Q2 2021 Innovative Solutions and Support Inc Earnings Call
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Pardon me. This is the conference operator, and the innovative solutions and support conference call will start momentarily I'll repeat the conference call will start momentarily. Thank you for your patience.
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Good day and welcome to the innovative solutions and support second quarter 2021 earnings conference call and webcast. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask.
A question you May Press Star then one on your Touchtone phone.
Withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Geoffrey Hedrick, Chairman and Chief Executive Officer. Please go ahead Sir.
Good morning, this is Geoff Hedrick.
Welcome to our conference call to discuss our performance for the second quarter and fiscal.
Fiscal 2020 one.
And business conditions and al.
And look for the coming year.
Joining me today is share of Astra poor, our president and real well and then our CFO.
Before I begin and I have like ROE to read our safe Harbor message well.
Thank you, Jeff and good morning, everyone.
And our listeners that certain matters discussed on 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.
Including other risks and uncertainties reflected and our company's 10-K, which is on file with the SEC and other public filings now I will turn the call back to Jeff.
Thanks Ralph.
It was a strong quarter with revenue margin cash flow and pilots and then.
Bottom line profitability.
In addition to new orders.
And in addition, new orders were strong and we ended up the quarter.
Sequentially increase and backlog.
Over the past several years and.
And part of a strategy to establish a better balance of OEM and retrofit revenues.
From a more diversified set of products.
Reduced volatility and prevent and provide broader and foundation for COVID-19 or.
Our continued growth.
These guys search and continue to succeed.
And as the pandemic recede and production contracts are now producing steady predictable revenues from some of our largest names and aviation politeness.
Textron and board.
Sales of our patented oral channel continue to grow most recently, we announced that Textron and Howe.
Our on trial as standard equipment to another on their new air two aircrafts the King Air 260.
And additionally have been shifting true their global network of service centers to retrofit for retrofit applications, where pandemic has been slower adoption.
And these recent quarterly report however, cash.
And indicators day expecting the retrofit.
Market to improve and.
Good.
And a significant market opportunity and theirs.
And it multiple times that of the production market.
Okay.
Cooperation and relationship with Textron has been very strong and very rewarding.
We believe that we could develop additional opportunities across their product portfolio.
And the success dress sense technology technology, and General Aviation Inc.
And your opportunities in other markets such as from the military air transport and several multi and generic.
And we currently are seeing interest.
From from.
So far beyond the King Air One reason and this interest is that we have the only are on frontal with lifeguard.
And as easily retrofitted Apple.
Where we are.
This is appealing the owner operators because it means they don't lose revenue and can you share aircrafts and.
And watch them and prevent loss of control.
Currently the development.
And then.
And development is an R&R travel that will offer customers and a simple cloud solutions at lower cost.
And ill allow us to penetrate the lower end of the market, which is substantially larger than the turboprop how we share that now.
The same features and we offer and the turboprop turboprops and we now offer and turbo fans are terrible and trash.
As a result, we're seeing interest from multi engine aircraft and much bigger.
Range, even with four channel drops.
We are.
Yeah.
And they are asking us to supply and Arnold throttle and we are looking at several military aircraft.
And the same.
Request.
In addition, the following interest.
In addition to the growing interest to our auto throttle and remains strong demand for our legacy products for instance.
Cargo conversion upgrade activity remains strong and growing leading to.
Leading to continued demand.
And for our flat panel display technology.
And upgrades to existing systems, such as synthetic vision upgrades to eclipse and.
Other source of future growth.
The key advantages to our retrofit.
Takes on.
Shortly.
One fifth of the amount of time to modify and aircrafts.
And that they say.
Hundreds of thousands of dollars and lost revenue from the aircraft.
And the first half and fiscal 2020, one now completely.
We have made significant progress and are enthusiastic about the opportunities Inc.
With respect to arise.
Insurers about air travel and global Pandemic, Inc.
And continue to trade.
Well the ongoing global pandemic and then continues to present it is challenging we remain confident and sit there.
Over a longer journey and unique capabilities and unparalleled pricing price per performance advantages of our technology will strengthen our hand.
And our brands globally.
I'd like to turn it over and a role now and details of and financials well.
Thank you, Jeff and thank you all for joining us this morning.
And at the second quarter revenues were $5 1 million up five 9% from $48 million a year ago, primarily due to increased shipments of King Air Auto throttle systems to our OEM customer.
Gross margins for the quarter were 56, 7% improving as expected from both 47, five and a year ago quarter and $52 seven and the previous first quarter.
The improvement reflected reduced material costs due to product mix, partially offset by higher labor costs.
Total operating expenses for the second quarter of fiscal 2021 were $23 4 million up by a margin of two 1% from a year ago and down one eight per cent from the preceding first quarter of fiscal 2021.
We continue to emphasize tight operating cost control and we believe.
Current quarterly operating expense levels will be maintained for the balance of the year.
Research and development expense decreased from the year ago quarter was primarily the result of a higher proportion of average spoke of efforts focused upon and product development programs that were allocated to cost of sales and the quarter.
Research and development expense was almost 14% of quarterly revenues, which is a reflection of our strong commitment to innovation and new product development.
Selling general and admin of it and administrative expenses were up $4 six per cent from the year ago quarter as a result of and increase in payroll and payroll and related benefits, partially offset by reduced trade show expense.
For the quarter, we generated net income of 609839% increase from $4 38, and the year ago quarter. The company remains in strong financial position with cash on hand of $6 million at March 31, and 2021.
Our cash position is net of nearly $20 million on dividends dispersed and the fourth quarter of calendar 2020.
Bolstered by approximately.
0.6 hundred and a positive cash flow from operations and the second quarter.
We anticipate being operating cash flow positive for the full year the company is debt free.
Consequently, we believe the company has sufficient cash to fund operations for the foreseeable future.
And I'd like to turn the call over to share them.
Thank you Raul and good morning, everyone.
And solid financial results that Jeff and well described are a testimony to our brand recognition and business model that focuses on both OEM production and retrofit opportunities and the diversity and high quality of our customer base.
This quarter, you saw a strong performance and our OEM production contracts.
And you have generally proven to be less sensitive to the influence of the pandemic.
For instance.
<unk> recently noted that virtually every model on jet and turboprop day.
<unk> is seeing strong activity.
Adding interest and the acquisition of New Jets was still large really driven by personal travel.
Corporate aviation departments are starting to come alive.
This is not only encouraging news for a text from business.
But also from the latest PC 24 business as well.
We believe these programs as well as our KC 46 contract with Boeing for the U S Air Force.
And for several years offering a stable foundation of predictable recurring revenues from which to build.
Just briefly mentioned on development of a more easily retrofitted auto throttle.
We are working on a single button simple operations oral solids.
And with lower.
And for lower cost installation.
The single Boston Places that high resolution.
OLED display that occupies minimal cockpit space.
It can be installed and multiple aircraft different cockpit layouts and this generic nature.
And if we can really reduce the time and expense of obtaining FAA certification on multiple platforms.
Order flow remains a top priority of our research and development budget.
The retrofit market is experiencing some weakness as the pandemic contains travel while also creating some degree of caution among buyers.
Nevertheless, we are having retrofits success and the air cargo market, where the growth of online shopping continues to drive strong cargo conversion activity.
Consequently shipments of flat panel display systems for seven and $5 seven and six seven remains robust.
As many of all that a thousand operational and southern and five seven and six sevens delivery.
Still available for Cod will come back and we expect to see our flat panel display business remains strong.
On the military market.
As Jeff noted on KC 46 program remains on track.
And we remain optimistic that the air data computer developed for the U S. Navy can penetrate foreign military markets once limits on international travel and other similar restrictions are lifted.
New orders and the second quarter of fiscal 'twenty, 'twenty, one and seven 6 million.
And backlog as of March 31, 2021 was $6 7 million up $2 5 million on a sequential basis from $4 2 million on December 31 2020.
We continue to aggressively pursue growth opportunities.
And both the production and retrofit markets. However.
As has been previously noted safety protocols watch on this.
Street from those at the FAA to those restricting travel to certain countries to individuals companies in person meeting restrictions remain a headwind.
Yes.
As these restrictions are lifted we believe there is a growing market of owners and operators interested and adopting our oral throttle technology.
Before turning the call back to Geoff Let me quickly note the efforts of our employees to integrate new safety protocols to our standard operating procedures and how this has enabled us to maintain productivity without jeopardizing the health safety and wellbeing.
I'd like to turn the call back to Geoff for some closing remarks.
Thanks Sharon.
<unk> quarter was another quarter and when should we achieve the objectives, we believe cash.
Bill and shareholder value.
Gross profit.
And as positive and cash flow.
The second half improved sequentially from the firsthand.
Okay.
And change in fiscal year <unk>.
And also Roche and all.
Salinger and healthy and growing business.
And the second half on calendar 'twenty, and 'twenty, we distributed and nearly $20 million and dividends and show you My commitment true.
To rewarding our loyal shareholders and then.
And then opt you mentioned about innovative solutions and support future and.
Thank you from the ongoing support and encouragement and audience and audience today.
Operator, please turn this over for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
And youre using a speakerphone please pick up your handset before pressing on the keys to withdraw your question. Please press Star then two and.
And at that time, we will pause momentarily to assemble our roster.
Again to ask a question. Please press Star then one.
Yeah.
Great.
Okay.
Yeah.
And the first question will come from George Marino with Perenco Ventures. Please go ahead.
Yeah. Good morning, Jeff Thanks for taking the call.
A couple of things so I wanted to ask you on the new orders for Q1.
You did a lot of these come from the Boeing are like sort of the.
On the cargo retrofits or was it a lot of.
OEM orders.
You bet.
Let me, let me have shown that and specifics.
But the distribution generally.
More uniform than we even we anticipate Sharon can you comment.
Sure. Yes, so we received new OEM orders from a text from pillar as well as borrowing.
And as well as on the cargo market we had.
Strong retrofit orders.
As Q2, you said Q1 Q2.
Well, yes, the current flurry and it is this quarter and Q2 on 'twenty one yes.
Yes.
Okay.
Oh.
What's rewarding is the demand and Amazon.
<unk>.
Yeah, Okay, Yeah, I just wanted to see how heavy it was.
Because I know on the OEM business like the King airs the only produced seven planes and Q1, but that's your seasonal low quarter and just goes up sharply from here and into the fourth quarter.
And I'm talking about I'll talk about calendar quarters, now, but yes.
So I just want to see the flavor of the or the how the ordering there on on how it came and then also I was excited to see in your press release about your new low cost product, which sounds like debt is going to address the the piston engine market correct.
Yeah.
[laughter].
I'm sorry, what.
And again I'm sorry.
Oh, okay. Okay.
And what we believe as it turns out.
Our G was.
Okay.
And.
Periodically ideal.
And we were able to reduce our costs, probably and half our banner.
And could produce.
A simpler lower cost installation shall we see the incidence of <unk>.
We're on application to a lot of money.
Cash strong product lines and also.
And deli easy retrofit and reduces the retrofit time and less than half.
Oh Wow okay.
That's cool and show a very good product and it's.
Yeah, that's very nice.
So the new product can also be applied to like the king air platforms as well.
Yeah.
Put it and the King Air and the question is do you own.
And what are you guys yes.
Allows you to operate.
Auto throttle.
Far more simple.
Not a lot on.
And there's no setting of numbers or anything else you can push button I push a button on and off basically share.
Simpler to operate.
But the real advantage to it is yet.
And it.
We'll provide and Barry.
On a fast retrofit time.
Yeah, well I'm also excited about the piston market because as you know that's a huge market.
How about how about debt.
The 58.
They made $8500 and.
They still have.
And problems Robocall twinge, yet we havent solutions for us. So we think it's going to be on very good product for us and for protect shrunk and thanks John has been.
Remarkably our.
Support and we're delighted.
And about how long do you think and told US. They did this becomes available on the market for retrofits and all that.
Hi, I, just assume that you'll be seeing cash there'll.
<unk>.
The actual day I cant.
Okay.
And engineering program at the same time, its pretty much John actually were implied cash now but.
Like everything as soon as you give it a day.
Slipped and shop.
But what youre thinking 2021, though it sounded like.
Absolutely.
Mhm.
Okay.
In terms of the retrofits.
What is sort of the cadence going on right now and what would you anticipate.
Well I guess this new product will change the inflection on that use Hugh you predict but.
Whats the current cadence of the retrofits.
And it's really.
And I'd say its share of a steady progression.
And more and more painful install it'd take feel more comfortable where debt et cetera, et cetera, and Sandra but most importantly.
Remember all of the models, we're always considered.
And especially when we got started people share with the hold on Arnold Palmer and Ronald.
And so forth.
And I don't need a cruise control and apply more airplanes.
Well, our most recent product which is price.
Try and give a one.
Literally means and can fly the airplane and just like you'll always did except that provides a background.
Safety.
So that you get the effect.
Okay Pedro again.
And and and safety controls.
<unk> seen before.
And Chad and the ideal situation and just from the pilot and says you may still want to climb on airplanes.
But what I would like all of our <unk>. This does both.
Okay, and how are and and my last question is in terms of supply chain of getting product to make your product is that.
Is that okay, right now or and you have a lot of problems with debt.
We try and get parts.
Yeah.
And look I've been true, yes over the years and.
Well I think and all.
It worked out.
We have a couple of choke points that we're monitoring.
Carefully.
But I'm not.
I'm not overly concerned.
But so far <unk> been able to make product and ship product it sounds like we're.
And we're doing that now.
Remember, we also have inventory and so on.
It's not a simple answer but in general that's an accurate and one yes.
Okay. Thank you Jeff.
Cash.
The next question will come from Michael Fredrik Investor. Please go ahead.
Good morning, gentlemen, congratulations on the quarter the new products are a question for you about the turbot and alright.
Alright are you guys finding that your auto throttles are actually.
Ray from existing feedback like auto throttle there on the marketplace.
No no you wouldn't you wouldn't replace a paycheck on ultra.
Right.
One are all on throttled budge.
Is it puts the day deck and.
Attributes like.
Protection against over temperature over speed.
And over torque and a turboprop proved.
Provides on safety controls and prevents you from.
And then just horrendous damage you can do to a.
Turboprop and as easily easily Ken a half a million dollar share of the damage and literally a couple of sandridge share.
Yes.
Revenge and that's why you have it.
Yes.
Even more importantly to prevent.
A wash and control actuation, where.
And the airplane to get too slow you lose control and it's catastrophic and.
And our oral trial.
On a patent and feature that prevents that share.
Those are the strength of it but we're not going to replace Fedex, but remember about 80% of all Graeme Andrew and John Baird.
Hey, Jack.
Okay, Okay and.
The bigger and James we're obviously not going to go after the Big Air Transport engine, because theyre all fantastic.
We can provide similar.
On a similar operation and then on.
And again.
So you're saying that most most existing turbo fans are not bad debt.
Most existing turboprop shall I don't know about turbo and.
And I'm getting carrier than ever and it wouldn't surprise me that cares that should you have forget number.
Not.
A high percentage.
Jumbo.
And have there.
<unk>.
Got it got it on another question for you Jeff is on the on the new product when we're talking about job Umberto.
When we're talking about pissed and planes like SaaS and as and whatnot and out there is that they're all different levels of pilot certification likes on people can only fly during the day, others have to fly and the type of instrumentation and approvals and everything would.
With the implementation of auto throttle actually help accelerate our pilots ability to move up that chain.
Actually we don't look at it that way and tell you what and how we do look at it.
Primarily.
This system.
Was conceived and take the workload off from a pilot which is important.
Remember even on your taking a workload off of it and you still got a beep.
Paired and capable of managing without the thing operating.
You don't gaining a great deal there where you do gain we believe safety feature would unique to our technology and we're the only people and the world provide proportional mitigation.
Sure.
Slowing and screen loss of control.
And we have to look and Edison.
Edison crash to see what happens to on an airplane when it gets to swallow.
And that's why.
People are strong and warned against you and and our cash we have something that actually proportionately controls power on the Andrew.
Good day.
White patch cable.
Understood and Jeff just on I just.
Ballpark do you have any idea what percentage of the.
On the.
Piston market is actually dual crops as opposed to just a single prop planes.
No.
Hi, Mike.
And I can tell you that's an awful lot on kitchen.
Right, Okay and Thats.
And that's where your market share of more appear more applicable to the to the twins correct.
Well no were applicable to every day and thank Jeff where single on just restarted with and <unk> and it does a great job there.
And manages the airplane.
And in a way that net.
And then.
And most operators Marvel when they see the airplane and take off because it sounds like your single and it takes you all are there on single or twin no. It's the twin and advantage rehab and between here and just patented.
Loss of control accident.
And nobody's done anything about it.
And.
Essentially a 100 years ago.
And you Havent solutions.
And we finally came up with one and on some cost a lot that's good news.
And you guys you guys certainly got cracked the code.
It's all I happy and Jeff Congrats.
Congratulations on hopefully all of this mean, yet and we'll get behind US soon and you guys will be back at full speed.
Yeah, well I appreciate that yeah. We're we're working on it and we have a good team and Kmart.
I'm proud of them.
And I know you do I've been with you for a while and well keep going okay take care.
Thanks.
This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
Thank you gentlemen.
Yeah.
Hi.
Yes.
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Thank you.
And.
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