Q4 2024 Innovative Solutions and Support Inc Earnings Call
Let's begin with a high level overview of our fourth quarter and full year financial performance.
This was a transformative year for ice N S. One in which we delivered significant year over year growth in revenue net income EBITDA and free cash flow.
We generated net income of 7 million, which was up 16% from the prior year.
Additionally, total EBITDA was approximately $12 million, which was up 36% from the prior year and is up nearly threefold from just three years ago.
During the fourth quarter, we delivered more than 18% year over year growth in revenue driven by momentum from new military programs and recently acquired platforms.
In recent quarters.
Across our military end markets has increased supported by orders from both the U S Department of defense and Allied foreign militaries.
As a higher volume of backlog converts to revenue.
Realized improved the operating leverage dynamics, we expect to continue into the coming year.
At a strategic level, we continue to build our growth platform centered exclusively or advanced avionics solutions for both commercial and military markets.
Over time, our systems integration expertise.
Position <unk> as a preferred partner in their fleet modernization and retrofit markets.
One who's in house design manufacturing and installation and support capabilities provide customers with safe compliant and cost effective solutions that enhance aircraft's safety compliance mission readiness.
He has built a strong reputation in the market.
This shows us to further scale our business moving forward.
Today, we are introducing <unk> next.
Our long term value creation strategy.
We consider this strategy the guiding framework for our next chapter of growth as well outline over the coming quarters.
At a high level, our strategy centers on a combination of targeted commercial growth.
In high value markets.
Improving operating leverage.
And the discipline.
Tens driven approach to capital capital allocation.
While many of these elements are already at work in our existing business, we intend to provide more transparency around our progress under this strategy each quarter moving forward.
The first pillar of our growth strategy centers on tied to the commercial growth.
In our core.
Advanced avionics market verticals.
Looking ahead, we expect commercial growth will come from several key areas, including the expansion of existing platforms.
New original equipment manufacturer or OEM and retrofit programs.
New product development and strategic product line acquisitions.
In 2024.
Levered significant commercial growth.
Expansion of our military business continued growth in existing platforms and realized synergies, resulting from our recent Hanmi road product line acquisitions.
Our military end markets.
Very strong last year and given our leadership in cockpit automation you anticipated a continuation of this trend into 2025.
Earlier this year, we announced a new foreign military platform with a major aerospace Oems.
Apply multifunction displays with an integrated mission computer.
We've already begun executing under this contract and realize revenues in 'twenty 'twenty four.
We also recently announced that our process auto throttle system was selected by the U S Army to be installed on the C 12 aircraft.
This advanced technology will provide full flight envelope protection from take off to landing, including going around enabling pilots to automatically control engine power settings, but enhanced safety and efficiency.
And then in 2025.
We're seeing several other similar opportunities.
With commercial customers entering our pipeline.
And anticipate that our work with both the U S. D O D and Allied foreign militaries will remain a significant growth engine for us in the year ahead.
Is there a commercial end markets, we continue to experience solid growth across existing platforms and OEM contracts.
This includes pre allowed us for our utility management system.
Textron for our standby instrument and our orders from.
And on the military side following on KC 46, a KC 767, and the T seven platforms.
On the heels of a recent Honeywell product client acquisitions cross selling synergies have increased as expected.
These acquisitions brought us the opportunity to cross sell our existing products into new customer relationships acquired in the transaction.
While also selling new product lines to our legacy customers.
New product development remains integral to our long term growth.
We continue to expand the sophistication of our cockpit automation technology.
<unk> functionality and enhanced safety and reduce pilot workload.
The integration of AI functionality to enhance cockpit automation remains a major area of focus for our industry over the coming years.
In early 2025, we will begin flight testing, our new generation utility management system or U M. S. On the PC 24 platform with PIL lineups.
In layman's term U M. S is too on aircraft what is CPU is to a laptop computer.
<unk> controls and powers the most critical operating systems.
Additionally, in 2025, we plan to launch our U M S. Two.
Which is a cutting edge certifiable flight monitoring and control systems.
<unk> two is an AI capable system.
One whose integrated neural network processing capabilities significantly enhanced crew efficiency.
Enabling additional cockpit automation.
As our U M. S. Two is platform agnostic we.
We see significant growth potential for this product line over the next several years, particularly within the military and business aviation markets.
The second key pillar of our value creation strategy focuses on driving increased operating leverage across the organization.
As we layer on higher base of revenue within our business, we anticipate improved fixed cost absorption and ultimately a higher sustained run rate of EBITDA dollars.
During 2025, we intend to increase the volume of maintenance repair and overhaul work we are handling the Exxon facility.
While also increasing the volume of sub assemblies that are being manufactured internally.
More on this shortly.
The final pillar of our value creation strategy focuses on our returns driven approach towards capital allocation.
We demonstrated our ability to successfully allocate capital during 'twenty 'twenty four including both investments in our organic growth initiatives as well as the deployment of capital for product line acquisitions.
Our organic growth investments included the addition of R&D staff and increased manufacturing head count as we prepare to capitalize on higher sales volumes across our business.
In 2025, we intend to increase our manufacturing capacity by more than 100% through a $6 million facility expansion.
This investment with add a second service self.
Solve assemblies line as part of the 40000 square Foot addition.
Subsequently, we anticipate this will provide us with the opportunity to acquire other strategic product lines in the future.
Further to my point earlier and increase operational efficiency.
The highlight of our capital allocation strategy. During 2024 was clearly the additional acquisitions from Honeywell.
We invested nearly $20 million in the two additional acquisitions during the year.
Positioning us to expand our capabilities add new customers and opened the door to significant cross selling synergies entering 2025.
In July 2024 acquired additional key assets.
Certain communication navigation product lines from Honeywell for roughly 4 million in consideration.
This was followed in September 'twenty 'twenty four with the acquisition of various generations of military display generators and flight control computers from Honeywell or <unk> 14 million in cash.
As we have discussed these acquisitions provide us with several unique opportunities to drive profit.
Through the in sourcing of certain components.
Tension to bring more maintenance and repair work in house.
As well as attractive revenue synergy opportunities.
In conclusion 2024 represented over 30% growth in revenue and adjusted EBITDA.
And we expect similar growth in 2025.
Exclusive of any future acquisition opportunities.
We intend to remain an opportunistic acquirer of complimentary product lines that expand our capabilities in advanced avionics.
We believe our collective focus on commercial growth operational efficiency and disciplined capital allocation position <unk> for sustained value creation in the year ahead, and we look forward to having you join us on that journey.
Jeff: With that I'll turn the call over to Jeff for his prepared remarks.
Jeff: Thank you Sharon and good afternoon to all those joining us today I will provide a high level overview of our fourth quarter performance, including a discussion of our working capital balance sheet and liquidity profile at quarter end.
Jeff: We generated net revenues of $15 4 million in the fourth quarter up 18% when compared to the fourth quarter last year. The increase was driven by contribution from the recently acquired Honeywell product lines growing momentum in new military programs as well as revenue synergies from the Honeywell platform.
Jeff: Acquired last year.
It is worth noting that our fourth quarter 2024 revenues were impacted by a $1 7 million or a true up payment for services performed by third parties. Additionally, we were pleased to see continued stabilization in the air transport market and we saw sequential growth in this market when compared to the first half of the year.
Jeff: Product sales increased to $9 8 million during the fourth quarter driven by contribution from our commercial air transport programs cut.
Jeff: Customer service revenue was $5 5 million, owing largely to the customer service sales from that product lines acquired from Honeywell.
Jeff: Gross profit was $8 5 million during the fourth quarter up $8 1 million in the same period last year.
Jeff: Driven by strong revenue growth.
Jeff: Partially offset by the higher depreciation and amortization expense, resulting from the Honeywell acquisition and continued investments in growth initiatives.
Jeff: On that note I think it's important to recalibrate expectations around our recent gross margin performance and our anticipated margin outlook entering 2025.
Jeff: There are two primary factors that have impacted gross margin capture in recent quarters.
Jeff: The first factor is related to the incremental depreciation and amortization.
Jeff: That has resulted from recent product line acquisitions.
Jeff: As we continue to complete product line acquisitions in the future. We expect that this will be an ongoing margin headwind.
Jeff: The second factor involved a forward shift in our sales mix historically military sales represent less than a third of sales while 2025 due to the recent.
Jeff: Acquisition, it would be a higher percent of sales generally military sales carry a lower average gross margin versus commercial contracts. However, given the significant potential we see for absolute EBIT dollar growth in military. We believe this is good for us and work that we will continue to pursue.
Jeff: And it advances our focus on improved operating leverage.
Jeff: Given these factors, we expect our consolidated gross margins will likely trend closer towards mid 50% on a normalized basis over the intermediate term, which is below historical levels.
Jeff: However, we anticipate that with our improved top line growth profile will be able to drive increased adjusted EBIT margin realization and profitability over time. Consequently, we believe adjusted EBITDA margin and expansion will be a comparably better measure of our relative performance overtime than gross.
Jeff: Margins.
Jeff: Research and development expense during the fourth quarter 2024 was $1 1 million an increase from approximately 740000 in the comparable period last year.
Jeff: This increase was driven by growth in our product development efforts in support of our long term growth strategy.
Jeff: Fourth quarter 2020 for selling general and administrative expenses were $3 1 million a decrease of $3 7 million from last year. The decrease in SG&A expense in the quarter was primarily the result of some one time expenses included in the prior year results, partially offset by incremental.
Jeff: Amortization expense related to the acquired Honeywell product lines.
Jeff: Fourth quarter net income was $3 $2 million or <unk> 18 per diluted share compared to net income of $2 6 million or 15% per diluted share a year ago, a year a quarter ago.
Jeff: Adjusted EBITDA was $5 6 million during the fourth quarter up from $4 8 million last year due to our strong revenue growth and operating expense leverage.
Jeff: Moving onto backlog new orders in the fourth quarter of fiscal 2024 were $95 4 million, which includes $74 3 million of backlog acquired as part of the product line acquisition announced on September 27, 2024, and backlog as of September 32020.
Jeff: Four was $89 $2 million.
Jeff: This backlog includes only purchase orders in hand, and excludes orders from the company's OEM customers under long term programs, including Palatis PC 24, Textron King Air Boeing T seven.
Jeff: The Boeing KC 46, and Lockheed Martin.
Jeff: We expect these programs to regain traction for several years and anticipate that they will continue to generate future sales further due to the nature of the product lines from Honeywell do not typically enter backlog.
Jeff: Now turning to cash flow during fiscal 2024 cash flow from operations was $5 1 million $5 8 million up $2 1 million in the year ago comparable period. The improvement was driven by higher cash earnings and improved working capital efficiency.
Jeff: Capital expenditures were 700000 during the fiscal 2024 versus 300000 in the same period last year.
Jeff: As a result of these factors free cash flow for the full year 2024 was $5 1 million up from $1 8 million last year.
Jeff: Total net debt as of September 32024 was $27 5 million up from $16 4 million at the end of 2023, reflecting the incremental debt to fund. The recent Honeywell transactions. This was partially offset by our strong free cash flow generation during the year.
Jeff: Our net leverage at the end of the fourth quarter was two times.
Jeff: We recently amended our credit agreement with PNC bank to expand the facility to $35 million, our total cash and availability under our credit lines with seven and a half million dollars at the end of the fourth quarter, which provides us financial flexibility to support our ongoing operations and facility expansion.
Jeff: That completes our prepared remarks, operator, we're now ready for question and answer portion of the call.
Jeff: Thank you.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: Jay a question. Please press Star then two.
Well pause a moment as scholars join the queue.
Speaker Change: Once again, if you have a question. Please press Star then one.
Andrew Baum: The first question comes from Andrew Baum with Artisan partners. Please go ahead.
Andrew Baum: Hi, gentlemen.
Speaker Change: Maybe if I can start I'm going to kind of call. It the Honeywell acquisition number three the one that you announced in early October can you give us a perspective on.
Mike the revenue and EBITDA contribution or just give us some sense of of what that.
Speaker Change: Acquisition looks like an impact on FY 'twenty five.
Andrew Baum: Yeah, well first of all Andrew.
Andrew Baum: We did the acquisition in September.
Andrew Baum: Okay.
Andrew Baum: Yeah.
Andrew Baum: There is there is.
Andrew Baum: Are we going to be putting our backlog information yeah. So Andrew a couple of things on that one under that acquisition the backlog came on.
Andrew Baum: Around $74 million.
So in our backlog you include about $74 million of backlog acquired on that.
Andrew Baum: Acquisition, and which is production.
Andrew Baum: So you would that's going to bleed off over.
Andrew Baum: Probably a three to four year period.
Andrew Baum: And our military has lower margins than commercial.
Andrew Baum: In terms of either the margins, we believe is going to be similar to our.
Andrew Baum: EBITDA margins.
Andrew Baum: Right.
Andrew Baum: You're saying I think you said it in your prepared remarks as well gross margin is lower but were you, saying EBITDA margins are closer to being similar or are those also are on lora.
Andrew Baum: Bold to wall rehab, because the way we look at it is that it's an addition, it doesn't significantly increase.
Andrew Baum: Our SG&A.
Andrew Baum: Or engineering.
Andrew Baum: So it's.
Andrew Baum: Yeah Youre in a lot of ways when you look at it.
Andrew Baum: Yeah.
Andrew Baum: The gross margins falling to EBITDA.
Andrew Baum: Okay.
Andrew Baum: And then.
Andrew Baum: On the backlog.
Should we does it necessarily burn off linearly.
Andrew Baum: Or kind of be more chunky over from one year, yes.
Andrew Baum: Part of the backlog being what it is.
Andrew Baum: Was that there was there was an obsolescence issue.
Andrew Baum: The timing of all resolved.
Andrew Baum: Few months ago.
Andrew Baum: And because of that obsolescence issue the deliveries over the prior year or so.
Andrew Baum: There are very limited so there is a catch up that's going to be done.
In 2025.
Andrew Baum: Yeah.
Andrew Baum: And it's still a bit.
Andrew Baum: Too early for us to be able to accurately say how much of that is going to be done in 2025, because honeywell is going to continue operating.
Andrew Baum: This product lines at least for another three.
Andrew Baum: Four months before it comes to us.
And theres going to be a shutdown period as we experienced before while on the test track what might get.
Andrew Baum: Transferred here. So if I was to be a guessing man I would say our Q2 is going to see.
Andrew Baum: He is going to see.
Andrew Baum: Bump in revenue from this.
Andrew Baum: Q3, probably would be.
B the transition quarter would be I love it.
Andrew Baum: Go again the depth.
Andrew Baum: Kind of it will.
Andrew Baum: Hopefully recover by Q4.
Andrew Baum: But but.
Andrew Baum: But I think some of some of the solve the backlog its period of performance is over four years.
Andrew Baum: And some of it is just behind the eight ball.
Andrew Baum: We got to ship as soon as we get.
Andrew Baum: Okay and then.
Speaker Change: Jeff you mentioned, the $1 7 million.
Speaker Change: True up payment, which segment does that fall in.
That would fall in the customer service segment.
Speaker Change: Okay.
Speaker Change: And then on Capex I think you guys said $6 million is that all in FY 'twenty five.
Speaker Change: Some of it we already spent very little on before so summit for 24 of a majority of all of that is going to be fiscal 'twenty architectural work and all of the design work and preliminary to get planning permission and all of that I think we pay for that in 'twenty four right. So now you are moving forward with the construction in 'twenty fiscal 'twenty.
Speaker Change: Five so youll see that in the capex going into 2025.
Speaker Change: And when do you expect to complete all that work in fiscal 'twenty.
Speaker Change: At June.
Speaker Change: Okay, Yeah for any construction is completed on time.
Speaker Change: Okay.
Speaker Change: Alright, Thank you great quarter, you guys I appreciate it thanks.
Andrew Baum: It's Andrew.
Andrew Baum: The next question comes from Doug Ruth with Lenox Financial services. Please go ahead hi.
Doug Ruth: I also want to congratulate you on the strong quarter.
Andrew Baum: Hum.
Andrew Baum: You really gave us a lot of information.
Andrew Baum: Is there any way that you can give us any kind of projection what the you know what Q1 might look like.
Andrew Baum: Power's revenue with.
Andrew Baum: For the quarter that we're in right now Unfortunately, we don't provide the forward looking statements.
Andrew Baum: February for that yeah. Okay.
And is this is this the norm in in your business to say that the backlog.
Andrew Baum: Take up to that.
Up to four years to to earn out.
Andrew Baum: It depends on I mean these are.
Andrew Baum: Some of these our military contracts and the production contracts.
Andrew Baum: Typically for our SNS from we have production contracts.
Andrew Baum: We get we get you know releases, maybe 18 months really says or year releases.
Andrew Baum: Our backlog is usually not of this magnitude.
Andrew Baum: Our military contracts and some of them are with Lockheed their own production contracts and Lockheed.
Andrew Baum: For some of these.
Andrew Baum: Colorado issue purchase orders over the next four years.
Andrew Baum: But for US it's not typical but.
This is new.
Andrew Baum: Okay.
Andrew Baum: And then can you you mentioned that you thought that the Q Q2 was you called it a big bump could you explain that a little bit more what what what what you see happening in that quarter yeah.
Yes, so well.
Andrew Baum: If you remember when we did the acquisition from the first acquisition from Honeywell.
Andrew Baum: First quarter four it was our Q4 of 2023.
Speaker Change: We got like a $6 million of revenue that came from Montreal, Yeah, I remember that.
Speaker Change: Yeah, because because the next quarter they were planning on packaging all the test equipment and shipping it to us. So so they typically towards March pull in as they can.
Yeah.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: In the prior quarter before shifting their equipment to make sure the customer has enough.
Equipment.
Speaker Change: Yeah, you know.
Speaker Change: To support them, while we go through this transition phase.
Speaker Change: That quota.
Speaker Change: That's going to happen looks like it's going to be Q2 of a bar.
Speaker Change: Financial 2025, so between January to March.
Speaker Change: We anticipate honeywell's are going to ship a lot of this equipment to Lockheed.
Speaker Change: Before they tear down the equipment to send it to us.
Speaker Change: Okay and my final question could you tell tell us what the three highest priorities are for fiscal 2025.
Speaker Change: So.
Speaker Change: No.
Speaker Change: There is yes, there is.
Speaker Change: I thought we outlined that in in.
Speaker Change: And our.
Sure.
Speaker Change: But hum.
Speaker Change: We've got we've got <unk>.
Speaker Change: <unk> development.
Speaker Change: We're looking at.
Speaker Change: Launching.
Speaker Change: Our our latest generation, which is.
Has a lot of artificial intelligence capabilities is certifiable artificial intelligence.
Speaker Change: Which is which is a unique in our industry at this point.
Speaker Change: So that product, we're going to be launching gears, we've got a.
Speaker Change: We finished the flight test with pillar of this for.
Speaker Change: For the for the PC 24 version of that.
Speaker Change: Utility management system.
Speaker Change: Yeah.
Speaker Change: Another priority for us is in sourcing a lot of the a lot of that.
Speaker Change: <unk> assemblies.
And that would allow us to.
Hopefully.
Speaker Change: Increase our gross margins.
Speaker Change: As you know our gross margins gradually we'd be hit a lull of in.
Speaker Change: In low 50, percents middle of last year.
Speaker Change: And as we as we've kind of.
Speaker Change: Gain some efficiency and learning curve.
Speaker Change: Our technicians were.
Speaker Change: Build it up to mid fifties.
Speaker Change: We like to be able to maintain that long term.
Speaker Change: And.
Speaker Change: One way to do that because as long as we're doing acquisitions, there's always gonna be inefficiencies.
Speaker Change: And youre going to be training U.
Speaker Change: Technicians of all other technicians are doing the work.
We can increase the way we can maintain that mid 50.
Speaker Change: Percent ranges is by.
Speaker Change: Increasing the in sourcing of the subassemblies.
Speaker Change: Yes.
Speaker Change: That's a big focus for us.
Speaker Change: And then.
Speaker Change: The final is continue with our with our capital allocation of of.
Speaker Change: Opportunistically.
Speaker Change: Identifying trough.
Products that fit.
Speaker Change: Our profile.
Speaker Change: And acquiring that.
Speaker Change: And that's those are the three things that are priorities for US. Okay that helps me and I. Appreciate you explain that to me.
I wanted to congratulate you on the very strong quarter.
Speaker Change: Thank you. Thank you.
Speaker Change: The next question comes from Dash is seen with singular research. Please go ahead.
Speaker Change: Hey, good afternoon, gentlemen, can you hear me.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: The first question is.
Speaker Change: With a recent win.
The military side the U S Army.
Speaker Change: Could you give us color on what.
Speaker Change: Whether you like what you're excited about.
Speaker Change: Literary space.
Speaker Change: And.
Speaker Change: What are you guys doing.
Speaker Change: Helping you win market share and what's making you competitive in this space and how do you build momentum in that space.
Speaker Change: So I mean, blah blah blah and Fisher, what we've done with the shift in strategy.
Speaker Change: <unk>.
Speaker Change: I'll go back to few years ago.
Speaker Change: For the year.
Wherever they put they put a sequestration uh huh.
Speaker Change: And the military budget got cut significantly.
Speaker Change: At this time.
Speaker Change: The strategy of our.
Company became to shift our focus from military more towards the commercial side of things.
Which is what we did three years ago, when I took over.
Speaker Change: Yeah I started.
Speaker Change: Building.
Our military business development team.
Speaker Change: And to focus on getting more military business.
Speaker Change: Takes a while for these things to start paying off.
Speaker Change: So so well.
Speaker Change: We have seen so far we're seeing positive results.
Speaker Change: I think in your older withdrawals for the.
Speaker Change: For the U S Army Oracle is the product that we develop.
Speaker Change: The years ago.
Speaker Change: And we had not been successful in marketing to the mandatory we've been selling it to textron as a forward fit on the King Air.
Speaker Change: But the U S Army the USF.
They have a number of these king as C 12.
Speaker Change: And they could they could use that could use the auto Sol.
Speaker Change: Just over a year ago, we got selected by mix, which is the multi engine training system for the U S. Navy.
Speaker Change: And are now.
Speaker Change: The U S Army selected us for their <unk> platforms, and we continue marketing that into the military side.
Speaker Change: We won this other program for mission computer display.
Speaker Change: And.
Speaker Change: We've got.
Speaker Change: He actually.
Speaker Change: Got a several other opportunities on the mission computer side of things.
Speaker Change: That where we're looking to explore.
Speaker Change: Yes.
Speaker Change: We did.
From Honeywell for the F 16 flight control computer.
Speaker Change: And in the mission computer.
Speaker Change: He is going to open a lot of doors for us in terms of being able to the Lockheed.
Speaker Change: And taking opportunity of are there.
Speaker Change: The clients that they are looking to acquire.
Speaker Change: Okay. Okay.
Speaker Change: Thanks.
Speaker Change: That's good color.
Speaker Change: Given the increasing military presence.
Speaker Change: What are the potential challenges and a longer sales cycle with a more complex procurement process.
Speaker Change: Can you give us some color on what how you.
Speaker Change: <unk>.
Speaker Change: I'll stay with sponsor as the new R&D.
Speaker Change: And then space.
Speaker Change: Yes, I mean, the sales cycles are longer.
Speaker Change: And like I said, we saw that down that line about three years ago, and we are beginning to see.
Speaker Change: The fruits of those efforts and we're going to continue down that path.
Speaker Change: Some other things.
Speaker Change: We're doing now.
Speaker Change: In our organization in anticipation of some of the new contracts, we're getting is.
Speaker Change: As you know, making our facility more secure.
Speaker Change: We're putting a lot of controls in place.
Speaker Change: So we can we can take on secret programs.
Speaker Change: From a from our military.
Speaker Change: As well as as well as your you know putting in the system.
Speaker Change: It can withstand the government's accounting.
Speaker Change: Audits and all of that.
Speaker Change: So a change we have changed our MRP system, which is going to go live.
Speaker Change: Early 2025, we've been working on it for about a year now.
Speaker Change: And because our ERP system is kind of old and antiquated so that would allow us to.
Speaker Change: Be able to to be able to.
Speaker Change: Easily.
Speaker Change: Show kind of costs to the government and be able to categorize expenses.
Differently.
Speaker Change: And the way the government wants to see so we've put in a lot of efforts into the infrastructure.
Speaker Change: Get us to a point that we can become.
Speaker Change: A serious defense contract.
Speaker Change: And given your strategy that you mentioned the next.
Speaker Change: What what percentage of.
Speaker Change: Revenue Ideally would you think in one to three years with the military.
Speaker Change: The sector.
Speaker Change: So I think on average.
Speaker Change: Just about less than a third of our business used to be military.
Speaker Change: I guess last year that went down because of the acquisitions, we did with Honeywell.
Speaker Change: Mainly focus towards the <unk>.
Speaker Change: Commercial side I think this year ministry is going to be pretty.
Speaker Change: Large because of that new acquisition, we did from hydro on the on the F 16.
Speaker Change: I think long term, we like the idea of having said many of the tree. So.
Speaker Change: Business Aviation and air Transport.
Speaker Change: So that Formula has worked for us for over 35 years, and we'd like to see it that way.
Speaker Change: You know as you grow you Gotta go every sector.
Speaker Change: And and when you say I'm going to go up my military five fold, because I'm going to grow the business thoughtful.
Speaker Change: And then that becomes significant enough that you need to put some controls in place.
Speaker Change: Okay.
Speaker Change: You mentioned this but.
Speaker Change: Yes.
Speaker Change: Two but when would be the cockpit space.
Speaker Change: Do you see the interplay between military and commercial technologies evolving.
Speaker Change: Are there specific I think you mentioned the U S M tools.
Speaker Change: I'll take both any specific synergies or cross pollination opportunities that youre targeting.
Speaker Change: Well I think our again our product development strategy from day, one was that we made more product.
Speaker Change: And we sold that product.
Speaker Change: To the military.
Speaker Change: The commercial aviation.
Speaker Change: As well as.
Speaker Change: The air Transport now.
Speaker Change: The variation of that go into the military for example, we make the same display that we put in the 75767.
Speaker Change: Put them in the <unk>, but the one that goes in the C 130 as night vision capabilities. So it's got two sets of lighting for light sensing.
Speaker Change: But the kind of the backbone of the of the technology.
Speaker Change: Is the same and going forward.
Speaker Change: Continue developing our products like for example, the U M S.
Speaker Change: We made four we've made four pillars as it was.
Speaker Change: Very much.
One one.
Speaker Change: <unk> platform product.
Speaker Change: I looked at specifically for providers and became they wanted to do and more capable U M. S.
Speaker Change: Been developing with them and that's the one that's going to go into flight test.
Speaker Change: I think it's scheduled for March.
Speaker Change: Our April.
Speaker Change: Let me when we did that with.
Speaker Change: Started taking account into okay. How do we now make this more a universal and that we can put it in military aircraft as well as my last one is in other business aircraft.
Speaker Change: And one of the things that became apparent is that you know.
Speaker Change: If you're putting a flight control computer and the Ministry aircraft today, they want to see artificial intelligence capabilities and so.
Speaker Change: So we added artificial intelligence.
Speaker Change: Core to this product line. So we can.
Cross selling in the military as well as.
Speaker Change: As well as in the business aviation side.
Speaker Change: Utilize it for more and more.
Speaker Change: Cockpit automation.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: And my last question is.
Speaker Change: Given the issues at Boeing.
Speaker Change: And kind of potential lift in terms of retrofit opportunities.
Speaker Change: How do you see that playing out.
Good.
Speaker Change: So I think your question is saying the Boeing issues are having has that effect the ice and Hess.
Speaker Change: Good for us so it's not that we want them to have issues.
Speaker Change: As long as they can make new airplanes.
Speaker Change: They're older place so.
Speaker Change: Youre going to see that aging airframes still lot of repairs and maintenance parts sales spare sales and the market overall going up in aerospace.
Speaker Change: Because of that.
Speaker Change: Yes.
Speaker Change: Awesome. Thank you guys. Thanks for taking my question and happy holidays.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session.
Speaker Change: I'd like to turn the conference back over to Sherri I'm asked Kapoor for any closing remarks.
Sherri Kapoor: Go ahead.
Sherri Kapoor: Thank you operator, and thank you all for your time and interest in our centers.
Sherri Kapoor: Good holidays and a good day. Thank you.
Sherri Kapoor: Okay.
Sherri Kapoor: This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Sherri Kapoor: Yes.
Sherri Kapoor: [music].
Sherri Kapoor: Okay.