Q4 2023 Innovative Solutions and Support Inc Earnings Call
Welcome to the Innovative Solutions and Support Fourth Quarter and Year End Fiscal 2023 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star followed by zero.
Welcome to the innovative solutions and support fourth quarter and year end fiscal 2023 financial results Conference call. All participants will be in a listen only mode did.
Did you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
after today's presentation, there will be an opportunity to ask questions.
After todays presentation, there will be an opportunity to ask questions. Please.
Please note, this event is being recorded. I would now like to turn the conference over to Sharam Asghar, CEO , please go ahead.
Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to surround ASP or P. L. Please go ahead.
Good morning. This is Shahram Asgaport, Chief Executive Officer of Innovative Solutions and Support.
Speaker Change: Good morning. This is Sharon Oscar <unk>, Chief Executive officer of innovative solutions and support.
Welcome to our conference school to discuss our performance for the fourth quarter and full year fiscal 2023, current business conditions and outlook for the coming year.
Sharon Oscar: Welcome to our conference call to discuss our performance for the fourth quarter, our full year fiscal 2023.
Sharon Oscar: Current business conditions and outlook for the coming year.
Sharon Oscar: Joining me as well and then our CFO.
Joining me is Raoul Venant, our CFO .
Speaker Change: Before we begin I'd like to provide cautionary statements about forward looking information.
Before we begin, I'd like to provide cautionary statements about forward-looking information.
Thank you, Sharon. And good morning, everyone. I would remind our listeners that certain statements made and matters discussed in the conference call today, including those about new products and operational and financial results for future periods, contain forward-looking information. The forward-looking statements are subject to assumptions, risks, and uncertainties that could cause actual results to differ materially, either better or worse from those discussed.
Speaker Change: Thank you Sharon and good morning, everyone I would remind our listeners that certain statements made it matters discussed in the conference call today.
Speaker Change: Those about new products and operational and financial results for future periods contain forward looking information forward looking statements are subject to assumptions risks and uncertainties that could cause actual results to differ materially either better or worse from those discussed.
I specifically call our listeners' attention to our disclaimer regarding forward-looking statements at the end of the earnings release, which was included in a Form 8K file yesterday. Which disclaimer, along with other public violence referred in it, describes these assumptions, risks, and uncertainties. I also remind our listeners that plans and expectations we express speak only as of today's date. And listeners, please do not forget to subscribe to our channel.
I, specifically call our listeners attention to our disclaimer regarding forward looking statements at the end of the earnings release, which was included in a form 8-K filed yesterday, which disclaimer along with other public violence referred and it describes these assumptions risks and uncertainties.
Speaker Change: Also remind our listeners that plans and expectations. We express speaks only as of today's date and listeners.
should not place undue reliance on any forward-looking statements. Now I'll turn the call back to Cheryl.
Speaker Change: You should not place undue reliance on any forward looking statements now ill turn the call back to Cheryl.
Cheryl: Thank you Ralph.
I will begin today with remarks on our performance in the fiscal fourth quarter and full year 2023.
Cheryl: I will begin today with remarks on our performance in the fiscal fourth quarter and full year 2023.
followed by comments on our long-term growth plan and strategy.
Cheryl: Followed by comments on our long term growth strategy.
including the recent Honeywell products, purchase, and life.
Cheryl: Including the recent Honeywell product purchase and license.
I will then turn the call back to Rel, who will take us through the finance.
Cheryl: I will then turn the call back to Rob who will take us through the financials.
For the quarter, revenues were up 79%, with net income increasing 63% from a year ago.
Rob: For the quarter revenues were up 17, 9% with net income increasing 63% from a year.
Our fiscal year 2023 results were driven by continued organic growth in our production contracts and aftermarket sales.
Our fiscal year 2023 results were driven by continued organic growth.
Rob: Production contracts and aftermarket sales as.
as well as the full corner of Honeywell product sales, which we are quiet at the end of the
Rob: As well as a full quarter of Honeywell product sales, which we acquired at the end of June.
As anticipated the hungry.
As anticipated, the Honeywell products supported our strong margins, which were up sequentially from the third quarter and similar to a year ago.
Rob: Milk products supported our strong margins, which were up sequentially from the third quarter and similar to a year ago.
We have also continued to generate strong cash flow, which contributed to reduce the borrowings used for our June acquisition.
Rob: We have also continued to generate strong cash flow, which contributed to reduce the borrowings used for our June acquisition.
This strong fourth quarter led to our fifth consecutive year of revenue growth, strong cash flow, and another increase in the full year earned.
Rob: This strong fourth quarter led to our fifth consecutive year of revenue growth.
Rob: <unk> cash flow and then another increase in the full year.
Our cash has also enabled further pay-down of our borrowings in the current quarter, despite the heavy one-time significant expenses in care for auditing fees, legal expenses, and cost of hiring and training new technical personnel in relation to the acquired product.
Rob: Our cash.
Rob: That's also enable further pay down of our borrowings in the current quarter. Despite the heavy onetime significant expenses in CAD four auditing fees legal expenses and cost of hiring and training new technical personnel in relation to that.
Rob: Wyatt problems.
Rob: We are fortunate to have a great relationship with our bank PNC.
We are fortunate to have a great relationship with our bank PNC and they have been very supportive.
Rob: And they have been very supportive of our growth strategy.
This week, we converted our $20 million term loan to a revolving line of credit.
Rob: This week, we converted our 20 million term loan.
Rob: Our revolving line of credit.
that has enabled us to reduce our total debt from $20 million to less than $12 million.
That has enabled us to reduce our total debt from 20 million to less than 12.
It is not worthy that we achieve the strong fourth quarter growth results despite the addition of burdens on the wish we operate.
Rob: It is noteworthy that we achieved the strong fourth quarter growth results. Despite additional burdens on the wish we operated.
over the past year by amending our bylaws, negotiating a bank agreement, as well as facilitating and subsequently integrating a substantive acquisition.
Rob: Over the past year by amending our bylaws negotiating the bank agreement as well as facilitating and subsequently integrating a substantive acquisition.
Rob: Despite these nonrecurring events our team delivered financial performance that maintained our track record of steady profitable growth.
Despite these non-recurring events, our team delivered financial performance that maintained our track record of steady, profitable growth.
Rob: Our goal now is to leverage this momentum to sustain this growth over both the near and longer term organically and through additional acquisitions.
Our goal now is to leverage this momentum to sustain these growth over both the near and longer term, organically and through additional acquisition.
To that end, we have several plans in motion.
Rob: To that end.
Rob: We have several plans in motion.
Rob: Organically.
We have plans to continue further product innovation and to sustain our high level of investment in research and development.
Rob: We have plans to continue further product innovation and to sustain our high level of investment in research and development, especially in the area of cockpit. The automation that will ultimately lead to single pilot operation in large transport aircraft.
especially in the area of cockpit automation that will ultimately lead to single pilot operations in large transport aircraft.
Our value proposition is to focus on products that continue to reduce pilot workload and improve safety.
Our value proposition is to focus on products that continue to reduce pilot workload and improved safety.
Rob: For instance, we plan to add capabilities to existing technology, such as our flat panel display to include automated emergency checklists, a pilot alerting systems.
For instance, we plan to add capabilities to existing technologies, such as our flat panel displays, to include automated emergency checklists and pilot alerting systems.
We expect these technologies to serve as stepping stones.
serve as stepping stones that will help prepare the market for single pilot flights in air transport.
Rob: Help prepare the market for single pilot slides and air transport aircraft.
Rob: We were recently awarded a development contract for the second generation of U M. S. Okay labs.
We will recently award the development contract for the second generation of UMS or PLI.
We expect that second generation technology will expand capabilities such as AI and improve the versatility of the UMS.
Rob: We expect that second generation technology will expand capabilities such as AI.
And improved diversity.
Rob: <unk> of the U M S.
In the process, we anticipate this will create new platforms that can be adopted.
Rob: In the process, we anticipate this will create new platforms that can be adopted.
Rob: Other aircrafts and eventually constitute another step along the path to autonomous flight.
other aircraft and eventually constitute another step along the path to autonomous flight.
In order to maintain our leadership in cargo retrofit business, we are in the process of adding new features to our products that we expect to allow increase in content and selling
Rob: In order to maintain our leadership in cargo retrofit business. We are in the process of adding new features or products that we expected allowed increasing content and selling price protecting this businesses overall revenue in the face of any potential slowdown in the carnival.
Protecting this business's overall revenue in the face of any potential slowdowns in the cargo conversion.
Conversion market.
Our Orofal OEM business has continued to do well with Textron and we have continued to pursue additional platforms in the military and regional airlines.
Rob: Our overall OEM business has continued to do well with Textron and we have continued to pursue additional platforms in the military and regeneron airline markets.
Rob: Across the board, we are increasing our business development activities.
Across the board, we are increasing our business development activities by working to grow our sales and marketing group both domestically and internationally.
Rob: By working to grow our sales and marketing group both domestically.
Rob: Thickly internationally.
The acquired Honeywell products have put us in front of a new set of buyers which we believe our sales team can use that relationship to introduce them to a broader range of products.
Rob: The acquired Honeywell products have put us in front of and you set up buyers, which we believe our sales team can use that relationship to introduce them to a broader range of products.
Secondly, we plan to leverage acquired technologies to enhance and expand our product
Rob: Secondly, we plan to leverage our quad technologies to enhance and expand our product offerings.
Rob: As an example, with the Honeywell product lines, where are we now have our own radios and adjacent technology capabilities.
As an example, with the Honeywell product lines, we now have our own radios and adjacent technology capabilities we previously had to buy on the open market to integrate into our product.
Rob: <unk> had to buy on the open market to integrate into our products.
Rob: Acquisitions, such as this are complementary to our existing product portfolio and will likely accelerate our ability to develop new technologies needed to eventually achieve autonomous flight.
Acquisitions such as this are complementary to our existing product policy.
and will likely accelerate our ability to develop new technologies needed to eventually achieve autonomous flight.
Rob: As a direct result of this acquisition, we believe that we are on pace to achieve annualized 40% topline growth.
As a direct result of this acquisition, we believe that we are on pace to achieve annualized 40 percent top-line growth once the Honeywell integration has been fully integrated.
Rob: Once the Honeywell integration has been fully integrated completed.
Rob: Those integrations are making steady progress.
Those integrations are making steady progress.
As planned, this quarter and next, we are moving inventory, installing the purchased equipment in our facility and training
Rob: As planned this quarter and next you are moving inventory installing the purchased equipment.
Rob: <unk>.
Rob: And training our employees.
having anticipated some of the disruptions arising from the integration over the first
Rob: Having anticipated some of the disruptions arising from the integration opened their first.
and second quarters of FY 2024.
Rob: And second quarters of FY 'twenty 'twenty four.
And by customer requests, we accelerated some of the deliveries into the September 2023 quarter.
And by customer requests, we accelerated some of the deliveries into the September 2023 quota.
Consequently, we expect results in the current quarter and the next to be weaker than the results of the Q4 2023.
Rob: Consequently, we expect results in the current quarter.
The next to be weaker and the results of the Q4 2023.
Rob: As the second part of our growth strategy.
As a second part of our close strategy, we continue to evaluate other acquisitions, opportunities, and plan to execute additional complementary acquisitions as these opportunities
Rob: To evaluate other acquisition opportunities and plan to execute additional complementary acquisitions.
As these opportunities arise.
Thank you for your time and interest. We look forward to updating you in the upcoming quarters.
Rob: Thank you for your time and interest we look forward to updating you in the upcoming quarters.
I will turn the call over to morale for close to look at them.
Speaker Change: I will turn the call over to we're out for a closer look at the moment.
Thank you, Sharma, and thank you all for joining today. I will review our financial results for the fourth quarter and full year of fiscal 2023.
Oscar: Thank you Sharon and thank you all for joining today I will review our financial results for the fourth quarter and full year fiscal 2023.
Oscar: Revenue in the fourth quarter was 70.
was up 79% primarily due to the contribution for the sales of products purchased and licensed from Honeywell. As Sharon noted, revenues in the fourth quarter included the pull forward of Honeywell products, some of which would have otherwise been delivered in the first and second quarters of 2020.
Speaker Change: It was up 79% primarily due to the contribution from the sales of products purchased in license from Honeywell as Sharon noted revenues in the fourth quarter included the pull forward of Honeywell products, some of which would have otherwise been delivered in the first and second quarters.
Speaker Change: 2024.
Work was accelerated in the September quarter to meet our delivery commitments before production was anticipated to be slowed by the movements of inventory and equipment, as well as other destructions that are typical when undertaking an integration of this size and complex.
Speaker Change: Work was accelerated in the September quarter to meet our delivery commitments before production was anticipated to be slowed by the movement of inventory and equipment as well as other disruptions that are typical when undertaking an integration of this size and complexity as a result, we expect results in the current quarter and next be weaker than the results of the Q4 <unk>.
As a result, we expect results in the current quarter and the next to be weaker than the results of the Q4-24.
Speaker Change: 23.
Speaker Change: Fourth quarter gross margin was 62% a sequential improvement from the third quarter and unchanged from the same quarter a year ago margins reflect both the better absorption of our fixed overhead as a result of revenue growth as well as the impact of the margins of the Honeywell products in.
Fourth quarter gross margin was 62 percent, a sequential improvement from the third quarter and unchanged from the same quarter a year ago. Margins reflect both the better absorption of our fixed overhead as a result of revenue growth as well as the impact of the margins of the Honeywell product.
In the fourth quarter of fiscal 2023, research and development expense increased in absolute terms, consistent with our commitment to innovation, but decreased relative to sales.
In the fourth quarter of fiscal 2023 research and development expense increased in absolute terms consistent with our commitment to innovation, but decreased relative to sales.
As Sharon previously mentioned, we anticipate that research and development will continue to increase as the company works to develop new features and capabilities to our existing product base.
Speaker Change: <unk> previously mentioned, we anticipate that research and development will continue to increase as the company works to develop new features and capabilities to our existing product base.
the Honeywell product line integration continues into the spring. We expect expenses to remain somewhat above what we would see as our normalized run rate.
Speaker Change: Honeywell product line integration continues into the spring, we expect expenses to remain somewhat above what we would see as our normalized run rate.
The fourth quarter fiscal 2023 increase in selling general administrative expenses reflect one-time costs associated with the Honeywell transaction.
Speaker Change: The fourth quarter of fiscal 2023 increase in selling general and administrative expenses reflect onetime costs associated with the Honeywell transaction, including higher legal accounting professional fees and amortization expense.
including higher legal, accounting, professional fees, and amortization.
In addition, selling general administrative expense in the fourth quarter fiscal 2022 was reduced by 1.2 million due to a gain on the sale of the company's PC-12 air.
Speaker Change: In addition, selling general and administrative expense in the fourth quarter of fiscal 2022 was reduced by $1 2 million due to a gain on the sale of the company's P. C 12 aircraft.
Interest income was up in a quarter due to an increase in interest rates on our interest-bearing cash deposits. Interest expense in a quarter reflects costs associated with the borrowings used to consummate the Honeywell transaction.
Interest income was up in the quarter due to an increase in interest rates on our interest bearing cash deposits interest expense in the quarter reflects cost associated with the borrowings used to consummate the Honeywell transaction.
We expect interest expense to trend down, not only as interest rates are anticipated to fall, but also due to our continued paydown of these borrowings under the terms of revolver facility.
We expect interest interest expense to trend down not only as interest rates are anticipated to fall, but also due to our continued pay down of these borrowings under the terms of the revolver facility.
Tax expense in the fourth quarter of fiscal 2023 was
Tax expense in the fourth quarter of fiscal 2023 was.
0.7 million compared to 0.76 million in the fourth quarter of 2022. Fourth quarter net income was 2.6 million or 15 cents per share up from 1.7 million or 9 cents per share in the fourth quarter of 2022.
Speaker Change: One 7 million compared to $76 million in the fourth quarter of 2022 fourth quarter net income was $2 6 million or <unk> 15 per share up from $1 7 million or <unk> <unk> per share in the fourth quarter of fiscal 2020.
Backlog at September 30th, 2023 was $13.5 million and new orders in the fourth quarter of fiscal year 2023 were approximately $12.7 million.
Speaker Change: Backlog at September 32023 was $13 5 million of new orders in the fourth quarter of fiscal 'twenty, one fiscal year 2023, or approximately $12 7 million.
As always, quarterly orders can vary due to a number of factors that are not meant to provide an indicator of future revenues. Virtually all the Honeywell revenues are from interquarter book and ship orders that are not included.
Speaker Change: As always quarterly orders can vary due to a number of factors are not meant to provide an indicator of future revenues virtually all the Honeywell revenues are from intra quarter book and ship orders that are not included in the <unk>.
Speaker Change: Clog.
Cash at September 30, 2023 was $3.1 million of about $500,000 from June 30. Over the three months ended September 30, 2023, we also reduced our term loan debt by $5 million.
Cash at September 32023 was $3 $1 million of about 500000 from June 30 here over the three months ended September 32023, we also reduced our term loan debt by 500000.
This week, the company converted its 20 million term loan into our 30 million revolving light of credit as it was combined with the company's 10 million revolving.
Speaker Change: This week the company converted is $20 million term loan into a $30 million revolving line of credit as it was combined with the company's 10 million revolving line of credit.
Under the terms of the agreement, our cash balance will be swept daily against the outstanding revolver balance, thereby reducing interest expense. This revolving line of credit is expected to allow the company greater flexibility when the next acquisition opportunity presented.
Speaker Change: Under the terms of the agreement our cash balance will be swept daily against the outstanding revolver balance, thereby reducing interest expense. This revolving line of credit is expected to allow the company greater flexibility when our next acquisition opportunity presents itself.
As previously noted cash flow has continued to approve into the fiscal 2024 quarter including the collection of a significant amount of receivables and the sale of the company's King Air aircraft for 2.3 million so that our current net debt position has been reduced to less than 12 million.
Speaker Change: As previously noted cash flow has continued to improve into the fiscal 2024 quarter, including the collection of a significant amount of receivables and the sale of the company's King Air aircraft for $2 3 million. So that our current net debt position has been reduced to less than $12 million.
For the year, the company generated 2.1 million of cash flow from operations. With that operator, we're ready for questions.
Speaker Change: For the year the company generated $2 1 million of cash flow from operations.
Speaker Change: With that operator, we're ready for questions.
Yes.
Speaker Change: We will now begin the question and answer session.
To ask a question, you may press star and one on your touchtone phone.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing.
If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Speaker Change: And so at any time. Your question has been addressed and you would like to withdraw your question. Please press star. Thank you.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yes.
The first question today comes from Theodore O'Neill from Litchfield Hill Research. Please go ahead.
So first question for Paul.
Speaker Change: And Neil from Litchfield Hills Research. Please go ahead.
Thank you very much. A couple of questions. And you may have covered this first question in your presentation when you announced the acquisition of the highway.
Neil: Thank you very much.
Couple of a couple of questions and.
Speaker Change: And you May have covered this first question in your presentation. When you announced the acquisition of Honeywell business as I was looking through the unaudited pro forma combined statement of operation for the acquisition there wasn't anything in there for for R&D and I was wondering.
As I was looking through the unaudited pro forma combined statement of operation for the acquisition, there wasn't anything in here for for R and D and I was wondering.
Speaker Change: What impact the acquisition is going to have an R&D expense going forward and then more broadly it's impact the Honeywell integration impact on margins and SG&A.
what impact the acquisition is going to have on the R&D expense going forward, and then more broadly, its impact, the Honeywell integration impact on margins at SG&S.
So I guess your first question, it's going to be very, at least initially for the first year, it's going to have a little impact on the R&D.
Speaker Change: So I guess to your first question is going to be very.
Speaker Change: At least initially for the first Jayson with little impact on the RMB.
Going forward, as we're going to modify some of these equipments, let me put this straight. We're going to modify some of the designs.
Speaker Change: Going forward as we go on to modify some of these equipment that yeah.
This is we're going to modify the designs.
To make it more suitable to work closely with our
To make it more suitable to work closely with our equipment.
It will require some R&D and those are not significant amount of dollars. They'll be part of our IR&D programs that we run.
Speaker Change: It will require some R&D and those are not significant amount of dollars that will be.
Speaker Change: Part of our I R&D programs.
That would be wrong.
The GNA? Yeah, so GNA will be up a little bit. We're still incurring audit fees, legal fees relative to this. It's not what it was in the fourth quarter, but it will still be somewhat a little bit elevated.
The G&A, so G&A will be up a little bit we're still incurring audit.
Speaker Change: Alright it fees.
Speaker Change: Legal fees relative do so it's not what it was in the fourth quarter, but it will still be somewhat elevated yes.
Speaker Change: Okay.
Okay. Adrel, can I read anything into this increase in accounts receivable from year over year?
Speaker Change: Well can I read anything into the increase in accounts receivable from year over year.
Yeah. So the cash receivable is up. It all depends on when you ship things out. Right. So we had a lot of later shipments. We had a big quarter and the shipments went out later and some vendors or customers are 45 days. So that's we've been collecting it all. So that's really, as I said, helped in this quarter. But it's a little atypical for us, but it's a matter of time.
Speaker Change: Yeah. So.
Speaker Change: The country favorable.
Speaker Change: It all depends on when you ship things out right. So we had a lot of later shipments we had a big quarter in the shipments went out later and some vendors or customers are 45 days or so.
Speaker Change: We've been collecting at all so that's really as I said helped in this in this quarter, but it's a little atypical for us, but it is a matter of timing.
Okay, Yeah that makes sense.
Okay, yeah, it makes sense. And then the customer concentration for the year, is that going to change much with the acquisition?
Speaker Change: And then the customer concentration.
Speaker Change: For the year.
Speaker Change: Is that is that going to change much with the acquisition.
Speaker Change: Concentration of the customers yeah, yeah like your top five customers.
of the costumers? Yeah, yeah, like your top five customers.
Speaker Change: Yes to some extent as well.
Yeah, to some extent it will. I think there's going to be a couple of major customers being the channel.
Speaker Change: I think theres going to be a couple of major customers being the channel partners.
that we're gonna get a lot of business from. Yes, so it will change. Okay.
Speaker Change: Pat.
Speaker Change: I was going to that regard.
Pat: Yes, so it will change okay.
Speaker Change: Okay, alright, thanks very much.
Speaker Change: Thank you. Thank you.
The next question comes from John Moran with Ravodi & Co. Please go ahead.
Speaker Change: The next question comes from John Moran with Macquarie. Please go ahead.
Hi, thank you. The first question is just around the net debt number that you're reporting in our quarter, and is that a sustainable?
John Moran: Hi, Thank you first question just around the net debt number that you're reporting inter quarter.
John Moran: Is that a sustainable.
John Moran: Level relative to the new size of the business absent any acquisitions or is that kind of.
Level relative to the new size of the business absent any acquisitions or is that going to?
go up and down
Speaker Change: Well up and down.
Speaker Change: Okay.
Speaker Change: It depends.
It depends. Yeah, it'll go hopefully down as we gen as we're profitable and generate more cash It's going to continue to to come down So I just gave you a snapshot of where we are relatively now But as we generate more cash, it's going to become lower and lower until we if we borrow again, but it It they sweep our account our cash and it's just net net net all the time. So we expect it to keep decreasing Yeah, I mean we start
Speaker Change: It'll go hopefully down as we were profitable and generate more cash is going to continue to come down. So I. Just gave you a snapshot of where we are relatively now but as we generate more cash is going to become lower and lower until we if we borrow again, but.
Speaker Change: Sweep our account our cash and just net net net all the time, so we expect it to keep decreasing.
Speaker Change: Yeah, I mean, we still have my old.
Speaker Change: Thanks.
Speaker Change: Sorry, John.
I'm sorry, so am I oversimplifying it to read into it that you've generated $8 million in cash since the closing of the.
Speaker Change: Oh I'm sorry.
Speaker Change: Oversimplify it.
Speaker Change: To read into it that you've generated $8 million in cash since the closing of the.
Speaker Change: The deal.
Speaker Change: Yeah.
I, I, I, I, we did not, yeah. Yeah. It's mostly, well, mostly this now, this quarter now, right? We collected receivables, we sold a plane. So it's really, you're taking it from 930 into the now, into the now. Yeah. And I mean, well, we're spending money like drunk, on lawyers and accountants.
Speaker Change: We did not.
It's mostly well mostly this now this quarter now right. We collected receivables we saw a plane.
It's really taking it from 930.
Speaker Change: Now into the now yeah.
Speaker Change: Meanwhile, we are spending money like drunken.
Speaker Change: Lawyers and attack.
Speaker Change: [laughter].
That's one of the years of Honeywell's books.
Speaker Change: That's a one off.
Speaker Change: Yes.
Speaker Change: Books.
Speaker Change: My name is.
Speaker Change: No Big complex no free lunch.
The other question I had was around the backlog and the orders and the
Speaker Change: The other question I had was around me.
Speaker Change: The backlog and new orders in there.
that you're reporting in the quarter for the legacy business, that does seem up to
Speaker Change: You are reporting in the quarter for the legacy business that does seem.
Up fairly dramatically.
Speaker Change: From where you were a year.
From where you were a year, you know, just what that's been, I know it's gone up and down, but is that, is there something driving that in particular or?
Speaker Change: What that's been I know, it's gone up and down but is that is there something driving that in particular.
Speaker Change: I made it.
are kind of the previous organic product lines. They, you know, year to year, but different this year. I mean, because they got a big new contract from Pilates, which actually kind of guarantees us for another 15, 20 years on the platform.
Speaker Change: Or are kind of the previous organic.
Speaker Change: Product lines.
Speaker Change: Yeah, you know year to year, but different.
Speaker Change: This year I mean.
Speaker Change: They've got a big new contract from the lineups, which which actually kind of guarantees us for another 15 20 years on the platform.
And some of the OEMs are there to give us POs and they're there to give us POs so so it's uh This is what
Speaker Change: And some of the Oems.
Speaker Change: And they gave us.
Speaker Change: So it's.
Speaker Change: This is why this quarter yeah.
Speaker Change: Okay.
But that number, I don't have it, right, so they were $12 million and $13 million. I can't remember what's backlog and new orders or something like that. I mean, that was running at 789. That's mostly related to Pilata.
Oh I'm sorry.
Speaker Change: But that number.
Speaker Change: Yeah.
Speaker Change: Don't have it right somebody so they were 12 and $13 million.
Speaker Change: Can't remember whats that backlog and new orders or something like that I mean that was running at 789.
Speaker Change: That's mostly related.
Speaker Change: So palatis.
A lot of it is. A lot of it is. Not all, but of course it is. Okay.
A lot of it is a lot of it is not all of it. Unfortunately.
Speaker Change: Yeah.
Speaker Change: Yeah.
You've got texturon, I mean it's a combination, but the volume is modest.
Speaker Change: Okay.
Speaker Change: You got you got Textron I mean, it's a combination yet.
Speaker Change: Volume is upon us.
Great. Thank you very much.
The seaborne 30 stuff.
Speaker Change: Yes.
Speaker Change: The next question comes from Andrew Lim with <unk>.
The next question comes from Andrew Rehm with Odinson Partners. Please go ahead.
Andrew Lim: Please go ahead.
Andrew Lim: Good morning, gentlemen.
20 gentlemen, just on the, can you guys break out or provide a little bit more detail on the revenue? How much was kind of legacy versus the Honeywell contribution?
Andrew Lim: Just kind.
Andrew Lim: Can you guys break out or provide a little bit more detail on the revenue how.
Andrew Lim: How much was kind of legacy versus the Honeywell contribution.
It's kind of hard to do that on this call right.
It's kind of hard to do that on this call right now.
I think it comes up, there will be notes in there as to exact contribution of the Honeywell.
Andrew Lim: I think okay.
Andrew Lim: He comes out we will have to break it there will be there will be a node within there as to exact contribution of the Honeywell.
Speaker Change: So okay.
Speaker Change: You guys can break that out in the 10-K.
That's where it's going to go, yeah. Yeah, I think the 10K we have to end in this year and then going forward, I believe it'll all be one. Believe it or not, the auditors are still working on it. Okay. So I never imagined without.
Speaker Change: That's kind of cool yeah, you have to I think the 10-K, we have to.
Speaker Change: Even this year and then going forward I believe it all be one believe it or not the audits are.
Speaker Change: <unk> working.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: I never imagined with alcohol.
Speaker Change: Everything is working.
Speaker Change: Okay.
Okay, perfect. On R&D, can you guys maybe just give updated guidance? Last year, I think you guys said you wanted to kind of push R&D to kind of 13-14%, but given the Honeywell, it doesn't sound like it will necessarily consume a lot of R&D resources, but can you maybe just reframe how you're thinking about R&D? Yeah, so I guess.
Speaker Change: Okay perfect.
Speaker Change: On R&D can you guys, maybe just give updated guidance.
Speaker Change: Guidance.
Speaker Change: Last year I think you guys said you wanted to kind of push R&D to kind of 13, 14%.
Speaker Change: But given the Honeywell it doesn't sound like it will necessarily consume a lot of R&D resources, but can you maybe just reframe, how youre thinking about R&D.
Speaker Change: Yes, so so.
Speaker Change: I guess.
Speaker Change: That 10%.
Speaker Change: Pointing out is.
20 million is...
is is is still less than 10% of 40 million. So as a percentage of revenue, our R&D percentage is going to go down, which in terms of dollar value, we increase in the size of our engineering department.
Speaker Change: Yes. It is.
Speaker Change: Still less than 10%.
Speaker Change: 40.
Speaker Change: So as a percentage of revenue our R&D percentage is going to go down which in terms of dollar value increasing the size of our engineering Department.
and using some of the revenues that come from these hybrids.
Using.
Speaker Change: Some of the revenues that come from these hybrid Reits two fed that are our internal growth strategy. So it won't grow it'll go higher in absolute terms, but as a percentage of sales grow and it's going to be faster than the increase so I don't see that relationship will go down.
to further our internal growth strategy. Yeah, so it'll grow, it'll go higher in absolute terms, but as a percentage of sales grow, that's gonna be faster than the increase.
So you'll see that relationship go down.
Speaker Change: Okay, and then also in the queue or you guys break out.
Okay, and then also in the queue, will you guys break out some of these, what sounds like kind of either short term or one time related items, both in, yeah.
Speaker Change: Some of these what sounds like kind of either short term or one time related items. Both then.
Speaker Change: Yeah, I guess in the fourth quarter specifically.
Yeah, well, it's kind of what I said here. But yeah, a little bit more detail in the mDNA, you know, the comparison that'll be, it'll be addressed in there. Yes. I think the Q4 was just over a million dollar of one time expenses in this Q4. That's really, if you look at it as the difference, if you add a 1.2 back and look at it, that's really the fallout. Yeah, it's about a million dollars. And I can't imagine the quarter that we are in is not going to be any better either. Well, we'll be as
Speaker Change: Well, it's kind of what I said here, but yeah, there will be more detail in the MD&A. The comparison it'll be it'll be address scenarios.
Speaker Change: Q4 was just over a million dollar of one time expenses in this Q4, that's really if you look at it is the difference would be if you're adding one point to back and look at it.
Speaker Change: Yes.
Speaker Change: The $5 million.
Speaker Change: And I can't imagine the quarter that we're in is that going to be any better I wont be as high but it'll be a good morning.
It'll be more than an army of people sitting here, charging up.
Army of people.
Speaker Change: Sure.
Speaker Change: [laughter].
Speaker Change: Okay, and then can you guys give an update in terms of.
Okay. And then can you guys give an update in terms of
on the integration kind of what have you completed and what is left to do.
Speaker Change: On the integration kind of what have you completed and.
Speaker Change: What is left to do.
So one of the product lines is completely here. We've got our people train and we actually performing on it And that's on the radio
Speaker Change: Sure So one other product lines.
Speaker Change: <unk> got people trained.
Speaker Change: We actually performing on.
Speaker Change: And that's on the radio side.
Speaker Change: They are used side.
we're going to do that in the transfer of all the equipment and the training and all of that, it's going to occur after the holidays. And the reason for that is that that product line is mainly for the transport market.
Speaker Change: We are going to do that in.
Speaker Change: The transfer of all the equipment and the training and all of that is going to occur after the hull and the reason for that is that that product line is mainly for the air transport market and the airlines.
We are very nervous in doing that.
Speaker Change: We're very nervous.
Doing that.
in November-December time period because they felt that it may impact their ability to do so we work our team works on a daily basis
Speaker Change: In November December time period, because they felt that it may impact our business.
Speaker Change: So we work our team works on a daily basis.
with the Honeywell integration team and we evaluate each one of these requests from the customers on a daily basis to make sure there's no disruptions in the operation.
Speaker Change: With the Honeywell integration team and we evaluate each one of these requests from the customers.
Speaker Change: On a daily basis to make sure there's no disruption in the operation obviously business.
slow down, that we, that's what occurred during this call then because
Speaker Change: No doubt.
Speaker Change: That would be okay.
During this quarter because.
on the radio side when you think about it, they had to pack all of these tests for Co-op Man.
Speaker Change: On the radio side, when you think about it they had to pack all of these test equipment.
inventory them, make sure they were right, ship them here, unpack them here. They have to be settled on here. We have to have their team come here, make sure everything works right.
Speaker Change: Inventory them make sure the right shift here unpack them here.
Speaker Change: It has to be yes.
Speaker Change: We have just had their team come here make sure everything works right onto another final stage of Trinity into our vapor during that period nothing happens.
to another final stage of training for Aviva during that period, nothing happened.
which is why the pull forward in Q4, thank you. So, same thing is going to happen next quarter in the January to March quarter with the IRU stuff, where again they have to
Speaker Change: This is why the pull forward in Q4.
Speaker Change: So I mean, the same thing is going to happen next quarter.
Speaker Change: In the.
Speaker Change: January to March quarter.
Speaker Change: Why are you stuff right.
Speaker Change: There has to be.
act and set up over here. Yes, that's the process. That's the process.
Speaker Change: And set up over yes, that's a process that's the process.
Okay. All right. Well, great quarter gentlemen. Thanks a lot.
Okay Alright.
Speaker Change: Alright, well great quarter gentlemen.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you. Thank you.
The next question comes from Doug Root with Atlantic Financial Services. Please go ahead. Good morning. Congratulations on the strong quarter. I have three questions. What is the company's relationship now with the Hendrick family?
Speaker Change: The next question comes from God.
Speaker Change: Financial services. Please go ahead.
God: Good morning, congratulations on the strong quarter.
Speaker Change: I have three questions what is the company's relationship now with the Hendrick family.
Speaker Change: Good day.
Sure.
Speaker Change: It depends.
Speaker Change: Trusts.
that are managed by different people within the Hedricks family that each owns
Speaker Change: That are managed by different people within the hazard family.
Speaker Change: Each on some number of shares.
And so the state also owns some shares, but none of them are
Speaker Change: So.
Speaker Change: The trial.
Speaker Change: The state also own some shares but none of them are.
I guess significant enough to have
I guess significantly enough to have a reporting.
They're below the threshold and they're all managed by different people.
Speaker Change: They are below the requirement on them below the threshold and the old managed by different people. So.
Speaker Change: That's the way it is.
Speaker Change: So theres no representation on the board of directors and Nomad.
So there's no representation on the board of directors and they're not.
Speaker Change: And that there was not much of a.
there's not too much of a relationship with any family member at this point then. No.
Speaker Change: There's not too much of a relationship ball with with any family member or at this point that.
Speaker Change: No.
Speaker Change: Yep.
Speaker Change: But whether you found that.
Speaker Change: Okay.
Speaker Change: Fourth.
or be represented on the board.
Speaker Change: Or or be represented on the board.
Speaker Change: Alright, and then the second question is the relationship with the large shareholder Christopher her born his is he involved is he asking for a board seat or is there any interaction with the company and his his entity.
All right. And then the second question is the relationship with the large shareholder, Christopher Harbourn, is he involved? Is he asking for a board seat? Or is there any interaction with the company and his entity?
Speaker Change: Oh.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Hello.
No, no, no, he hasn't, I said, and we've been in father business relationship with father's company.
Speaker Change: No no no no.
Speaker Change: All right.
Speaker Change: Henry.
Speaker Change: While the business relationship that was it.
Okay.
whether supplier to it, if we ever have any conversations, it's always regards to that.
Speaker Change: Whether a supplier to them.
Speaker Change: If you ever have any congresses.
Speaker Change: What we've got that.
Speaker Change: Okay.
Speaker Change: Okay and then the final question.
Okay, and then the final question, are the board members and the management team, are you folks eligible to buy stock at this point in time or are you in a blackout period? Maybe you could offer some advice there.
Speaker Change: How does the board members and the management team are you folks eligible to buy stock at this point in time or are you are you going to play out period, maybe you could offer some advice there.
Blackout period. So 15 days before the end of the quarter.
Speaker Change: This blackout period, so 15 days before the end of the quarter.
because it's a blackout period and then you can, the blackout period is lifted the third business day at the earnings period.
Speaker Change: It is the blackout period.
Okay.
Yes.
Speaker Change: Okay.
Thank you.
Late yesterday.
This is the lateness. The call won't continue until the end of the next. Yeah, you don't get anything called work.
Speaker Change: And then again.
Speaker Change: Yes, you don't get any people.
Speaker Change: Yeah. So.
The next question comes from Roger Goldman, who's a private investor. Please go ahead.
Speaker Change: Your next question comes from Roger Colman with a private Investor. Please go ahead.
Hi, guys. First of all, congratulations. Really well done. This seems like it's going exactly according to the way you told us it would go. And in that connection, any surprises so far with the integration, either good news or bad news,
Roger Colman: Hi, guys first of all.
Roger Colman: Congratulations really well done it seems like it's going exactly according to the way you told us It would go in.
That connection any surprises so far with the integration either good news or bad news.
From my end, it's navigating a large company and a level of chemistry.
Roger Colman: So prices.
Roger Colman: From my end.
Speaker Change: Yeah, navigating get large company and the level.
Yeah, it's a challenge. I knew it was going to be a challenge, but it's
Speaker Change: Yes.
Speaker Change: A challenge I knew it was going to be a challenge, but it's.
Speaker Change: Yes.
Speaker Change: Its internal communications Honeywell.
in internal communications within Honeywell, you know, you're talking to a group of people that you signed an agreement with and we all understand what it is. But then at the end of the day, you're getting information from some guy down there somewhere and they have their own opinion. Yeah, yeah.
Speaker Change: You're talking to a group of people that you signed an agreement with <unk>.
Speaker Change: I will understand what it is.
Speaker Change: At the end of the day, you're getting information from some guy.
Speaker Change: Some of that and they have their own opinion.
Speaker Change: Yep Yep.
Speaker Change: A lot of levels.
a lot of levels but I think man the law of the listens here
Speaker Change: Takes a little bit harder, but I think.
We've learned a lot of lessons here.
this time around, out of this, you know, in better ways of making this happen smoothly. Having said that, we're told...
Speaker Change: At this time around.
Speaker Change: Yeah.
Speaker Change: In better ways of making this happen smoothly, having said that we were told.
by folks at Honeywell that this has been by far the smoothest transition that they've done in any of these conversations.
Speaker Change: The folks at Honeywell.
Speaker Change: This has been by far the smoothest transition.
Speaker Change: Any of these issues.
Speaker Change: Okay.
Speaker Change: Its all relative I guess.
Yeah. Yeah. Yeah. Well, you know, a lot of people and companies have made a lot of money doing just what you're doing, which is unencumbering a division.
Speaker Change: Yep Yep Yep, well, you know a lot of people and companies have made a lot of money doing just what you're doing which is on Encumbering a division for more of the corporate I don't want to say nonsense, but but all of the corporate structure inherent in being a small division of a big company.
From all the corporate, I don't want to say nonsense, but all the corporate structure inherent in being a small division of a big company.
And sometimes there are financial surprises, sometimes good, sometimes bad, that don't rise to the level of, well, we've got to redo the contract or we've got to walk away. But nonetheless, they're kind of shocking. And what I'm hearing you say is it's more difficult managerially, but financially it's right on target.
<unk>.
Speaker Change: Sometimes there are financials surprises, sometimes good sometimes bad.
Speaker Change: They don't rise to the level of oil well, we've got to redo the contract we've got to walk away, but nonetheless, they're kind of shocking.
Speaker Change: What I'm what I'm hearing you say is its more difficult managerial Lee, but financially it's right on target.
Okay.
This way we have not had any negative
Speaker Change: We have not had any negative surprises.
Okay. That's a good way to say it. I hear you. Secondly, just I think the bank, I was going to ask you a question about the bank financing. It sounds like you're generating a ton of cash and you're using it to pay down a ton of debt. The bank would be cooperative if you made another acquisition and that debt went up again substantially. Thank you.
Speaker Change: That's that's a good way to say it I hear you [laughter].
Speaker Change: Second secondly.
Speaker Change: Just that.
Speaker Change: I think the bank I was going to ask you a question about the bank financing.
Speaker Change: It sounds like you're generating a ton of cash and youre using it to pay down a ton of that.
Speaker Change: The bank would be cooperative if you made another acquisition in the net debt went up again substantially.
Speaker Change: Okay.
Speaker Change: The conversation with them daily.
conversation with them, they would, they would be very happy to provide us based on the EBITDA of the next business that we will buy. Right. You got it. Yep.
David.
They would be very happy to provide us based on the EBITDA. The next business every year.
Speaker Change: Right.
Speaker Change: Yes.
Speaker Change: And loan.
for that even though that then later on we can convert it into the line of credit. Yep, they've been very successful.
Speaker Change: For that EBITDA, but then later on we can converge.
Speaker Change: Yes, they've been very low.
Speaker Change: So they've been very supportive.
And you're going to save probably half a million to a million bucks in interest this year, so good job on that. And do you feel that you have the management to make another acquisition in the next year?
Alright, and Youre going to say, probably half a million to a million bucks in interest this year. So good job on that.
Speaker Change: And do you have do you feel that you have the management to make another acquisition in the next year.
Speaker Change: Yes, we do.
Yes, we do. OK, I was hoping for a really simple answer like that. Thanks. And last question is, I know Mike left. Anything there we should know or?
Speaker Change: Okay, I was hoping for a really simple answer like that.
And last question is I know, Mike left anything there, we should know or.
Speaker Change: Yeah.
Nothing related to the company, it was the first time this was done.
Speaker Change: And then related to the company it was a part of that.
Okay. All right, good. And thanks for stepping back in, Ron.
Speaker Change: Okay, alright, good thanks for stepping back in <unk>.
This is a critical time for the company, critical, critical time. Anyway, just when I end by saying, as you guys know, I've been a first, my dad, and now my sister and I have been long, long time shareholders. And this is what we've been hoping for for years and years. So just well done, well done. You guys are on your way to something really building a fabulous company here.
Speaker Change: This is what this is.
Speaker Change: Critical critical time for the company a critical critical part anyway, I just want to end by saying as you guys know I've been Oh.
Speaker Change: My Dad and now my sister in law have been long long time shareholders and this is what we've been hoping for for years and years. So just well done well done you guys are on your way to something really building a fabulous company here.
Thank you for your support. Thank you very much. Have a good one. Happy holidays.
Speaker Change: Thank you for your support thank you very much have a good one happy holidays.
This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: This concludes our question and answer session and concludes the conference call.
Speaker Change: Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
You
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].