Innovative Solutions and Support (ISSC) 10 May 192019 Q2 Earnings call transcript

Good day, and welcome to the Innovative Solutions and Support Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Geoffrey Hedrick, Chairman and Chief Executive Officer. Please go ahead.

morning. Good Hedrick. Geoff is This for like to call quarter to conference our this fiscal welcome discuss our you outlook and to conditions second current morning coming performance year. XXXX, our business I’d the of of the

Askarpour, today Relland Winand, President; me Joining our CFO. and Shahram are our

safe I Before our I’d Rell? Rell like message. begin, read to harbor

actual financial conference risks SEC to you, results risks subject and and uncertainties and other certain XX-K, matters which that that Geoff, could from our remind listeners company’s products are periods, including our materially, and Thank cause future worse to new better in for public good other filings. call the forward-looking those is in discussed, would results or on operational the are including morning, either with reflected and everyone. I that uncertainties today, discussed and differ file statements

Now Geoff. to I’ll the call turn back

results refocus of cost Company’s second the continue consecutive for second reflect you, the Both year. quarter. we last at Thank initiated increased, were revenue and profitable quarter Rell. and to backlog marketing the and controls end

commercial improvement. In transport, military addition, $XXX million segments: cash. Each aviation – general generated that one of the contributed three market I’m to sorry, and the $XXX,XXX, business in air

to will believe of received PC-XX remainder successful steady The transport quarter, air over both sales. is and we in general product primarily years full order This follow. year we and Pilatus PC-XX the programs all in second highly commercial program be and revenue this a quarter aviation in production, and stream generated and Retrofit revenue generated three segments, of jet for engineering drove contracts. we production the

successful, multiple cockpit and we our sales computer into classic phase the OEMs. included work evaluation will navy In testing. believe to NG proves proceed development the we with completing navy military, to units our our sales that have the contracts. and new on the autothrottle order. general If upgrades air PC-XX their for are UMS testing the PC-XX data Test new product of aviation production been the Our delivered of of autothrottle, sale full

in shows opportunities. on productivity are on improved we call, development and resources focus promising This fewer, times. shorter As the last – an more focusing I discussed earnings our cycle

a landing, jets, Air. We of levels, our continue provides of and something so. optimistic autothrottle which turboprop like remain for and especially over around. to engine in most autothrottle. there, broken convenience are, for we owners safety go in autothrottle ground protection for the to patented believe a the power to which which we a ThrustSense the I airplanes think, our for that market. ThrustSense to full-regime ThrustSense designed outlook STC controls new ThrustSense ago, XX,XXX ThrustSense reduce King the is pilot retrofit are The autothrottle Air and Several and new receipt like twin-engine computes the King announced brings the and out days operators, level We workload, takeoff has believe in including there’s advanced

applications other promise. into that autothrottle ThrustSense the show applying we’re So great

cost. compelling are We increasing now fourth awareness ability what we on autothrottle, control installation believe aggressively dimension for low its what we the and is Market the features focusing is call marketing interest of airplane. to of a safety and provide combination

financials. of turn Rell Let it me to over for discussion

approximately year work XX% from revenue better for to XXXX the the general development second the and comprised of a revenues, of the benefit the and with of selling implemented the and engineering XX% quarter other. $XXX,XXX quarter margin expenses and fiscal We variability well also this were as direct for ago. reduction quarter and XX%, Revenue down engineering fiscal down the million, reflects sequential of morning. Research increase fiscal in year due accounting, this down our were million XXXX quarter compared year. Thank revenue and quarter quarter the a reflect XXXX. Total from comprised force the last improvement reduced from Geoff, quarter the third quarter year in well of related profitable force [indiscernible] revenue quarter Product growth of the total increase an believe margins the operating of compared the approximately third contract. $X.X Each and second pricing same last such million, XXXX of were $X.X quarter first as costs thank for second joining quarter for you the more XXXX, consecutive same from of F-X balance were decreases quarter of impact second us for you, were administrative $X.X and leverage fiscal sales from for as of on all in quarter gross quarter some fiscal second development reduction legal expenses XXXX a increased last improvement $XXX,XXX to work this $XXX,XXX same the XXXX. Gross quarters expenses between contract. the while on expenses from to these the services to the material approximately compared

evaluation the a in per $X.X that but financial sufficient quarter of tax a share quarterly operations the fiscal this $X,XXX our compared utilization ago, for cash company share. year second over enabled of of productivity on reported We the of and in due of same cash million change $X.XX in $XXX,XXX during from shift believe carry-forwards. quarter Our of tax strong the has income us $X.XX due per remains quarter. to We hand Income quarter or a the future. the fiscal XXXX quarter XXXX our was Income to We investing loss $XX XXXX, $XXX,XXX net loss third incurred position technologies. million has believe was believe We expense generated R&D more or a a fund a a for has in foreseeable by ago. in of allowance. to positive down to debt. cash tax XX, spending spending we and to fewer, promising March we no the flow improve the for company At had expense net are is the strategy year

turn Now over I’d like the to Shahram. to call

you, Thank everyone. Rell, and good morning,

in revenues orders portfolio quarter’s flat-panel seeing have steady revenues increase these more for and focused, segment. first Over are quarter, [indiscernible] make efficient consecutive profitability. From quarter of metrics. second our we and level. Much of transport for the implementing air as commercial more in the in our past sales and initiatives three our months, Encouragingly, the tighter are Boeing operating displays developmental the were XXX. our XXX the Consequently, we a as additional successful posted which technology, successful of and for key efforts, continued steady in quite across second cockpit frequently our progress cost and the at aircraft increase new and the us the have the to and marketing high I little require financial PC-XX products. organization is existing made industry. engineering employing the controls are and aggressive therefore, one our profitable most mentioned, launches we most are Pilatus a organization, was just quarter,

mind, with sales of are management very keeping include As that Pilatus quantity portion to ordering we future shipments the pace is supplier of Pilatus the per X that a of only backlog system, of although the small quarters. chipsets our aircraft for Keep revenue be significant up year, full a ramping reflects utility believe delivery in will we orders this within in capacity.

KC-XXA pilots and other from interest steady increased product. experiencing continues program UMS production. the for optionally market, also the are military We aircraft enjoy manufacturers to piloted The

As are looking military mentioned last some we in additional of opportunities, quarter, international customers. at reforms

military revenues profitable we’re also In our product addition segment. in to sales generating engineering

and develop compared air to leverages data time data are where Though on interests U.S. not the our international the and as a computer. other the to with development contract we platforms familiar A-XX new have military We Our minimal been the markets. for in air computers U.S. for technology. see the other military arrangements computer experience for data similar development air our Navy, costs

course, and for market capitalize our infrastructure STC crafts. King others, King we opportunity this the with launch installers, The we open we success. door a aviation have will now what to sentiment, in general our we our that To baseline rollout Air manufacturers, impressed be comprehensive Having to needed a believe we ThrustSense marketing have we on our MROs underlying air technology. been whom is autothrottle. variable of greatest believe conducting the have to autothrottle demonstrations, with opportunity, a ThrustSense Of the market the with hope X,XXX Air, continue recently STC and strengthen is the over ensure Geoff’s echoing been current the received to plan

of the more will ThrustSense engine to standalone paved optionally the both what of getting optimistic ThrustSense and of deliveries configurations, helped way overcome craft. be we for installations autothrottle made The FAA, challenge have and twin we as the activity piloted expedition of cockpit groundbreaking of to a product daunting result by we the version addition product quarter, approved as believe and piloted the are that twin a the should are last easiest mentioned as turboprop performed. additional air portfolio As and autothrottle our grow

our most improvements that that note would aviation steady the recent offer of strategy. rolled achieved tech the XX – orders greater general commercial on continued focused the note book further strategy. has we believe, recent products I contracts, we million March which We more took also new quarters million goal only second our for and in X.X back is based log, been the has an development, promise have the across progress. I that production Broad of we under marks, Finally, out military long-term orders. encouraging have air endorsement water and several $X.X even progress transport, a in markets immediate the the and would hard we affirm

me back closing Let remarks. for turn call some to Geoff the

is end believe we is second achieved Thanks, and are for is systems, as to markets what pleased impending as sign of industry-leading on productive, amid or autothrottle are I for am very needs responsive – organization, an new Flight our performance safety a advanced our tighter and in Deck, focused with Shahm. an in a ever we progress where improved ever. and deliver unique growing strategy Interest a quarter encouraging as our and price improving which that target. regulations. is the all management growing utility Steady

I today. open for So up appreciate the attention your I will questions. call in conclusion,

question The ahead. go first comes Instructions] Campbell. from David Please [Operator

the quarter. Thanks for hitting know estimates it’s amazing. for Yes, my I

cargo you the estimates, confused XXX you imagine is talked my coming the conversions. business business like some can about business got little XXX cargo had where aviation, commercial elaborate? from why You new sounds from, it is Congratulations. I’m the Shahram, – there. you I a coming

That, that is that – again coverage.

light of to be situations, In customers. that existing of recent XXX Some airplane. is from an attractive continues

So you’re that, Flat what their Display doing, that’s you’re Panel upgrading right?

it because XXX, year, be next existing The there equipment. of support adds end next up for year, – the any won’t

of for airplanes. it’s do So the them important the to modifications

how that most And the about XXX, matter, the of those cargo And are conversions. doesn’t right?

Somewhat similar situations.

they Mostly yes. are,

have the So ‘XX, stronger we on as a know. you position

some selling customers our We’re of airline to also internationally. well, existing as

As fleet. they add their to

Right, up business and the sounds their same to everything because right? with right, At commercial yet, great Well – King seems clicking. Air started the going time right with hasn’t it be aviation

in well. Not really. huge great. do we see promise our very start we’ll works market. about job that. do right, product If It’s we and It’s just a to The real

you base selling be to you’ll what is operators, that And do? those fixed

remember, kinds – it’s of And up line. We’re from all a as really already doing all piston a conventional jet, right people showing turbo airplane, that, – them, everything, Africa piston Africa turbofan quite to product remarkable now. we’re way the – a well it’s so them [indiscernible]

a up is disputes, This with Right. this is have the a potential – for company? China the that Right. over any Right. your –do trade fight does

think and there’s don’t China, but business people. uncertainty they do business the pragmatic best because money. have they product business, to, for you with No, I China they’re the because mean obvious we in us I They China, do if guess about provide

market. we’re case, but sell problem, product your do trying we opportunity. great should okay. a work our you opinion still in share with my you our to the China job it’s and It’s things products standard be are that, extent that technology to to consumer not have a is, Obviously – a if and different like involved delighted great So in correctly,

And rest overall slowly be on of fiscal sequential in would to appropriate revenues March? you them from a increase this year basis the where for were

we Yes, – should it – increases, we see you up. slow see backlog, obviously We accordingly. see Yes. see ramp can in it follow as a our our a that sales

nice a We hope we increase. expected sort – of steady a

certainly shipping. we’re on we So think see. we be obviously reflects it, betting what we and hope And that’s going backlog what we’re the to

you’ll backlog talk you you we up So see up although if with well. as – our and up, the from the revenues going sales, don’t an consistent the go see quarters the backlog see about targets if is going for

I Yes. estimating $X.X Yes. was the of at a end March. million Well, backlog of

what that’s happened, right? So

estimated because you’ve Well, it. We it. that’s said

You estimated it more.

it had to estimated X. would we just don’t you X, If – have what do, yes. We we

such again – Well, doing well. doing for congratulations. Thanks so

support Thanks it, appreciate years. for David. these all I your

Yes, I’m supporting. going to continue

Charlie The next question & head. Company. go Pine comes Van from of Please Clemens

Hi, good progress quarter. in and – you I’d the congratulate good all morning, another like second to good on more on

Thank you.

you. Thank

from that have your I that STC the just STC got of moved in primarily this that was recent get you incorrect? – Air. Or been surprised. bit to sometime on summer. a some had that few it comments were the a Was the up I would slightly it like I The actually the questions. earlier of you – happened guess be addressed I that able did something sound until be to little going for call prior that anticipating didn’t the kind more? King

ask me good let you. or bad? First, Is that

good. No. That’s very

actuators of we by bunch for. it. which add control we a optional Look, one new it, engine And that deployment. on Air additional protection. I’ve paid can the now the the each trying those number fundamental King did. actually system technology, autothrottle all features certified. is a – we the with a chose The all, the around features understand to about features autothrottle And get fully get operational safety and optional had – in and is for way, to do strategic to And head sort it their features And you you optional Okay. of of for of they’re comment features. additional get people trying What has did was of

the So of they’re going to months. next be couple added over incrementally

us start in the gave the penetration sense? much is, get hoped. what or, than So fact, make but sooner people had we that get to more earlier. we’ll able installing total started we’ll Does be to that first, And ultimately, end allow same in

Yes, it does.

other a up follow me things. couple Let on

far First than as of STC, better all, just far as but was as the as late getting way long never. overall a it

been done was before. it’s It mean, a tough one. I never

of certification the the mean are their road. have – guy difficult. If we being that is gets it were tough, some going I’m we save was the the shot. you pioneer wasn’t – and you usually always XXX line have – that – actually contrary, the will these it there die them enthusiastic are difficult. they And a But people – tell gets a because to I arrow. we’re year guy authorities ahead were the tough I all every to product fairly of several and lives. XXX saying the To about will

hard at it weather And was painful went was sure their had And of tough, was to work and it amazing them times, they making distractions. us. for that’s it say. of right. the through in I’m an light thing But So they for problems, own sure

no So complaints I’ve all. got at

we all just certifying new. to and – That think to the are who case. are when I saying, grateful in wasn’t had it done that okay, the because be I’ve I other." got this delighted unique, it. It people could we’re past it’s the do and the "Well, that used And through

is for time very amount process I’m you’ve also... Well, through as sure everybody of I’m been that’s and happy gone sticking the this

Me too.

you Geoff, a you you to getting have in problem – mentioned a X,XXX prepared distinction on King XX,XXX really like planes across I’d there’s bit line. model Air. it that be bit having Shahram, of we And the Airs. Pleased I’m finish should the for that that over with. a remarks your said number of then, getting to was King What explain be... to finally little using to

X,XXX or cetera. et number. and about more addressable The market the probably Talking non-addressable, is operational, X,XXX conservative number

Okay.

for and... So addressable X,XXX the market X,XXX to

But just... that’s

with And King that’s only Air.

King Air. only It’s

at XX,XXX. and... finished was PC-XX We It including

[indiscernible]

we’re That going after.

twin the Just find to turboprops. better

Okay. All right.

you for Thank clarifying Okay. that.

that. about sorry I’m

what I’d autothrottle start a of be guess ask would to I could like revenue How the believe meaningful King sort installs? do natural also, recognize follow-up. Air you you some soon on And

Well, that room. place a we bit breathing what because installations partly got to make it that tell to and simple in have optimized. the us to take we’ve little sure installation I’ll fault-free, you sure make team and We it with want to doing of I we’re our want several is going that’s foolproof. and do

of and in that have from little some way at the their going and of that time our marketplace. features who about complete end And in learned the rush extra optional have one not a by of of that than end drills the moving so up able a OEMs we’re spend didn’t we the showed and, the on it to I airplane to and focusing the better production package volume installation, judgment deliberately line. bit be into fire with We a such they talked

will Do you see possibility meaningful you start more it’s in revenue a fourth quarter? it’s you in... not off that probable Or there – more it’s – your to it think to think start show that could that is some do

well, have going we sure. quarter. this. the the I the fourth in very, get answer it off first I for very in will is year. we that, following think, time, quarter handsomely think, be the don’t pay into to of to And we’re the But have honestly, we reality installations And we first future. rush big installation if problems, don’t that not The not, the is revenue is – get the simple any If and lucky, could work kicks

it’s it’s the quarter is So There’s sure. I’m first or a the the the last answer – chance not first simple quarter.

this waited we long. Well, Okay.

to... going isn’t months few Another

an have the I do to not it and problem just And want it I to to airplane it flying be whatever a get to do. first for – we’re that, to going takes us like installation. in smooth.

How now? How are working as working many many installation you far right with partners it side just the on as of curious. – kind are partners I’m you of

what? many How

of your the you MROs on field partners, How many right and are now other installation aspect? operators with working

know so refine video What in document number we they where other centers is look do that It’s know for a can attach systems all are wire. obviously. number, installation. the the of for and have that and up easy signed have over over reference mechanics equipment it service that critical the – airplane, the don’t format country, the of significant it the a to actual put matter the to that world, That’s we the It’s installation, want that at not I the the that but how a the part. you wiring and exactly every airplane. that’s in all

So those refining. are the things we’re

within accurate We’re making of feet as much or X. XX sure that, wire are inch an that as length

the So those we kinds are of do. need to things

thanks great. again. right. gratifying again, It’s answering STC the congratulations also for Okay. and questions. business. All continued profitability very Well, Well, those return to on once the see in the finally for to getting And

thought was you complimented. going I integrity much. you when said who I’m would very do I to a that. said said you had would would him I what I it. engineering better when you do Thank been his job was years boss a do little try for do. it. to what to doing ran department to that that I’ve that’s you said he many told Boeing’s said a I I’m of what embarrassed do I director I and realize supposed doing I’m do bit would

it. stay Geoff. appreciate We at it, Well,

Friedrich. from The next question comes Michael go ahead. Mr. Please

engines upgrade. bit safety a not trying and little little I of protection of the of ThrustSense idea protection these fixing have the the a of I’m engine associated this on color the proposition portion get cost that but value wanted the and get now. things to questions damage to on end provide provide end essentially proposition maybe detail an done is the just – right general of and the value more with or to on engine Some you it

talking about a $X probably Well, there Obviously, million. Install engine. lot. a turboprops, new is the is we’re

over-temperature over-temperaturing – cheapest and several a that’s the a to The $XX,XXX hot air And you expensive can If do do is very just you’re is is will engine time. cheap most engine. do million. start borescope hundred for got to It an dollars talking a an do to have you’d it, that’s for million. thing vary. you’ve A on hot On and I of or hot a you $XX thousands guess to engine $XX,XXX. $XX short period section, section. $X a of at engine, transport million a good

just In it Protecting some critical. airplane – lot. So varies a some period case, of even takes inspection service remember the engine of is it’s the out for time.

that’s people and authority why paid provide or advantages, We same time real the called – of digital FADEC, fueled significantly has it engines. kind without effort] for and engine have [a So full conventionally what’s protection more lot on controls. of

idea then cycle And life Geoff, PTX of me give the what engine. of Okay. a an is normal

I’ll – that our X,XXX one if I bets I a tell off, and in pushing can’t data But think all you I hours know as a X,XXX. into are hot have actually is you they’re mean start, of obviously. little airplanes I

think X,XXX X,XXX. will or lot degrees, they’re pretty as XX sensitive you They’re a to go I a turboprop. damage. depends extremely on above remarkably anywhere X,XXX real XX [just they’re don’t even engine. from – see] or reliable – can temperature. over-temperature reliable. you by up it guess but damn any And some They’re So They’re the I to

Okay.

Okay.

the owners. I ThrustSense value is obviously, So these mean – does for – a proposition tremendous so

this potentially was maybe question or be for something had least OEMs of you I carried mentioned at guys the you by the engine even in briefly would third becoming manufacturers. that last Another quarter idea year,

part provide on new – going? manufacturers, can could of this see But the outlook obviously, where any maybe something you an manufacturer. that’s engine of be idea Now engine Could aircraft? it there’s you actual one potentially

that. Honestly, discuss I to about talk at looking Yes. But it. don’t obviously, we’re But can’t want we it.

questions it. on pressed to you Is rollout, they’re provide simply you Got a there you said basically is the got for that on with that filled wanted I that get a you in the it. hurry that on? going the last had on that? weren’t mean this. idea not on Got just little up just is – more or were it any little bit Okay. that. And that NextGen you plenty more a detail detail can Or the on Or you’ve MROs, because work? what time by

things. Well, a couple of

installation of we as all, even down annoyed didn’t me XX lose nothing to we have former years, First than a have want time day, get you as airplane far my it. last the personal so That’s a we installation. Number two, of starting rule more I’m as started And talking because to respond some about I access we can be this the a owner for day, to for to – just [a X:XX]. airplane owner disruption number to took other minor the – is one. actions to very want we a have year. really to it time, for issue on This

company the money. seeing We’re making

We’re generated in $X almost generating – cash quarter. last million

to position in improve to a a And to that drill alive. and we opportunities. our use disciplined And don’t reasonably we’re in have so keep to we’re going planned a fire where ourselves time long-term comfortable way run

more other of the – what going or just is Is quick quick Got turboprop? it. Air it. – couple things. STC the series to that King And next idea a be to another going Any a Got be?

won’t are the I – in administration I case we mean not this disturbed, it’s the every about was the sometimes. easy In just making we – I it business. know. time and up get the mean federal we’re complain case, sure. services, it pleased. an general. services go for ways to FAA to I’m industry in not don’t the difficult your appropriate Honestly,

a as But idea right? within much lot have one I the happen, next no don’t anytime, be. with what It’s month. would will surprise, like another a As a I them, one

Okay. Good. I...

That’s door. That’s the three. number behind behind door

I to right. All it. forward look

quick One question. Okay. more

to I’ve this Is in the like you’re a been is part Or other kind significant that’s things? that an that KC-XX, of more a really item? to revenue, obviously, never terms the by into rollout get able folks how military. providing. the is idea On significant of of lead a cost major you

I it’s mean good-sized our not but to program significant a it’s revenues.

Okay.

Okay.

good. very It’s

it make or it’s But of program. or wonderful very opportunity goes time on it. a a break delighted divisions the long a we’re it and good for a way predictable other? And and in No. very We’re happy it’s one very very Is period way. with

All gentlemen. success. your and right, you thank time Well, for continued

question Goldman next The Irwin comes [ph]. from Mr.

remember You I was meeting. me. at like... old guy the who guys may would the I’m

was guy who the only at I’m meeting. the

one, commented Number and questions. few had looking people. A you you that for then were hiring XX about were you

old Is three our there? let the back that went. about look the And you is, leading movement that in know there Go. and using my producing what, anything, Okay. me like also among quarters, So interested knowing, very and they’ll how company? question any services to merchandise? And that Eclipse last how in the if sales be two one, I’m did the of customers. third does break down, some percentage-wise,

it. Do

we’ve with And like or far not will Right they hired regards since And the hiring efforts. six so remains they’re regards we the emerge the Eclipse, think now, they new to seen. I and court. in with will meeting, aircraft. the people seven continue whether bankruptcy building or hiring, – our not So to to be with be

will the yes, – – be, Rell to Eclipse revenue, we we upgrade to completed – Our that market, can agreement to them move [another] would supply regards that, them, and lead address customers With have out with soon equipment the aircraft. opportunity direct through only it’s will it. to to to it

Yes.

much even six is XXX/XXX, big which is and for of the you basically over it’s stuff pretty a have primarily MRO lot an months, For term. aviation, the is the Pilatus revenue, MRO, a between breakdown – that which throwing general

industries, of XX-XX it’s types almost two the but between approximately. So

Then become sales number the one Pilatus has area.

Of one any any one, yes, of customer.

Okay.

Okay. That’s all. of questions I a lot today. don’t have

sir. you, Thank

we’re said left what annual remember when You me questions. you and have meeting. to And delighted. I at you good you – And the

day. every almost that about think I

questions, no conference presentation. Thank And further question-and-answer attending has this With now you today’s session. for the concluded. concludes our

You may now disconnect.