Innovative Solutions and Support (ISSC) 13 May 242024 Q2 Earnings call transcript

Hello and welcome to the Innovative Solutions & Support Second Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call to Shahram Askarpour, CEO. Please go ahead.

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

Joining CFO. Jeff me DiGiovanni, is new our

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

you, Thank and morning, good Shahram, everyone.

our anyone copy the a have copy, can find have You press we not should a all issued does release press website. release on full the of earlier today. If you

would the like call of I remind Litigation Before everyone statements conference we usual, begin, Act this to contains within that as Reform XXXX. the Private forward-looking certain meaning of Securities

All occur based beliefs and statements that to in developments the information or assumptions and future on management's not These operating available that are management. performance on to are our events statements anticipate we expect currently or forward-looking. address forward-looking

are these believes that Our forward-looking management statements reasonable.

of statements a not otherwise these statements or law. However, new speak on by any publicly as to forward-looking you of revise future events as information, date. of required place reliance update any should statements because such undue any obligation today's whether forward-looking result We not only or undertake do

those subject risks cause and risks or uncertainties include, developments These to in statements uncertainties the not that our reports and described historical to, SEC. could the file from worse with In forward-looking differ materially, addition, expectations present actual projections. or are and events which better results, certain to either experience, we unlimited our but

issued statements today. our to forward-looking disclaimer press attention our release listeners' in In specifically contained call addition, I regard the

over With the to that, I'll call now it Shahram. turn

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

market CFO, Jeff welcome financial beginning introduce April acquisitions I investment as at and want is capital Winand contributions the to But the role appropriate shareholder Jeff I through DiGiovanni helping for joined filings, to community. We're value. with us us in him company and all CFO the to before to IS&S. SEC at reporting are that forward for all do, highly who public us IS&S experience looking seasoned extensive helping as to in time, well want same At of skills Rell thank, interactions, a his this transition. build I the

also with at bottom of IS&S. goal income, line both It's been excluding net another to pace XX% the this top the ago. growing significantly up Revenues remain nonrecurring a and exciting year our quarter were meet busy We expenses, up on year. and from

and has transitioned, We we progress radio Most now integration. maintenance with the of continue to repair business and of been new the requests out are handling Honeywell Exton.

complete of equipment the inventory of delays integration the Unit We There completion of Inertial Reference expect we to the and some been the before summer. in delivery test have purchase. of business end

likely opportunities be customers. once with improve products financial of acquired is penetration to performance will expand inherited to the leverage However, fully new to completed, we more that believe even integration relationships they our the upon and

Pilatus for IS&S inception, standby instrument generate from the for autothrottle large active it development internal this development we to both technologies our innovation develop on Textron of and products. the portfolio Systems include activities remain its and stable surprise Since is our has OEM growth Utilities Boeing side. DNA, reputation a the it built and the industry T-X spirit with to superior continue This for the of revenues is KC-XXA technology. We Management and extremely UMS, customer-funded and margins in long-term company's contracts of is Consequently, the quarter the its or avionics and IP-rich in cornerstone for programs. and strategy. Research no

UMS believe the into the markets. side, to to testing be the Pilatus with be platform, expect in we has and the near adjacent we potential a term. On extended funded second-generation new This generation is

reliable our pilot This Recently, to new contract our the ability adding revenues. is to incremental automation added testament these enhance provide another services state-of-the-art and have that safety and products product to our to cockpit and upgrades safer, been we've also to industry. reduce portfolio workload,

automation cockpit attractive future, once the price obsolete operations. enable us market. would As to We those technologies for the single-pilot our believe Part authorities we we XX focus product cockpit aircraft, certification approve aircraft replace lines, technology features proven with our operations allow retrofit in on that that an single-pilot at

also expect become efforts. We're ramping will development up the operators We that our business air adopters. early cargo

addition business market are With segments. Honeywell We we help development plans relevant extend develop world developing international our global team to into the development the network anticipate Honeywell the will new relationships of team, around in markets. the new us

execute strategy organic lines for returns be for and flight, an and the acquisition internationally in growth In to domestic near sector, product have market-oriented. have on we our long-term autonomous our by interest consisting of military aftermarket we that growth in increased and growth organic military believe will growth. order accelerated experienced plan some Lately, both the modest and our realize attractive of strategy developed term, the an

this we approximately we Consequently, in evaluate right months execute a appropriate X that with opportunities opportunistically acquisitions complementary your the should flow in the to have we and of can additional closing. after having think a strategy, and you for arise. in also acquisition model this upcoming recurring the Thank borrowing you million time cash look and we The $XX support first interest, growing base support will We the to demonstrated market. quarters. Together, is to our we updating has that strategy. reduced revenue, just Honeywell by continue will believe generate forward time the

numbers. the closer now at will to Jeff call I look turn over the a for

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

like highlights the value contribute financial our I reviewing years to a Before of efforts glad my based a quarter, can the to company. shareholder to build would first that XX confident that as I'm publicly in say part consultant very of exciting over be this CFO team to I at our company's for IS&S second to traded the I growth. the as both am as well time on

I'll begin with second results. an quarter overview of our

of representing when Shahram net finished As when $XX.X year, fiscal compared with were were quarter with for prior our March the line XXXX. was second top revenues million XX, the revenues of X $X.X with the increase million, XX.X% Total million months expectations. X March growth compared $XX our indicated, representing months consistent a versus for second the increase a quarter the million, double-digit XX.X% $XX.X for the Total ended XXXX. which XXXX fiscal for XX, the ended XXXX, with

commercial general Product reduced compared for displays an customers. offset XXX.X% X $X in was or for programs shipments customers, a aviation to in to decrease and displays service sales of transport air primarily by decreased partially months year March and the to million as XXXX, ago The of quarter. of retrofit the military result product increase shipments $X.X million ended XX.X% customer the or increased sales XX,

$XXX,XXX at product The service ago reflecting year customer service EDC increased quarter, compared business. acquired lines to EDC customer sales increase increased in reflects the sales Honeywell. from primarily

military compared by sales XXXX, XX.X%. as partially was sales the X commercial Customer offset months the decreased customers. product $X.X primarily for period reduced $X.X the million For air ended of increased in first March or March ended service customers, and in to or decrease XXXX, XX, The X prior XXX.X% retrofit programs of to product transport shipments million result displays months in shipments sales an XX, the of displays aviation for general increase quarter.

$X.X The XX, XX.X% XX, months increased net net service the ended XXXX, of or in million ended by was Honeywell. March XX.X% product sales to million in of months months in or ended the months X XXX% compared of increased sales the quarter, Cost to XX% X million X million The XXXX. sales compared increase $X service XXXX, million months of compared of for business. XXXX. to $X.X million $X.X of by the XX.X% From XX.X% increase XX.X% customer to reflecting from an $X.X ended increased X the of standpoint, or in an primarily March customer to net EDC volume expense XX, XXXX. lines ended sales million X or the result in X in $X.X customer service of the sales sales increased March or to of reflects EDC March March in prior $X.X XX, compared increase XX, sales primarily sales months sales cost net the cost XXXX, or XX, March or ended the sales

was XXXX, XX, and X and XX% the XXXX, was ended for XX.X% decrease percentage and margin The the XX.X% respectively. the the acquired This months XXXX overall along is lines. in company's gross mix overall and XX, March and ended costs delayed increased gross product to for X attributable transaction synergies primarily XX.X% March respectively, XXXX, for the the the material attributable product with margin Honeywell with to months

production continued Shahram second integration inefficiencies. As briefly quarter, mentioned, creating Honeywell in some the the

equipment of and but not our impacted In inventory negatively as were well. we our test some delayed, only deliveries which the revenues expected margins addition, somewhat

they products line So margins averages, have historical expected to bit a are Honeywell lower. in while our the with currently are

the improve. believe increase ended XXXX. Research from March March increase once XXXX, X $X.X in an is the in XX, months in million the development ended integration we mentioned, Shahram XX, ended XX, an March $XXX,XXX XX.X% XXXX. will X and $XXX,XXX as months expense million, ended months was XX% months the of million, X R&D performance complete, were X or March their XXXX XX, in the $X.X of or However, from $X.X $XXX,XXX expenses

due driven R&D salaries headcount. This in and benefits due expenses higher were to higher to increase

of As sales, March XXXX. the months X.X% for percentage net ended decreased to XX, a sales R&D net of X expense

an XX, of XX, months side, the lastly, were and ended $X.X were XX, $X.X general XX, X March an X million XXXX, ended expenses in XXXX. $X.X million administrative Selling, the increase the the selling, from XXXX. months X And months XX.X% $XXX,XXX $X.X million March or months general expense on March XX.X% or expenses ended X and in March the XXXX, million, in million, from of administrative in $X.X increase ended

was XXXX, the ended XX, administrative investment to overall expenses The in sales our in and increase quarter sales. of general additional result increased help primarily drive the in March personnel selling,

in an XXXX. in fees legal ended In and costs XX, driven March onetime approximated increase and for and the that are professional These $XXX,XXX and acquisition, $XXX,XXX addition, months largely other the X increase other. was nature transition related to by the X CFO

to by XX, the expense the $XXX,XXX Honeywell X the months relating collections and negatively months we we the Under reduce in impacted basis In March amortization $XXX,XXX quarter, addition, related SG&A from to customer approximately the of credit down on ended the quarter X respectively, $XXX,XXX Interest used significantly first our for a acquisition. end was to relationship was and our debt line cash at borrowings. sequential the down agreement, as every of day. paid of XXXX,

on hold balance the sheet. cash we So much don't

I For future will interest modeling expense in decrease expect purposes, to continue quarters. to see

quarter, coupled per second or from share the the Honeywell quarter. million was ago share nonrecurring excluding net compared of expenses amortization our to of year reported increased the or in $X.XX million we For acquired the to Therefore, net the previously quarter. customer discussed is from added $X.X primarily the in income nonrecurring amortization The the profitability $XXX,XXX. $X.X difference attributable intangible $X.XX and of expense, relationship onetime ago per quarter year these which items transaction, income with

the Moving to backlog. on

$XX.X expects as remain Red backlog orders to orders long-term Backlog only Boeing our of purchase orders our and $X.X in generate million. anticipate sales. quarter Hawk OEM they XXXX XX, years New customers will approximately and in production King IS&S Boeing in and includes these under for KC-XXA. fiscal programs, hand was PC-XX, future excludes the to as several such XXXX, Air, Textron continue Pilatus and programs March T-X of were million, second from

million, liquidity. to our in due the earnings. product to Further, typically flow primarily backlog. increased flow not and in due I'll the enter $X.X $X.X In XXXX, from Honeywell of cash cash nature, and year the changes cash turn from higher comparable period working first half ago their from lines do capital operations to to million

were million activities aircraft. sale the $X.X of inflows King of cash from cash year-to-date from the of inlay Our company's proceeds from the Air the investing reflective

over were to that, thanking And line $X.X with and of activities it company's Our turn year-to-date of cash from outflows Q&A. financing hard I'd and payments consisted the begin million me let credit. all teams to like commitment. for close the operator our their against work by to

question Global. from Ginos with [Operator Instructions] Financial comes Freedom First [ Sergey ]

I'm you year, quarter provide Jeff. bit Honeywell margins a question please. decreased is fiscal look expectation because from margin to for at XXXX little due in for year first I that products Especially, acquisition. EBITDA financial gross ago The Could the a interested

Yes.

ago is I experienced synergy organic delays think a the synergies out effect. with we acquisition, impacting some once of and year laid growth. included expect XX% in, test as margins margins well Shahram Honeywell as and Shahram as and So the those now, negatively improve equipment that growth those which from would the comes full both the to expectations inorganic as mentioned, we are in inventory EBITDA XX% Right

future? lines product foreseeable UMS enhance And into for Okay. are the question [indiscernible] PC-XX revenue from second organic expand you What What in expect? existing financial do the will effect Shahram.

Yes.

with right Pilatus have production PC-XX. yes, on UMS the we I that contract mean, for we So continue the now, with

those, that is top aircraft of that, development what powerful lot On us delivering been Part make to microprocessors platforms. platform expandable the the the of processing to we what as UMS. doing generation on we're growing it second-generation up more a very opening UMS since as a a contract more well the lot successful and of would that adding equipment we're second of they for, improving space adjacent on So channel a platform. gave of the is call, has and make another into it add performance

capabilities from applicable that Pilatus business side that other us hoping the allowing to product flight. this also new aviation platform expand platforms We capabilities to aircraft its the We're the is autonomous of plan And additional the future utilizing contract be because including development, on platform as line. in more for well. that of

question Services. [Operator Doug comes The with from Ruth Lenox Instructions] next Financial

have do a think onetime not if those summary costs margins give the the . costs? the you have what they quarter? been you in what been you us -- did were would Can onetime what And would have

this Doug, Jeff. is So

the regarding SG&A. they're So onetime costs, in

some the with So costs well associated acquisition fees are those transition onetime legal CFO the as acquisition-related fees. costs, as

week. that see that's XX-Q our out going more later You'll disclosure come to in this

can't In we the we're through quantify impact margin working the of with because at the terms synergies still of some Honeywell, issues. it transition time of this

What about margins... gross

that amortized was Honeywell gross amount of something gross million On brilliant the there one accountants we Number is currently there a to lines, as the that lower margins, margin. X inventory. like product acquired contributing things both large That of is $X.X from it's was on the over our being inventory goodwill. calculated by

cost So the higher today than that be we as goods appears inventory to normal. of the sold off bleed

So that's contributor. one

third-party when subassemblies. contributor any They second Honeywell, Honeywell all product these outsource vendors. does is the from The acquired that not build subassemblies to lines of we

period is plan that Our initial this during to is down continue path.

sold today in-house. gross we completes, get we subassemblies, as those factory As lines much you you the own we our that your here us subassemblies integration outsource can we capabilities we of would to when product as with goods building higher own cost along of in move imagine, XX% and allow reach those build is our to majority the because margins have our be That will get subassemblies.

How long that to take it Honeywell off Okay. acquired? will burn inventory the you

information books. the the of improvement for faster-moving gradual remain to bleed of obviously, that going burn still those us from in the the we're a that, can that that's it part few soon it's build But and here going slower-burning Honeywell think to building years sometime off as and we're some a start use think So position But inventory some quicker, drawings to that of for be then waiting subassemblies we some inventory we is big off. design in information, to would arrive to in-house. due do allow will be soon a I own some as will as I subassemblies our to

low X/XX, that is the about think think to you might the reasonable improve? period might second margin quarter, gross the that period that be gross the quarter the ending margin third for that the in When current, it the

of Honeywell will improve some the production as margin efficiencies because in it products, our well. gross contributed floor The to

quarter had was quarter, while some performing ways, look as as behalf trained IS&S of the and we first being here tasks, In some things. these were also second a executing when at So Honeywell transition these we of set the they're well at technicians partially our on quarters. on

will of that be improvement margins will over significant improve due of we subassemblies The margin that. forward -- improvement in year. next will of actually the in-house is some going The as to margin start that and we a we see jump when gradually manufacturing coming the the move happen to

look will fourth able a of to make be third quarter, time you you be the soon Would too looking to period? quarter towards of subassemblies? any be some the more Or -- when at that subassemblies? of it the -- Now you is the is to make able

that's think as to to are going contributions well in as going that the fiscal quarter be come fourth main towards looking I XXXX.

Okay.

to my which to they the is second of of there management my be Directors would X-day period Now the is would question, that at Directors, team Board Board a question, Or team would period? management and the continued some the eligible or time is buy they stock blackout be after be period? last the --

believe I over. be No, like today, I X think it's that after blackout -- days will period

RSUs, team of management purchase team's into a that. income management that for RSUs have Directors the own companies the taxes out to you if any of pay selling to of taxes pocket significant management some other additional to of think has your and it. they our not would the amount tied unlike pay a been I because of So within is Obviously, team, the can -- or do shares Board like the management portion big

kind -- that up I up our very, of least ties on think is stock part, XX% my very on taxes RSUs. the all available ties is my to it cash But So at a now all that attractive pay price. right

optimistic future. the I'm company's about

as Thank session today's for you attending as concludes well question-and-answer much. our Thank presentation. conference. you This very the

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