HEICO: Parts for Planes - [Business Breakdowns, EP.150]

26:10So you have less of a focus on the risk there. Now that doesn't mean there isn't swings. And And this is a very mixed sensitive business because of the differing margin profile of the products. So when you think defense, which is the biggest piece of this segment, very tied to budget growth and outlay spending, which tends to not be cyclical because defense spending is more driven by the global threat environment than it is any economic cycle. And that business grew straight through the pandemic, not at a high rate, but it was growing. So it provides you a buffer during those periods. And just touching a bit on why the margin profile is different also comes into the fact that these are subcomponents going into the defense industry.

26:54And when you think defense, it's really very similar to aerospace in terms of the technological capabilities, manufacturing capabilities, the long product cycles, long term steady growth. But the cost structure is quite different. And the reason you're able to have, I think, the margins that they do in this segment, which on the defense side are well north of 30%, is when you're a mission -critical technology solution, obviously that comes with a fair bit of price not being the determining factor. But when you're selling primarily to the defense primes, and you think about the incentive structure, a lot of their revenue is driven by cost plus contracts.

27:33And I don't want to say that that incentivizes you to ramp up costs, but it doesn't incentivize you to cut them in the same degree. The negotiation with a Lockheed is just not the same process as a negotiation with Boeing. So it provides you with a fair bit of cushion. Everything you've described about the Mendelssohn's is they're very thoughtful about capital allocation about running this business for shareholders. Has there ever been a contemplation that you could split that business out, divest it, create its own vehicle? It's just interesting to hear how it is very unique relative to the FSG, just flight -related businesses.

28:11So how much are they complementary versus how much could this be some opportunity in the future to potentially break things up a little bit? I don't think the Mendelssohn's would ever split anything off because their entire operating philosophy is owned forever. And they operate in a very decentralized fashion. And while the businesses are very unique, there is some complementary attributes. And a lot of that will end up being tied in with the fact that ETG has some manufacturing capabilities and low -cost solutions that FSG is able to leverage. The manufacturing capabilities are often very similar.

28:48So you could end up having crossover of different suppliers that gives you more leverage. And the same thing with FSG. So FSG has some different technologies that are also useful or complementary to the ETG businesses. And while they're never vertically integrated, the segment presidents are often incentivized and encouraged to work together and able to use the resources from both to complement each other. And the last thing I'll just say why ETG makes sense is it throws off a lot of steady cash flow. And that allows for a capital allocation vehicle for the Mendelssohn's to use both for development and FSG, but obviously with the acquisition machine that they have running.

29:27We're going to get to the acquisition machine. I do promise that. On the FSG segment, I think we've talked a lot about that business, what drives it, the unique characteristics. Are there any other things that have been missing there? And specifically, as it relates to Heiko, it's a market where they're generating nice, steady margin, seems to be growing very successfully. What else are the major drivers of that segment line for Heiko? Some things that we haven't touched on that I think are important is to just have a discussion about Heiko's go -to -market strategy against the OEMs because it is quite unique.

30:03And it's probably the best example of the prisoner's dilemma in practice that I've come across. So when Heiko is going up against an OEM for any given part, the goal is to get to 30 % market share and then leave the OEM alone. And the rationale behind that is because if you run the math on the contribution margin of the OEM at a 30 % premium at about a 50 % margin, and then Heiko at a 30 % discount to that at typically something around a 30 % margin, once you get above a 30 % market share, you start incentivizing the OEM to cut price. And if the OEM starts cutting prices, then there's really not a strong incentive for the airlines to stick with the PMA.

30:49So Heiko's strategy in a way is, we'll take a bit of your market and these parts, but we're not a significant threat to you. And the other thing they do in that regard is they don't go after what are called life -limited parts. And what life -limited parts are is really the crown jewel parts of the OEMs. They're parts that have to be replaced after a certain amount of flight cycles. And they're typically the most highly engineered parts and they're the most safety critical parts and have the best margins for the OEMs. So Heiko tends to leave those alone. And really, it's just trying to incentivize behavior where both can coexist.

31:26And then in terms of drivers of the segment, it's really air travel at a high level. And the way to think about air travel growth historically is flights tend to grow around four to five percent a year. And it's very highly correlated to global GDP. And as economies around the world expand, and as people move up into middle class, one of the first things they do is they start to travel. So as GDP per capita increases, there's a linear relationship with flight growth. Something that's interesting that I don't think a lot of people understand in terms of the runway that's left for air travel is I've seen a wide range of estimates from as low as 20%, but certainly not higher than 50 % of the world has ever been on a plane.

32:10So even though this has been a very steadily growing industry for multiple decades, there is a very long runway to continue doing that for a long time. I'll put COVID aside for a minute. And I do want to know those numbers. But if you look at Typical recessions, maybe financial crisis, maybe 15, 16 timeframe. What type of drawdowns do you see in that FSG business specifically? How drastic is it? So COVID is an entirely separate beast. Just to give everybody some numbers around what happened with air travel with COVID, for a few months stretch of time, global passenger levels were down 90%. Outside of COVID, there's never been more than a mid -single -digit decline in passengers.

32:53So the difference in the fall off in demand is it's a completely separate discussion. But setting COVID aside, there's only been three other years really in history that global travel has declined. And it was the recession of the early 90s. It was coming out of 9 -11. And it was the great financial crisis. And you have anywhere from a 2 % to 5 % drawdown in travel during that time period. And the aftermarket tends to be what gets hit first because you immediately park your planes or you park the planes that aren't needing to be used, but it ramps back the fastest. So it ends up being a more stable business over a longer duration compared to the OEM cycle that has to ramp down.

33:33And then it's very, very hard to ramp that back up. In terms of numbers on FSG's drawdown, coming out of the great financial crisis, organic growth at FSG was negative 10%. And that outside of COVID is the worst organic growth year that the company's ever had. And the last thing I would just note is that cycles tend to be very, very good for HIKO. And it's because of the reasons I think we touched on earlier that when there's a drawdown and airlines are looking to cut costs, obviously, a very good way to do that is to cut your maintenance spending. And a way to cut your maintenance spending is adopt more PMA parts.

34:11So maintenance spending is the third largest expense for airlines. So that ends up being a decently material driver. I want to know how low organic growth was during COVID. On a year -to -year basis, it wasn't that bad because HIKO's 2020 started in November of 2019. So they had some decent contribution. But if you look at the third quarter of 2020, organic growth was negative 44%. And while that's drastic, it's significantly better than their competitors. So competitors at the time were in the mid -50s to low -60s types of drawdowns, which again, just gets back to the fact that you're more likely to adopt PMA parts.

34:53So the other thing that's important to note about, it's not just during the cycle where customers adopt PMA parts. Once you adopt a PMA part, the incentive to switch back to the OEM is non -existent. So it's very, very sticky revenue. So coming out of downturns, HICO tends to gain share at a much more accelerated rate. And also, there's the M &A aspect of it during downturns as well, where this management team tends to be opportunistic. which we can talk about that as well. We've talked about OEM versus PMA, but is there PMA versus PMA competition as well? Are there others selling parts similar to HIKO?

35:29Not really. Not nearly to the same extent. So when you look at the PMA industry, it's for a few reasons. A, HIKO is by far the largest in the PMA space. I think I could reasonably estimate that they have somewhere around 75 % market share of PMAs. And when you think about their parts portfolio, 19 ,500 parts. That was significantly enhanced by the Wencore acquisition that I just mentioned briefly in the beginning. Wencore was the second largest player in PMA. So before that acquisition, Heiko was around 12 ,000 parts. Wencore was somewhere around 7 ,000. So the combined entity is now 19 ,500. Now that Wencore is out of, not out of the picture, but underneath Heiko, The next closest competitor has less than 2 ,000 parts.

36:16So the scale differential is quite different. And the value proposition that you're able to offer airlines is compounded when you have more scale, which I think is something that is important to touch on in a bit. But the other thing about why there's not really much competition in PMA is the barriers to entry are relatively high and it would take so long. Heiko is the gold standard. they have the best relationships with the FAA and the airlines, and they can still only pump out 500 to 700 new parts per year. So even if a startup was looking to do that with no reputation, even if they could do that, you're talking about multiple decades before you replicate that portfolio.

36:58And then if you're going to start developing a bunch of parts, why go after Heiko's parts when there are thousands and thousands of other parts in the white space for you to go attack because trying to pitch an airline on selling 5 % versus Heiko's part after Heiko's already made that initial frictional sale to get a 30 % discount is just going to be a lot tougher than going to a new part and offering 30%. So there tends not to be nearly as much competition. And has that always been the case? It makes sense in terms of why it would be hard to break into the industry. But as the industry was forming, what led to it just having this sole leader and not having that competition amongst players?

37:41I think honestly, it gets back to the Lathansa investment that we were talking about. I think that is a really key pivotal moment because when you have an airline partner, it just gives you such an advantage in terms of being a first mover and being able to accelerate development. But really throughout history, when PMAs were more in a nascent stage, it still wouldn't have made much sense to really compete over each other because of those dynamics. So there's just more white space to go take and then have an easier sales process to the OEM versus trying to compete with each other on a slimmer pricing discussion.

38:14It's quite interesting when you have these industries where, to your point, it might not have been en vogue early on. And it's only after you have this player who's built up scale, who shows this financial performance that that profit pool all of a sudden looks very attractive. Just to put a bow on this point, when you look at the 12 ,000 parts that they had and the 7 ,000 that they acquired, do you know how much overlap there was between the SKUs? Very little. I don't have an exact number, but I think it's somewhere around the 10 % to 15 % range. And when you add scale to the portfolio, something that we haven't talked about that I think is really important because we've been talking obviously a lot about PMA parts, but Heiko is much more than a PMA business.

38:59They've also added the repair and overhaul capabilities and distribution capabilities of other OEM parts. And why that's so important is because if you're just a PMA company, you're trying to go convince an airline to use your parts and to just use a real world example like a hydraulic pump. So often when we're talking about aerospace parts, we're talking about actually a component that's made up of several other parts. And I'm just going to throw out numbers here. They're probably not exactly right. But just for illustration purposes, if you look at a hydraulic pump, it could be 500 different parts.

39:32And Heiko may PMA 20 to 30 of those. So you're then having to go convince an airline to buy 20 to 30 parts at a 30 % discount. And while that's a powerful pitch, it ends up being a low percentage of the bill of materials. But now let's say that instead of just being a PMA business, you also have repair and overhaul capabilities to where you can repair that pump for the airline. And then let's say you also have distribution capabilities to where you are the distributor for some of the other OEM parts on that pump? Well, that just gives you a much stronger relationship with the airline, where you don't have as much friction in the sales process.

40:08It gives you more visibility into the parts that are moving at high volume. So it informs your PMA development process. So you may now go and PMA more parts on that pump. And then as you develop that relationship with the airline, you're able to offer more cost savings over time. And it's really because you're able to then control both your turnaround time on the repair and your supply of parts. So you get into these situations where now you can go to the airline and say, I can repair this pump. It's going to cost you $10 ,000 and I'm going to have to wait three months on all the OEM parts. Or I can do it with some of my PMA parts.

40:44And because I control the distribution of these other OEM parts, I can do it for $9 ,000 and it'll only take two months. So that's how these things work together to compound the value proposition to the customer. It makes a lot of sense that those relationships would evolve in a very favorable way over time, where the selling strategy becomes not easier necessarily, but you have a lot more that you can offer when you start to have all these different capabilities inside. I think some of that comes from the M &A strategy, which you've tapped on a bit here throughout the conversation. It seems like it's core to the DNA of the business.

41:19So talk a little bit about the history of M &A inside Heiko and what it's meant to the growth of the business. So Heiko's overarching goal has been to grow the bottom line at 15 % to 20 % a year annually. And about half of that growth historically has come from M &A. And I would describe the M &A strategy at Heiko as very disciplined, very opportunistic, and very aligned with incentives in terms of creating an ownership environment. So since the Mendelsons took over, they've done over 98 acquisitions. They've only divested two. So they really try to be the acquirer of choice and forever home for businesses.

42:02And to just give you an idea of how effective they are, they've deployed over $5 billion per M &A over 34 years. There's been less than $10 million of cumulative restructuring or impairment charges on those deals. And that really comes from, There's just a refusal by the Mendelssohns to overpay. They really view capital as it's their money, their family's money, their friends' money, and they're not going to do anything to blow that up. Are there quantifiable metrics that they use to key in on acquisitions, whether it's either what they're buying at or the return on capital that's been? Most acquisitions that they do are smaller, medium -sized businesses that they're able to acquire at mid to high single digits, cash multiples.

42:45So that gets you right into a teens type return before considering the growth that you're able to deliver by coming into the HIKO environment. And really all they're looking for are critical technologies. Usually that's expressed through high margins. So typically you're looking at high teens, 20 % margins is the base level that they're looking for. And usually entrepreneur -led businesses has been the model. And the way they go about structuring deals historically has been when you find those entrepreneur -led businesses to leave a substantial piece of the equity to those entrepreneurs. So typically, 20 % of the equity gets left with the entrepreneur.

43:24With bringing them into the organization, you want to align the interests. You mentioned they have a decentralized culture, which gives some freedom to operate the business as they see fit. But I do imagine that there needs to be some centralized strategy in terms of offering the airlines all the capabilities. So how do they balance those two things together? So it's definitely the gold standard decentralized, let decisions happen locally strategy. The Mendelssohns will be the first to tell you that the people in the field running these businesses are much more knowledgeable about the markets than they are.

43:59So there's really no middle layer. There's subsidiary presidents, and then there's the Mendelssohns. And really what the Mendelssohns do is just incentivize and encourage those presidents to work together, give them the resources to get stuff done. And they do that through basing compensation on operating profit and operating cash growth at each of the subsidiary levels. And what ends up happening is a lot of these subsidiary presidents end up running the businesses like they own it because they used to own it. over 90 % of the acquisitions of entrepreneur -led companies that Heiko's done are still led by those entrepreneurs, and they still own a significant piece of the business.

44:38So it doesn't take a lot of encouragement to get them to work together, even though it is a decentralized structure. And the ownership piece is critical to understanding the culture. So the Mendelsons own about 8 % of the equity of the company. The rest of the board owns about 2 .5%. But most importantly, the employees own over 2 % of the company. And it's because Heiko's historically gifted stock in the 401k plan at 5 % a year. And that's ended up creating a lot of multi -millionaires down at the factory level throughout the company. There are over 400 employees at Heiko that have over a million dollars of Heiko stock in their 401k.

45:20And on average, Heiko employees own more in stock than they make in annual compensation, which is something that I've seen public company CEOs that don't have that same alignment. It's interesting. And it brings up the natural comparison of Heiko to Transdime. We did an episode with Transdime on the show 50X that was very detailed. There's a lot of overlapping similarities between these businesses. Could you just compare and contrast where they're similar, where they're different? Just an overview in your own words. Absolutely. So this is always a fun, healthy debate, because if you're an aerospace and defense analyst, inevitably, you're going to find yourself looking at these two businesses.

46:04And when you do, I like to joke that Larry Mendelsohn's the angel on one shoulder and Nick Howley's the devil on the other. And I mean, that is no disrespect at all to Transdime. I think you could make a very real argument that it's a better business than Heiko. But they're so remarkably similar yet remarkably different. Both are extremely, extremely high quality, similar exposures from a defense and aftermarket perspective. They both generate most of their profits through part sales. They're both run by talented management teams. Both have a decentralized M &A program as core to their capital allocation and both try to align an ownership mentality within the culture.

46:43But the way they've gone about employing those strategies is almost opposite in a lot of other ways. So where Heiko tends to leave businesses alone, Transdime has been very willing to go in and cut costs and divest pieces and been very effective in doing that. Where Heiko typically runs at very low levels of leverage, Transdime is very comfortable to run it six times and routinely does so. And then most importantly, where Heiko's entire value proposition tends to rely on offering customer savings, Transdime is very notorious for raising prices, which I think is something that can be exaggerated at times.

47:19But the good news is they really don't compete as much as I think most people think and a lot of ways end up working together. So from a veteran perspective, they can complement each other quite well. When you say they end up working together, how does that happen? So maybe just thinking about why they don't compete first. When you look at the two portfolios of parts. Transdime is over 300 ,000 parts. And Heiko, as we've mentioned, 19 ,500 in the portfolio. So 15 times differential in total number of parts. But when you look at the revenue of Transdime's aftermarket parts business, it's about a little more than $2 billion.

47:56And if you ballpark Heiko's at a billion dollars, so two times the revenue, 15 times the parts, what does that tell you about the average value per part. So low value, low volume parts is where Transdime is primarily focused. Those are very difficult to PMA. And it also is really hard for an airline to switch off those parts. And then where they end up working together is often in the distribution businesses. So Transdime will often take for some of their more high value parts and go have a PMA company be their distributor. And when you do that, you exclude the PMA company from PMAing those parts because you have the distribution relationship.

48:34And that ends up just being really a math equation in terms of what can I make by PMing this part versus what can I get distributing it? So Wencore actually is the main distributor for a few of TransDime's key product lines. And that distribution business, is that mostly just the supply chain dynamics? Is there anything more to it than managing it from an inventory and transportation perspective? In both the repair and overhaul business and the distribution businesses, there are two companies in aerospace. There are companies that are very big and try to do everything but don't end up doing anything really well.

49:07And there are companies that try and focus on a few key areas of parts and repairs and do those really, really well. Those are the businesses that Heiko has acquired into the repair and distribution businesses. Understood. It's interesting just to hear, again, another example of the industry cooperation, almost, in terms of segments being left alone, in terms of who is willing to compete in them. And there's obviously barriers to entry. But again, it's just very important when you think about industry structure and how much competition there is. Absolutely. When you round everything together, we gathered a lot of interesting information there just in terms of the numbers, organic versus M &A growth.

49:47What does the business look like just through the income statement? What does the earnings profile look like? How much of that is actually converting to free cash flow? And anything else you would point to just in terms of how you think about the financial model of this business? So the FSG business is about a $2 .5 billion business that runs at low 20 % margins, which has been a steady improvement over time as you increase volume, primarily through the PMA business, which is the highest margin piece. ETG business, about $1 .3 billion business, around 25 % operating margins. And then this is a very low capital intensity model, primarily because you don't have the upfront development costs and they're just quite savvy about how they go about putting in capacity, which just gets back to the ownership model.

50:35But free cash tends to convert at over 130 % of net income. So it throws off a lot of cash and that's really what funds the M &A funnel. What is the dynamic that drives that? So it's really the mismatch between depreciation and specifically amortization expense and the low levels of needed capex. So they run a lot of amortization because of the acquisitions that they've done, but that doesn't end up ever having to be replaced. So their cash margins are much higher than their gap margins by about 5%. That's not a bad thing. A good setup there, a good financial model. If I start to think about risks with this business, one of the things that I would think about is just the M &A opportunity from here.

51:17You mentioned they've consolidated the industry quite a bit. So when you think about that, looking forward, where are the opportunities? How much can M &A be key to the growth story going forward? I think that's honestly key to get on it. Probably the biggest risk from an investment perspective, as it is often with any serial acquirer, is just how long can they continue to invest at increasing either deal size or deal volume. And it's hard to underwrite that because the supply chain is so complex. I feel very confident saying that there's not another Wencore out there, which was a $2 billion deal and the hand and glove fit with FSG.

51:57But I do think that there is plenty of runway to do a lot of smaller 10, 20, 50, $100 million deals because the supply chain is just so fragmented and so diverse. But I do think it's going to start to trend more towards, and we started to see this before the Wencore deal, that deals have started to shift towards the electronic technology segment into more niche areas rather than in the aerospace market. it. And I'd say that's a risk. I think it's the piece of the investment thesis where you're really relying on the Mendelssohn's capital allocation savviness, which they obviously have a really good track record of.

52:34But honestly, when you look at the bold case for Heiko, I think half of it is these are really good underlying businesses. And half of it is you're trusting the Mendelssohn's to continue to prudently invest the cash that they threw off. And the Mendelssohn's will tell you that even if they didn't have another PMA part developed, that they think that they can hit 15 % bottom line growth by expanding into other areas. And they'll buy ice cream cone stands if they can do 20 % margins. 15 % is an insane number to point to. That's not setting the expectations low for yourself. But I do respect and admire that confidence and the track record to prove that they can do it.

53:11When they do make those acquisitions in the ETG business, how does the market respond to those? I think anytime a press release comes out that Heiko's done an acquisition, people get excited. And it just gets back to the track record. Talk about 98 deals. They've kept all but two of them and have pretty much no impairment. And this management team will tell you repeatedly, if it's not accretive, it doesn't do anything for us because they're not playing for salaries. They're playing for increase in equity value. So I just don't see them overpaying for something. I think it's more of a risk that there isn't enough opportunity than it is that they do a bad deal.

53:49And the other reason why I think people end up getting excited is this is a very opportunistic management team when it comes to doing deals. I mentioned the big one core deal. Six of their eight largest record M &A years came in years when industry M &A spending was down over 10%. So usually when you see a big deal done by Hiko, it's because the competition and the space for that asset was at a disadvantage, which just gets back to how they go about managing the balance sheet and how they think about in decades rather than quarters. That's an awesome statistic. It's such an easy concept in textbook fashion to understand you should be investing at those times, but to actually do it in practice and to have that type of track record speaks for itself.

54:32When you think about the succession plan, it sounds like you have the brothers who are still of able age to be managing this business. Are there any considerations when it comes to succession plans and just who's operating the business, anything along those lines as it relates to the family that becomes a risk or anything related to that? When it comes to succession planning, often it's one of the biggest risks in family businesses. And I think it's a rare case here where I almost don't think about it as a risk. And that's because you have a management team that's been in place for now over 30 years.

55:05And all signs point to at least Eric and Victor being in place for multiple decades more. That's just something that I certainly haven't seen any other business like it. So Eric and Victor are both, I think, in their mid -50s, no signs of slowing down. And then I think because of the decentralized model, the bench is extremely deep here at the subsidiary president level. I think the Mendelssoons would tell you that a lot of those presidents are more skilled than they are, but you don't see who they are on earnings calls. And do you think there's any risks that we haven't touched on? I think, obviously, you have just general macro trends, flights and aviation and just willingness to get onto planes.

55:43But anything else that we haven't covered that you would point to as a risk for the business? Certainly, if we have another COVID, that's going to blow up at least the near term picture. But I think front and center, the biggest risk is that you have a park failure that causes a crash. That would be Armageddon scenario for PMAs as an industry. And that's why there's such the focus on quality. I don't really see that happening given the track record and the fact that they tend to stay away from safety critical parts, but it's certainly there. And then lastly, I would just say Heiko has now gotten to a stage where $3 .8 billion company going on, they're a very significant player and they're able to offer a lot more system level customer saving solutions as we talked about before.

56:27And they're able to offer a lot more scale that could start to encroach more on OEMs. So I think there is a risk going forward that you start to poke the bear a bit more. And how do OEMs end up responding to having a potentially larger threat given the advantages that they have? I would say it's hard to imagine they do anything more than they've been doing historically because they've done everything from price gouging on non -PMA parts to bundling. They have the advantage of long -term service agreements. They've tried invalidating warranties. They've done some pretty anti -competitive stuff in the past.

57:04So hard to really say that what it is they would do, but certainly something to keep an eye on. On your first point, it does bring up the recent news and ongoing issues at Boeing. As it relates to a part malfunctioning, everything that I'm seeing right now is just tagged on Boeing as being the culprit and the issue. When does it get put on the parts manufacturer? And I know if the part fails, it's on the part. But how do you separate the two? And is there a history of parts manufacturers really wearing the blame when it comes to those malfunctions? I think at the headline level, when you open up the newspaper, Boeing is going to always wear the brunt of it because it's the easiest target.

57:46With the recent industries, the majority of those issues, I think, actually are more placed on Spirit, which is the fuselage provider for most of Boeing's aircraft. It's interesting when you get into how the industry actually operates, you can pretty much always identify the specific part that causes any malfunction down to the direct skew. And part of that is a really attractive reason for PMAs because you're able to identify so many parts that aren't safety critical because you have that ability to know which parts it is that causes failures. So anytime there is a part failure, The regulators are going to know who is responsible for it.

58:25But as an OEM, you don't wear nearly as much risk because you were originally certified into that initial process. You've gone through all the safety inspections. You are the source of supply. From a PMA perspective, it's just a different viewpoint because you're viewed as not the original part. So it's just viewed as more risk. So if there was a PMA failure, it would be viewed as a much bigger deal than an OEM part failure. It's a very fair point that I hadn't considered in terms of the PMA risk actually being elevated relative to the OEMs for that exact reason. So it makes a lot of sense. We wind down these conversations with the lessons that can be taken away from this business.

59:06So what would you point to here just in terms of lessons from HIKO? I think there are a lot of them. I'll point to three. I think first off, incentives are important. And when you find a business that has incentives aligned across management, shareholders, customers, and even down to the employee level in a growing industry, that's a very, very powerful formula for compounding. Secondly, I would just say duration of growth should be as if not more important than magnitude of growth when analyzing businesses. And then lastly, I would just say it's an example of you should keep things simple as much as you can.

59:43A wise man once told me that investing is simple. It's just really hard to do. And as investors, I think we tend to overanalyze things because it's just our nature. But truly exceptional businesses tend to hit you in the face when you see them. I think if you spend an afternoon reading Heiko transcripts, it will become apparent to you very quickly that this is a management team that just goes about things differently. They don't give quarterly guidance. They don't give adjusted metrics. You're much more likely to find them at an industry conference than a sell -side conference. They're often frustratingly conservative in the estimates they do give you.

1:00:19And just everything is about long -term, growing the bottom line, taking care of customers, and taking care of employees, or what they call team members. And these are all things that you can't put into a five -year DCF. But what we found is when you find a business with an identifiable competitive advantage run by managers that think and act like owners, the math really tends to always end up working out for shareholders. This has been a great discussion, Eric. I appreciate you coming on and teaching us about another niche, interesting business with a lot of great history, a great management team and ownership group that I plan to learn about more after this.

1:00:56So thank you for sharing the knowledge, Eric. Absolutely. Thanks so much for having me on, Matt. This has been fun. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna or to sign up for our weekly summary, check out joincolossus .com. That's J -O -I -N -C -O -L -O -S -S -U -S .com.