Q3 2020 Innovative Solutions and Support Inc Earnings Call
I mean, if it doesn't make sense.
[music].
Welcome to the embedded solutions to support sorry, 2020 earnings conference call I'm webcast, all participants will be in listen only mode.
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Today's presentation, there will be an opportunity to ask questions to ask a question. You May proceed star then one on your telephone keypad to withdraw your question. Please press Star then too. Please note. This event is being recorded I would now please turn the conference over to Mr., Geoffrey Hedrick, Chairman and Chief Executive Officer. Please go ahead.
Good morning, This is John Frederick.
Welcome to our conference call just go short performance for the survey work fiscal 2020.
This is conditions and our outlook for the coming here.
Joining me this is Josh for par President [laughter] round, one and our CFO.
Before I begin I will like relevant read the safe Harbor message.
Right.
Thank you Jeff good morning, everyone.
Remind our listeners I certain matters discussed in the Catholic said today, including new products and operational and financial results for future periods are forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially either better or worse and dose discussed, including other risks and uncertainties risks.
These are companies 10-K, which is on file with the FCC and other public filings now I'll turn the call back to Jeff.
Thank you real three years ago, I announced if we change our approach to that market by focusing only on products and which we had both performance and technical technologically driven price advantage.
[laughter] resolving trending of our operating performance seems to indicate our change in direction.
Third quarter, we've experienced a historical strong.
The growth quarter with revenues up 28% quarter over quarter, 30% from a year ago.
We generated sequential revenue growth in seven of the last eight quarters. In addition revenues this quarter, including production deliveries to our newest OEM customer textron.
We were pleased to be supplying textron are.
Sense auto throttle lifeguard protection.
There are new Kinnear Threesixty twin turboprop production aircraft.
We intend to build on this relationship in our joint pursue a retrofit and upgrade.
Of the very large fleet of King airs expanding the number of production aircraft to include a threat sense auto throttle as standard equipment and upgrade existing fleets.
The company has the industry's first ethane a supplemental type certificate for his groundbreaking.
And patented threats sense oral trial system with lifeguard protection on 10 years to hundreds and three hundreds with Rockwell's Pro line 21 avionics.
Well regime in auto throttle auto throttle thrust said system with lifeguard BMC a protection is available for immediate retrofit.
Promoted attribute Textron service centers as well as all King air maintenance facilities.
Thislife card feature can offer protection against catastrophic upsets, but the loss of an engine if the pilot maintain fails to maintain adequate airspace.
[noise] [noise] choosing for a second [noise].
In the process we.
We have overcome and continue to overcome many challenges most notably the Corona virus.
Pandemic.
We remain focused in protecting our employees partners and customers and remain ever vigilant as it is assay and stewards potential effect on our end markets supply chain and other aspects of our business to this date the impact has been immaterial I am extremely.
Proud of our team and their ability to execute and these difficult circumstances I.
Let me turn it over to rail for financial details.
Thank you, Jeff and thank you all for joining US. This morning revenues for third quarter fiscal 2020 were 6 million up 30% from a year ago and also up on a sequential basis from 4.8 million into second quarter 2020.
Growth this quarter was primarily in product revenue. We also had some engineering development revenue associated with funnel engineering on the US five development contract while customer service revenue was down from a year ago, mainly due to our price prioritization of resource allocation.
Gross margins for the quarter.
Were 57% up from both 55% in the third quarter.
In 2019, as well from 47.5 into second quarter of 2020, we indicated that the drop on last quarter's margins was going to be a temporary as result of product mix, an increase in warranty costs and higher labor expense expense as we staffed up ahead of future product production demands.
As anticipated margins bounced back and were in line with margins achieved the past few quarters.
Total operating expenses for the third quarter fiscal 2020 were 2.2 million flat with the second quarter and up incrementally from the third over a year ago.
I will like to once again mentioned that all the revenues have been increasing just here most recently growing 30% in the third quarter operating expenses have not increase [noise].
Research and development expense was up approximately a 150000 from a year ago, reflecting an increasing amount of internally funded R&D primarily related to.
Obtaining essay certification for the King airs Autothrottle systems.
Despite our 30% growth this quarter, so in general and administrative expenses were down from a year ago, mainly due to lower travel expense professional fees and tradeshow expenses.
Most of these reductions are the result of restrictions are rising from Corona virus.
For the quarter, we generated operating income of 1.2 million or slightly over 20% of revenue.
Due to the continued availability of loss carry backs, we recognize minimal tax expense in the quarter.
We reported 40 net income of 1.3 million or seven cents per share. This with the most profitable most profitable quarter and 13 quarters.
So with the first nine months of the year, both net income and earnings per share increase hundred 37, and a 140% respectively as compared to the first nine months of fiscal 2019.
Pumping remains in a strong financial position and generated positive operating cash flow 340000 in the quarter end 567 year to date.
Cash as the news recently to fund accounts receivable, which are correspondingly higher due to the significant growth in revenues.
At June Thirtyth, 2020, we had $23 million of cash on hand, and no debt.
We believe that accompany has sufficient cash to fund operations for the foreseeable future.
I'd like to turn the call over to share.
Thank you Raul good morning, everyone.
Imported over Q3, the revenues are up profitability.
Is that the recent high and was down aviation industry is both prestigious identified to.
Textron as contract of that us to install our proprietary frost sense or referral.
Founder equipment on the production King aircraft.
You have achieved this progress in spite of the coldest 19 pandemic by implementing new safety policies and procedures that have kept all of our employee safe and productive as well as protect apart and customers.
During the month of April.
Order to save the health of our employees you provided up adoption work as we two weeks paid time off.
Scott form to minimize congestion.
Hi.
Having stolte automate that so now temperature monitoring, Maine facility and track facial recognition software.
In conjunction with daily and Inbetween, Great Ization I'm weekly anti viral Fogging Thai facility to minimize risk of an outbreak.
The organization as digested these changes.
Having said quota as Ralph.
Review margins were up significantly from the second quarter as operating conditions have normalized.
From these actions.
In fact, we're continuing with our hiring to meet the growing demand in areas of production sales.
It's up product support on engineering.
The contract for the Beechcraft King get twin engine aircraft represents outfit OEM production contract joining deploying KC 46, a and the Kilada PC 24.
These contracts provide an underlying ongoing stream of revenue consistent their respective delivery schedules.
The aggregate represent the potential for future revenues are multi multiple of our stated backlog. So if you consider them fundamental Sullivan.
[noise] extra clearly recognizes the important risk mitigation nature of our oral so.
Especially on twin engine aircraft for that reason, making it standard equipment on their team gap.
They believe extra safety offset by process.
Beechcraft, they're going to advantage in the highly competitive John aviation market.
I know can get production rates are higher than those of the PC 24.
Finally, say 15 year old so the overall revenue over 5000 airframe cotton in service.
Thanks, Doug is also beginning to actively market our oral Sol at that service Center.
So it can be offered to own as as a retrofit option.
Oh allow you're also aggressively marketing a retrofit package auto throttle to government entities on our portfolio by fields.
Yeah, I've already deliver production that's all for Textron, which are included in the third quarter revenues.
[noise] immolated for the production can get aircraft are currently being upgraded.
Oral Sol and they will be training keen get pilots within a couple of months.
Well, we continue to market Ora throttle textron and other Oems.
John Twins capital crop aircraft as we see applicability of some of its safety enhancements to twinjets.
You are in discussion the only adds to include a process or across all in several other production aircraft.
We believe textron's recent public announcement bill attracted attention on why the general aviation aircraft manufacturer.
And Jeff mentioned transformed process from a nice off to a need to hop as potentially life saving standard equipment on their fleets.
Oh quickie reviewing our ongoing programs.
The PC 24 program remains on track could deliver approximately 50 kilometers aircraft this year.
As with all our long term production contracts.
We are specified for installation of on all of the PC 24 hours without us manufacturers, which is.
Already old one Andre.
These are generally only a quarter or two of deliveries carries in our backlog and therefore, only a fraction of OEM delivery potentials is visible through that channel.
We believe the PC 24 program represents a long term opportunity and now is similar contract quick textron significantly after that potential.
In the commercial Kras lets market air cargo delivery services keep buying 0.757767 plane and converting them as part of their conversion we are seeing steady demand for our flat panel displays.
As noted.
We finished up development work for the fiber data computer.
This past quarter I'm me will start production deliveries for the U.S. Navy fleet retrofit this quarter.
This contract successfully completed we are not turning our attention to foreign militaries, which also Friday at fly and could be a large new market for the first to talk follow.
Our KC 46 program is also up production contract. It continues to make to steady contribution to our top and bottom line.
Your orders in the third quarter 2.7 million I'm backlog was 6.5 billion at quarter right.
Well mentioned about travel and trade sure expense was down this year. So we have had fewer opportunities are selling needed our view prospects.
Yeah. Okay is on the wall cool work from home orders, which is added complexity we are managing.
Despite these conditions DFS personnel I've been encouraged supporting more efforts by diligent new reviewing our submittals and timely issuance of certification such as the most recent certification for production keen gap.
The aggregate, we don't believe that pandemic, we'll have a material impact on our business.
And are excited about other prospects of our portfolio of products.
Let me tell that tend to call back to Jeff for some closing remarks, Thank you Sean.
As pleased as I am.
We can performance for this quarter and in the past couple of quarters.
You must be very diligent that we keep the pursuit up.
And our nose to the grindstone as they say to make sure that we realize the opportunities that have been presented to us.
It will require and vigilant vigilance in our growing.
Gross.
Requirements of personnel.
And investments in technology.
Hi, Yes, yes, we're pleased we're pleased that we performed as well as we did.
The middle of the of the Corbett 19 to.
Pandemic.
Our people in our plan and and the.
Range that we.
Good to the plan creative work environment, which essentially had zero.
Impact of that some some pandemic.
I'm very proud of the people in this company that made it happen and I'm pleased to our work.
Changing the environment that they work and.
So I am.
Hi, and focus remains.
Strengthening our organization opening those new relationships that have been provided to us with some of this technology and further growth through.
In our performed in our portfolio a price for performance products.
Thank you for your attention today.
Please.
Operator.
[noise] opens up for discussions.
We will now begin the question answer session.
Good question you May Press Star then one on your telephone keypad. If you can't speakerphone. Please pick up your handset before making keep pressing the keys.
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Prime we'll pause momentarily to assemble our roster.
Your first question from the line of David Campbell with Thompson Davis and company. Please go ahead.
Hey, guys congratulation on a good quarter.
Yeah, you actually got Tonight forecast revenues.
And your profits were.
Well better than my four cats.
Thanks to you in a being less than expected.
Over the long term.
It seems to me that they.
I guess guns your vision will come from.
Aircraft production there to compete with the Kenya and indicators that around them for about 30 years I think.
Oh, I don't know how much.
Many new King is held the producing.
Yeah. So it.
He's like the biggest forgive him the dangelo, Dave we're competing aircraft that don't add that capability.
ER and ER for HM.
We we retrofit of like here thinking as.
Yeah, and can you give is any thoughts of that hasn't company views of the market place.
Well a.
A couple of things first of all.
There's not a hell of a lot of twin engine airplanes coming out there are no.
The King Air is improving standard as we said the large large market is.
Not so much ongoing production all that's excellent business is 5000 units out there.
Getting offer and these are in nature.
Oh valuable aircraft. These are you know.
Single engine.
Piper copies.
[laughter]. So so some good well maintain oh by the way people fly them around with the families.
And then people who are interested in protecting their families and protecting the airplane I'll be interested in our auto throttle and that's in part why textron is promoting it through their retrofit centers I think the junior still a strong airplane and news reached 60 is attached airplane people.
Taking them.
Many of the airplane the king airs importing figure in faster managers on them as well.
The.
Market opportunity.
Yeah, it's very large and king airs an ideal aircraft because it's a high value airplane.
Hi value airplanes that we provide real performance advantages and safety to the airplane itself and that flight crew is as well.
What do you have another airplane single engine everybody's we do that.
The <unk>, we're finding that we're looking at.
Not just GE, hey, but military aircraft a air transport I'm not only twin engine, but mostly injured airplanes. We can do exactly the same thing in a multi age airplane.
And then and as traditional approach joke Arnold trials is prohibitively expensive and basically makes it impossible to retrofit our system is capable of doing both of those so we think we have a very strong advantage I remind you are our AR.
Walker direction was always a very strong retrofit company because we believe when business was bad they stopped buying new airplane say, they fix the old wise and when business is good I couldn't get the new airplanes fast enough. So they had to fix the old ones that for me if I worked out extremely well for us.
In the past I believe that that Formula will continue to workforce, so I'm optimistic and I'm very pleased and honestly I see your relationship with Textron and they're they're enthusiastic support and by the way very active support bye bye Textron and Oh by the.
The way the F., Okay, who recognize the college that as James said to me.
We lose almost 100 people hundred lives a year and what you're doing here is going to save lives.
That's a great doors.
<unk>.
Hi.
Did you have any did you have any.
Red getting into a retrofit revenues in the quarter.
It just beginning to actively marketed.
Well, we didn't have an FCC NGL Jeff.
Three weeks ago, So we're doing it now.
But we see it is that as a strong.
This is a strong market opportunity and it into our existing.
He's each well well I've never seen then they see.
Generation Autothrottle for the PC 12.
Yeah. It offers everything there new airplane dies and many more Ah with with a whole bunch of patented features that provides.
The the.
The operators regional safety and Oh.
[noise] system awareness.
But there was keeping your revenues in the.
In the quarter right, Yeah, we've shipped yeah, not really shift that 13 14 units 13 ship 13 chipset to perhaps your club similar themes.
And ER textron's.
Seeing no more aggressively.
Marketing the retrofit then there were a city four months ago, well, they didnt doing they're all three or four months ago for two reasons first of all they wanted to make sure that they announced their new airplane, which just came out two days ago with the auto throttling they didn't want to.
Undermine Matt announcement secondly, we haven't finished the certification and and I'll be units and delivered the production units yet so they weren't they were preparing this is a big deal preparing they have these these service centers, which which are huge.
Each one is huge I think the one in Tampa has about.
Hangers enormous operation.
They have to get that staffed up and trained and extract getting to the equipment available before they do it I announced that they want to make an announcement and then say Oh, well, we don't have any units to give you sell it strike starting a comp it remember the other thing this compound it it is the covert 19.
They were shut down in the plant and if they service centers nobody was bringing their airplanes and because it's because of the the epidemic the pandemic.
So all of that have negative effect, but we're seeing that be clearing out and were frankly very optimistic.
Yeah, It sounds like you'll get some.
Sounds good new business and they didn't miss in the fourth quarter in there and your September quarter.
As I'm reading that right that's sounds like the name immediate retrofit opportunities.
Uh huh.
Oh, no about $300 million worth of opportunities.
All right so.
Oh, Hey, <unk>, we haven't teams out we're hiring a guy in Wichita opening an office is that in the center of the United States to promote there's and.
And by the way support Textron. So we're delighted textron's done a hell of a good job and implementing and putting it on airplanes. They did it in remarkable with him.
Marketable speed and support so were pretty people were delighted as we are worth it and say hey, well as acknowledge that this is a very valuable thing for that for safety and they want to get implemented as quickly as possible safely.
HM.
Well I have one last question well.
What about the taxes.
When really the N. Miller crew taxes for [noise].
What are your income.
Alright, well, we're right at the tipping point, so it and we have created not use credit. So I was saying this year it'll be something small like yeah, probably going into the next year.
I would probably realize a little margin.
I do have.
Our tax credits things like that.
You can you I per se again.
So I always like next year and Oh.
Hi, there was up in fourth quarter, you second tax accruals in the fourth quarter I think it'll be small to this it depends what you know right. There's a tipping point with horizontal wells and such so it's a banking nickel if it's if we do it'll be small.
Okay.
Okay, well that's it for me.
Ah Thanks again for everything.
Yeah, they're doing so this is great yeah.
Gentlemen, thanks again for your support you bring it been great. Although I will tell you I'm almost sold all my style from your progress report and I [laughter] yourself good to talk to you right here.
The next question from them I, just might have George men Marino with tell me to ventures. Please go ahead.
Good morning, Thanks for taking my call Laurie.
Had a question regarding textron.
Are you doing for the new production part are you just do wouldn't need three sixtys or are you also doing their new production of other platforms like the two hundreds and see nine so they're going to their intention is to do all of them. They're doing one at a time you can understand when they bring this amount to the production like I said.
Major job and it was even bigger than we saw.
They're trying to trying to get this done in a matter of a months, where it's usually the lead times, usually a year and a half or more so I'm, they're going to bring a bigger bring up to 360 exactly see important one that's there.
Latest and greatest airplane and back away. If you look at the announcement that the.
First announcement is they I assume that's auto throttle for the 360, and then right Jerry ever and other things can't because it just didn't forget significant improvement.
It's worth while looking at that you tool as well from the from the cheap test by I would tell you that didnt. The intention is to put it in all the aircraft that's what they told us but it takes time to to get that done.
Well for what it's worth a if you look at the company's website on their brochures. Your product is already pictured on the C nines and the 200 series well that's wonderful [laughter]. So let me obviously you plan to do a pretty quickly apart [laughter].
You know I've been in the business.
<unk> longer than I want to my math, but textron showed a grant and drives that is incredibly refreshing and and totally a typical they've done a hell of a job.
Yeah, just give us an order, but they really attack. This you know in a very incredibly professional and aggressive way when it's one that's not common in many large corporations.
So dog when you last quarter sort of sized up the opportunity from Textron. We you just talking about the 300 series or their total platforms of Cnine hundred 200 and everything.
Actually we looked the larger than the largest opportunity I think even textron acknowledge it as well as this huge installed base of aircraft.
And the retrofit opportunities for those aircraft.
I remind me remind you that the company was built on retrofits, we did that we did $150 million on the KC 135 program. We did we did Rps M drovers, 60% of the world market. Those were all retrofit wasn't a wonderful thing about Richard.
Okay. It's the volume comes in and and Robert you don't have the.
Sluggish stage, so anyway, I mean, we looked at it no when as a joint effort with Textron and Textron is aggressively marketing it as a as an install in their existing fleets.
Right I'm I'm, the OEM, new production know, where you sort of factoring in their all their platforms. Yet when you started talking about it last quarter or you're just talking about only six even though we didn't factor a minute at all we only okay and then I'm on the retrofit market for the next year with Textron do you have any in any any feeling.
On the cadence of that or.
[laughter], we're hoping excuse me.
I I brought.
Yes supply, but I mean, it's always a super it's always a surprise in the retrofit market, but we see it is a strong away we're talking to the military.
On a variety of multi entered airplanes and it and they see some acute safety issue. Since then they can only be addressed with horizontal trial.
Well, okay. So why did we found that I mean, we're talking about.
Safety issues, it that destroy the airplane and killed the cruise.
Are you even more advanced stages of talks with all their Oems and military at this point or is it sort of first getting level I I am I prefer not to comment as they say, but you can presume that that's realistic.
Markets there anymore.
We have.
A number of demonstrations that had been very a successful.
That's great to hear and then I noticed on your website, you're doing some pretty aggressive hiring it looks like.
<unk>, Yeah, you new orders have been a little bit lumpy I'm, assuming his previous quarter was lumpy due to corona virus, but had the orders picked up a with all this hiring or well, we're having done a lot of hiring we've done a lot of advertising for people.
And you always do that because.
You usually pick one out of 20 or 30 people. So you got to bring a lot of men.
So.
We we start we store and AD campaign for hiring offered to six to 12 months. It advantages of the Oh specific need you got to do it. It takes time to go through the process and to get people that you there are a good fits.
The company.
Okay. Okay, Yeah, we don't hire people that we don't need because I.
I, probably personally in selling seeing him what you're reading there, they're screens and working so [laughter].
Well take a real interested in and focus on and they're doing a great job. The team is doing a good a really good job, especially some of our young new engineers.
This is bigger they're good people.
No. It sounds like you believe that after ramps up the de Textron retrofit kind of annual business could be more than the OEM business.
Worked for new production.
Oh, Yeah, I think that's probably true yeah, Okay, let's say [laughter] no production is it you don't know double a little production in a hurry.
You're going to run no production at roughly the range that historical rates. So I'm, a very anxious up 20, or 30%, but not two or 300%. When you have a market potential market of 5000, I'll just one kind of aircraft.
And by the way, they're all their operating aircraft are operating and there and there are significant investments so it's not like.
Nathan woven into the market, where the the recruitment.
Cost is hey measurable.
Palpable.
Portion of the cost of out of the airframe itself. These are these are traditionally far more expensive airplanes.
And then my last question, then I'll cede the floor here the deep due out in terms of production numbers are the king your 360 versus their two hundreds and see nines or they will see nines and 200 and vastly lower production numbers are somewhat similar already be idea.
Well the 360, just got release, so we'll see how well they they're they're they're all 351 to 302 recent MTGE then and the two hundreds.
The 357 to 200, we think are going up what we're finding some military is usually a block oh, okay I use them they use imposed for reconnaissance and they use them for transport.
Okay.
Imagine for military you seem to be a very unique product can be a sole source contractor or would it be bid.
Yeah, It would be sold I imagine on a military contract because your products unique it'd be a sole source.
Wow contract.
So the source, but as you read if you're not that it's got to be covered by about six patents.
And we tend to enforce it and armed our our batting average kind of enforcing our patents is oh, we bought a thousand.
Yeah, Okay very exciting Jeff Thank you.
Two.
The next question is from the line of Justice lease that with retail. Please go ahead.
Good morning.
Congratulations on a great quarter.
And you sound very very excited and I'm very excited for you for the for the future.
I would like to know if you couldn't help me out a little bit quantitatively on what you're kind of sales ramp you would expect quality for this quarter and for next fiscal year.
And what the what your internal projections might be for <unk> quarterly sales going forward.
Thank you.
Well, we obviously.
I haven't it's not predicting that because every time, we do away with indefinitely, the Oh, Corona virus or Oh or I've been following how about Oh 200 airplanes are sitting on the ground. So.
Well the war or.
Because a good portion of our business he's retrofit [noise].
Hi, both military and commercial and and and general aviation well ever predicted excor other than I can tell you that internal estimates we don't we don't want it to go down if we can at all.
So we try to keep going up and then you can only that's the only way we keep our shareholders happy. So we're very mindful of that all long term estimates are now that you've taken a look or the fact that we have not sold one a retrofit system, yet and the market opportunity is.
<unk> is $250 million to $300 million.
I would say we have I'm sure there's.
In between those two zero on three other is a big number and I'm sure that we if we do our job will realize our for sure.
Well you did mention that a you expect.
The future to be boat sales to be multiples of your current backlog.
And perhaps you could give me some color on.
What that means.
Well, we don't you know what our current backlog as we can tell you that.
Our market opportunity I can when we tell you what we believe our market opportunities.
I have to rely on our judgment or somebody else's joked about whether it is valid.
The fact is that we think we have a unique product that does not exist has there there's no competitor out there now.
And we're very pleased with how we want to export opportunities in other areas as as its actually it's gotten acceptance by one of the largest Oems in the world off from generally reaction.
The.
We expect that.
Retrofit market is gonna be route is gonna be achievable I tell you what you get a better perspective, probably in one or two quarters sometime early next year, we should have an idea how we're doing penetrating the retrofit market.
Okay, great and it made jabali antenna stay profitable and and and take the business together, which is what I've tried to do so say struck founded the company.
Okay, great. Thank you very much and good luck. Thanks for your interest.
The next question comes line of work Hello, with Who's a private investor. Please go ahead.
Hi, Good morning, I've, a couple of Oh, like I guess accounting questions.
As it relates to the fact that I think last quarter, New orders were listed is I forget what seven or 8 million, they're pretty high.
This is a third quarter. They were listed as 2.7 million, which was quite a drop but I know you say and this is a standard language and and I think you know all your releases that backlog excludes potential future sole source production or whatever is and then you name.
Some of them and you've added Textron King air to that so does that mean that some of the new orders in the in your second fiscal quarter, though the March quarter.
Included orders for the King Air Threesixty and now at the end of 2.7 million. Therefore does no longer it will no longer be counted in new waters or in backlog.
This is that correct that's correct.
Oh, Okay. When you see those orders in the in the second quarter and ER, we did not receive.
In the third quarter and any new orders, but it comes and goes that's the point is it's intermittent it's not like you get to a two year run rate kind of order. It doesn't work that way you get a sure I was talking about you guys. It's the quarter two quarters in advance maybe or so it all depends up to them.
Right. Okay, and then also I'm curious how the accounting will be handled on the the retrofit business because I could see if let's say now Textron is is a training I'm older service centers, Hey, we're going up we're going to bring in a lot of customers who might want to retrofits.
Yes, so they they.
If they get a customer says I'd like this retrofitted on my older King Air <unk> will the service centers have already ordered a product.
From us or do they wait until they have a customer who says they want it and then they order from us.
Oh, there I think.
We have not delivered to them anything for the.
Breakfast or the retro Bobby I anticipate that would do that they've indicated that's exactly what they have to tell me tell us sitting at stocking.
But there.
We've delivered as we said I'm not a number of units for the production. We're gonna have to obviously deliver more when they expanded beyond the 360 and and and put in to 202 50. So.
They did I understand you haven't Kenya.
I'm, sorry, <unk> send what I tell you mentioned something you said my King <unk> Oh, no no no no I don't have a kick out really didn't like the ROI.
[laughter] heading right that's it.
They will start there if it takes a fair amount of.
Got it up and going if you can imagine that so I wouldn't say, it's gonna be several months before they start stocking a retrofit want people to come and say I'm, bringing my airplane, yeah, I want I wouldn't like to put the autothrottle, one they'll probably trying to get us to do a quick delivery or take.
Their production hardware and and we will you know.
Support that okay, but what I'm getting at is somewhere lets just say, it's a year from now on they've they've got some level all the steady retrofit business would with these service centers be keeping some inventory on hand at that 0.4 week.
I'm sure they weren't I I tend to sort of a.
Simple western right now.
10 service centers in the United States.
And it takes probably to install one of these about a week or.
Our last June install in one or.
So and the service centers probably have iron.
Have you just never sounds has hundreds of people, but anyway. If they did one that I, one I'm I'm a month.
You would do you would do 120 retrofits a year.
And that's only at one of month.
Right, Okay, so that that presumably they would have some inventory and then I just wanted to yeah and does it do we waited from an accounting point of view does that get counted in our sales when we ship it to the service center or is it only when they install it.
That's one way some ship it to that Joe.
No okay.
Moving to the service centers, that's their issue, but hey, we show the revenue assurance, we ship out the door.
Oh, Okay. Good I, just trying to figure out how that was gonna be handled and then a question has nothing to do with accounting.
I'm just I'm just.
Curious.
Whether there's you know where we are if at all in and trying to get the aircraft insurance companies to reflect or safety benefits all the auto throttle in the insurance.
Premiums that they charge a king air owners, because if I understand that's a pretty hefty saumen and even a fairly small discount on insurance would go up big weight to paying for the auto throttle Yep Yep, Yep, <unk> and <unk>.
This is like energy in the fire insurance in your house, you put in fire alarms or an alarm system. It may not be an overwhelming saying well you you recognize you want to doing now because over 10 year period, you pay for the damn thing so yeah, you're right, you're absolutely right and happily well as contact there on the insurance company.
The underwriters said, we're having a meeting with them within a couple of weeks, so well I've been asking them My question as you might.
I guess for the last couple of weeks. So I assure you that job that he understands the program.
Right great terrific, Okay, well. Thank you so much.
Thank you for your answers.
The next question is on the line as Michael Friedrich Who's also a private investor. Please go ahead.
Good morning, everyone I I had a question on its what I'll follow up question you in an earlier question in the call I think I'd, just going back to last quarter No. Teddy Jeff you had mentioned you thought that data early next year that the the OEM revenue or maybe as much as I think it was the prior year prior year.
Sales, so without I'd, just like ballpark and get that somewhere around 15 18 million range. When you were saying that yet.
I just wanted to make sure I understand what you're saying you. We're only talking about the existing three OEM deals not any additional OEM business you might be getting from Textron. Once you have their king Air Productions are are approved is that correct.
Well two things first of all I'm not sure I wouldn't I would like to believe that are that are oh, we have demand would be 15 million.
I think we have if we.
Look into two <unk>.
It could be it could be though it could be double digits. It could be 10, 12 kinda million.
Next year for sure.
[music].
We think there shouldn't be the larger influx of there's this is gonna be in a retrofit we look at depth, we look at the.
Production aircraft as good steady business, we wouldn't expect it we do the entire junior production line and there and the pandemic sort of lightens up and we get people back moving aircraft, although I among other things I think I'm optimistic that people will be flying the airplane.
More often because it's a a lot more comfortable being in your own airplane and not worrying about who's sitting next to you. So there's going to be a desire to fly a private aircraft like that came here my life.
Got it right they.
If they do do that if they and we do you get the full level of production it could be.
No I upwards to 100, Shipsets year, and OEM and if you're talking about retrofit maybe that's double.
Okay. Okay. Remember this is very early in the game, we turn to certainly just kinda. We're just really sit on a first production aircraft and we've got some work to do it again on the other aircraft you know that no.
Yeah.
And the equipment is ready to go a lot, but they still happen.
Let's see their production line. So it takes out <unk>, there's in multiple months delay in there.
Okay, Okay, Yeah Digest side older kids or the PC 24 production I know, we're up to 50 Shipsets a year I think longer term. If you took a look at their their total goals for that for that plane that number here keep going up do you have any a any any idea.
You know.
What what the maximum I. I think if you did the number is it could be as many at some point is like 100, a year is that where you guys are seeing as well or is that number too high.
[laughter] that's possible, it's a remarkable airplane.
Yeah.
They could go up to that level remember, it's a it's a replacement for some time ago, some turboprops and sort of get smaller mom is significantly more expensive, but it's a very high performer they feel that entire huge expansion to their facility. They broke virtually doubled the size are there for still.
What do you manufacturing facility and sometimes switchboard.
We've been there obviously, a number times and it's a it's a brand new high volume facility, so there, but they're cautious or that that the company is sensibly cautious and moving smoothly and slowly they don't want hiccups. They don't want a jump too quickly and they are they're doing.
In your deliberately and doing it held their job remember they did 40, and then now 50 and I would expect him to go.
Creep up to toward the hard it's a great airport.
Yeah, Yeah. It's your it is very well get that.
[laughter] right airplane true, we got one we love that I love It anyway [laughter], Yeah, you up on the on the on the multi prop engines I know right. Now you have really no competition on that but I I I'm sure you Paul will follow the idea that like a lot at that develop their own autothrottle for their new.
Production.
It's really it's pretty clear, it's not an oral trial, we haven't alternative and by the way, it's it's and they didn't develop at.
Brent wouldn't be suppliers, there were two savings that's crews and Klein our oral trial that's <unk>.
[laughter] are well I'm process, a great deal more oh by the way, we're announcing a series of past Oh stuff and that never existed before.
Uh huh.
Focus towards that no by my math that wrong as you would hurt refer to it it's not retrofittable into the 700 airplanes.
Oh, yeah, well I like I like how you do [laughter] you teach the pilot how to do it hardly at all or Uh huh.
There are like <unk> I like I get pounce on me there I like I like the confidence now that that that I I mean, we've got what caused a wonderful company I know I find a way I bought a polis airplane three weeks before I took the company Palmer. So don't forget like you would say you've got Richard bought an airplane.
[laughter], [laughter], probably going airplane, Adam and I and I know that we're very fortunate to have them as a customer that's a great yeah I got outdoor.
Yeah, Yeah, Okay, Wow, one more thing and then I'll, let you go so I I think you got coal is there an article about how all of that see our t. instrumentation ended up being discontinued on err on the on the seven three sevens and six seven it can you give me an idea of the remaining opportunity.
He and I know this is more of a worldwide question you end up flat panel display area and the a and the cockpit renovation area that you guys are in a it and are you still working with Lufthansa on that.
Yeah, there's never been not not walk him in Lufthansa Marseille.
Okay.
Well, we're doing is level, we are finding a more direct or more direct sales to be yeah.
To the carrier.
It is it's become more successful for us.
Yeah.
That's a big data is remaining deposit bother thousand 5767.
But still remains that needs to be retrofit it.
Obviously, there's shoes davol seven three sevens.
As I thought system is applicable to.
And ER, and you're saying you're saying.
Finally, we are delivering every quarter the delivering yeah.
<unk> expense for those platforms right away.
They did any competition we have.
Significantly more expensive.
And as soon as the value of the airplane decline should you Dodge mid age.
People don't want to spend a lot of money and all that play and we couldn't do we offered to huge advantages our retrofits system. Besides having an incredible record of reliability and performance.
Also can be installed and a matter of less than a week four or five days.
Hey competitor takes a month.
Ecoxip somewhere between 50 75000 hours a day to put it transport aircraft on the ground. So it gives you a compelling reason why we shouldnt, we actually should improve our competitive position asset fleet ages.
Great Great Alright, guys, where a lot of fire the fire hopefully, we often see bad more and.
Congratulations thank you very much.
We got our weren't kinda outdoors.
That's.
Take care.
Thanks.
The next question someone like rose with axiom. Please go ahead.
Hello, guys. Thanks for all the color today.
Regarding understanding that the biggest market for you right now is the retrofit or the King air.
Sure mentioned other opportunities could you name the next highest value target for retrofit.
He also specifically said twin engine Jets does that mean textron has an exclusive on this application for turboprops.
Oh, no they don't have an exclusive for turboprops.
And we're finding that we can take what we did they get clips in general eclipse almost five years ago.
So and by way now selling software upgrades to that equipment for a class.
So we know how to do or turboprop turbo fan engine and we have had people that have contacted us and I expressed an interest and putting them both in their production and potentially retrofit primarily production.
I shall we see a market in that area I would rather not do identified as you can sort of expect but we also see it in other.
Multi engine aircraft and traditionally turboprops. There are there are tens of thousands of in operation right now that would would benefited enormously from our.
Oh after an example, where we're able to do something and have patents pending on it now for Rob.
Warner mode, where we actually measure the efficiency of the air airplane in real time and address the speed of the airplane, Tim and maximize the its insurance. So we're the only thing for what I've ever done.
And it works so people that do.
It's kind of sense and ER.
And surveillance are very interested in this system.
Okay.
An additional question or two.
You mentioned the military I assume the military is one of the largest fleet operators when you add up all the branches of the military Oh, the King Air and so you've gone I actually don't know how big it is but I know it's in hundreds of them. There's various version John.
And everybody has a king or somewhere.
So everybody, we've we've already talked to people like the D.A. and those kinds of people and I were progressing with opportunities. There. So they're very interested in <unk> as an example, D.A.N. and they run a flying around lawyering looking for a bad guys well, let's say.
Got it takes care of that and keeps it crusade. So it really pays off so yes, it's there I'd prefer not to run to identify the specifics I wouldn't really <unk> I'm I'm optimistic that we're going again this is significant amount of military business.
Oh by the way they pay really quick [laughter].
That's great so.
I'll just stress the insurance industry awareness is a I think your previous question, Rick or mentioned is probably really really important.
The lifeguard name I think is great.
And so you know.
Just like the complement you on that the new air cargo company that everyone's heard of no Amazon what does that mean do you guys and.
And and what hasn't met with your relationship with Fedex.
Well just so you know Amazon is run operating a fleet I leasing it from a tubing operators.
And we supply.
The.
42 of those aircraft our operator, we are equipment. So oh I understand is as operating it themselves where are they going with that and there's a lot of rumors on what's going on but we would expect to be around for the for the operation because as I said downtime.
Mitch is fractional was a small downtime, we actually were able to modified airplane in 24 hours once that's never been done ever in the history of it.
Industry.
So we we have that isn't badge and its actual costs and the performance is proving again Uh huh.
Reliability numbers that are outstanding there are hundreds of thousands of hours of reliability. So we expect can hope that well get that we're gonna be diligent to try to bring it in but that would be I strong opportunity just to give you a little background I can remember when I go lever in equipment.
Okay Fair X when they had seven airplanes.
I have 700 now.
I remember how it grew.
Great.
It's all got that guys. Thanks.
Right so talking here.
The next question from the line I'm also helps with Hartz capital. Please go ahead.
Good morning, and thanks for taking my question.
Oh, yes.
Congratulations on a strong quarter I know the progress you're making all day autothrottle.
I wanted to follow up on Oh, deepwater, its which has slowed down a bit so obvious reasons.
Oh, where your orders are trending throughout the quarter and into July it's easy to pick up at all.
Well, it's as you can imagine is lumpy is a good an order or anything it's a big well right now it's about what we expected but.
Yeah, well diligent [laughter].
Good we're optimistic that we have the right product and there's a REIT market.
Sure.
And we're also and I'm.
I'm committed to making sure that we continued to make a profit. So whenever that takes we do you know that's what we try to do all the time.
Right, Okay, and I'm also trying to kind of get a sense of how many king air it's pretty sixties might be produced every year I mean, if I take that 50 planes, a year or would that be too aggressive fortunate to miss an estimate.
Well the Threesixty.
As for upgrading obviously, a large part of its weight I I don't know, but I would guess initially 10, and then 20 and then 30 kind of thing that 300 is about 50% of their production right now ultimately I, we expected threesixty to take over one is.
Now in the 300 series production.
I see do you know how many remember we're not focused on one way to 360, they've already made a commitment to doing I'm all the other airplanes, that's why they're doing the retrofit, but that where they're doing one airplane at a time, it's a monumental task to get through the system.
So once they got to 360 done which was a critical one.
The other ones should be easier they should follow along.
Right. If you look at those models that are they are committing to eventually to integrating you or how many airplanes to produce here.
Well it varies it was I I'm, saying that they're already talked about retrofitting to see 90 suddenly going to put it on the 90 I'm honored to 50 and the 200 show I mean ultimately it's whatever their total production is there any there. So on is there going on there.
Committed.
Research. It is there going to put this on a throttle on 100% of the cash so how long how quickly that happens I don't know.
Right right. So if you look back at 17, 18, 19 blood how many King Air study produced in a typical year Hi, My name is.
Roughly about 100, yeah depends on the economy.
So we said, it's a retrofit is probably going to be a lot more.
Right right.
Okay perfect. Thanks, so much for taking my question two years, a great airplane, we expect military programs frankly, where came in with Textron as we speak.
Okay.
Proposals in the military.
So.
That's good thing ever so that said.
It's moving along very quickly we're getting and this is and this is visibility there very top management.
I've been very responsive.
Every responses.
Great. Thank you.
Thank you.
The next questioner, it's Derek bubble with other dawning. Please go ahead.
[music].
Hi, gentlemen, congratulations on an amazing quarter, and just a really exciting market opportunity looking board longtime listener first time color here. So thanks for taking my questions [laughter].
Thanks for hanging in there as long as you did.
[laughter] my pleasure.
So.
You talked about $300 million with immediate retrofit opportunities for the King air or have you looked.
Pardon.
Actual market yes.
Got you said you have you looked at the total addressable market because the you mentioned a lot of other markets, including the military markets have you have you looked at what the total addressable market isn't any numbers around though I I'm always.
Reluctant to that I tell you why.
Okay.
I wouldn't be delighted if I could if I could get a substantial portion of that King air market. When we were almost trunk.
So [noise].
We're aware that the other market is probably.
Four or five even six times, aside, but whether or not we penetrated go after it and whether that people want to keep the airplane for all kinds of apps. So typically can be pretty weak in our judgment way restrict our our our estimates as you can appreciate that.
Yeah definitely appreciate that.
Hi, There comes in you know wouldn't let me [laughter].
It just doesn't agree its opportunity opportunistic if somebody comes along and sets.
Yeah, I got an airplane, there's about 300 anything out there that need that said, we need that this area. We make it look in applying our oral trial system to it its reasonably scalable and.
Quite adaptable, it's a it's a we've been very lucky with it it's been very good.
Yeah, absolutely a <unk> impressive and an exciting what what a great spot to be in from hostage strategic standpoint, [laughter] Oh I'm I'm curious how have you thought given the size of the market opportunity have you thought about partnering Oh.
Turning up with that strategic partner to make sure that you can meet this huge potential unmet need.
Honestly, we've taken what kind of ticking would correct textron and potentially another OEM has another airplane is probably the best way to do it rather than another manufacturer.
The other manufacturers.
Yeah, I don't I don't see that other than if they wanted to sell out a cockpit system and a lot of throttle they'd be coming out for the oral trial, but.
I think teaming with Textron is formidable that's really to be one with you. It's just.
It's just hires I could've had my expectation I'm delighted that they're working as hard.
As they are such terrific I'll be happy to just support them for that for the near future.
Excellent excellent.
Then on the last call you talked a little bit about how you were seeing a shift from first class and business class commercial a routine private aviation I'm curious are you still have you seen all been thing that trend through years today and are there any numbers. If you could put around that take a look at a company called wheels up they are.
Right, Yes, I got hundred airplanes now all over the country hundreds that's a lot [laughter] and plenty sense has PC 12, and their bottom leichter <unk> style. So more and more people are looking I'm and say look it might happen if I have to spread $7000 can go.
All round trip to bring in California, I don't need to after one.
But I have two and a half hours going through I am on terminal if I could get it will go over the air freight and wait for me and I'll turn it on and relaxing the airplane. So there's increased usually there's there's a reason to believe that it is that the itself.
Reasonable solution. That's your friends that were in Palm Beach, three months ago. They had to come up and there were no. They were anxious about getting on a commercial airplane with that with the corporate.
And pandemic and they.
Hey, guys.
Eight people Oh and from the same condominium complex.
And also moved in Philadelphia area.
To put together a matter of two or three days and they chartered I. It passenger turbofan Jack just take it.
We ended up costing them roughly the same as a first class pickup.
What a hell of a lot more convenient.
That's great color and I really appreciate it.
Well I worked for a large institutional permit for the purpose of this call I'm, a private investor because it's just the opportunity is just too small from and then what we would have a as a minimum investment from an institutional standpoint, but from an institutional standpoint, what I would recommend.
Is that you get some sell side coverage.
Maybe get an Investor relations campaign going.
Oh I get your get your called out on Socs that maybe do some additional conference calls you can get some more traction in institutional market and then last but not least.
If you can get an active options tree you know called inputs traded on your stock that would drive some more additional volume and then.
You know given current investors some some additional liquidity and then that would probably all those three things together would probably try a significant increases in your share price and it'll be good for shareholders. It for yourself, So oh, sorry, not the luxury but just wanted to give you some suggestions in a public forums.
That's I appreciate the advice.
We are or at least sorry, I'm reluctant to oversell. The company we've had some wonderful times we.
It's actually I.
Thanks, where we generated 80% net after tax.
[music].
Sorry, 30% net after tax profit.
So yeah that was wonderful, but that also as vulnerable if you can't keep supporting behind it so I'm going back a bit.
More conservative in my estimates when I'm when I've got a well established retrofit business, then I'll be talking to the just straight again.
Well, that's a pretty good luck as you probably know over the past years, but probably there you don't want oversell the business you don't want to.
Promise things that you can't deliver and I'm trying to be a little circumspect.
Fair enough well, you've done a fantastic job running the company, Jeff and fantastic job of this product I have a friend who is a commercial airline pilot. He's incredibly excited about auto throttle. He thinks it's one of the greatest developments in the history of aviation. So wonderful job really excited to be onboard here. Thanks for everything.
And you've done here.
Thanks for your time board.
From a small pig try to build the business, but I actually really want to deliver on my promises and and and it's a it's it's a challenge I have director who is head of all over engineering for Boeing.
He said his blocks told them.
Hi, everybody was doing what you said you would get them. When you said you wouldn't do it.
Yes, I think about that every day.
Oh.
We need more people like you in our society Jeff.
Not sure that.
[laughter], that's actually going to say you have a good day a magazine too.
Well, we've got great Roses back.
We have one further question from the line of Craig Rosen Axiom. Please go ahead.
One follow up question, you mentioned, a wheels up and the size of their fleet.
What are the odds that the they you could get the S. A ton mandate. This safety feature on all charter aircrafts similar to what they didn't seventys with one terrain awareness on planes.
Did not do with helicopters and we've recently seen you know what can happen there.
Well.
What are the odds of that I think I think we got to prove this I think it I think it's notable we're very proud.
Oh Textron's selection of US Trust me I wish there when we did the first presentation.
It was a difficult it was a difficult implementation they were very.
It was it was a unique situation, where we have developed a product.
They're not used to that they're used to having people develop a product for them.
We developed it for ourselves there were extremely supportive and I'm actually that gives me confidence that.
There is a strong safety market and I think they're free knows it for sure and its NTSB Warren sack dollars, yet I think it can be lumpy, it's very strict board Addison, Texas, Oh, God, if you get an airplane.
Oh hobby airport.
Oh, well then entered out its catastrophic and sadly, it's a terrible situation I guess, that's true with any airplane, but but especially this we mitigate that we deal with that's something that's never been done before.
And I assume that people a lot and bio there's a whole bunch of other things. Besides the M.C.A. protection undersea protection all kinds of things, so I'm, hoping the NTSB novices and if they do they do banking partner that can put pressure on.
The the appropriate apart.
Second reluctance to implement this I can tell you that the F is been supportive in a certification this equipment has taken.
Six years.
I've ever heard or seen.
In my career, I mean, they've done it Dan I'm extremely thorough but but did not drag their feet. They did that they did an admirable job [laughter].
[laughter] and Oh.
Oh, I guess the possibility I picked them. So that's a good possibility that can happen, but we got them yeah, we got to pay our doors.
I get it an airplane show that.
Got it it's a good reliable.
I am saying, one parts like <unk> and that'll make all the Jefferies.
Great. Thank you.
You take care.
That's appears to be.
The the end of that discussion we appreciate your interest and joining US today, we're signing off of a good guy good while staying well.
The conference has now concluded. Thank you for attending today's presentation you may now does.
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