I went over some of the companies quarterly earnings calls and wrote down some quotes from management that I found to be interesting. I really like how they view the company as owners.

“This management is really compensated because of our stock ownership, just like every shareholder out there. And we are completely aligned with every shareholder, if we selfishly make a good acquisition or we generate cash and it goes to the bottom line. If the stock price goes up, yes, we benefit because we’re the largest group of shareholders.

However, every shareholder benefits pari-passu with what we have. In other companies, many companies, I believe that the motivation is bifurcating. The management generally owns little equity and therefore, the management wants to grow the company top line, even if the operating margins are 8% or 10%, the top line can double. That requires the use of a lot of cash.

But the management who is generally there for 3 to 7 years, sees his or her compensation double. If they grow the top line from $2 billion to $5 billion, the managers’ compensation goes from $3 million to $6 million, whatever the number is. In our case, we own a large number of shares. So if the stock goes up 10 points, and I’ll define it for you. It’s public. If we own 12 million or 14 million (shares), and I don’t know the exact number, but if you include the 401(k) because we’re very concerned about the success and the financial stability of our people, our team members. If that goes up 10 points, we make $140 million or $200 million in equity value. Now do I care if my salary goes up $3 million, of course, not.”

On growing the company:

“What we do is we model in a controlled growth pattern. And that’s our strategy. So we have said publicly that we aim for a bottom line growth of 15% to 20% annually and that’s accurate. We think in the relative near future, we can continue that growth. I mean, historically, over 31 years, we’ve done 19%. So in order to accomplish that growth, control growth, we can do it very well using the debt strategy that we have implemented. There is no need for us to go out and do anything greater. Now saying that, people have asked, would you do a transformational transaction, a major acquisition or something else? And the answer is yes. If it is really going to benefit the bottom line. Too often we see, and we’re approached by investment bankers with ideas that we can make HEICO bigger. We can double HEICO or increase it by 60%.

But they’re talking about the top line. And we’re focused on increasing the bottom line and cash flow. And so if the opportunity presented itself to increase the bottom line, we would do that. And we would probably take on more debt. The key to taking on the debt is how quickly it would be repaid because we don’t want to be up at 6 or 7x like some other companies. We don’t feel comfortable there. Nor do we need to do that to grow at the 15% to 20% target. And I think speaking to shareholders, which we do a lot, as you know. They like the idea of steady growth, and we do too, and we’re the largest shareholders. So it’s a strong, steady growth when the market collapsed in March, the banks weren’t calling on us. We didn’t sell debt at 8% to 10%, and we slept well every night.

As long as it will benefit the cash flow and the bottom line and that we see it’s going to be strong real growth. We’re not into financial engineering. And you can see in the last quarter, we had 177% of reported income was cash. So that’s our whole game, if you will. It’s the cash flow, it’s the bottom line. And anything we can do to accomplish that, we are going to do it for sure.”

On cash flow and margins:

“Basically, I perceive HEICO not as an aerospace or electronic technologies’ company. HEICO is a very strong, well-managed vehicle for generating cash flow. And as I look at HEICO, I see a snowball of cash. That’s why we are in business. I don’t want to be in the business of 7%. Some of you, and you know industrial companies, lots of them are operating at 7%, 9% and all that. We don’t — our management, we’re not focused on that and we don’t want to go there. So we intentionally look for high margin. High margin is what permits us to constantly explode the company. Our operating margin doesn’t require us to invest huge amounts of money in receivables and inventories. Other guys who have low margins, they have all their money stuck in nonproductive assets of receivables and inventory. So if anything sets HEICO apart from other companies, it’s that basic philosophy of how to manage that money. And that’s the only way we know how to do it is shoot at big margins and grow. And that extra margin that we get is what permits us to reload and grow. And we’re not going to cut it — we’re not going to go out and buy a 7% margin company.

The other thing which I’m going to throw out to these people listening, the Mendelson family and our team members own a very large percentage of the company and we’re not interested in the top line growth and building a company at 7%, 8% operating margin. We’re interested in the bottom line. The only thing that makes us as shareholders and you as our partners wealthy, is the ability to have bottom line earnings per share, and more important, cash flow growth. So our whole focus is cash flow. So when we talk about growing the company, we’re going to grow the company with margin, a strong margin. We started 20% in acquisition. Hopefully, we get more than that. And that’s really the philosophy, if you want to know what makes it work, that is really at the basic philosophy.”

On acquisitions and taking on leverage:

“Firstly, we try to have controlled growth and we focus at 20%. And I can tell you in order to do 20% bottom line, we don’t have to take the leverage way up to 5, 6, 7 times so we can accomplish that probably at 2 to 3 turns. But if we had an opportunity to make a sensational acquisition that would create cash flow and growth and so forth and so on, I feel comfortable at 6 or 7 times.

However, I would want to make sure that it’s not the absolute number that scares me, it’s how quickly the 6 or 7 times turns back to 2 to 3 times. So it would all depend upon that acquisition. And that’s really the way we look. We don’t like high leverage. Companies get in trouble with leverage. We’ve always been a low leverage Company and for 25 years, we have been able to grow at a compounded rate of about 20% bottom line and stock price.”

“We’re very disciplined in what we buy. And we want to make sure that it makes sense. We don’t want to grow for the sake of growing and saying that we’re a bigger company, and we don’t grow because the CEO and the executive office gets its compensation based on gross revenue, which so many corporate players do. We own equity, probably the largest shareholders individually. And so our compensation, our benefit is on the bottom line cash flow, earnings per share and growth. So to grow the top line, so we gain a couple of million dollars in compensation is not what motivates us. So we’re going to focus on something that comes down to the bottom line. We have been shown many opportunities to acquire, merge, whatever you want to call it, with other entities. But unfortunately, corporate America generally runs on a 7% to 11% operating margin. To us, that’s not very tempting because our all-in operating margin before amortization or eliminating amortization is around 25%. So we’re not going to go for that kind of thing just to get bigger for the sake of getting bigger. So we have to be careful on what we buy. Now we have and we have looked at larger companies where we could make an acquisition, possibly trim some expense, possibly consolidate and gain some additional sales, but a lot of these companies, these bigger companies or companies our size don’t have the bottom line cash flow, operating margins that we like to have. So we certainly have the firepower. We can buy companies, we probably could spend $4 billion, maybe more, because we are not a capital constrained company. Our debt-to-EBITDA right now is around 1x. So we could probably acquire anything that we may want to acquire in the future, but we’re going to be very disciplined because we want the cash flow. And truthfully, most acquisitions, if you look at all acquisitions, most are not successful. They buy a pig in the poke, and they get stuck with it. And we’re very entrepreneurial, and we do not plan to do that. However, we do focus on bottom line growth and cash flow. So that is going to make the determination. But if we get an opportunity to buy or merge or something with a much larger entity, and we can still get the juice out of the orange and we get the bottom line that we look for, we can do it, and we would do it. And I’ve also been asked how much debt would we be willing to take on, and my answer is we would do something like TransDigm 6, 7x. However, it’s got to come down within a couple of years, say, 2 years to around the 3x level, 2 to 3x level. So it’s not the initial expenditure, but how quickly we could bring that debt down to a manageable level. Particularly, in current times when there are many articles that are in the press today about excess debt all over the place and the ability to service debt and to handle it, we don’t want to get into a jackpot like that. As you know, we have grown pretty well, close to 20% over 28 years. We intend to continue. Our bottom line is the growth and the cash flow and the compounding of earnings.”