Innovative Solutions and Support (ISSC) 12 Aug 222022 Q3 Earnings call transcript

Good morning and welcome to the Innovative Solutions & Support Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Shahram Askarpour. ahead. go Please,

XXXX is Solutions This to Chief Officer of Executive our for and Good years. coming Support. Shahram Welcome Innovative fiscal quarter third & for call business to of conditions performance outlook morning. the Askarpour, and our discuss conference

me Linacre, CFO our Joining who July in us is retirement. Rell's Mike upon new joined

strong driving environment, We extensive financial has Mike not but also are he only excited of to welcome Mike track has a in results. IS&S. manufacturing record to experience

begin, we to the Before like I'd read safe Mike harbor statement.

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

call to turn the back I'll Shahram. Now,

Thank and revenues XX% $XX our operating third continued up quarter, you, with income quarter ending no revenues cash deliver grow first up this debt. XX%, we the Together million and and the growth to steady strong attractive free years. continues of flow, is Mike. best of as over returns In first one operating our the with we many generate half, generate business nine months leverage. The in cash and significant with

flat our in before, award-winning formula a cargo attractive including conversions. markets, excellent panel stated with for winning products have I our displays As autothrottle and our growing starts

always other on platforms are continue a as upgrades to orders valuable over to has our and XXX receive military, products. rapidly our general our militaries partner IS&S aviation. and delivered world, around XXX growing in well XXX, have military in presence as We been we And now cockpit XXX the

running $X creates steady opportunities while per service, approximately at it also grows, base installed now in delivering markets, a quarter. customer million for is demand this As adjacent which

currently basis, and for price-for-performance our within aviations markets only in transport, deliveries than markets, are between case growth The industry firm OEM secure leader. military but partner as In also in continues placed to and well meet mode. the commercial On a the an our general retrofit general to delivery we own orders aviation into balanced one they their markets, commitments. the supply further normal, chain be the remain of their have and not OEMs, the of future business OEMs

come side, This from from various will base. we just aggressive for growth. also features the to space mix more On And the cargo well from air retrofit our continue existing diverse not and as as internationally, new this but domestically. a provides and Growth solid on sales business a receiving of products, orders foundation add airlines capabilities we other from effort. marketing platforms

we future saw For an sales. with in quarter business anticipate which we development expenses, instance, this increased our increase

growth in aircraft product new developing installation installation pleased additional King have but organic our have approval market introduce to we the we infrastructure. which product to by utilize existing potential are from product of would other As service anticipated a spoke growth an variations I military markets. autothrottle and for installation certificate our on and FAA consider quarter, to acquiring by executing other our received commercial Air, two strategy, our about that continue platforms similar broadening PC-XX approvals. We're our certification beginning the we lines King not just technology, also both Last I'm customers. Air and report performed

in and performing an up are increased more face-to-face tests, resulting attending we ramping trade to with customer pandemic, shows, post meeting compared our several we're backlog March customers XX. As flight marketing activities more

me challenges factors, macroeconomic supply labor as quickly, are we some availability. Let battling chain touch inflation, of of and on impact just the

during side, chain along inventory we stock contract inflation. we increases, pass the The in of enable and a by are On safety periods side, cases protected us have cost added escalators supply at premium. to price some that our some to

we growth. battling of and bring are widely able has also qualified We engineers new support very the technical professionals. the manageable to other turnover labor shortage been to challenges, on reported Despite skilled highly our our been and skilled have

over detail. Now, our to it review in financials I'd Mike, to like to more turn

to Support. say, and and Thank company Shahram, to the joined investment Shahram looking all morning. provide continued & very to Innovative transparency for to known. you pleased have Solutions the is disclosure already thank with the forward joining community I'm I'm for I'd outstanding which like you, with us this working

results. to the Turning

business, For to up the customers, commercial the which strength to the both sales transport attributable continued of Pilatus quarter, with as their Growth air PC-XX programs as for support were Pilatus to strong company's and third general Autothrottle. aviation $X.X Autothrottle we sales from in year Textron XX% million demand flat aviation of a both revenues general displays panel contract. million, primarily was especially retrofit $X.X well under market, ago. the reported in our

revenue. Boeing steady KC-XXA, to we continues for addition, have third generate production In which a the OEM with contract also

Total million we were service growing Finally, IS&S that of revenues backlog a of quarter result a this of so $XX.X over of the in $XX sales portfolio from million million, $X.X ended approximately a customer the $X.X quarter, the with million, we generated new up last end products. installed at in as quarter. quarter the

favorable contracts aviation for locking one from employee their sales headcount normal is advance of a production Gross beyond result of of chain, their large a the a XX.X% increased production in include supply margin in provide leveraging order. all is OEMs, mix. passing cost that our include increases long-term to volume, Note a that pressures. costs OEM any orders -- Increase were quarter, favorable up looking quarter lower attributable from along with quarter clauses, that resulting and as general in last for and incurred ago. of our XX.X% Third inflationary escalator contract product of the fixed a year margins, the

produces frequently Our as Total were quarter share for million of XXXX, for margins million same year fiscal reflects operating mentioned Net was an benefit. The increase as third compared in Research as XX% for The million revenue increase expenses, we development. to income additional per from increase fees year Shahram. making ago, professional ramping to expenses a R&D. quarter $X.X sites, in $X.XX business. in development a or $X.X or of as the and prospect ago. quarter marketing aviation post and We're million marketing of appearances which attractive with a a business $X.X efforts included as sales we the up in result business scale essentially million and to year $X.XX model pandemic as line the more traveling by target was and development locations XX% per share in-person $X.X a at continue tax ago, the well trade customer shows. $X.X to up

Due income over end tax improved million, $X.X $X.X we income quarter. a operating anomaly, XX% quarter the quarter to remains our position. third anticipate taxes up reversal million, for in generated a ago, due of of the better the XX% nine of where this XXXX, had was year year. represents a million At June in in the financial year performance quarter the a $X.X For and $X Operating The believe of recorded this to a $XXX,XXX months $XX.X we rate million fiscal of we cash tax the asset cash We $X.X tax million comparison XXXX. benefit tax from on deferred million hand. a of strong we had of year company We XX, in allowance. ago. operating our valuation third first

and the due company As supply that in the to operations precaution. slightly the pandemic, as measure result discussed, to debt-free. future. COVID-XX continue The as of issues that is has fund we inventory, cash company We to will a company challenges a sufficient of foreseeable higher-than-normal previously an the added level maintain ongoing of anticipates believe chain

like back to closing Shahram, for to I'd Now, some turn it remarks.

you, Thank Mike.

amongst global firming markets history. The the up. first best End months in the opening are of XXXX is are nine as economy the company's

of expanding. cash aircraft and These in that manufacturers are value us are support rising is flow generate, the growth in proposition and again foundation times The contracts, provides and the to displays that strong and global sheet has that long-term demand panel resources flat a in balance exciting solid with your once continue the aftermarket. encouragement. OEM a continues are compelling our company continued large experiencing Our appreciate offer we markets invest to opportunities, to

the for open floor now will We questions.

comes from Please Moran we for & time, this questions. Instructions] floor Robotti [Operator Our question open you. go Thank the first At Co. with ahead will John

there it that you and for the -- or all be large taking and received for can Is how new elaborate cited responsible example, and for backlog large for that was? thanks period that in Hi, the the being orders what at you my would -- you delivery order increase question. that on even large

of pop. programs one kind orders closer maybe and six And ahead that of of little mean good I we they bit gave went out was months kind a -- our came further year from normal. they quite, to a OEM but there that not one than where get typically

up, ,or Can outside core you flat, that was say whether the the of sort order? of business down

quarterly our typically that received. varies. quarter-to-quarter, orders Again with it line we in was It from

one you our the was unusual that from the contract. of If backlog, this vary. followed were kind was And nothing other extra the an orders timing than the them OEM of received with customer orders,

sales quarterly retrofits a as bit up that of cargo the drove a basis. perspective, a comparative quarter our increase mentioned commercial on was from the For quite air from kind our and

much. Okay. Thank you very

next from go [ph]. Partners Our ahead. Instructions] Weiser Michael [Operator Please comes with question Weiser

than continue you be the past ongoing us going on you understanding I that enterprise? set -- much help see basis? balance and issued what you are Steve us to the feel again if Good think you expectations to wondering in cash you as for in would interested an on Thank need need $XX who -- has sheet could balance the cash of cash morning more give you basis, continue Certainly, shareholders speak And in sheet, on an on please [ph] gentlemen. dividends to in so the forward? interested ongoing running with I'm million the in you. some like to would company how our

million historically been I sitting company So, mean, on has the $XX cash.

-- numbers. do nowhere for near those of Obviously, But Board decision currently, as would at the dividends. aware of any But they aware not that. So I'm I'm not plans eminent moment. plans any how for we're a it's

feel ongoing please your comment what Could cash you on you is? need

have for to than million Yes. $X like less we operations, I mean available.

standpoint that rate -- in run three, cash to a at $X quarter. We're-- is to two from about operational to around million generating million $X million $X operations. now an mentioned every our And Shahram plenty support we're

what the And of being used cash balance the purpose? for Okay. is

The growth there balance to of for is company. the cash of investments in us the do the

Well enterprise to run something sales. in million what expressed, appreciate between the basis sentiment balance the you a order entity generating you sheet say I need a an margin the on the for but the $XX that's considerable you difference year that cash in is and the on ongoing an of

So...

I'm sure that like get will of take see giving whether and to looking all them of consideration. are really things the investment to And as be in into to decision Board technology. our would dividends shareholders they some dividends not -- would those

So...

you. Thank

go with Thompson ahead. David next Davis & Our from Please Company. Campbell question comes

Thank much Financial Officer. your for And as you Chief appointment new on Mike, my very taking questions. congratulations

you. Thank

with Looking forward future. the you to talking in

Yeah. you. Thank Thank you.

to for as $X.XXX where customer commented sheet order ask balance million for is the on components the want you're I the about held talking of sheet the sale. his balance to expenses? fix I at about end Are the the these of trying assets June asset the

are we that we selling. airplane an is this No that have

the Air? King That's

The PC-XX yes. for is that aircraft Air King sale,

Yes. here I that plane, not so. liked Jeff anymore but know. he's

you what that's So said.

be will a and gain capital it? sell you So that whenever presumably on --

event fourth when is a sale finalized. quarter be will the That

Okay.

be quarter? fourth in could it So the

it could be. Yes,

coming company? More cash into the

Yes.

in of press came the release, amount new -- significant the you you mention a business mentioned cargo you mentioned but conversions. didn't in call And from that it

cargo So increase of were revenues? the conversions part in a significant

our from well. Yes, would buying demand our Autothrottle OEM as say with increased customers I that along and steady existing

Right, right, right.

but the So any for not -- backlog only is reflects that received conversions. orders backlog say, for for cargo doesn't backlogs that any -- it why include example, the

included it So I take not that's backlog? the in

customers orders all moment. our for up includes months. a the we months from have backlog And the includes that in time is of OEM one for Yes. right a mentioned of The purchase at as backlog our But a almost it orders typically year. longer to hand now to few six period

reflects timing the it the backlog or backlog increase of the imply the it backlog more – in because increase potential doesn't But revenues, revenues? is in does of

based the I received would when a just time. we in at on say not point necessarily. It's purchase given orders

right. last Is year engineering that All tell and in or you may revenues quarter? in that was like there's right. development quarter there I'd not last this All And unpredictable quarter. something no year next given you a the the get

mean the of so timing revenue. again is there's that is then it parts when to we I when completion is the we and recognize can – two the book Yes. done it

Right.

So a mean orders steady getting form. kind I we of – – services in we but continue do do engineering

including new mentioned what? does mean? you more tell may for? new you you're – going catalog that of to Can products what are sales looking products, you're for us products What any buy You if aerospace – or that looking you about of your acquisitions what

We've done for in organization. technology, looking opportunities. lot we we've past. continue there's We've right at now, way consolidation of going a flight acquired larger the The for industry technology. a GPS is on the happening system management example this And acquired the

will of acquisitions companies, in fall product those doesn't are that lines within become divestiture. do they strategic plan with line there that acquisition for the targets As sometimes and

kind to organization within that our products it opportunities our could reviewing we're see grow base. their of of to if fit strength those our for we of and manufacturing leverage So some

those the some kind we So more past than spending did we're opportunities. of time reviewing in

you products operable that already to will produce? what are be products These

happy we And Exactly. open but for it's new to not may buy us OEMs. something trigger Again – with contract here looking. we're go Yes. are

these comparable to that you that Yes on can to products had it be you satisfied gross sustain what produce. are margins already profit

Absolutely.

Okay. comments extent backlog Do to quarter I'm you the have I quarter excellent the September Well to in expect good you also hoping that some one – by suspect fourth what the also did that any by be a have and helped but sales. will quarter? your an on

You that. know don't we do

me? Excuse

give We don't forward-looking comments.

for help be your Okay. and in Well, much you very I’ll thank touch.

Thank you very much.

comes next Rose go from with ahead question Axiom. The Craig Please

clarification. that Hey, what's PC-XX held-for-sale guys. is correct? One being is The

Right. Yes.

Okay.

expand Could were who it? to the that The military. mentioned other you is development into you how explain work? thing would And of would looking Autothrottle you commercial the for and pay

of the supporting. some We're company the our of ongoing There R&D military of trainers as with well an military internal activity, other as Autothrottle we've they engineering own that today. So the from And seeing that as that's some platform is been developing we at capability. additional where part in interest see product lines, them some the speak. expanding Autothrottle we're those provides

on of the are them Air them for looking King of are -- actually other some King Air Some expansions platform platforms. and at the

us was year I that Okay. the the purchased in Also, Eclipse last point Does from Aviation future? opportunity sometime offer for believe bankruptcy. any at

closely them, got with where they once we're -- Eclipse. card not work with once part engine going we to they they're -- good help that relationship with they there where But the we've other the I production mean, short-term. them, their to support We challenges challenges. in with up they them. nothing them. they get but starting foothold of sure But got to get working where with but in challenges conversations need have We I'm go that's platform. going XXX% support go

you. Thank you Guys Okay. That’s me. all very thank much. for

you, Craig. Thank

a John & go Co. follow-up from Our next ahead. question Please is with Robotti Moran

business that Like us, had add to you existing of can how Hi. it from this and one et mean, based facilities I know Yeah. a example large revenue whatever. organic quite million business you on $XX the Could could just when in that? different for comparable other company's products point, that and today. it me you be? I seems guys personnel wouldn't you cetera growth, be remind you a speak have generating that that were to to or business But was the

you capabilities go the coming capabilities all are year as facility, over the the We've know, you revenue all that, we do a mean in-house here. years within to got out million of here. few machinery, $XX this I if So had back all

So could I that product right grow way. which area mean at, mix would that's the we you revenues if look acquisitions we are of where one do that

the infrastructure. here in investment have significant We capability any without

we finding I the make buy like go So But that it. product where right said, mix if that's not find and would like you could actually it it's some. to,

cost right price. You've them, direct got is a it to the our them, make personnel X% product. sure of standpoint our you find sales evaluate got is to labor less than and of From

designed direct has grow allow We've without lot company So to the too do revenue. way of that it such incurring a doesn't us been in labor -- that, pain. increase take the to designed a much

military on certified? aircraft discussions the with yet not are autothrottle customers Are the on that

as Some the some of And are them mentioned the platforms. I and them PC-XX on of are. Air King

But some, they are not.

-- Some is a they're mean spending the platforms. military of I amount there there on not because is side in new fair

new which operates these -- the on has And limitations features aircrafts. to the Also, engine home have so themselves of those our military of of the new turboprop platforms protection way use the some still and the those. PC-X that autothrottle lend some developing we're a good some of and

you Have for fleet yet a large order autothrottle? had

on the aftermarket? order fleet Large

Yes.

not so many half There are had. What a to orders had. I'd of kind that fleets. smaller a is we've [indiscernible] going are largest, dozen it like a Not size transport somebody Yes. like not like of It's aviation We've business We've fleets of air be. that a large them had lot that orders. aircraft.

comes question ahead. investor. [ph], Please go Our Michael a next from private Friedrich

the autothrottle different bit, market few -- morning. aftermarket -- were to being Where sort Are follow-up actually I that? tone we right burner approach of on this the these guys say what's you things just that, a going few that at other a the that there's recent don't do initiatives approaches Yes on now? a autothrottle. the almost stand the different now. to of calls, the right back here? the deemphasize, Because go are retrofit last to going want it maybe places but do to a how to appears most team be from you little just the for on were call and of know been is Where Good some -- the I try on to would market to compared hiring

sales believe that the an of In putting has platforms have product the market. and We thing the into in market much in takes the competition continue industry We an provide effort is it with. autothrottle. our overnight we marketing and we autothrottle don't the time. And potential that the not acceptability

We have in the that. OEMs seeing in approval. interest military increase We're

it -- So we marketing I revenue will platform us. see a getting the I continue is your took the get on in a took to way that there. market product. steady you're you're will point it we autothrottle for just few It where efforts. known see orders And sitting another sales source the years - the will And get before five, and that, on of there that and it's because XXX for

Okay. Thank you.

This also now has conference session. presentation. concludes you today's Thank for question-and-answer attending The our concluded.

disconnect. a You may good now Have day.