Q4 2020 Innovative Solutions and Support Inc Earnings Call
Welcome to the innovative solutions and support fourth quarter 2020 earnings conference call and webcast all participants.
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I would now like to turn the conference over to Mr., Geoffrey Hedrick, Chairman and Chief Executive Officer. Please go ahead Sir.
And work and this is true.
Welcome to our conference call and discuss our performance for the fourth quarter and fiscal year to 20.
2020.
And business conditions, and our outlook for the coming here and.
Sure I'm asking for our president.
And role and then our CFO before I forget and I'll ask relative to read the safe Harbor that message.
Message.
Sure, Jeff and good morning, everyone.
I would remind our listeners that certain matters discussed and the conference call 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 from those discussed and.
Moving to other risks and uncertainties reflected in our company's 10-K, which is on.
Finally, with the FCC and other public filings now I'll turn the call back to Jeff.
Thank you.
Several years ago, I announced we would try and our approach to the market by focusing on only products that are true.
Oh, logically driven performance and price advantages.
I'm pleased that our operating performance during this challenging period and appears to validate our change in direction.
Fourth quarter had a strong finish resulting a year over year quarter over quarter and sequential growth.
Our revenues increased 31% from a year ago cash.
For full year revenue growth was 23%.
It's called 2020, well is our second.
Consecutive year of strong growth.
Okay, increasing profitability solid cash flow.
While strengthening and underlying foundations.
Oh, we production contracts and recurring revenue and support our continued success.
Based on this performance, our cash on hand, and our confidence and continued success.
In September and the board of Directors declared a special 65 cents per share dividend.
We will regularly receive the.
Choose these results, while protecting our employees partners and customers against the pandemic.
Well this well.
Well its impact today.
Business has been minimal safety precautions have now been.
And have now become a routine part.
Part of our operators commitment to ensure sales and a healthy work environment.
[noise], we announced last quarter at Textron had awarded us.
OEM production contract to supply.
Our restaurants are off from throttle with life <unk> protection on the new King Air 360 twin Turbo prop.
And November Textron celebrated delivery of its first Beechcraft King Air 360 term turboprop aircraft.
More recently.
Textron announced that the thrust trends Autothrottle is standard equipment on the new junior to 60.
With delivery scheduled to begin and.
The first half from 2021.
We are pleased to be working with Textron and are grateful for the support through the certification and.
And moving into production.
They are a strong support or of our technology.
Yes, and that's one of the throttle its a first among all missed.
360, and upgrades mentioned in their King Air 360 promotional material.
Textron joins true other major Oems to feature I asked and its products as standard equipment on their production aircraft, joining Aladdin PC 24, you and match and Boeing's KC 46 tanker as major OEM contracts.
[laughter] perspectively significant duration and value.
These contracts offer a growing base of long term recurring revenue as expected from the last years.
Their support and textron and looking into opportunities for the thrust sense.
Workload, reducing features on their other production platforms, we are grateful to see that the service Center organization.
As positively pursued the significant retrofit opportunities.
And Jim King airs currently and servers.
Consequently, we are working with textron to ensure our production levels.
And the service centers demand for auto throttle and help promote the availability of this potentially.
Lifesaving technologies to King airs owners.
[noise] restaurants.
Also as a base for expanding beyond from the general aviation market.
Look at that military aircraft and air transport and multi engine aircraft as well and addition, we are finding that the public publicity sprout.
Surrounding our dress sense.
And create interest with other Oems.
Potentially likes.
Our potentially lifesaving Epay certified one engine and operative.
Upset protection.
Compelling differentiator that multi engine operators are now very interested and we are.
Okay.
We are optimistic the contracts with textron support the wider adoption of and technology and not only improved share performance and can provide unparalleled safety.
[noise] precipitated by our King Air business, we have hired and sales and service support representative stationed in Wichita.
He will support our president business at Textron.
And explore new business opportunities and the region.
We are working with Textron worldwide service organization supporting Autothrottle retrofits.
Our auto programs director is successfully addressing addressing.
A large military opportunities and air transport markets with very encouraging results.
Continue to recruit sales and support personnel.
For our growing business demand and force rest sense auto throttle and lifeguard protection systems.
In addition.
September of 2020, we announced the Epay and certify our synthetic vision installation and auto throttle upgrade for the eclipse jet fuel.
Clips and has.
Clips was the first aircraft and which we develop and auto throttle and we are pleased to be able to offer owners the ability to upgrade the airplanes.
Our weighted features and.
Going growth.
Okay.
The underground and growth of online shopping continues to fuel the increase and the number of 757 and six seven aircraft being converted to cargo.
This has generated increasing demand from flat panel display technology.
Engineering and development work completed.
We ship and.
Our upgrade for Us Navy.
And David computers on it from the five in the fourth quarter.
Right now marketing and international customers for the five.
Let me turn this over relative to Ralph for some.
Financial results. Thank.
Thank you, Jeff and thank you all for joining us this morning.
Looking first at the fourth quarter revenues were 6.3 million up 31% from 4.8 million a year ago and.
Generated 39% increase in operating income this was the greatest as quarterly rate of growth and this fiscal year.
Growth this quarter was almost entirely and product and customer service revenue as we completed final engineering on EBIT, maybe five or data connector development contract and we shipped and tire production order in the quarter.
Gross margins for the quarter were 55.8% down from 59.5 and a year ago.
With the decrease attributable to product mix.
And warranty and material costs also this quarter, we had limited engineering development revenue, unlike the year ago quarter, which yields yielded strong margins. Nevertheless margins remained in line with historical averages achieved over the years.
Total operating expenses for the fourth quarter fiscal 2000, 22.3 million up from 2 million and a year ago quarter.
This modest increase and expense reflects the additional the addition of resources needed to support the company's 30% revenue growth rates.
Search and development expense was up over the year ago quarter, reflecting a shift to more internally funded R&D and that's what the customer funded and.
Development contract is completed our and.
D was approximately 11% of quarterly revenues, which is consistent with our strong commitment to innovative and new product development.
Selling general and administrative expenses were up about 8% from the year ago quarter again, primarily due to the need to add resources to support our increased business activity.
For the quarter, we generated operating income of $1.2 million or approximately 19% of revenue.
Other income was down from the year ago quarter as interest rates increase.
We reported quarterly net income of 1.2 million or seven cents per share.
Looking at results for the year total revenues were $21.6 million up 23% from $17.6 million for full year 2019.
From the reported fiscal 2020 net income of $3.3 million or 19 cents per share Inc. Increases 74, and 73% respectively from net income of 1.9.
Or 11 cents per share from fiscal 2019.
The company remains and strong financial position, we generated over 2.2 million of positive cash flow from operations in fiscal 2020 of which 1.6 million was generated in the fourth quarter and had 12.6 million of cash on hand at September 32020, the company is debt free.
In September the board of directors declared a cash dividend and the amount of 65 cents per share or approximately 2.2 million, which was paid on October onest 2020.
Dividend appears and and as an accrual and at September 32020 balance sheet offset by a corresponding restricted cash we.
We believe that the company has sufficient cash to fund operations for the foreseeable future.
Now I'd like to turn the call over to share.
And.
Thank you, Rob and good morning, everyone.
The fourth quarter was up and sales quarter of the fiscal 2020.
Put a fine point on our second consecutive year of top and bottom line growth and strong cash generation.
More importantly, it was the yen and reach.
These secured.
Net OEM for dumps and contract with a tier one and the fact.
Textron.
Keegan Threesixty and can get to 60.
Our new aircraft that will feature ox from sense order will throttle as standard equipment.
Growing our ongoing OEM contracts a lot us on both.
These OEM contracts.
And a solid foundation of recurring revenue and should last for years.
And we also quickly reiterate what Jeff mentioned that yet.
Generated strong growth and profitability and.
Successfully executed on the can you get contract.
Well and implementing new safety policies and procedures that have kept all of our employees safe and productive.
As well as protected our partners and costs.
And can get 360 program is just wrapping up the feds production aircraft delivered to a customer last month.
Can you get to 60 is scheduled for delivery and the first half of 2021.
You have to be shipping from since units and textron since third quarter, net and expect oldest and naturally follow the anticipated increase in production over time.
In addition to shipping units, one and so they show and we can get free 60, and also shipping units and fixed John.
Distribution to the said incentives.
The news flow retrofit installations.
As Jeff mentioned, the retrofit opportunity is much greater than the full line.
And about five times, and King guess, commonly and service.
We estimate represents about 300 million of them bullets.
Well, the two and addressable market.
At this point the.
Certified for retrofit and the Beechcraft and get 300 series equipped with front line.
Fusion avionics and the pro line 21 equipped Beechcraft King get 200 series.
I live and variations of this it's the CRP too soon.
Some imminent.
Consequently, also shifting little struggles to and installation process range that she is many key and get on as and take that cloud from service.
Both organizations are aggressively marketing the retrofit.
Thank you our opening an office in Wichita to not only promotes the product, but also support textron.
And relationship with Textron is going well and provides a solid foundation from which we expand our oral thrush market.
Only obviously across key and get platforms, but other Oems as well as the military.
You are and compensation with manufacturers of both twin turboprop true.
Twinjet and Multiday engine aircraft with regards to our auto throttle.
And potentially life saving nature from sense, and multi and genetic crop is a feature and and reach virtually all Oems how long the interest.
September Tony Tony.
And now said the efficacy and certified synthetic vision and installation and almost of all upgrade for the eclipse jet.
This and so listen Mark ice and it's a threat and great.
Rick lead to eclipse owners and involve substantial free or.
And clips all and as.
Now have the benefit of significant functional upgrades and ongoing product support directly from the partnership with ISI net.
And not briefly review some of our ongoing programs.
CC 204 program has essentially reached steady state production levels and expect to ship close to 50 ships and.
In fiscal 2021 to support the cotton and production rate.
This program remains highly successful.
And that this is very excited slide that outperformance.
This program. We believe is expected to continue run from many as offering and predictable stable recurring revenue stream.
And that makes into Kmetko and transfer market I'll also essentially unchanged their cargo delivery services continued to convert at Boeing 757, and 767 and planes, including upgrades to our flat panel displays.
That'd be wants contracted the large and installers, we are not doing more direct sales to carriers.
As proven and much more successful.
It remains over a thousand operational and seven five and 767 and are still in need of retrofitting.
And even larger number of 7.37 loans.
We update.
The vote on line.
For the US Navy and five data computer was completed and we delivered production units for the US Navy fleet.
Okay and in the fourth quarter.
This was a highly successful program and we are not sending our attention to foreign military which also fly the five.
The large new markets for this vessel type products.
A KC 46 program.
Following is one of our three OEM production contracts continues to make steady contribution to our recurring revenue and profit.
New orders in the fourth quarter of fiscal 2014.
Well were 3.4 million backlog as of September 32020.
3.6.
Bookings for the full year were in excess of 19 million.
Keep in mind that backlog at the end up and you wont quota is not necessarily indicative of future business side.
As we generate a good portion of our revenue from customer service and and intra quarter book and ship orders.
The ongoing patent that made has had three to flow the effect on us as and marketing activities limiting our ability to pencil and meet with customers and prospects and causing some complexity working with the FDA, which is operating on the walk from home directives.
That and we do not believe the pandemic has or will have a significant impact on our business and.
Cited about the prospects of our portfolio of our products.
Let me turn the call back to Jeff for some closing remarks, thank share.
The growth our success of our auto throttle strongly suggests that this strategy is creating real value for both our customers and for our stockholders.
We're entering a new fiscal year.
With momentum for two years of strong growth solid balance sheet and a portfolio of products that are receiving and.
Enthusiastic market reception.
We see a great opportunity.
Thank you for your ongoing support and encouragement.
Thank you.
Yes today.
I'll take the question is.
As required.
Thank you.
We'll now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from David Campbell with Thompson Davis and company. Please go ahead.
Good morning, David.
Hey, good morning, yes, well and hit rock bottom line.
So and just good quarter.
I just wanted to ask you a well that and what do you assume and what I should just sales.
Accrued tax rate.
And Cisco 21.
Well it will ever be will there be ended the tax Oh, yes.
Yes, there will be some expenses, but it will be less.
Less and because we still have so many wells and some R&D tax credits so I would use.
I'm estimating and use a like a 5% effective tax rate type of thing.
Okay. Thanks.
Thanks, and Jeff and.
Sure.
[music].
Well and they are they a shift that's too.
And the King airs where any of them for Hulu or some way Ali and then some retrofits are all retrofits.
Well, the OEM well a lot of a lot of OEM actually 20 odd OEM.
Shipments and obviously the airplanes haven't come off the line yet but.
But.
And then and then a bird a very rapidly growing demand and retrofit.
But no retrofit and then revenues yet.
No real ramp.
No actually textron do and installation and Australia.
Retrofit.
On that and using our organic growth.
Hi.
And now there are multiple service centers and a huge network.
Service centers throughout the world and that the very encouraging thing is they are very aggressively.
Promoting that the.
Auto throttle retrofit itself and it looks as it Inc, and looks better from almost every day and it's very good.
So you expect that to be.
It really fills revenues should increase.
And physical it's one day, one very much. So we believe the growth is going to be exponential.
Right.
Right you will see it this quarter and this December quarter, well have the usual seasonal.
Down there and is that a correct.
Yeah, maybe we'll do a little better.
Okay, well, thanks, rising and their questions and trying to do and are trying to do better we'll try to.
Q from more stable and strength.
Okay.
Operationally is good and generates cash every day every day virtually it's excellent.
It's profitable and as from our volume goes up it becomes more and more profitable not only because it covers all the fixed overheads, a line of which effects and.
Yes, and and profitability. So we're very optimistic about the future. We're very pleased about textron and.
Interest and support and our products and.
And C and a large retrofit opportunity.
We're delivering 5767 sisters to another.
Very true.
Demand for Rob.
For average carriers, so I mean its.
And so this is just coming up and when you consider that the and the other effects and and.
Most of aerospace companies struggling we've done really well.
Well, you do and you're doing a great job.
Thanks for all your health and.
Doing well.
This coming year and ill struck looking a lot better.
I think we're fortunate we have a very good product.
Very producible, we've got a great customer.
All of our customers are outstanding.
We're very fortunate with that so.
We just keep working at it every.
Every day and get up and and.
Sensitive Murray's and kick ass and taking names.
Well, thanks, a lot of France, and the question I was getting at all from the calls and I. Appreciate all the work they do and I. Thank you for your Gen market My kids.
Once again, if you have a question. Please press Star then one.
The next question is from larger Goldman from private Investor. Please go ahead.
Good morning, and wall and personal loans, thanks for a great quarter and a great year Sam.
Validates my late father's trust and you as you know.
Yes, and my sister and I are much appreciative I also want to acknowledge the fact that.
No last quarter and the last year history, but it sounds like you guys have set the company up sure sure Fabulous growth and the teacher that.
Without being Pollyannish couldnt make the past looked like small potatoes, so congratulations on that Mike.
My question as you usually is goes to the use of cash.
We've got a company with no debt with solid operating profit.
And and even after the dividend share amount of cash on the book.
And he thought should and either and.
From an acquisition or a small regular cash dividend that I think would have a great impact on the stock price.
It's a good question some of that and I can answer some of Oh, no and I know your cash I know you can't but it's early.
Reasonable question, absolutely outlook, we have we know we generate a lot of cash and our recursive for operated and business not not for us and look at the cash that doesn't generate any income at all I mean, I personally have cash accounts that there and then.
Paying interest and and pennies so.
Yep Yep Yep, no interest in doing that anymore.
If we can reasonably invested and other things we're doing some some automation on the floor and and and Capex kind of things and them.
Great and we looking.
Looking at dividends on a long term basis, because we believe the business itself will generate cash on a regular basis and then we.
Moving on.
Our stock holders can make good use of cash so we're cash we're very.
Very conscious of that.
And that's what precipitated the 65 cents.
Yes, we continue to look at especially in line.
And might be changes and.
Taxation policy and.
Exactly yes, that's all that's like and asked for and again well done and you guys are doing a great job of positioning English companies and the future. We missed your dad. He was always fun and good guy.
Well. Thank you we miss from two we miss and too but I'm.
I'm, hoping after toga adjusted.
Come on out there and meet you guys and spend some time so.
And look forward to look and.
And I know this is.
Okay. Thank you ladies.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you.
And.
Oh, it appears that Don and Ben Your line is and disconnected. So we thank you everyone for joining todays presentation and other call has been completed and you may now disconnect take care.
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