of interconnect products used in demanding defense, aerospace and industrial applications, primarily for communications-related purposes. BERNIER is part of the ETG Group, and again, we expect the acquisition to be accretive to our earnings within the first 12 months following closing. As an interesting side note, the team members of BERNIER petitioned the approval process in France to select HEICO as the purchaser because after significant investigation on the part of team members, they found -- they felt strongly that HEICO would be the best acquirer, treat the team members in the best possible way and grow BERNIER. We're very proud of our reputation, which helped us in the acquisition of BERNIER.

I'd like to remind everyone that HEICO does have two classes of common stock, both traded on the New York Stock Exchange. Both the Class A common stock which has a symbol HEI.A and the common stock HEI are virtually identical in all economic respects. The only difference between the share classes is the voting rights and the Class A common stock has one-tenth of a vote per share and the common stock has one vote per share; otherwise they are completely the same.

And now, I would 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.

Eric A. Mendelson -- Co-President and Director

Thank you very much. The Flight Support Group's net sales increased 12% to a record $320 million in the third quarter of fiscal '19 from $285.1 million in the third quarter of fiscal '18. The Flight Support Group's net sales increased 13% to a record $915.5 million in the first nine months of fiscal '19 up from $807.7 million in the first nine months of fiscal '18. The increase in the third quarter in the first nine months of fiscal '19 is attributable to continued strong organic growth of 12% and 13%, respectively, mainly due to increased demand in new product offerings within our aftermarket replacement parts and specialty products product lines.

The Flight Support Group's operating income increased 18% to a record $64.8 million in the third quarter of fiscal '19, up from $54.7 million in the third quarter of fiscal 2018. The increase in the third quarter of fiscal '19 principally reflects the previously mentioned net sales growth and the impact from an improved gross profit margin mainly driven by increased net sales in a more favorable product mix within our aftermarket replacement parts product line.

The Flight Support Group's operating income increased 18% to a record $179.8 million in the first nine months of fiscal '19, up from $152.1 million in the first nine months of fiscal '18. The increase in the first nine months of fiscal '19 principally reflects the previously mentioned net sales growth and the impact of an improved gross profit margin mainly driven by a more favorable product mix within both our aftermarket replacement parts and specialty products and product lines.

The Flight Support Group's operating margin increased to 20.2% in the third quarter of fiscal '19, up from 19.2% in the third quarter of fiscal '18. The Flight Support Group's operating margin increased to 19.6% in the first nine months of fiscal '19, up from 18.8% in the first nine months of fiscal '18. The increase in the third quarter and first nine months of fiscal '19 principally reflects the previously mentioned improved gross profit margin.

Consistent with our past practice of increasing our ownership in certain non-wholly owned subsidiaries, in June 2019, HEICO Corporation acquired the 20% non-controlling interest held by our partner, Lufthansa Technik AG in eight of our existing subsidiaries within our HEICO Aerospace subsidiary that are principally part of the Flight Support Group's repair and overhaul parts and services product line. Pursuant to the transaction, HEICO Aerospace paid dividends proportional to the ownership, which is 80% and 20% to HEICO and Lufthansa respectively and HEICO transferred the businesses to HEICO Flight Support Corp, a wholly owned subsidiary of HEICO. We did not record any gain or loss in connection with the transaction. Lufthansa's dividend of $91.5 million was paid in cash principally using proceeds from our revolving credit facility. Lufthansa continues to remain a 20% owner in HEICO Aerospace, a designer and manufacturer of jet engine and aircraft component replacement parts.

HEICO Aerospace has grown significantly and generated substantial cash flow since Lufthansa partnered with us nearly 22 years ago. This transaction rewards Lufthansa with $91.5 million in cash and at the same time, permits HEICO to increase its ownership in eight very successful businesses. Lufthansa has been and continues to be a great partner and great customer of HEICO Aerospace and we look forward to our continued mutual success. This transaction does not impact the breadth of PMA parts offered by HEICO Aerospace Holdings Corp.

With respect to the remainder of fiscal 2019, we now estimate full net year sales growth of approximately 11% to 12% over the prior year, up from the previous estimate of 10% and now estimate the full year Flight Support Group operating margin to approximate 19.5% to 20% up from the prior estimate of approximately 19% to 19.5%. Further, we now estimate the Flight Support Group's full-year organic net sales growth rate to be in the low double digits, up from the prior estimate of the high-single digits. These estimates exclude additional acquired businesses if any.

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.

Victor H. Mendelson -- Co-President and Director

Thank you, Eric. The Electronic Technologies Group's net sales increased 16% to a record $216.1 million in the third quarter of fiscal '19 up from $186.4 million in the third quarter of fiscal '18. The Electronic Technologies Group's net sales increased 20% to a record $615 million in the first nine months of fiscal '19, up from $510.8 million in the first nine months of fiscal '18. These increases resulted from organic growth of 7% and 13% in the third quarter and first nine months of fiscal '19, respectively, and the favorable impact from our fiscal '19 acquisitions. The organic growth in the third quarter and first nine months of fiscal '19 is mainly attributable to increased demand for certain defense and aerospace products.

The Electronic Technologies Group's operating income increased 11% to $62.2 million in the third quarter of fiscal '19, up from $56 million in the third quarter of fiscal '18. The increase in the third quarter of fiscal '19 principally reflects the previously mentioned net sales growth and an improved gross profit margin mainly driven by higher net sales and a more favorable product mix for certain aerospace products.

The Electronic Technologies Group's operating income increased 23% to a record $181.2 million in the first nine months of fiscal '19, up from $147.4 million in the first nine months of fiscal '18. The increase in the first nine months of fiscal '19 principally reflects the previously mentioned net sales growth and an improved gross profit margin mainly driven by increased net sales and a more favorable product mix for certain aerospace and defense products.

The Electronic Technologies Group's operating margin remained strong at 28.8% in the third quarter of fiscal '19 as compared to 30.1% reported in the third quarter of fiscal '18. The operating margin in the third quarter of fiscal '19 is inclusive by the way of higher acquisition-related costs associated with one of our recent acquisitions. The Electronic Technologies Group's operating margin improved to 29.5% in the first nine months of fiscal '19, up from 28.9% in the first nine months of fiscal '18. The increase in the first nine months of fiscal '19 principally reflects an improved gross profit margin, partially offset by higher performance based compensation expenses, the impact of changes in the estimated fair value of accrued contingent consideration and the higher acquisition-related costs as a percent of sales.

With respect to the remainder of fiscal '19, we now estimate full-year net sales growth of approximately 18% to 19% over the prior year, up from our previous estimate of 15% to 17% and anticipate the full year Electronic Technologies Group's operating margin to approximate 29% as compared to our prior estimate of 29% to 29.5%. Further, we now estimate the Electronic Technologies Group's organic net sales growth rate to be in the low double-digits, up from the prior estimate of high-single digits, and these estimates, of course, exclude additional acquired businesses if any,

I'll turn the call back over to Larry Mendelson.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you, Victor and Eric. Moving on to earnings per share. Consolidated net income per diluted share increased 20% to $0.59 in the third quarter of fiscal '19 and that was up from $0.49 in the third quarter of fiscal '18. Diluted earnings per share increased 26% to a record $1.76 in the first nine months of fiscal '19 up from $1.40 in the first nine months of fiscal '18. These increases reflect the strong operating performance of both segments Flight Support and ETG.

Depreciation and amortization expense totaled $21.1 million in the third quarter of fiscal '19, up from $19.4 million in the third quarter of fiscal '18, and totaled $61.7 million in the first nine months of fiscal '19, up from $57.5 million in the first nine months of fiscal '18. The increase in the third quarter and first nine months of fiscal '19 principally reflects the incremental impact of higher depreciation and amortization expense of intangible assets from our fiscal '19 acquisitions. Further, the increase in depreciation expense in the third quarter and first nine months of fiscal '19 reflects the impact of capex expenditures attributable to the expansion at certain existing subsidiaries.

Research and development expense increased 19% to $16.6 million in the third quarter of fiscal '19, and that was up from $14 million in the third quarter of fiscal '18, and increased 20% to $48.7 million in the first nine months of fiscal '19 up from $40.7 million in the first nine months of fiscal '18. Significant ongoing new product development efforts continue at both Flight Support and ETG and we continue to invest approximately 3% of each sales dollar into new product development, as shareholders, the long-standing, you know that we feel that R&D expenditures are critical to the future of the Company, we will not cut back on R&D expenditure. And we know that we get great returns from these expenditures.

Consolidated SG&A expenses were $93.4 million and $80.2 million in the third quarter of fiscal '19 and fiscal '18, respectively, and the consolidated SG&A expenses were $267.9 million and $231.7 million in the first nine months of fiscal '19 and '18, respectively. The increase in the third quarter and the first nine months of fiscal '19 principally reflects the impact of the fiscal '19 and '18 acquisitions, higher performance-based compensation expense, changes in the estimated fair value of accrued contingent consideration and higher acquisition-related costs.

Consolidated SG&A expense as a percentage of net sales was 17.5% and 17.2% in the third quarter of fiscal '18 and '19, respectively -- '19 and '18, respectively, and consolidated SG&A expense as a percentage of net sales decreased slightly to 17.7% in the first nine months of fiscal '19 and that was down very slightly from 17.8% in the first nine months of fiscal '18. The increase in consolidated SG&A expense as a percentage of net sales in the third quarter of fiscal '19 principally reflects what I previously mentioned, the higher acquisition related costs.

Interest expense was $5.5 million in the third quarter of fiscal '19, compared to $5.2 million in the third quarter of fiscal '18 and $16.5 million in the first nine months of fiscal '19 compared to $14.8 million in the first nine months of fiscal '18. The increase in the third quarter and first nine months of fiscal '19 was principally due to higher interest rates, partially offset by a lower weighted average balance outstanding under our revolving credit facility.

Our effective tax rate in the third quarter of fiscal '19 was 22% compared to 23.1% in the third quarter of fiscal '18 and our effective tax rate in the first nine months of fiscal '18 was 17.1% as compared to 17.9% in the first nine months of fiscal '18. The decrease in our effective tax rate in the first nine months and third quarter of fiscal '19 is mainly attributable to the reduction in the federal tax rate from a blended rate of 23.3% in fiscal '18 to 21% in fiscal '19 partially offset by the net effect of the provisions of the Tax Act that became effective for HEICO in fiscal '19.

Net income attributable to non-controlling interest was $8 million in the third quarter of fiscal '19, compared to $6.8 million in the third quarter of fiscal '18. And the net income attributable to non-controlling interest was $25 million in the first nine months of fiscal '19 compared to $19.7 million in the first nine months of fiscal '18. The increase in the third quarter and first nine months of fiscal '19 principally reflects improved operating results of certain subsidiaries of the Flight Support and ETG Groups in which non-controlling interests are held. For the full fiscal 2019 year, we now estimate a combined effective tax rate and non-controlling interest of 25% to 26% of pre-tax income.

Moving now to the balance sheet and cash flow, our financial position and forecasted cash flow remained extremely strong. As previously mentioned, cash flow provided by operating activities was a very strong totaling $313.4 million in the first nine months of fiscal '19 and that cash flow provided by the operating activities increased 21% to $135.1 million in the third quarter of fiscal '19 and that was up from $111.4 in the third quarter of fiscal '18 and we continue to forecast record cash flows from operations in fiscal '19.

Our working capital ratio improved to 3 times as of July 31, 2019, up from 2.6 times as of October 31, 2018. DSOs, days sales outstanding, of receivables was constant at 45 days as of July 31, 2019, and that was comparable to DSOs July 31, 2018. We continue to closely monitor all receivable collection efforts to limit credit exposure. I remind you that we have very few, if any, credit losses for accounts receivable.

No one customer accounted for more than 10% of net sales and our top five customers represented approximately 21% of consolidated net sales in both the third quarter of fiscal '19 and '18. Inventory turnover of 125 days for the period ended July 31, 2019, is comparable to the turnover rate in the period ending July 31, 2018. Total debt to shareholders' equity was 39% as of July 31, 2019, compared to 35.4% as of October 31, 2018, I mentioned that earlier. Also net debt of $581.1 million to shareholders' equity was 35.4% as of July 31, compared to 31.5% as of October 31, 2018. Our net debt to EBITDA ratio was 1.11 times as of July 31, 2019, compared to 1.04 times as of October 31, 2018, I commented that that's still is a very, very low leverage ratio and we intend to keep relatively low leverage.

We have no significant debt maturities until fiscal '23 and we plan to utilize our financial strength and flexibility to continue to aggressively pursue high-quality acquisition opportunities to accelerate growth and maximize shareholder returns.

I want to mention that something that many, many investors have said to us as we visit with them at various aerospace conferences and that is that they look at HEICO as a compounding and cash flow generating company. And as you can see that is -- I think one of the reasons that we sell at a very high multiple, personally, I think that we do a very good job with that and that is the reason I think that we do sell at a high multiple, some people don't feel that such a high multiple is warranted, of course, obviously management disagrees with that and obviously, the marketplace does too. So they set the price of HEICO, we don't.

As we look ahead to the remainder of fiscal '19, we anticipate net sales growth within Flight Support and ETG resulting from increased demand across the majority of our product lines. Also, we will continue our commitments to developing new products and services, further market penetration and pursuing aggressive acquisition strategy, maintain -- while maintaining financial strength and flexibility. Based upon our current economic visibility, we estimate our consolidated fiscal '19 year-over-year net sales growth to be in the area of 14% to 15% and net income growth to be 23% to 24%, up from our prior growth estimates in net sales which was 12% to 13% and net income of 17% to 18%. I want to just repeat that the revision in net income, in my opinion, is very substantial based upon the success. So we are now estimating 23% to 24% whereas before we were thinking 17% to 18%. I think that indicates the strength of our business.

We now anticipate consolidated operating margin to approximate 22% and that was at the high end of the prior estimate of 21.5% and 22%. We anticipate depreciation and amortization expense to approximate $84 million and we anticipate cash flow from operations to approximate $405 million, up from the prior estimate of $380 million. And we estimate capex expenditure of to approximate $31 million, that's a reduction from our prior estimate of $38 million. These estimates exclude additional acquired businesses, if any.

In closing, HEICO's team members have delivered these outstanding results and deserve credit for the hard work and discipline that it took to successfully navigate through another quarter. HEICO's management team has the utmost respect for everything that our team members do to make their company and your company a success. That is the extent of our planned remarks and we would like to open the floor to any questions. Thank you very much.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Robert Spingarn with Credit Suisse. You're now live.

Audrey Preston -- Credit Suisse -- Analyst

Hi, it's Audrey Preston on for Rob Spingarn, and congrats on another great quarter.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you.

Eric A. Mendelson -- Co-President and Director

Thank you.

Audrey Preston -- Credit Suisse -- Analyst

All right. So I just wanted to check in first and ask on if you've seen any sort of growth related to the Max, has there been sort of unexpected boost just from greater utilization rates more or less across the existing fleet? And then also moving forward, if you were to see an uptick in retirement rates and potentially an increase in the supply of used service for material in the aftermarket, could that potentially impact your growth expectations moving forward as well?

Eric A. Mendelson -- Co-President and Director

Hi, this is Eric. I'll take that question. With regard to the Max, it's very difficult to determine exactly how that is impacting our sales. Yes, with regard to the aftermarket and the replacement parts business, it clearly cannot hurt us. But how much it is helping us is a bit confusing. Because we are still seeing retirements of older product lines, for example, the MD-80 with the JT8-200 engine; that does continue to shrink in some of the older CFM56 engines continues to shrink. So it is very difficult; it's not, if you will, stopping the retirement; however, it may be slowing in some areas.

The big question is, if it is slowing them, our airlines inducting the aircraft, the engines and the components for maintenance and are they actually spending more money. And it's very difficult to see what that is, I guess that it is helping us a little bit, but we really don't know frankly, to what extent. We do know however in our specialty products business that it is actually hurting us a little bit because we do supply some new equipment, which goes onto each Max aircraft and the demand for that has been reduced. So when you put the two together, my guess is, it's not been a significant tailwind but that frankly is just to guess based on the current information that I've got.

For the second part of your question with regard to the used serviceable, that's always been an issue for us. We do participate a little bit in that -- in this [Indecipherable] subsidiaries that we do have pretty good knowledge and access as to what's going on in that business and there is a little bit of an offset there that should improve. However, at this moment, we really don't anticipate a significant impact to our business on either aftermarket replacement parts or repair and overhaul due to any potential increase in retirement of aircraft. We've already taken, if you will, somewhat of a hit as a result of some of the maturing and the pulling out of these aircrafts. So at this point, we really don't see anything significant in that area. I don't know if that answers your questions, but I'd be happy to expand, if you need more color.

Audrey Preston -- Credit Suisse -- Analyst

Sure. No, thanks for the color on that. And then a follow-up for Eric. So you pointed out that there is some pretty strong growth related to new products. So was there anything in particular that was driving any outsized growth or was it more broad-based across the portfolio?

Eric A. Mendelson -- Co-President and Director

I would say that it was fairly broad-based across the portfolio. There were specific products, which did very well and I wouldn't want to get into them on this call due to competitive reasons, but there are definitely areas about performance I think due to HEICO's market penetration and competitive advantages, but clearly there was also a very broad-based increase.

Audrey Preston -- Credit Suisse -- Analyst

All right, great. Congrats again on the quarter, and I'll pass the line. Thanks.

Eric A. Mendelson -- Co-President and Director

Thank you very much.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. You're now live.

Sheila Kahyaoglu -- Jefferies -- Analyst

Hi. Good morning, guys, and great quarter once again.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you, Sheila.

Sheila Kahyaoglu -- Jefferies -- Analyst

Sure. Victor, maybe if I could start with you, if that's OK. We've seen great growth, can you talk about what you're seeing in the defense and space on markets, you're going to run into some comps and maybe where you think your revenue growth is versus outlays, is there still a big lag?

Victor H. Mendelson -- Co-President and Director

I do think -- Sheila, this is Victor. I do think that there remains a lag between orders and outlays and that will continue at least for some time. We're doing our budgets for the next year. Right now, our companies are preparing those. So we don't have those yet. But the defense part of our business right now is strong. Their general tenor [Phonetic] with me on it is very strong. They seemed to be very pleased with what they developed, what they have selling and what their quotation rates are and order rates, etc. So right now I am feeling pretty good about that. And we'll update more once we have the budgets for the next year. But that's how it is at the moment.

On the space side, I would say that's been in the third quarter kind of flattish to down a little bit, but it's not kind of unusual quarter-to-quarter to have those kinds of fluctuations. I think sequentially, I believe, as we get into particularly the first quarter of the next year based on where I see orders at this point, because that tends to be a longer lead business. I see that to be a strengthening business for us, at least at this point sequentially.

Sheila Kahyaoglu -- Jefferies -- Analyst

And just on defense, one more question, if you don't mind. Is there anything you could talk about areas where trends accelerated or decelerated?

Victor H. Mendelson -- Co-President and Director

The trends have accelerated or decelerated? There is nothing in particular, I would say, it's pretty much across the board on the growth. I mean, there's always a product to our product line there is we somewhere in the Company that's weaker for one reason or another. But I would say, I wouldn't, I can't really think of anything that stands out on a material basis.

Sheila Kahyaoglu -- Jefferies -- Analyst

Okay. And this is just a more general question though for anyone. I mean, leverage is pretty low. I guess, I know you guys are disciplined in the deals, and [Technical Issues] been fairly small this year. How do you think about potentially a larger transaction if there is anything that's an inhibitor to that?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

So, Sheila, we look at all comers, we look at all opportunities big ones, small ones, and as you know we are opportunistic. We want things that are going to be accretive both cash flow wise, earnings wise, earnings per share wise. So it really depends on what comes along at a price that we feel is warranted. Again, as I mentioned earlier, we are disciplined, not to pay up these -- were not paying 12, 14 times. So in many cases we just drop out of the competition because we're not going to do it, but if an opportunity did come along, we would use our leverage, but we would -- the only time we do it is where we felt very, very confident that we could delever pretty quickly. And I mean, within the year or two. So we would not-some companies will sit it 5 times, 6 times, 7 times EBITDA leverage. We don't intend to do that.

Sheila Kahyaoglu -- Jefferies -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Gautam Khanna with Cowen. You are now live.

Gautam Khanna -- Cowen & Co. -- Analyst

Thank you. Great quarter. I was curious if you speak to where we are on the CFM parts development, if you've made any progress there and when do you expect to be in the market selling this products commercially?

Eric A. Mendelson -- Co-President and Director

Hi. This is Eric. I'd be happy to answer that question. I think you're referring to the IATA and GE settlement that they had, which we believe provides opportunity for us. We've been actually selling CFM parts into the market for over 20 years and it continues to be a successful part of our business. We don't like to comment on specific product lines due to competitive reasons, obviously. But I can tell you that we continue to have conversations with airlines and we are -- I would say, cautiously optimistic about our future in that space.

Gautam Khanna -- Cowen & Co. -- Analyst

Okay. Is there anything you can say [Technical Issues] receptivity to purchasing a broader portfolio of parts?

Eric A. Mendelson -- Co-President and Director

I think the airlines are -- they recognize the monopolistic nature of their replacement parts industry. And in conversation with those airlines, we've helped to educate them on how they pay very high prices and we showed them physical examples of the parts and they are often shocked and stunned when they see how expensive these parts are. So I think HEICO provides a very nice alternative. Our businesses are doing very well. I think it's essential to the cost control of the airlines that have HEICO in there. They understand very clearly that if HEICO were not a competitor, they would be paying even significantly higher prices than they're paying now. So I think that our presence in the market is absolutely necessary, and frankly, you can talk to any airline out there and I think that they would agree 100%. So the opportunities are vast. We're a very small part of the industry. We think that there is a lot of potential out there. I mean, you can see from our growth rate over the years and the growth in earnings and the share price and the revenue of the company, sort of the wind behind our backs and we anticipate that that's going to continue really regardless of the particular product. The IATA-GE settlement, I think, was very important, because it shows other manufacturers, but is not accepted, and also it shows the airlines that what we are doing is endorsed and absolutely need. So frankly, I think we're going to continue to do very well as our results have shown.

Gautam Khanna -- Cowen & Co. -- Analyst

Thank you, and one last one from me. If you could just comment on aftermarket demand broadly. Maybe was there any major regional differences there? Anything you could speak within product portfolio more discretionary versus non-discretionary products, anything you can give us some insight based flavor on trends in the aftermarket? Thank you.

Eric A. Mendelson -- Co-President and Director

Sure. I would be happy to. I would say that in the aftermarket replacement parts area, the volume continued to be very strong in terms of developing additional new products where we are finding a lot of opportunities out there. It's very broad based. It's in engine, it's been non-engine, it's in what all the airlines need in use. So we're continuing to find those opportunities and develop them very successfully and get them sold to our customers. So I would not say that it was really due to any regional area of particular strength or weakness, you know, there's always variability in those markets due to maintenance cycles that occur, sometimes the one area is stronger than another due to a whole variety of reasons. But I would say that it really is extremely broad base. We're doing well in all areas of the market and also I'm particularly encouraged with newer airlines who haven't had the experience in performing much maintenance. I think we're gaining a very nice amount of traction as they realize how expensive these assets are to operate. So I think it's really across the board. I'm really very pleased with our team in our businesses. I think they're executing across the board very well.

Gautam Khanna -- Cowen & Co. -- Analyst

Thank you.

Eric A. Mendelson -- Co-President and Director

Thank you.

Operator

Your next question comes from the line of Ken Herbert with Canaccord. You're now live.

Ken Herbert -- Canaccord -- Analyst

Hi, good morning.

Eric A. Mendelson -- Co-President and Director

Good morning, Ken.

Ken Herbert -- Canaccord -- Analyst

I wanted to first start with a question for Carlos, if I could. Can you quantify what the impact was in the quarter within the ETG margins from the accelerated amortization and accounting adjustments from the recent acquisitions?

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, I think for Q3, roughly, Ken, we had about $2 million worth of acquisition costs that we [Indecipherable] pay. We did a foreign acquisition and to deal with all the regulatory environment over in France, it was a little bit more expense; it's a great company we bought. But the reason we called it out is the truth of matter is if you added that back in, which we don't do in our releases, but if you add it that back into the operating income, you see that our margins are pretty consistent period to period.

Ken Herbert -- Canaccord -- Analyst

Okay. No, that's helpful. And is it just the guidance implies similar amount in the fourth quarter or does it step down in the fourth quarter assuming no other acquisitions?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Well, we've assumed no other acquisitions in our guidance. So no, maybe, you know -- no, haven't in our guidance assumed any acquisitions in Q4.

Ken Herbert -- Canaccord -- Analyst

Okay. Yeah, no, I realize that, but should we assume a similar $2 million headwind in terms of the margins within ETG?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

No.

Ken Herbert -- Canaccord -- Analyst

Okay, OK, that's helpful. And then with the I guess, the buyout or the acquisition of the minority interest held by Lufthansa -- Lufthansa Technik, what does that do -- I know you gave an assumption for sort of your full-year tax and minority interest, but how should we think about that on a steady state basis now?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

I think, it's interesting; we reduced our estimate for combined tax and non-controlling interest by about 1%. But half of that was related to changes in taxes, remember, at our fiscal year end, we had a higher tax rate than most other corporates at 21% last year. We were at blended rate of 23% and a tick [Phonetic]. So it's a combination of a decrease in the stat rate on the federal side and then we will pick up a benefit from those businesses coming on board and not having to allocate their earnings to a non-controlling partner in those businesses. However, you have to remember that we borrowed money to buy them out. So there's interest component to it also. So net-net for this year, it's not too impactful, as we do our budgets and we look forward to the following fiscal year, I'll have a better answer for you. But we're right now with the interest charge against those earnings, it's roughly a wash.

Ken Herbert -- Canaccord -- Analyst

Okay, that's helpful. And if I could Eric, I know you stated in your remarks that the act -- the change now with Lufthansa doesn't have any implication for sort of the long-term or strategic relationship, but can you just comment on why now and was there anything in particular to read into that and then second, it sounds like it was really just within the repair business that I think you mentioned eight repair businesses, if you can provide any more color around that, and the nature of the transaction that'd be helpful.

Eric A. Mendelson -- Co-President and Director

Hi, Ken. It's Eric. I would be happy to do that. To answer your question, yes, it was primarily the repair businesses, really almost exclusively the repair businesses. And we have an outstanding relationship with Lufthansa and Lufthansa Technik. They invested originally about $50 million in HEICO approximately 22 years ago. The relationship is incredibly strong. They are a great customer, a great partner. As the business has grown, I would say Lufthansa's percentage of our sales, of course, as we sell a lot of products, other people has decreased and Lufthansa, as you probably have read, is having some challenging times over in the European market right now.

HEICO has tremendous cash generation. Frankly, the company built up a lot of cash and it was time to pay it out. And HEICO was happy to -- we did not need the cash. I think frankly, Lufthansa would be helpful if they don't need it, they're doing extremely well and I think they're going to continue to do well. But probably to have this cash and again is probably helpful to them as well. This does not impact our partnership and our strategic relationship on our PMA business. That continues and we are very aggressive in development of new parts for Lufthansa, but frankly, the repair business was not as core to that. And it just sort of continues on basically the same thing that we did roughly five years ago on some other non-PMA core businesses that we acquired as a result of another dividend in HEICO Aerospace Holdings Corp. I don't know if that answers your question?

Ken Herbert -- Canaccord -- Analyst

No, that's very helpful. I appreciate the color. Thank you very much.

Eric A. Mendelson -- Co-President and Director

Thank you.

Operator

Your next question comes from the line of Michael Ciarmoli with SunTrust. You're now live.

Michael Ciarmoli -- SunTrust -- Analyst

Hey, good morning guys. Thanks for taking the question. Nice quarter. Maybe, Eric just to stay on that topic, I mean, do you guys consider buying out the remaining portion of Lufthansa's interest over time? I mean, is that a consideration as you look at capital deployment, look at certainly market multiples, what's out there, what might be the best sort of accretive moves you guys can make?

Eric A. Mendelson -- Co-President and Director

Yeah, Mike, at this moment, we're not having any discussions with Lufthansa about repurchasing their remaining stake. I think they're very happy with it, we're very happy with it. I might add, I think that our relationship with Lufthansa that goes well beyond their investment in the company. They've been a great customer of HEICO's for over 40 years. So I anticipate that continues to move forward and continues to develop. I suppose anything is possible in the future, but it's not something that we're contemplating. I think they're very happy. They recognize the strategic nature of the PMA business. We always said that the PMA business -- their investment was a lot more strategic in nature than the other businesses. The other businesses were great, and it was very helpful to have them as a partner and a customer, but it was really the PMA area, which had the most interest from them, and frankly, they have -- we've done well and they've done extraordinarily well. They've gotten huge dividends and I think they're very, very happy with their relationship with HEICO.

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Hey. This is Carlos. I just wanted to just make one point, just because we require those interests, doesn't mean that Lufthansa is still doesn't send business and utilize the services that we have in that repair group, that relationship is not impacted by this move. This, as Eric pointed out, was a dividend to reward them for many years of partnership with us and we chose to take our dividend in kind which were certain businesses. So I wouldn't view that as a relationship impacting overall, in fact, it's probably neutral to the whole thing.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. And then just maybe to follow-up, I think from a market share perspective, I think last quarter you guys noted that you were picking up some share in distribution, picking up some share from other PMA providers, and even I guess how should we think about potential opportunities for PMA within the Department of Defense given that one of the larger players there has come under some scrutiny and investigation for their pricing. Does that create some opportunities to gain real share in the DoD world with PMA parts?

Eric A. Mendelson -- Co-President and Director

This is Eric. I think that it does. We've sold parts to the Department of Defense and offered tremendous savings opportunities to them. We continue to do very well in that area. The DoD understands what opportunities exist and if they want to do more, they clearly can go ahead and do more. I think one of the things that's been talked about is if the DoD wants to encourage competition, they need to approve the use of other material, and if they restrict themselves to a single supplier, then of course that has pricing implications and they pay higher prices and I think intelligently so other suppliers have said, hey, our price is our price and if you want to buy these parts elsewhere, you have to go ahead and approve other people and go ahead and do so, and it's a free world; and the DoD, they are very smart and I think they've got that option. If they want to do it, they can do it and, if not, they can stick with their current practice. But I think we're going to continue to do very well.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. And then just, Eric, the process for getting PMA parts approved, I mean, is it similar to the commercial world, is it easier in the DoD world? I mean, just trying to get a sense of if DoD came to you today, I mean, how long does it take for you guys to PMA part, are there -- is there more regulation and less regulation, how do you look at that side?

Eric A. Mendelson -- Co-President and Director

Yes, I would say that it's somewhat similar. Nothing in our business is easy. We offer great savings opportunities to a lot of people, and if it were easy, I think that they would take greater advantage of it right away. It's extremely difficult. They want to be very, very careful. I mean, these platforms have to work obviously just as commercial aircraft has to work, just as rocket engines and missile defense systems have to work. So they're very, very careful. I think that there are very confident in HEICO, and they need to decide to really allocate the resources to approve these alternatives. So I think that we're going to do well, it's different, but I would say in general, consistent with what we do with commercial airlines.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. And then just last one from me here and I'll get out of the way. Just on the margins in FSG, I mean, you guys are getting a great incremental margins in the upper 20% range. Is that, I mean, I know you guys used to kind of break out 55% of that group or so give or take is parts. I mean, is it all volume from parts or are you actually getting some margin lift on the repair and overhaul side as well?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Actually, I will let Carlos answer, but I can tell you that we are getting both. I would say though it's more coming from the parts in the specialty products business. The repair is a very competitive area. You don't have some of, if you will, the same efficiencies that you would have the volume efficiencies that you would get over on the parts side, but I would say that it's really one is mix but the other, we continue to focus in develop proprietary repairs and parts which generate significant value to our customers. So I think that we're able to capture slightly higher margins, when we're able to do that and the customers seem to be really, if you will, clamoring for a lot of the new products that we have coming out. We just had a sales meeting last week and it's not for this call due to competitive reasons, but I can tell you that a lot of the products that we are coming out with are really tremendous value generators for our customers. And I think a lot of stuff that people would not really have expected us to do and we're really doing well we're winning a lot of business. So I feel very good about our margins.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Good. Thanks a lot guys. I'll jump back in queue.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Colin Ducharme with Sterling Capital. You're now live.

Colin R. Ducharme -- Sterling Capital Management -- Analyst

Hi, thanks guys. I had a quick question for Carlos. If you could just please offer a little bit anecdotal color perhaps from the subsidiary level on two line items in the cash flow statement, one on the inventories, and the other on the capex. You're getting pretty good kind of differentials there year-on-year. And I'm just trying to understand what's informing that and that's had a quick follow-up.

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Well, I would say on the inventory line specifically, I think our subsidiaries are experts of managing working capital. If you recall from our prior conference calls, we bulked up on inventory a little bit toward the end of our fiscal '18 period because we knew coming into '19, we would have high demand. And we did that intentionally. And so what you see now as you see some, what I would say it maybe a little bit more normalization in our inventory levels relative to the growth in the Company and we think that's good. That's not something that they were sitting here at corporate and pushing buttons. That's the guys down the field managing [Technical Issues] managing the working capital. So we're very proud of them. I'm glad you pointed that out that particular issue out, which is a good one to have.

Additionally you asked about capex, you know, that's, I have to be honest with you, I know these numbers inside out and upside down and sideways. But the one area that always surprises me is our capex spend. Our guys in the field are entrepreneurs at heart nature and from birth and if they don't have to spend a penny, they don't do it. And by the way, when they have to spend that penny, they contemplate do I buy a new machine or do I buy maybe one that's a few years old and put a few bucks into it and it will operate and do exactly what the new machine does. They tend to gravitate toward a more frugal standpoint and they will typically buying some used equipment. I'm not saying everybody does that, but that's a conundrum in my face, when I look at our capex, the guys budget for new equipment as I would want them to and we give them everything they need to grow their businesses and be successful. They tend to underspend, they tend to gravitate to a less expensive piece of equipment, not less effective or lower quality piece of equipment, but they tend to gravitate toward the lower cost choice and that's just in their nature. So that's why our capex spend was a little bit lower than what we had anticipated this year and that's why we brought guidance down, I would say, maybe for the year, I think we're roughly a 1.5% of our revenues and that historically has been about the spend on, if you look back many years over time. So that's the -- hope that answers your question. That's my comments on that topic.

Colin R. Ducharme -- Sterling Capital Management -- Analyst

Yes. Thank you very much. And then just as a quick follow-up. I wanted to just kind of pull the management theme from a new business growth perspective and perhaps I can kind of cut it both ways. And I don't know who is best positioned to kind of cover this. But here goes, from an M&A standpoint, you guys -- to move the needle going forward is going to need some larger deals; stock has had a great run, healthy multiple. Can you remind us your stance on using stock as currency to perhaps widen the aperture share for incremental M&A? And then secondarily, I was curious on the potential opportunity to penetrate more DoD business. Eric had some good comments there. And I guess my thought is before you would perhaps you have the opportunity to the PMA apart or something like that. Could you perhaps have an easier on trade with the service-based business like distribution or something like that as an initial tip of the spear, before kind of [Technical Issues]. Thank you very much for the time.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

So let me answer your first question about using stock or cash for acquisition. We have traditionally liked to use cash because all of our acquisitions are accretive in the first year and that's our style and our discipline. And if you have accretive acquisitions by giving cash and having strong cash flow, we'd rather not give out stock because we feel that the accretion in the acquisition is going to make the stock more valuable. So it's -- for us, it's not a good strategy -- has not been a good strategy to give out stock. Now, you could say selling at our multiple, it might be a good idea to give out stock and so in future acquisitions, we always consider the benefit between cash and stock and we make a decision as to -- part of the decision is what does the seller want. Historically, a seller is looking for a liquidity event. And because we can give them a liquidity event without saying your deal is subject to us getting financing it gives us a big leg up when competing with somebody else who says, well, let me get the financing, if [Indecipherable] and we can just sign a contract. So cash has been a great tool. The seller likes it and we like it. So it's a win-win for both of us. But in the future, again, we would consider giving stock for the right transaction. So every deal is different. There are no two deals the same and every deal is analyzed from a cash or stock perspective. So now I hope that answers your question. Is that OK?

Colin R. Ducharme -- Sterling Capital Management -- Analyst

Yeah. Thanks, and then just on the DoD penetration.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

So, Eric will take that.

Eric A. Mendelson -- Co-President and Director

So, yes, we -- that's a very good question. And we are very active with the DoD supporting them over on our distribution and defense sustainment component repair, as well as the parts -- aftermarket parts side. So we continue to do very well. We have many avenues into the DoD and many different touch points there. So I think that does offer us very good opportunity to increase our penetration with the DoD, as well as with other militaries around the world. We're also very strong. Typically, we are licensed by the original manufacturers of the defense platforms and we do sell to many of the US allies worldwide as well, offer them -- offering them these products. So if that answers your question?

Operator

Your next question comes from the line of Louis Raffetto with UBS. You are now live.

Louis Raffetto -- UBS -- Analyst

Hi, good morning, guys.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Good morning.

Louis Raffetto -- UBS -- Analyst

So I just wanted to follow up on Ken's question about the implied margins for ETG in the fourth quarter. There is no -- I mean, obviously, there is no other costs. So is there anything you see bringing those margins down even more from where they were this quarter that was impacted?

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Louis, this is Carlos. There is nothing. We're assuming for the rest of the year, it's going to be 29% range. We're -- generally speaking, we're satisfied with those kind of margins.

Louis Raffetto -- UBS -- Analyst

Sure.

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

I don't think that there is any implied decrease or anything like that in the guidance that we've given them. I think that we're going to continue to have the same type of growth and performance we've had throughout the year, which will principally maintain the margins that we have in Q3 going forward.

Victor H. Mendelson -- Co-President and Director

And just to add to what Carlos had to say, Louis, this is Victor. To me, I don't see any difference between 29% and 29.5% margins as a practical matter. I mean, they are incredible, the performance our people put in. It's nothing less than remarkable and you've heard me say this before. I mean, I just don't watch that closely and split the hairs like that. And I'll also point out that we have what Carlos probably 400 -- 4 points or 400 basis points of amortization. So that number is really like 33% or so, whether it's 33%, 33.5%, I just, to be honest, we just don't run the Company that way.

Louis Raffetto -- UBS -- Analyst

Sure. Thank you, guys. And then one other follow-up question, I guess, the organic growth has been strong across both businesses. I guess one question I have, it was more for FSG, I know you did the ODE acquisition about a year ago, it was $20 million, you did Decavo back in February, I guess, it is -- they're both pretty small businesses. But over the last four quarters, you've only had about $4 million of sales. So it seems a little bit light. Just to ensure if there was anything specific going on there, I know, ODE had some issues early on, but?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

The numbers are -- I suppose, as you pointed out, both businesses are doing very nicely. ODE did have some issues when the FAA shut down roughly a year ago. There was a delay on getting some of the licenses moved over. All of that's been completed for a while now. The business is doing very well and I'm very, very happy with both of those acquisitions. I think that we've got great opportunities. We take the long view in these businesses. Sometimes there are short-term fluctuations and we stand by our management teams and I can tell you that I am really, really excited without getting into specifics on those businesses and the future of those businesses. We've got products coming out that are frankly remarkable. And I feel really, really good about them. Sometimes there can be a longer period that it takes for something to come to fruition, but we still very much believe in those companies. And I would definitely do them again.

Louis Raffetto -- UBS -- Analyst

Okay, great. One last one cleanup for Carlos. I know you mentioned the NCI would likely come down as a result of the Lufthansa's stake. Is that the same on the balance sheet, I guess side, or we going to see that number drop I guess?

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

No, you won't see that. You'll see it on the balance sheet in equity, Louis, because their ownership interest in HEICO Aerospace was a permanent investment, and so you will see the dividend come out from our permanent equity not through redeemable non-controlling interest. So we'll show up there. And -- not through the redeemable NCI but non-controlling interests that have the equity line.

Louis Raffetto -- UBS -- Analyst

Okay, perfect.

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

And then as far as the -- we'll see, we're still -- we're budgeting on process right now. So we'll see how that plays out for next year. What we're seeing right now is that our partnership businesses are knocking on all cylinders right now. So we've had pretty good lift in that non-controlling interest charge going out as a result of the success that we're having in the marketplace. So that's driving -- that's actually working -- that's working against me. It's taking away earnings as a result of the successes that they are having. And then of course, we have this earnings add back, if you would, for the businesses that we just took back through our dividend. But as I mentioned earlier, the impact of that because of the interest carry on that particular acquisition or dividend and we took, it's roughly going to be a push for this year and then I'll give -- I have to give guidance for next year, is going to be positive by the way -- just until we get our budgets done, we know what the business are going to do, it would be responsible for me to try and estimate that right now on the call.

Louis Raffetto -- UBS -- Analyst

Sounds good. Thank you, guys.

Operator

Your next question comes from the line of George Godfrey with CL King. You're now live.

George Godfrey -- CL King -- Analyst

Thank you. Good morning, gentlemen. Once again, fantastic quarter.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you, George.

Eric A. Mendelson -- Co-President and Director

Thank you.

George Godfrey -- CL King -- Analyst

And, Carlos and Eric, I heard what you said about the margin and I agree on 29.5% versus 29%, 50 basis points really not that big a deal. And I'm going to nitpick here, so just bear with me, if I look at Q2, in ETG, the margin was 31.4% and based on your guidance here for the full year implies that the Q4 is going to be roughly around 27.5%, so about 400 basis point swing. Can I ask what moves around within ETG maybe within the space, defense or other industries that the product mix would or pricing or what have you would switch the margins around like that? And again, great quarter. Just trying to understand what some of the profit variances might be within ETG. Thanks.

Eric A. Mendelson -- Co-President and Director

So, George. It's a good question. It is similar to the one that Louis asked a while ago. As we've always had within the Electronic Technologies Group, it's a lumpy business, primarily because the business is heavily weighted toward defense. We do a lot of work for a lot of big primes and sometimes those orders push out on time, sometimes they get delayed, not for anything that we're delaying but because of their schedules. And so based on our backlog and based on what we see, that's what drives these estimates in these forecasts that we're giving to you. So I think you're always going to see, I think it's very difficult and [Indecipherable] following the company, it is very difficult in in a quarterly basis to analyze and project based on the quarter. You have to look at the ETG based on the year and as you probably noticed over the last three or four years that margin has crept up. It's crept up as a result of leverage on some of our fixed costs and our margins improve because of -- our gross margin is improving because of product mix. Those things as Victor pointed out look relatively sustainable and very positive. We're in a very good environment market for the Company. But to try and look at an individual quarter, given the types of businesses we have and then assume that that's going to be the norm, due to the lumpiness of the business, I think is the wrong way to look at the ETG. So that's my -- I don't know if you've anything to add.

Victor H. Mendelson -- Co-President and Director

And this is Victor, I would just add to that. I mean, if you go back and you look at our first quarter of the year, I think it was a 28% operating margin in the first quarter of the year. So -- and you go back and you look at '18, the first quarter '18 was between 27.5% and 28%, and you see that a lot, and you go back over time, it's one of the things that I've tried to guide people to expect is you'll see that variability and it's been the case historically in the margin. We really focus on the year and producing efficiently throughout the course of the year. So we really don't take any steps to manage or smooth it out. We try to maximize profitability and it's just where things tend to fall, and that'll be the case going forward. As I've said in the past, this it's past is pre-allude [Phonetic] with this business and that will, I believe, always be the case and it's where the customers want shipments, it may be where our components arrive, it may be other factors, but generally that's what we're looking to do, I would say, we would expected to year-over-year. And again, if you look at our full-year guidance on the margin, it was held back by a couple of million dollars on transaction costs, which are acquisition transaction costs, one-time acquisition transaction costs.

George Godfrey -- CL King -- Analyst

Understood. Thank you, Victor. Thank you, Carlos.

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you.

Victor H. Mendelson -- Co-President and Director

It's a good question by the way. So it's a very good question, and I am glad you ask that. Good chance to explain it.

Operator

Your next question comes from the line of John Frank with Fort Baker Capital. You're now live hi.

John Frank -- Fort Baker Capital -- Analyst

Hi, and thanks for taking my question. And job well done on another set of very impressive results.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you.

Yeah, sure. All my questions have been answered, but just wanted to circle back on the discussion between the two share classes. It just -- is there any -- what's the reason for the A shares to be trading at over a 30% discount to HEI?

So, the answer is we don't know. We don't understand that either. We've had many invest -- the biggest investment banking firms in the country have looked at it. They claim that the difference is the liquidity and that people prefer to buy the HEI and they pay a premium for the liquidity, that is there -- that's the investment banker's answer. I suspect it's something a little bit different and that is that, as a result of HEICO's success and so forth, many funds and many large investment funds and institutional investors have owned the stock for close to 20 years and when we came out with HEI.A in 1999, we did an offering, HEI.A was actually trading at a higher price than HEI. A lot of institutional investors have held and you can just check the records go on Yahoo or Google or wherever you want and you see that these institutions have held onto it, won't sell. As a matter of fact, I get -- occasionally, I get traders calling me and saying, all I'd like to buy a block of A and you know where I can get 500,000 [Phonetic] and so forth, and I don't know. So I think it's just the fact that some people have such large profits. They don't want to give it up. They want to continue their interest in the Company and that's my own belief. But maybe the investment bankers are right. But remember, we don't set the price of HEI.A, and on day one, the derivation of HEI.A was that in 1998, we distributed one share of A for every two shares of HEI. So -- and at that moment everybody had exactly the same thing. So it was up to the marketplace to differentiate the price. But the answer is we really don't know.

Eric A. Mendelson -- Co-President and Director

And by the way, this is Eric. I also like to point out to our shareholders and our team members that if they like the Company and they like HEI, there is an opportunity to buy HEI.A at 20% savings.

John Frank -- Fort Baker Capital -- Analyst

Sure, I think 30%.

Eric A. Mendelson -- Co-President and Director

Yes. So I think it provides really a great opportunity for people to be able to buy the stock at a 20% discount...

John Frank -- Fort Baker Capital -- Analyst

And to make just -- sorry to interrupt -- to make sure the economics are exactly the same between the two securities.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

That is correct. They are identical. The only difference is the vote. The common has one vote per share and the HEI.A has one-tenth vote per share. So unless somebody assigns such a value to the common, they can buy the same thing at a 20% discount. It seems like a no-brainer to me.

John Frank -- Fort Baker Capital -- Analyst

Sure. And given the concentration of the HEI, I struggled to put much value on the value of a vote?

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Right. We agree.

John Frank -- Fort Baker Capital -- Analyst

Okay, All right. That's all I have. Thanks very much.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Thank you very much.

Eric A. Mendelson -- Co-President and Director

Thank you.

Operator

We have a follow-up question for Gautam Khanna with Cowen. You're you're now live.

Gautam Khanna -- Cowen & Co. -- Analyst

Yes, thank you. Actually, just as a follow-up to the prior question. Have you guys ever contemplated just repurchasing A than either issuing more common, because that would just be an accretive move out of the gate [Indecipherable]?

Victor H. Mendelson -- Co-President and Director

Well, Gautam, the problem with that is the issue common, the buy Class A that we can do but the issue common of course is a process -- a laborious process and so on and that could potentially put pressure on the common by introducing more supply of the common stock. So I'm not so sure that the common holders would be thrilled to hear we were issuing common and buying in the Class A, and particularly, you have a lot of common holders saying while Class A holders have bought the stock, let's say, of late in the last few years added discount and then you're doing that to sort of push up the Class A at the potential of the expense of the common. So it's something we looked at and it's not the first time we've had the suggestion that we just don't think that that would be the right thing to do.

Eric A. Mendelson -- Co-President and Director

There is another thing too. We are in the mode to expand HEICO and make it a larger company, more profitable, more cash flow and you can't do that by buying in your shares and shrinking the Company. So it's really a choice that we want to spend money by buying shares were just suggesting by one and sell the other and what Victor would happen I believe is true, and that's also that to us sort of smacks of financial manipulation. We are not in the business of financial. We have never done financial manipulation with HEICO. Some companies do, we don't. And the market sets the price, and they buy the A, because it's 20% or 30% whatever it is less and we just let the free market set its own price. So all of those things go against the way we have decided to run the Company. I think it's more important for shareholders to look at the gains and the very significant gains on whatever shares they own rather than to be thinking about, oh, if they buy this in and sell that thing and do all this financial engineering. That's why we're buying HEICO because of financial engineering. We really want to run a very, very strong company and not be financial engineers.

Gautam Khanna -- Cowen & Co. -- Analyst

All right, thank you.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Okay.

Eric A. Mendelson -- Co-President and Director

Thank you.

Operator

[Operator Instructions] At this time, there are no further questions on queue. Presenters, you may continue.

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Okay. So, I do want to thank everybody who tuned into this call and we appreciate your interest in HEICO. We are available to answer questions. Carlos, Eric, Victor, myself, if you have any specific questions, we are available to answer them. Again, we thank you for all your interest and we look forward to speaking to you on the -- actually our fourth quarter and I guess will be in December, sometime in December when we have year-end and the fourth quarter. So thank you. Enjoy your Labor Day holiday, and we will all be in touch. Thank you.

Operator

[Operator Closing Remarks]

Duration: 92 minutes

Call participants:

Laurans A. Mendelson -- Chairman of the Board and Chief Executive Officer

Eric A. Mendelson -- Co-President and Director

Victor H. Mendelson -- Co-President and Director

Carlos L. Macau -- Executive Vice President, Chief Financial Officer and Treasurer

Audrey Preston -- Credit Suisse -- Analyst

Sheila Kahyaoglu -- Jefferies -- Analyst

Gautam Khanna -- Cowen & Co. -- Analyst

Ken Herbert -- Canaccord -- Analyst

Michael Ciarmoli -- SunTrust -- Analyst

Colin R. Ducharme -- Sterling Capital Management -- Analyst

Louis Raffetto -- UBS -- Analyst

George Godfrey -- CL King -- Analyst

John Frank -- Fort Baker Capital -- Analyst

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