Innovative Solutions and Support (ISSC) 19 Dec 242024 Q4 Earnings call transcript

Good evening, and welcome to the Innovative Solutions & Support's Fourth 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 Paul Bartolai. Please go ahead.

Thank you. Welcome to Innovative Solutions & Support's Fourth Quarter and Full Year 2024 Results Conference Call. are Shahram today Jeff and call DiGiovanni. the our Askarpour; CEO, CFO, Leading issued detailing press and today, a Earlier we release XXXX and full operational our financial results. year quarter fourth Relations control. nature, publicly may statements, in company's at is of include would remind responses forward-looking commentary to are which, outside that like our the today's to release This questions www.innovative-ss.com. I the Investor on uncertain corporate section and available website management's and their you by of conference call

Although are could expectations materially. statements these beliefs, and current forward-looking management's on based actual differ results

a factors please actual For discussion Factors reports could of the to the the some section differ, that to with the latest of filed results Risk of cause refer SEC.

historical press measures in a prepared financial of will I'll please this our Jeff line call call performance review issued on outlook, the release and your remarks non-GAAP DiGiovanni. open who strategic recent financial will to Shahram. by over business you note from of the of that, Additionally, prepared that begin questions. With the will mentioned remarks, provide today. Today's can update for At the we from earlier call find turn conclusion Askarpour, with Shahram these all a followed reconciliations

good joining call today. Thank afternoon to you, us Paul, and everyone on the

the growth year income begin a up IS&S, of year-over-year in net for revenue, year. which transformative financial one was of from net significant high-level was our overview performance. This fourth we income, Let's flow. $X a with free We in cash year quarter XX% and EBITDA full which generated and million, prior delivered

was just year is XX% ago. X EBITDA up approximately nearly million, $XX In up prior from which and from years threefold the addition, was total

end quarter, and of both programs by recently military year-over-year allied we more demand During has military U.S. platforms. by driven in growth Department increased, Defense momentum the the militaries. across orders acquired In our and from from markets quarters, supported new XX% recent revenue, than foreign fourth delivered

our in built readiness. high strategy quarters. the a for operating level, long-term and our market strategy. chapter moving the higher expect mission volume that we'll to backlog strategy growth exclusively to on safety, of centered both positioned the level, a IS&S as combination commercial in year. [ retrofit expertise markets, to and cost-effective provide of on scale revenue, dynamic within guiding improved systems consider our a customers compliant next build targeted coming We converts positions creation fleet approach of value continue IS&S further whose we reputation are outline strong returns-driven At we've a the to integration support strategic capital manufacturing, and over aircraft and a coming avionics allocation. realized markets enhance commercial as leverage forward. Today, for a compliance ], improving to us solutions time, modernization a disciplined Next growth our centers continue solutions growth business platform preferred the installation has capabilities a Over As into we a operating markets. leverage, advanced one partner in-house At We've safe, design, with we high-value introducing framework military that this and our and

forward. existing under this While at progress business, are each many in provide our strategy around already work more of these our moving intend elements transparency we to quarter

commercial centers within market growth The avionics core pillar of advanced our on growth targeted our first strategy verticals.

and in line Honeywell our military our through synergies acquisitions. growth recent original of and will product commercial key or we come platforms, the Looking new programs, business, development continued we and OEM including product acquisitions. existing platforms manufacturer XXXX, In from an line delivered realized of new ahead, equipment existing product areas, expect from strategic growth several retrofit commercial resulting growth significant expansion expansion

announced multifunction strong contract Our displays of our supply executing Earlier XXXX. integrated in foreign aerospace OEM this computer. with year, markets an year. into trend a and under cockpit in a to mission begun we We've major platform anticipate military new XXXX. given continuation realize already this were last automation, end very a we leadership revenues military And with this

the technology selected and are around, also with envelope We the and ThrustSense both year full commercial contracts. the System, pilots several our engine the to other KC-XXA, seeing Utility for similar growth Autothrottle system our side, that aircraft. solid T-X and entering efficiency. Entering instrument that across announced standby enabling recently our go militaries continue allied on end Pilatus autothrottle military commercial to safety in OEM control engine This for our flight the This on for work to customers for C-XX platforms our takeoff and U.S. Boeing landing, on we including from settings power to remain be DoD automatically and protection was foreign ahead. our U.S. Army us by installed experience significant anticipate growth provide includes will advanced we and will platforms. Management Textron with our enhanced opportunities XXXX, existing pipeline the markets, KC-XXX Within a and

have relationships also On us to while cross-selling into lines the to cross-sell products the product acquired new our existing Honeywell legacy recent customer selling acquisitions, in product new transactions heels These of synergies the have our as acquisitions our customers. increased brought expected. line opportunity

long-term to product New our development growth. remains integral

for to on critical automation coming We of laptop In and to aircraft layman's we PC-XX powers integration new UMS, that through XXXX, Utility over the reduce our major continue workload. systems. and an enhance term, cockpit UMS begin a a pilot early expand of or industry enhance our cockpit testing to platform Management The flight of automation functionalities remains functionality CPU is the with computer. years. In System, controls is the what safety guides, operating generation Pilatus. most It will a to AI the sophistication technology the focus our area

a AI-capable system, neural our an is integrated system. XXXX, whose enhance crew processing plan and significantly enabling additional capabilities to cockpit one in by cutting-edge is automation. control we flight network Additionally, UMSX UMSX, efficiency monitoring which launch certifiable

for agnostic, the is see significant line we and platform several UMSX the As next this particularly over military growth potential markets. our business within aviation years, product

pillar The our second the organization. value on across increased strategy creation leverage driving focuses of operating key

revenue on we within business, anticipate we run base higher layer rate cost a As sustained of our higher dollars. ultimately, improved and of fixed EBITDA absorption

to increasing of to at that of intend we capital during handle a in capital volume allocate organic XXXX, More towards and on of XXXX, as focuses are volume approach while repair our both growth pillar shortly. The product investments subassemblies allocation. being the deployment overhaul including on strategy creation for we value returns-driven manufactured During line our increase Exton ability as our of maintenance, the our also final facility internally. acquisitions. capital well We work initiatives this demonstrated successfully the

entering manufacturing Honeywell. to Our military and from the through to acquisitions synergies for In allocation subassemblies more on open clearly expansion. product capacity $XX prepare our additional organic growth of volumes efficiency. The will anticipate million followed generators to $X to nearly the operational facility will navigation cross-selling increased from flight second the key this add we we X us lines additional to door significant with as communication new year, control capital million of my of roughly XXXX July other XXXX, a we business. for XXXX in opportunity during sales in R&D higher of Honeywell acquisition us investments highlight as cash. future, additional acquisitions increased and in Subsequently, strategy capitalize strategic manufacturing invested This than assets square foot addition. further various provide lines the our and computers in a XX,XXX our of earlier capabilities, the Honeywell acquire intend was the headcount for XXXX, XXX% from certain the point XXXX. our consideration. acquired with included we add We line generations million increase staff $X product on and during by million positioning the the expand This addition $XX in September across customers display to was investment part In

well in have and in-house bring potential provide remarks. discussed, opportunities for the that with journey. With call uplift collective over several in-sourcing forward creation work opportunities. on remain on join We focus having we through acquisition over our and us sustained Jeff to drive advanced in the us IS&S as we similar maintenance operational look As to growth XX% and and lines unique our efficiency capital an expect allocation commercial opportunistic that product of We adjusted opportunities. In any position acquirer of profit growth, revenue to and of the I'll capabilities synergy prepared revenue his we believe EBITDA, avionics. represented the components, future attractive these disciplined more exclusive turn that, for you expand repair intend conclusion, acquisitions XXXX to ahead, complementary growth as value to in in year certain XXXX,

Thank discussion and a We of working profile our last fourth when synergies provide you, recently The end. platforms in fourth joining of XXXX and revenues balance our quarter to was lines, performed good million worth by of performance, from programs third-parties. as revenues services $XX.X including I compared driven the high-level to by quarter, up new liquidity impacted quarter in Shahram, year. will by noting those growing product last increase military a is us. Today, XX% Honeywell year. It fourth million Honeywell momentum a all for that revenue our afternoon the generated fourth quarter capital, sheet payment as overview true-up quarter acquired the at from contribution acquired were net well $X.X the

gross Additionally, to in growth, year, I Honeywell. depreciation service think fourth from entering to market, the lines XXXX. Customer our year. Product growth we product the up growth market contribution note, of the There expense the sequential resulting and outlook air quarters. the million same during quarter, when X initiatives. On from was increased that from factors impacted capture and higher $X.X transport half anticipated and profit that by $X.X customer have in partially this margin expectations amortization to recent recalibrate by see million the first by revenue commercial air offset to investments recent $X.X the was acquisitions it's quarter, programs. around owing in compared period margin we Gross fourth continued in to performance transport gross largely acquired last from service the our were primary $X.X sales saw during and Honeywell the margin in pleased our driven are driven important the million, continued revenue million sales strong stabilization

related from amortization line acquisitions. first The depreciation and incremental that product to factor recent has resulted is the

we acquisitions future, continue an that we this headwind. margin in As will expect to product be the complete line ongoing

less represent sales higher Generally, involves forward X/X military margin while The the it the gross than sales. acquisition, versus contracts. commercial of a sales average our a lower factor mix. military recent in to be sales will second due of carry shift sales, Historically, XXXX percent

significant potential However, military, as pursue we this is given improved we it will we see EBITDA our on for and the to in dollar absolute operating work advances that focus leverage. believe good continue for us growth

expect which intermediate term, on these closer historical consolidated will mid-XX% gross trend basis we a Given factors, our the levels. toward is normalized below margins likely over

compared selling, we top able measure margins. Research and XXXX of administrative quarter profile, Consequently, our our share $X.X growth and from $X.X adjusted last growth year time long-term by -- included product was up to due will acquired million a fourth The in expenses operating net of EBITDA increase approximately time. the comparably million, last a expense EBITDA Adjusted line in $X.XX development growth adjusted SG&A be $X.X was However, increase per last year support $XXX,XXX in related million, that relative year. gross of the increased quarter anticipate drive revenue This our realization performance in results, income our fourth a diluted driven during than with million offset million leverage. margin amortization a net period $X.X general quarter, expense Honeywell decrease development to to the year. or Fourth of improved and incremental ago. onetime $X.X $X.X over in primarily we in by better some our or per efforts strategy. from $X.XX million the profitability was quarter the result believe strong year year from EBITDA lines. Fourth was be income during was share to comparable and an XXXX and expense diluted million expansion over we'll of a the expense expenses partially margin $X.X decrease of were ago quarter growth product the quarter prior

backlog. to on Moving

$XX.X of purchase in and September New product orders which fiscal acquired the XX, million. the of Air, acquisition XXXX, from KC-XXA $XX.X Boeing under and This hand September line Textron part were on includes King of and backlog of XX, quarter programs, $XX.X long-term as was the backlog announced company's orders Martin. XXXX, backlog million excludes million, OEM orders T-X, Lockheed PC-XX, as includes XXXX including fourth Boeing the only customers in Pilatus

do these that for they years programs in product future due production the anticipate enter typically to remain expect to sales. backlog. not lines We will several continue nature, Further, and from Honeywell generate to the

turning cash to Now flow.

XXXX Capital year driven fiscal million were cash last year. During up by from $XXX,XXX million, fiscal The cash the improved capital period during flow and efficiency. in $XXX,XXX comparable $X.X the higher operations versus the earnings same XXXX, $X.X was improvement in was expenditures ago period. working

up these year last of XXXX the fund from Honeywell As our cash the during $XX.X $X.X up the a million, million strong generation for year. Total the recent offset year. million as $XX.X debt XXXX, result flow of This million, partially at full free was reflecting XXXX, was cash by $X.X transactions. net September of to debt XX, factors, was the from end flow free incremental

leverage million. end at quarter our the to expand with credit net Bank amended $XX agreement Xx. was of We Our fourth recently PNC the to the facility

facility our which under financial completes cash operations million support our question-and-answer and lines now ready end of us total portion Operator, $X.X fourth the of at prepared we're was Our the expansion. That remarks. availability ongoing to the for a and credit call. our flexibility quarter, provides

question [Operator comes first Odinson The Rem Instructions] from with Andrew Partners.

#X, 'XX? contribution? us Honeywell that and give start, early you what announced I acquisition of one acquisition and Can some impact Maybe just give like you if perspective revenue could the EBITDA I'm a in to like FY the on going it call us looks Or the sense October. on

the all, There to acquisition going yes, Andrew, are backlog be did is we of information? first we Well, in putting out -- September.

Yes.

one. the Andrew, So that on backlog Under things a $XX that around on couple of million. acquisition, came

which our in million $XX about on of backlog, that So you production. acquired is backlog include acquisition,

lower X- over a to So bleed And than margins to that's off commercial. period. going probably has X-year military

the terms the In of similar our believe volume. to to EBITDA, it because is be we going margins, margins of EBITDA

lower, prepared gross think are closer well, clarify it you're are in saying that those similar you but EBITDA saying I you were to Just to being margins said as a -- or your remarks margin is also little lower?

that we significantly have is way at an the Comparable doesn't to because SG&A what we look our it it engineering. increase addition, it's or

in ways, lot look gross you margins EBITDA. when into it's So -- it, at fall of a the

-- from Or we linearly? on to the And chunky it burn should X year can does backlog, be it off -- Okay. over -- necessarily more

the resolved so Yes. were there deliveries very I over mean few part that limited. the of that year prior issue being that a backlog obsolescence obsolescence of ago. it Honeywell is the what months And because was an issue, was or

all XXXX. that going to the done it's bit this months it say to product still to gets at experienced little So to is test a there's as catch-up be be to be we XXXX accurately is for shutdown going going a -- because before, transferred operating able And to us is for least another Honeywell to continue us, here. going line, in too that's while a comes early done much how be of period X and X in equipment there before

is of a from was the revenue would say QX if a dip recover and hopefully I But kind bump big QX. going be you'll quarter going will it be the our some performance to -- I would see probably would this. bit man, think to I by period of get its years. be transition of backlog, So is QX X to guessing in a a over

some of X we that the just it soon ship can. is to behind as as And got ball we've

$X.X fall million you Jeff, then, does payment. And segment Which the Okay. mentioned in? true-up that

the segment. fall service in will customer That

that Okay. I said guys FY you $X then on CapEx, million. all And 'XX? think in Is

'XX. of it we FY in spent already Some

little. Very

Yes.

to majority -- in but all that's some fiscal 'XX, XXXX. So going be

the work architectural all preliminary all of get design to permissions timing the and All and and work that.

for I think all in 'XX. paid that we

Right.

you're the now forward in moving So construction 'XX. fiscal with

that the So XXXX. see in going CapEx in you'll

all to do 'XX? when that And work you expect fiscal complete in

is If completed time. construction on any June.

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

any any as I also a the strong us way can want give you really projection kind to congratulate look on of It's like information. as Is you far you quarter. there what us -- QX revenue? might of lot gave that

in that quarter now? the we're For right

we the statements. Unfortunately, provide don't forward-looking

Yes.

until February that. I'll for wait I think

Yes.

the this could to that norm X years say out? to backlog your Okay. up And to in take earn is business the

depends military is for IS&S, I or -- XX when of on some backlog -- I our over contracts mean, have some gone production issued are contracts and not had, some get This are and magnitude. on a we It are and maybe of with These -- contracts, mean, for of these contracts. them are purchase next production usually we releases production these, releases. and typically, the year their these contracts Lockheed, is they're this out releases military Lockheed orders years. X they've months of

For is it's not typical, us, new. this but

Could can thought you that you that mentioned that more? you -- see you little And it you bit explain that called was quarter? Okay. in QX big the -- then a happening you What bump. a

Yes.

I XXXX, from it first -- if $X from the a QX like the Honeywell. that got remember, first for -- quarter of where you we when million came Honeywell, acquisition well from mean, revenue the So we acquisition did our was

I Yes. remember that.

were they it planning because because to us. shipping And the the equipment packing test -- on and quarter, that all next was yes,

the make as much where XXXX. sure pull-in to through it's like has financial enough equipment shipping to that's be So That equipment support to to our quarter they happen them the going prior QX go can transition the they as quarter while we customer in before this phase. typically do looks going of

between down of the Lockheed equipment to So lot to January to to it going this is we equipment to ship a tear March, Honeywell before they send anticipate us.

question, Okay. for highest X us And my are fiscal the you could tell XXXX? priorities what final

has mean, artificial in of there development thought industry outlined looking intelligence, but I speech, our certifiable this is we've product unique got artificial our a which So is where generation, we're we -- yes, our -- is that is which in launching -- latest at lot at there I intelligence point. capabilities, is

that to be going it. with So product, version PC-XX going of to We're we're test for launching Pilatus the finish flight Management that Utility the System.

us for priority would lot is in-sourcing that and increase margins. allow subassemblies a hopefully gross us to our of the Another

be up I think of we've XX% a gained to last as of gradually of of efficiency way work. we're to year. technicians And we hit training learning some going technicians, our able built are And low our it be to mid-XXs. one inefficiencies -- other doing and to middle margins We that going we've technicians gross to there's kind the in term. new you're because low maintain do to doing as that be while long as and acquisitions, like long curve always

of is So the we increase -- we by can maintain the the can in-sourcing that mid-XX% way way ranges the subassemblies. increasing

are focus fit -- acquiring priorities us. those then our of that -- that's And products things for are So opportunistically our big identifying them. us. And profile allocation final and and the that the is X continue that's for with capital a

I again on you want a very strong congratulate to quarter.

with comes question Research. next from The Singular Gowshi Sri

me? hear you Can

Yes.

And share? could competitive that space? about space? The give C the this you guys you you the military And you're momentum the what the on helping win is do in excited wins that And first space? side, U.S. color you are market doing making build how question military Army us what's what you fleet, in is on recent with in

the things, when building back of military military So started our got getting I to we've time, became side the a our and commercial I these we dollars where the took to from years a more with strategy. the cut what done what I they strategy for military to mean, while years team budget focus essentially ago, military few sequestration and I'll company takes towards go a shift At of in it over, did. start is which ago on paying put significantly. business. development things the off. our to business of focus X more shift

seen we've results. what So we've positive so far, seen

I for marketing the we've terms open the table marketing that for platforms, and into not opportunity U.S. they product autothrottle of U.S. ago, to could Army, we by many think U.S. King Army, Textron with of mission other for forward actually And are the they King other Air And other on U.S. fit the and that use things several display. year under military. ago, explore. side continue the METS, System the to acquisition as the us for We in now F-XX got acquire. U.S. the been lines side. just Air in We've the C-XX of the Air. looking But military a won we we it and and autothrottle years that us selected got mission is is Multi-Engine we and being of they to had we're Training Honeywell product computer is going taking the developed from successful to the selling program doors a looking been -- autothrottle. About Navy, a for to have of at The the for a control the a over their Force, got number these the we computer we Army that which opportunities C-XXs U.S. mission lot flight computer this the computer Navy. selected it and Lockheed did

Okay.

color. Okay. That's good

that and Can increasing potential development cycle the sales manage procurement some what complex color give product a you are -- what at challenges how your presence, Given R&D you longer in in more the on space? us military process? stay or a responsive

we're see doing down of longer. that to in of we of and beginning is about I going years mean those started place. to I that we're in line ago, now the But we're new we're our anticipation organization continue some mean contracts a lot fruits and getting facility our sales that in we're the things are X like I more secure controls the of down path. making said, efforts, of cycles some putting Yes,

from can and take a secret on we putting accounting programs our as that. system as withstand military So well in can all of audits government that

is we've changed XXXX. year system, a ERP go which So for We've on our to early working it and MRP is been system antiquated. going kind about live now old and because our of

of to would be that to government government wants us kind allow to see the able be and to it. to So categorize show way easily expenses the costs the able differently

lot into become of So we've contract. would us get defense a that in a to can serious we put that a the point infrastructure efforts

strategy what percentage And sector? you X military think you strategy, revenue given years next ideally that of in your would the mentioned, be would to X

of X/X So less business side. used down I than year, commercial -- about military. were did the Honeywell be acquisitions because went to with guess I on mainly that focused towards the about just average, our that of think last we

because to year, the new this going that we think military I did on F-XX. acquisition from pretty is be Honeywell large of

going years, the for for aviation we to That's military, like third think us worked fivefold, see we But to place. idea you grow, I significant XX grow you to becomes over business in controls military my and I'm when way. And that going some say put of third then that long I'm grow like that air it third having term, the grow because transport. enough got business you to and every to need as you fivefold sector. formulas

Okay.

see mentioned cockpit think your Okay. other and synergies specific there between foundation I any with is you're evolving? But how any the USMX technologies there targeting? you opportunities interplay USMX, the is mentioned cross-[ do commercial that space, you or think but you ] military I agnostic. about Are And specific this the --

that and our to Well, day as the one was I think to strategy sold as the well made we development aviation that transport. product product, our air military, product X commercial we again, from --

the it that military. Now there are variation into of go

For that the the put display goes capability. one example, in we in in C-XXX make that we them vision the but same put We night XXX/XX. has the the C-XXXs,

got the that one of lighting we very example, was our came, much we've wanted we it them, been products, When sensing. it's continue So technology made go to into developed the kind for forward, UMS specifically that's to product. But the the we light -- do for UMS, capable And backbone Pilatus, like, going for the test. Pilatus. sets same. X of the of is developing flight We that's platform it one with for they going more which a and developing

that is in well the aircraft. more I putting became okay, military capabilities that put do control it's you're this that started other artificial put see now business one And today, that, they well, as scheduled we we universal for aircraft want March things if military intelligence the apparent a we of or did we into, it as flight make April. When think taking account computer how in it. can it in in aircraft to as

so can as we cockpit more cross-sell as well military the to business line, it product the added intelligence in it the in aviation we core utilize this automation. So for artificial side,

Okay. issues last out And playing retrofit my do is, Or [indiscernible]? terms kind how lift at question that see of the given of see potential you do Boeing, you opportunities? in any

your So Boeing I how are that does issues having, question think is the affect IS&S? saying,

new people But are long going old really Not make it's can't them they airplanes. good to airplanes, want that as we issues. to have as their for No, fix IS&S.

that. parts to spare and because aerospace sales, going So the see you're and lot overall that sales of going repairs aging airframes, still of market up in a maintenance,

to to remarks. Shahram your concludes Askarpour This Please question-and-answer conference ahead. the I session. over any go like turn back for would closing

good thank a and operator, Have you for a and good time you. holidays interest Thank your you, in Thank day. all and IS&S.

now has Thank conference presentation. today's you concluded. for This attending

may now disconnect. You