Innovative Solutions and Support (ISSC) 8 May 232023 Q2 Earnings call transcript

Greetings, and welcome to the Innovative Solutions and Support, Inc.

Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

pleasure your my Michael now is to host, introduce Linacre. It Officer. Financial Chief go Please ahead.

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

Now, to CEO, I'll Askarpour. it Shahram our over turn

remarks XXXX, to performance quarter will I on fiscal through second Mike, and by growth the followed the call our over Mike, I you, Thank good with afternoon, in of and on then turn strategy. everyone. the plans who our comments will financials. long-term us today will take begin

Our product demonstrated continued for to our was the of our our demand This of second X.X% $X.X quarter elevated King net aftermarket Autothrottle million. higher innovative Compared year, prior by to the our improvement results were business including for up products. our driven and sales the volume momentum Airs.

to currently which revenue. subject variations products, in to XX% stakeholders I not timing performance be can our to approximately remind aftermarket and like our investors of quarterly purchase would it over analyze as our represent for our order

our and quarter, more and to a are While comprehensive performance it performance our growth. of is view pleased we crucial this with strong long-term take financial

from operating again the business sales, on reported is leverage have on quarter. past, which we in was well-positioned to second our benefit significant As demonstrated in higher the

previous Operating XXXK due gross our XX% was in XX% was year margin lower favorable $X.X million, the higher current prior and a the primarily leverage such, year. on which volume expanded product than profits from to the mix. As in quarter to

decrease expenses, related primarily one due to relocation The SG&A nature was and non-cash in to compensation higher mostly and were in which stock-based profit operating time expenses.

$X.X slight prior income, Turning reasons. for achieved million year to the we which from net decrease same is of the million, $X.X a

sales strong and we as is initiatives, in development orders indicated driven of our new by to returns invest are record of million the backlog quarter, experiencing business our which you by and a $XX.X from significant in the recent a As ago year end continue years. of $XX.X quarter increase a million,

our are We to potential. goals our margin to forward, clear. want maximize Moving facility increase utilization

to new via organic a this have and two through by through approach achieve growth goal, driving growth pronged We product introductions M&A. inorganic

growth, IRLG our organic we to [ph] programs. continue invest in Support

year basis Although continue department, IRLG meeting engineering engineers. sales as we of XX%, below with selectively on anticipate our as target of target is our still a an percentage annualized full qualified expand to highly our we self-motivated and

that remain believe in and IRLG for this is critical investing success We committed to approach. long-term we

our cockpit Autothrottle have see Specifically, our the introduction of seen market broad which competitive focused and in with automation, programs. of and the area we remain you success advantage primary

the and the for our ultimately [ph] aircraft A pleased I'm the cockpit. that XXX XXX reduction announce long-term Autothrottle that technology provide STC number King we plan to in awarded with ThrustSense with is that pilots the To end, the Beechcraft would our lead to have automation aircraft. Air incremental orders in industry of shipped on recently for to initial guard

XXX to has certification installed platforms. This last the potential be an on ThrustSense additional

opportunities and you actively side, are diligently have been pipeline. seeking inorganic On for develop a the to working M&A robust

our aggressive action incorporation. to M&A financing to amend secure a by to progress enable implement – the long-term articles our needed obtaining quarter, strategic This the execute shareholder to we goals. made will improvement more During of and us program approval and put

informed end, we our to with progress needs currently our closely are we and structures investors upcoming best evaluate our plan this keep for banking team to To of our the in working quarters.

our complementary technologies and focused M&A our existing portfolio. programs, identifying on products to In and we acquiring are

targeting million. acquisitions smaller bolt-on are that under are We $XX

to expand our and is our do and allow in effectively. will targeted that capacity facility these believe goal us Our portfolio fill to efficiently and so acquisitions we

We updates are providing coming constantly look forward incremental the evaluating potential acquisitions, to targets and in quarters.

strong we in believe performance continuous for and that demonstrate our momentum innovative demand In the quarter second products. our summary,

maximize increase to our growth. margin and forward, have both we Moving and through potential our facility clear inorganic goals utilization organic

you your the for you future in with interest, quarters. Thank and details time look updating upcoming the to forward we and

the numbers. the a I Mike call turn will to for at over Now closer look

Thank the second and our for all XXXX. you results for thank you, today. quarter review joining financial will Shahram, fiscal of I

were million quarter at X.X% XXXX. second to million compared of in $X.X $X.X second revenues in Our the higher the fiscal quarter

was installations. air also new orders The to business. seen commercial due XXX largely Boeing from growth and Autothrottle was customers by transport aftermarket retrofit driven new in increase XXX An the

revenues last retrofit call, our in during business the quarter-to-quarter. noted our overall XX% we fluctuate is aftermarket from fluctuate business, earnings it Since may quarter-to-quarter. our from As of orders approximately

will This second but the quarter. for originally quarter, forward reflect quarter example, were results expected during first certain carry orders that the into

be of to our While basis. significant long-term anticipate we on our changes not progress annualized business, do in that organic any we evaluated trajectory an the growth believe

the an The second gross ago. margin result of year in a XX.X% gross from in in quarter an favorable to slight sales, improvement a higher in period and inventory product a quarter operating XX.X% in expansion Second mix, as product increase material decline leverage margin was a compared costs. reflects direct

have line with very is improvement previously mentioned. margin gross in we what The much

headcount a optimized well-positioned low from benefit is relatively operating to platform with cost with leverage revenue and on model employee growth. based profile margin fixed Our operating

grow. in see continuing sales, on which or to previous lower XX.X% plan million We XX.X% was $X.X operating than quarter $X.X year's current leverage continue was million to sales or additional the sales. as Operating profit the of of

were The million year the $X.X primarily to quarter. quarter the related second versus higher prior SG&A. expenses Total $X.X in second were operating operating in million in rise

expenses and as teams, term long basing non-cash compensation well also to investor expenses. of higher as incentive marketing, as stock-based investor development result Expenses were business related a These relations, the and additions made included sales

to Higher higher in larger partially prior to SG&A balance higher in were the second period XX.X% cash year rates offset due the spend and and same revenue engineers and by generated R&D compared quarter expenses to on to the ago interest of year year. line end support interest R&D we with a product the our revenue expenses still income of of expect development continue levels, efforts. to by XX% hire of

the to in quarter. in $X.X second Tax was prior quarter the year million expense $X.X compared million

$X.X $X.X versus second $X.XX or income share was quarter $X.XX XXXX. or per quarter Second fiscal share per net of million the in

the slightly March only down $X.XX Net income $X.X million or was million or of per March prior $XX.X diluted XX, $X.X of diluted as year XXXX of $X.XX $X.X as share. Backlog XX, per versus share, from million was XXXX.

were in for increase has XXXX. orders such through a the second is for The as orders of New Pilatus, $XX.X longer to time, who customers quarter million. locking period largely due ordered late

orders Boeing Additionally, as given long-term has us well. larger

to And backlog. the in these largely our growth factors have contributed

longer also is enhances Our in turn term in performance. visibility in which these future for our reflected customers' us orders, confidence

from and continue production to already for [ph] remain and the sales long-term hand in We the orders that a to should total backlog. Pilatus these included programs our programs about decade King within in the add KC-XXA purchase anticipate only include PC-XX, production We in Textron Air will backlog.

as operations $XX.X million We XXXX. XX, up hand million million $XX.X $XX.X on cash of XXXX. on company was as the generated hand $X.X cash of flow of XXXX, during as XX, million from on March quarter. XX, The had of Cash from cash of hand of December March

generation an R&D by and inventory tax regulations new $X.X build Our $X.X million, due timing received. was accounts Section that IRS impacted our receivable of tax $X.X increased cash estimated million approximately to by payments the of payment XXX million

our our sheet. cash continue generate without cash balance and flow debt any We on balance to grow

us and internal provided financial flexibility returns our and forward with and This organic our stakeholders. seek deliver execute as external to to and we significant opportunities going on inorganic strength

gross fiscal utilization similar inorganic of remainder the of margin the and we flows with revenue against leverage organic capacity as operating cash levels backdrop from strong and For generating growth expand or anticipate higher opportunities. XXXX,

ready questions. operator, we that are With for

you. Thank

be question EF Hutton. comes go answer with Tim ahead. now and a will Moore question Please Our from We first Instructions] session. [Operator conducting

strong up XX% maybe catch backlog and see up on a was December, [ph] XX-month the very I orders a on but into, it in the of Thanks, quarter, nice impressive. everything double sequentially thinking the to congratulations from impressive book-to-bill. rolling from do and ago and guide was still with it appreciate basis, strong year a

amazing you which is, question first on the margin, my gross So, I in elaborated the a was quarter. bit know

leverage the aftermarket benefit? trying sales of expansion? Was the maybe drivers mix? head that most more it Was of was operating by caused caused wrap or around to by there there the more that Just margin main my

proportion a which combination, Yes. It's but higher a our bit of have a in aftermarket we business, is business. did margin OEM than higher typically QX

was it increased that that the a between So overall to sales and combination operating leverage. create

helpful. That's Great.

were And clarity on to maybe. you follow-up something on, giving good want I just this

of should you probably were revenues a I recall, just whole expense, When maybe because in a was to year, Did fees year? which kind some of some as bit SG&A year up. of think second in roll pressure couple we you half a compared banking the a drop of it on you there year, there first the the fees, the off of professional legal year, half to right, half the Your about the from what reported, as and fiscal for this the expect percentage more SG&A one-off of things? expenses, catch first

few to run of That's SG&A low the through about In see correct, you'll running one QX. XX%. traditional XX% of definitely six of – and the see roughly year some and be a basis XX-ish the range, Tim. points that rate compared relief our above XX% and QX but will QX run elimination typical months, the And in QX QX rate QX - we the percent few first sales with finishing we'll XX% -- in of probably be to of coming around historical our our of and QX, around roughly closer time a and rate those -- you'll a run points see impacts

That's Thanks, helpful. really Mike.

over you're What a you're spending pipeline modeling, that you innovation will timing in peek of the support. continued us of speak product adjacencies that that, could instruments of core announcement, up or because in I has your be the -- you maybe development, to just I cargo remember last been I on check my R&D to or As want I which think expansion. next focusing show of give some more do Can kind solutions and sneak any any innovative operating on still always Latex know that engine Can margin about a month Helix and things reading maybe some about the year? the kind the are I coming. there's developments? probably of new nicely

to actually grow have sales also, where essentially and And our your we in line. top development we investing been business starts Yes. first would organization there question to the

will is higher, SG&A slightly of capable some the there help get that develop reducing product number we from some where get there guys second because increases us ultimate products the pilots product where revenue significantly aircrafts grow So to and we again, At be incremental With we've lucrative a you will park where marketing the workload to a But approach you has can to and that the series not in that to the to these order no hired would generate tradition, development regards us to [ph] will of get the of in innovate point the on goal have would sales that an there would development, for continue automation business. get pilot a of our is we've we good start increasing taken XX by some cockpit, reducing be way in business steps. there, in maybe point need case. where a that to clear in the pilot. cockpit, for –

our goal. that's So

marketable strategy were new That's for reduce products. we product generate product workload, and development. Meanwhile, will our safety, products increase those main and

will the of Obsolete some We We've at that the in products gaps. done also that components replace aircraft. traditionally. developing look existing

should XXX, system we is So And the we fiscal this crew XX. engine certification and year closest we thing alerting completed. believe are coming, the which the get

back accreditations at other their good certifications of customers way them getting and installed terms maybe of people mobile about forth -- that expanding it by this that actually doing products what site, we our of team products adding our where teams more and them in and we're we're trust part a doing saving that going continue and we're can amount installation also cost. to saving do business, of call more and our and and our installation We we In

those focus our So, areas. is on

those, We continue customers. aimed for for interest resulted they are developing and good and side recently certified Autothrottle. We've have government some new of the also the military which two features from military of Autothrottle, the our in

That's very helpful, Shahram. appreciate color. I that

stock or gross capacity a Mike XX%? to incremental with your a earlier for margins or sales estimate when utilization. I company. rate. this incremental Could could you your maybe the be in catalyst you and high larger point through margins when whether get annual the inorganic Another rough something be you organic reach mentioned up And XX%, inflection above the $XX how increasing sales come of gross remarks maybe like it's million is, you know a Have your

it increase just that's, and and we just sales EBITDA. us modeling it last with Tim, in along get and sales as over margin – $XX increase week XX% is right going the to this will is were million Yes,

continue will year is $XX sales. less on that grow. roughly for in million And So projected that around to this XX% EBITDA only number

quite that we bit sales increasing as a So, see do grow.

That's helpful. Great.

I in EBITDA million margin? $XX Is heard XX% correctly? that what So, sales,

Yes.

I will $XX approach think get million. once XX% we we above

sense. makes That Great.

levels. You have I so the now, like third facility. right much remember incremental something leverage the that in utilized If it's

Just week vote last it remarks mentioned I you in my was about majority acquisitions. for And approval through know, go see really to last shareholder flexibility. Shahram, the some nice this your that for of question. And

targets. on bolt- million $XX under mentioned You

bit seems I to encounter your it accretive. asking starting any just sellers out maybe reasonable cash more the a like in valuations evaluations? of that pipeline. the cooled you balance, multiples little yet? last year accretive acquisition is But early maybe in see could they of be economy or maybe are realize there? probably at Or you're almost you the not probably nicely just stage wondering, from reasonable that what some are or make the you Given I'm stages want getting off

somebody kind in product I by, to out long-term think venture have people the that what approach Obviously, line. lot who that's else's compete else. years is the multiples of there about to to of that what's is seen form we've high worry I don't going a happen two of then at by kind guess, they're driven going will capital to things be somebody just up accumulating not It We going and problem. with these there. They're we're it try look that. the sell to to in to

aerospace the that, the aerospace kind it products is Unfortunately, present of fact the even capital the there's the though stability presence, And the industry. the of our are that's kind of today of And seems up, like have we venture a strong the aerospace venture of because the in sector, still defense money in market and the industry. industry market, both strong. both them tightening

us our justify industry would right beneficial the us. as that's as makes about and P&L times of a lot But they level that obviously there. for gives – I have are – acquisition do, confidence that the we're a guess, market. gross to some far product are they that kind pumping that's finding the we the now long too is products of the help would be and our off of defense. And new that where yield the X.X mean, in about multiple we lists of see to I our it investors times But kind And that multiples talk the money lot OEMs aircraft, line of are. long margins average grading similar going within The EBITDA. into that

helpful accretion. on the it's very you that's good out with cash to have hear color, to that hand That help and acquisition

to So orders our Just again, That it the impressive that's in you and Thursday. congratulations quarter. on questions. the for forward And margin gross look conference at I on seeing my

you, Tim. Thank

Thank you.

concludes teleconference. There today's time. are This this questions no at further

for and line at a great day. your You you may time. your disconnect Thank this have participation,