Innovative Solutions and Support (ISSC) 15 Feb 242024 Q1 Earnings call transcript

Good day, and welcome to the Innovative Solutions & Support First Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dr. Shahram Askarpour, Chief Executive Officer and member of the Board of Directors. Please go ahead.

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

Joining Rell me Winand, is CFO. our

to like forward-looking begin, cautionary a Rell we statement provide Before I'd about information.

results disclaimer everyone. which operational statements and those assumptions, filed any future the should our our conference are and for better today, would these including also those undue listeners express and matters Form forward-looking XX-Q that listeners along or information. you, our disclaimer Shahram, assumptions, listeners statements worse regarding I results plans place that either forward-looking today's date, filings discussed. I in differ in call risks, to Thank I certain to specifically new represented risks on could discussed and yesterday, in remind reliance and that products about financial not our good morning, forward-looking our materially, forward-looking speak contain remind statements of with public listeners' made uncertainties. uncertainties periods, actual and call describe statements. only from cause as we These to and our expectations attention subject

Now Shahram. I'll to turn the call back

through ongoing call today us will and the then turn Thank comments including will on by followed Rell, remarks back the licensed you, growth the on and financials. from I to who of will strategy, fiscal XXXX, with the first I our Rell. of begin our quarter the products take Honeywell. performance in plan integration long-term acquired

the this integration be to year. Honeywell product to income this we At on were from time, the up due XX% product This revenues year our of of fiscal revenues of to For the nearly expect the addition completed increasing full of pace lines. goal increase the a XX% increasing by has revenues with XXXX Honeywell ago. XX% net us meet fiscal organic lines quarter,

side, and line First addressing business again quarter in transport, results the demonstrate were the Data of strategy, commercial with expectations strength diversified air military, aviation markets. expressed results once previously. the our

experienced have cargo anticipated the the commercial renewed countered we by slowdown military and air markets, in have transport strength markets. we Although in an slowdown

first XXXX. With of lines, of the cash and Honeywell addition revenues the our the our production in provide strong increasing in us contracts now product and million reliable Margins the with Cash proportion nature, were generates fiscal of quarter that $X of recurring from was flow. Pilatus. margins strong flow year our nearly position contracts an revenue by strong an growing These to OEM pace Textron, a quarter this quarter. in debt Boeing, improvement reduce production XX.X%, are the enabling including quarter,

expect We be balance the fiscal throughout the acquisition. line year, reduced to will barring another continue credit

vision We new and the to evidenced new includes to also the technologies maintained our and develop where and our aircraft. long-term believe pilot flights demand single acquired in reduce technologies Honeywell for we ultimately pilot that to transport to development existing products capabilities to integrate would our is and by increase add directed is as expense. work product R&D there increase efforts commitment This lead at air This to lines. research increasing workload in

our further value selling, increase and strong the in Part extended UMS, This with in product is a evidence Our second-generation increase our of proposition into funded and confidence the quarter the gained sales with to a airframes. contract expect expense of R&D in the general represents administration additional a organization. develop our was staffing be we we Pilatus customers. to

also only Honeywell an for which we for new footprint, a but reputation products. believe large internationally, our enjoyed experienced acquisition established legacy good not offers we of came equipment the that products with new the market opens and always products arriving customers hundreds Quickly of sales provided have global new and another the markets, us we the Many inventory training Honeywell great is representing status Honeywell products test the with Honeywell IS&S, completed. new to are along updating the have promise. associated line, the the been While the product believe all of

quarter. We occur are inventory with expected transfer Meanwhile, repair by maintenance the now the and the products in-house. handoff processing of end IRU these to of the progressing the of of radios is current

the expect of up. new ramp to these top to We benefit gradually products begin line and bottom

sales we I have products. of sales mentioned, As our increased the to these support investment marketing and

synergies strategies to to begin that believe growth and inherent realize strategies. will of As these fully the synergies potential from recognize develop and we we products, we site

continue opportunistically we additional arise. to to and opportunities should acquisitions these reasons, complementary evaluate execute plans make will For appropriate

Our to this acquisitions. through and additional leverage longer goal sustain to momentum near now over both is this organically term growth and

Finally, I for want to update CFO. you ongoing on a our search permanent

have highly for the interviews completed Rell several round closer a look we already yielded to We and of to candidates. in forward time search interest, you have we and quarters. updating for turn I Thank will over qualified executive a call that and an look at retained upcoming you numbers. your firm, the

and you, Shahram, for Thank joining all you today. thank

the for customer in XXXX. contribution first due XX% me our highlights quarter review the Let Revenue acquired of licensed product up results quarter of fiscal quickly the sales of first from the Honeywell. lines the was and service to financial of

and terms, customer primarily quarter sequential ago quarter research net development research First development increased contract is in a XXXX development efforts. current quarters. working result to the $XXX,XXX approximately has slightly that sales. on year have in that and completed, as percentage but fourth contract expenses engineers and expense margin impact the X.X% return a development research costs development and down fiscal increased absolute will from net quarter, the In was Note of When was basis of the expense absorption research engineering or increased on development will material decreased to subsequent in of a gross of the but This first up due sales. in XX.X%, and and service. overhead

not an reduce a approximately gain account ago, of and that of consulting marketing the in down quarter Interest primarily with majority day. for Net million airplane and associated to tax expense do was our reflecting are administrative quarter. resulting income Taxes from rate although intangible down, general sale year due quarter rate per the expense will planning or product state the quarterly to a in and being the every trend share, with $X.X was of accrued of First $X.XX sales in Interest also expect the the asset uses gain amortization increased of although the or XX%, million, total was increased a $X.XX selling, of ago, anticipated quarter versus as expenses fall, line XXXX year year to the Air the the $X.X expect we're note up increase interest gain of to income the quarter to we X expense, Honeywell $XXX,XXX the at $XXX,XXX. I daily fees. fiscal end we Air acquisition, the King license professional we our cash rates flow and cash selling, on quarter, ago used to expenses. up was interest general in from and do to credit airplane. Bank and the due reduce and the were King [XX.X%] expense to per statutory in on the that use was line expense -- share administrative the The interest only consistent not P&C debt. pay because from for but new debt sale sold at balance down

with ended backlog that of New approximately million, $XX.X orders quarter in were $XX.X a the the quarter approximately so we million.

orders indicator all not to to factors vary intra-quarter quarterly backlog. number a can Honeywell always, not that from in Virtually are and of book of are As and revenues an orders future meant the provide the ship due included are revenues.

the million from on million from September company's quarter million was flow $X.X operations. XXXX. of $XX.X XXXX, $XX.X cash XX, the as million, company of For fiscal first XXXX, $X.X down The generated debt December XX, of

result on a is classified of balance a As line the be credit company's liability sheet. to as of daily balance cash sweep the the current component required

months X sale XXXX, million. of XX, King also $X.X cash for from aircraft ready December the Air benefited the questions. for we're our ended With During that, operator,

comes Theodore with question from Research. Litchfield O'Neill first The Instructions] Hills [Operator

Thank just you I have very much. X questions.

view sales in the you driver The the The it? first one reduced and what have market, if about when be do side. on shipments on would is change that and for the a the displays of commercial might for retrofit

Some seasonal. of it is

coming, revenues product We a we lines, OEM, are certification will not cargo from we the from OEM before. a on of to -- op OEM older, emphasis which larger the over on these new to we've work older -- next TX and that contract well driver get the both airplanes this see of got. autothrottle on continue some years in or aftermarket few anticipated should market, put couple side side. the the as and kind a of new to be side. emphasis because transport of that is from slowdown we the some that see on over as focusing as begin the on priority in Because last opportunities some a things market. the looking the the quarter, a were quarter. military a of so we're in not were military we've we larger line and were they military ways, than years next Some these lot we that introducing product products training, new air on We that Boeing But rates. efforts, We're we the at begin eventually that on additional of essentially it should it developed that, put And our finish think

within be doing we're that from The down. said, it. of is transport Meanwhile, we're are slowed we of additional And has ticket X-X/X-X like offering But aircraft, air big is side, a had some we before I the the the completely revenues as a single talked cockpit retrofitting offering features seeing the strategy. airplanes. operation anticipated operation these longer-term leads to we to upgrades, some automations lot part single these and items Part on of that what a cockpits. we these pilot XX will which On eventually of the more for cockpit that the of

Yes, sense. quarter, on the the SG&A part Okay. was the on amortization that And continue customer the SG&A relationships the significant many it And for the increase? in quarters? more of is does a it in makes expense, of

too. it, it course, of salespeople. as the And continue, It's Shahram that's big a a quarterly. increase. we've big piece Yes, That's a $XXX,XXX of sales, of is so about XX-year mentioned, It additional obviously, will amortization. so hired driver

Generally, and fees our declining have been vehicle auditing fees --

they Quarter-to-quarter, fine. were

As winds down. the acquisition

Andrew The with question Partners. comes next Rem from Odinson

had to service just I the we question think segment? margins a How should customer about start within gross with.

it's In been Typically, higher. what way?

Right. XX.X%, look year-to-date been at quarter in running fourth rate, and fiscal it if the had we XX%. 'XX

but I quarter this don't year. revenue higher mentioned know you than so of third first, And -- some you quarter had last much I or if mean, under-absorption, second

-- sorry. Right, go but ahead, it's

No, I'm the just nuances. of trying understand to some

got you -- Well, Yes.

repeat you XX%? of said please? can that, Andrew, You we margins gross had

the year-to-date to the revenue the run X just what customer understand running XX%. than of XX%, then this of moves and now trying in the if XX.X%, was last quarters revenue service XX%, in year. Well, was was through quarters the margin quarter nuance, you rate X higher then quarter's fiscal first have around, and the first fourth gross 'XX I'm

a Right. service up absorption piece whole. of bigger revenue overhead is But it. end into going the more to the It's customer with

the material understand, price, you As seen can of well has as material, -- has increased. we've as cost

half you. sales increasing standards, like of bigger yes, it's so you're on your to We almost customer to piece -- mix. if that But to say, it keep is from your have it's I previous. service, is our sense and repairing. everything that's Depends going down any -- a so what get But of makes

how on does long kind of you side, then And take some to the price get recovery material of it there? Okay. cost

that. missed I that? repeat you Can what? some get To

On it take get of how long does this recovery? materials, you the cost to

-- side, much what service take customer we do doesn't the too on than a other warranty lot It because up. is of not cost

it's those, to through increasing charge we customer. As flow been what to the we've going

going due inventory fourth Okay. pickup excess us But to quarter, this had then this a inventories, in related as what's Is make you pickup on? you Honeywell. million. the Can just had driving $X.X you also about quarter what's on And it? another Is help understand transitions? product these you that obviously to

Yes.

things. You have a couple of

going that's have so in, the You Honeywell prepaid. coming the from inventory

little And we the in inventory. to meaning the need we're -- we that going a inventory. there some Honeywell have You that produce flow grow going going grow movement you're to $XX to increase. of to prepaid And more have we items that's last can finished see see production the into as ahead going ahead time obviously, Honeywell, buys, bit. do And because flow, million. inventory and was All and grow

As normal of makes you comes comes out receive it sense. and your there that, that if inventory into

Can expect of the the that second year brought past of transition, kind we you normalizes? in you, inventory in kind get that reasonable? behind the get half You Is all you've the of Honeywell inventory. product

but big -- got number a it be will we've Yes, because

should going It's going it's to level but big to, it number, be a off.

just then ahead And go -- Okay. on -- CapEx

kind that thing, right? of and order to going You're

How quarter. year? can should think CapEx, was on that comment high the full we about this it you On just for -- pretty

we've building that, going things part of work that's to a done CapEx, mean, be increased the and the in it. I so building, some -- look, we've like

at Well, for looking I'm full year 'XX. $XXX,XXX the just $XXX,XXX versus fiscal

Yes. Well, some probably bought we machinery.

on working we're usually -- Now --

We bought a lot of benches.

period a of as making building, bought for well normal all a into the higher so adding of as the in time. that's of Honeywell, out a that upgrading part little plant stuff and a the Yes, than fitting lot that, for of

should off. all that Stabilize. Yes, level

not maybe It's Typically, number. a have $XXX,XXX a always -- $XXX,XXX, year. Yes. we don't generally big

structure investment doing this is Some IT a we're well. cybersecurity our so as in -- and you thing, know, becoming some now as Because

Operating servers.

our money as that term think well. And reduces cybersecurity insurance well lot because I long your us A of saves as increasing it cost upgrades as practices.

just then comment incremental the related and spend everything incremental me IT be that base thousand would much around CapEx Can got incremental doing you like hundred year guys of and kind related? how a about IT CapEx mentioned for think components, -- of then from Can if CapEx couple we on you're and Honeywell. to if you've -- and what some help Honeywell this you then a so these infrastructure incremental you

a Not typically Like on I $XXX,XXX done pretty you much others, average, I for whole than guess. We're will. $XXX,XXX, lot. more maybe. $XXX,XXX if that, us, some maybe say,

look is old. also the years system, air forward, at Going you've got conditioning XX which to

to got You've at some look loops.

That's a whole different potential--

be addressing. to going We're

amazing All it did me, right. think that's guys job. to you want I a say guess Well, I I for but done pretty have

good cash here. flow generated You've

exit a and you maybe of your You've below debt. had this Xx. I that year fiscal taken a turn out half speculated guys could

if you I blow improving maintain and Appreciate through it. lot. thanks you so think looks like current Anyway, the great a are sheet a you doing the trajectory, guys guys team it going right to that. job balance to for Kudos quickly. the

next Lenox question The with Ruth Doug from Services. Financial comes

congratulating to start want a strong by on off quarter. you I really

stock? Board job. had do wonderful the management I a and Directors, now folks you of a done Is the to question. have ability buy You've the team

of closes yes. there us end Monday, Well, open on the of as is when the a the quarter, Monday. for earnings it window on couple And it's actually so window an business is a open, before window, weeks opens third day after yes. the The

Okay.

investment if think really some stock. the I the appreciate managers would and Board could the buy of community some

significant really shareholders. think you to doing difference. on strong you Thank I a quarter. congratulate would I it really make And the a for again, what for you're want

you. you support. Thank Thank your for

the Thank concludes conference. session presentation. and for today's you Solutions attending & Innovative the Support this And question-and-answer

disconnect. now may You