Q2 2025 Innovative Solutions and Support Inc Earnings Call
Good day and welcome to the innovative solutions and support second quarter 2025 results conference call and webcast.
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Speaker Change: I would now like to turn the conference over to Paul Butcher Lai head of Investor Relations. Please go ahead.
Speaker Change: Thank you good morning, everyone and welcome to innovative solutions and support second quarter 2025 results Conference call.
Speaker Change: Leading the call today are CEO share my support and CFO, Jeff P. Giovanni.
Speaker Change: Yesterday, we issued a press release detailing our second quarter 2025 operational and financial results.
Speaker Change: This release is publicly available in the Investor Relations section of our corporate website at Www dot innovative dash SaaS dot com.
Speaker Change: I would like to remind you that management's commentary and responses to questions. On today's conference call May include forward looking statements, which by their nature are uncertain and outside of the company's control.
Speaker Change: Although these forward looking statements are based on management's current expectations and beliefs.
Speaker Change: Results could differ materially.
Speaker Change: For a discussion of some of the factors that could cause actual results to differ please refer to the risk factors section of our latest reports filed with the SEC.
Speaker Change: Additionally, please note that you can find reconciliations of all historical non-GAAP financial measures mentioned on this call and the press release issued yesterday.
Speaker Change: Today's call will begin with prepared remarks, we'll share them, who will provide a review of our recent business performance and strategic outlook.
Jeff: All of them by financial update from Jeff.
Jeff: At the conclusion of these prepared remarks, we will open the line for your questions and with that I'll turn the call over to Sharon.
Sharon: Thank you Paul and good morning, everyone joining us on the call today.
Sharon: Let's begin with a high level overview of our second quarter financial performance.
Sharon: During the second quarter. It has delivered growth in revenue of just over 100% driven by momentum from our new military programs, including significant growth from our F 16 program and contributions from our legacy platform.
Sharon: As we discussed last quarter, we have been seeing improved trends.
Sharon: So business.
Sharon: As expected this translated to improved results this quarter with notable strength.
Sharon: Okay.
Sharon: Our EBITDA increased by over 200% and profit by over 300% from last year, highlighting the significant operating leverage.
Sharon: As we continue to grow.
Sharon: We are building a platform of scale with meaningful opportunity for EBITDA margin expansion as we grow the business.
Sharon: Our business momentum remains strong with a backlog of approximately $80 million.
Sharon: As of March 31st 2025.
Sharon: We were pleased with our strong second quarter results.
Sharon: Trends in our core business remains strong.
Sharon: Successfully executing our strategy to build a significant growth business.
Sharon: With that I would like to shift the discussion.
Sharon: <unk> date on our progress on the mix of long term value creation strategy.
As a quick refresher on our strategy.
Sharon: On a combination of targeted commercial growth in high value markets.
Sharon: Improving operating leverage and disciplined.
Sharon: It's driven approach to capital allocation.
Sharon: We continue to execute against our initiatives during the quarter and I would like.
Sharon: Take a moment to highlight just a few of the key achievements.
Sharon: As we have discussed.
Sharon: We've placed a priority on expanding our metrics.
Sharon: In support of this objective.
Sharon: <unk> continued to make investments in both infrastructure and systems capabilities.
Sharon: Support our high performance requirements of our defense customers.
Sharon: During the second quarter.
Sharon: Believe that the integration of our ERP system before they expire.
Sharon: Our more robust it infrastructure.
Sharon: Our security and accounting services.
Sharon: Acres compliant with defense Federal acquisition regulation stop the months or DFAST requirements.
Sharon: These are necessary investments as we continue to bid on larger D O D programs.
Sharon: We continue to expect at least 40% of our revenue to come from military customers during fiscal 2025.
Sharon: We are excited by our progress.
Sharon: And the opportunities that lie ahead of our military business.
Sharon: We also have made further progress on the expansion of our Exton, Pennsylvania facility and remain on track for completion of the project by mid 2025.
Sharon: When complete we will have doubled our footprint and increase our production.
Sharon: Capabilities by more than three full.
Sharon: The building construction is near completion and the preparation for clean room production environment will commence by the end of May.
Sharon: As a reminder, we manufacture 100% of our products and our existing facility.
Sharon: With the ongoing trade uncertainty and priorities of the current administration, we should be and to be able position given the likely significant push for re shoring of manufacturing.
Sharon: In the America first mentality.
Sharon: During the second quarter, we continued with the integration of our most recent acquisition from Honeywell.
Sharon: As we discussed last quarter much of the spending and the integration activities are being done ahead of the expected cool from these platforms.
Sharon: Exploration is also resulting in some duplicative costs as we transition the manufacturing of products into our excellent facility.
Sharon: Importantly, the integration is processing.
Sharon: We are excited by the opportunities from this acquisition.
Sharon: Why do we have to spend a lot of that effect on our military opportunities.
Sharon: We remain encouraged by the growth opportunities across our commercial air transport and business aviation markets.
Sharon: To achieve a larger percentage of our new production aircraft OEM business is also being satisfied through organic product cool as well as our strategic acquisitions.
Sharon: The F 16 product lines.
Sharon: Even though it has been a couple of quarters since we have announced.
Sharon: Sure.
Sharon: Boeing capital for strategic acquisitions remain a key priority.
Sharon: Although our most recent acquisitions have been focused on complementary product lines from large avionic suppliers, we continue to evaluate opportunities to acquire small avionics manufacturers, where we anticipate synergies will be realized but in coop.
Sharon: Breaking the outsourced production.
Sharon: Our facility.
Sharon: We have demonstrated a track record of successfully scaling our business through a combination of organic growth and capital deployed for acquisitions.
Speaker Change: Yes, 'twenty 'twenty you have completed four acquisitions.
Sharon: Complement our organic growth strategy.
Sharon: Over this period you have grown our revenue and net income from 22 million $3 3 million, respectively during fiscal 'twenty 'twenty.
Well over $60 million in revenue.
Sharon: $9 million and net income during fiscal 2025 based on our stated forecast of greater than 30% growth.
Sharon: Even though our capital light model.
Sharon: <unk> free cash flow generation, we have been able to generate this growth while maintaining modest leverage.
Sharon: We are proud of what we have accomplished and are positioning the company well.
Sharon: <unk> growth slowing.
Sharon: Going forward.
Sharon: Despite recent margin pressure due to acquisition related costs.
Sharon: Inventory adjustments as well as inherent lower gross margins in defense products, we expect EBITDA and profit margins to grow steadily.
Sharon: We are further establishing our company as a premier systems integrator.
Sharon: <unk> navigation precision instrumentation with cutting edge technology.
Sharon: Our vertically integrated you ways U S. Based production provides a competitive advantage fostering relationships with key aircraft manufacturers operators and defense organization.
Sharon: In summary, we are encouraged by the progress we have made on our strategic priorities and remain committed.
Sharon: To execute on our plan.
Sharon: During the quarter, we doubled our revenue tripled our EBITDA and quadruple our profit from a year ago.
Sharon: As a result of our success and will remain on track to deliver on our goal to generate both revenue and EBITDA growth of greater than 30% when compared to fiscal year 'twenty 'twenty four.
Sharon: We are excited by everything we have accomplished and our confidence.
Sharon: We are strategically positioned continue generating profitable growth.
Sharon: That.
Sharon: I'll turn the call over to Jeff.
Sharon: Third remarks.
Jeff: Thank you Sharon and good morning to all those joining us today.
Jeff: Hey, I will provide a high level overview of our second quarter performance, including a discussion of our working capital balance sheet and liquidity profile at quarter end.
Jeff: We generated net revenues of $21 9 million in the second quarter more than double our revenues during the second quarter last year the.
Jeff: The increase was driven primarily by contribution from the recently acquired Honeywell military product line, which contributed $10 8 million and growth in our air transport market. Our results during the quarter benefited from some pull forward of revenues under our F 16 program.
Jeff: We expect this dynamic could repeat again during our third fiscal quarter.
Jeff: Anticipating a honeywell ceasing production at its own facilities and transitioning that productions that accompanies facility.
Jeff: Product sales were $13 2 million during the second quarter up significantly from product sales of $4 $9 million from last year, driven primarily by the recent acquired military product line.
Jeff: Service revenue was $8 8 million, owing largely to customer service sales from the product lines acquired from Honeywell, including $3 million associated with the F 16 program and an increase of $700000 in NRA programs.
Jeff: Actually offset by lower legacy customer service revenue.
Jeff: Gross profit was $11 3 million during the second quarter up from $5 6 million in the same period last year, driven by strong revenue growth and product mix, partially offset by higher depreciation expense, resulting from the Honeywell acquisition and continued investment.
Jeff: Our second quarter gross margin was 51, 4% down modestly from 52%.
Jeff: In the same period last year, but up meaningfully on a sequential basis from the 41, 4% gross margin reported in the first quarter.
Jeff: We generated more normalized gross margins under our Honeywell contracts, which was the main driver of improved gross margin relative to the prior quarter. We expect our gross margins to continue to be lumpy in the near term as we continue to integrate the honeywell product lines into our facilities.
Jeff: As we have discussed in prior quarters, there can be some duplicate costs as we prepared to integrate these products and the hiring and training of engineers and other staff to support these products.
Jeff: Additionally.
Jeff: As we have discussed previously as it relates to the product mix generally military sales carry a lower average gross margin versus commercial contracts. However, importantly, there is a minimal operating expense associated with these contracts.
Jeff: So the incremental EBITDA margins are strong.
Jeff: We saw an example, they're starting the second quarter as the incremental military revenues came through with little to no incremental SG&A expenses.
Jeff: Resulting in meaningful operating leverage opt.
Jeff: Operating expense during the second quarter of 2025 was $4 3 million a modest increase from $3 9 million last year. Despite the significant growth in revenue.
Jeff: The increase in operating expense was driven by approximately 300000 from growth in our product development efforts in support of our long term growth initiatives.
Jeff: And 200000 employee.
Jeff: Primarily due to increased head count, partially offset by a $100000 decrease in third party and professional fees operating expenses represented 19, 6% of revenue during the second quarter a significant decline in <unk>.
Jeff: 36, 7% in the second quarter of last year, highlighting the opportunity for improved operating leverage as the business scales.
Jeff: Net income for the quarter was $5 3 million as compared to $1 2 million.
Jeff: GAAP earnings per share of 30 cents increased by over 300% from seven cents with benefits from higher volume and increased operating leverage.
Jeff: EBITDA was $7 6 million during the second quarter up from $2 1 million last year or an increase of 260%.
Jeff: Largely to due to our revenue growth and operating expense leverage.
Jeff: Moving onto backlog new orders in the second quarter of fiscal 2025 were $28 million and backlog as of March 31.
Jeff: It was $80 million.
Jeff: The backlog includes only purchase orders in hand, and excludes additional orders from the company's OEM customers under long term programs include including Palatis PC 24, extra King air totaling <unk> seven Red Hawk, the Boeing KC 46, and the <unk>.
Jeff: <unk> 16 with Lockheed Martin.
Jeff: We expect these programs to remain in production for several years and anticipate they will continue to generate future sales.
Jeff: Further due to their nature of the customer service lines do not typically enter backlog now.
Jeff: Now turning to cash flow.
Jeff: During the second quarter 2025 cash flow from operations was $1 $3 million compared to 200000 in the year ago comparable period.
Jeff: This increase was due to higher net income and changes in working capital.
Jeff: Capital expenditures were $1 6 million during the second quarter of fiscal 2025 versus 100000 in the same period last year.
Jeff: The increase in capital expenditures are primarily related to the facility expansion.
Jeff: As a result of the building expansion free cash flow during the second quarter was negative 300000 person is essentially flat free cash flow last year.
Jeff: Total net debt as of March 31 was $26 2 million, our net leverage at the end of the quarter was one four times.
Jeff: Our cash and availability under our credit line was $8 $8 million at the end of the second quarter, which provides us financial flexibility and support our ongoing operations and facility expansion.
Jeff: That completes our prepared remarks, operator, we're now ready for the question and answer portion of the call.
Jeff: We will now begin the question and answer session.
Jeff: To ask a question you May press Star then one on your telephone keypad.
Jeff: If youre using a speakerphone please pick up your handset before pressing the keys.
Jeff: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Jeff: At this time, we will pause momentarily to assemble our roster.
The first question comes from Duffy three with singular research. Please go ahead.
Speaker Change: Hi, Good morning can you hear me.
Jeff: Yes Hello.
Jeff: Congratulations on a strong quarter.
Speaker Change: Question is you mentioned that the Honeywell product lines, we're pulling forward and you're expecting that to carry on into Q3.
Speaker Change: Any color on the magnitude of these called food pulled forward and any and in FY 'twenty five guidance up.
Speaker Change: Over 30% growth guidance that you guys alluded to in the last call.
Speaker Change: Is that are you seeing any signs of order delays post transition.
Speaker Change: We don't anticipate.
Speaker Change: Further delays.
Speaker Change: This transition.
Speaker Change: It is.
It is there's a lot of moving parts with the with the transition of the Honeywell they have supply chain issues obviously.
Speaker Change: With with delivering.
Speaker Change: Delivering sufficient quantities to Lockheed.
Speaker Change: Before they can close the line and transfer it to US we are working very closely with them our supply chain is in <unk>.
Speaker Change: <unk> daily with their supply chain as well as Lockheed.
Speaker Change: To make this a successful.
Speaker Change: Transition for Lockheed.
Speaker Change: That's our cost of and we will support them.
Speaker Change: In terms of in terms of our our guidance that we gave for this year I think.
Speaker Change: Into.
Speaker Change: Over 30% growth as as we see it.
Speaker Change: Yeah.
Speaker Change: And and so that's kind of where we are.
Speaker Change: Okay. Okay.
Speaker Change: The air Transport revenue seems to have improved in Q2.
Speaker Change: Is this driven by new holidays, Oh deferred demand what is it what is the pipeline for commercial retrofits looking even I'm married this high interest.
Speaker Change: If the interest rates that kind of steady at this level.
Speaker Change: Hi.
Speaker Change: The requirements are.
Speaker Change: Really don't seem to interest rates.
Speaker Change: Our March on what we do.
Speaker Change: Obviously delays in production of new airplanes.
Speaker Change: Both from Airbus and Boeing due to their supply chain issues.
Speaker Change: <unk> is creating high demand for aftermarket upgrades are these airplanes.
Speaker Change: We're seeing benefits of that and you have a foreseeable future. We'll see we hope that that's going to that trend is going to continue.
Speaker Change: Okay.
And so whilst margin level sequentially.
Speaker Change: The rebound.
Speaker Change: So as the Honeywell production transition fully to accident should we expect the margin to stabilize near these levels or does the mix shift towards the military that sharing you with over 40% of sales.
Speaker Change: Does that act as a headwind.
Speaker Change: As we move towards a still causes a headwind towards the rest of FY 'twenty five.
Speaker Change: I mean.
Speaker Change: We've talked about a number of times before.
Speaker Change: Regards to gross margins.
Speaker Change: Gross margins.
Speaker Change: A very volatile and.
Speaker Change: And kind of lumpy as as Jeff.
Speaker Change: And the reason for that is that prior to acquisitions the things that we built in here.
Speaker Change: Bill.
Speaker Change: Would sell them to target a certain gross margin when we do acquisitions the products that come in the mix of the products have the large variability in gross margins. Some of them are very good some of them are low.
Speaker Change: Then what we get is that in a quarter depending on the mix.
Speaker Change: We would end up with some blended gross margin.
Speaker Change: It's.
Speaker Change: It really is difficult to predict because we don't know.
Speaker Change: Where we have backlog of orders, we know that the new orders coming in it's difficult to predict what kind of a margin recovery from that product mix.
Speaker Change: So this is what we've been trying to steer everyone what everybody away from gross margins with a focus on EBITDA margins and profit margins.
Well I mean, quite frankly, I care about profit more than anything else.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Our next question.
Speaker Change: Comes from Doug Ruth with Lenox Financial services. Please go ahead.
Doug Ruth: Oh, good morning, charm and Jeff. Thank you very much for the comments congratulations on a Fabulous report.
Doug Ruth: I, specifically think that you clarify some of the questions that were out there.
Doug Ruth: I appreciate you taking the time to Oh.
Doug Ruth: For some clarity.
Doug Ruth: Uh huh.
Doug Ruth: How did you specifically say what percent of the sales in the quarter were two two the department of defense or can you give us that.
Doug Ruth: So.
Doug Ruth: Right now 21.1, $21 $9 million and sells 10 point.
Doug Ruth: Three was associated with the F 16.
Doug Ruth: So that would be with the military side.
Doug Ruth: But then we had we had our own I don't have that breakdown in front of me, but legacy was a little bit north of $11 million for the quarter, which includes air transport and.
Doug Ruth: Business Aviation law with military and Theres, some military and the services as well because we're an RV projects and customer service repairs.
Doug Ruth: Well it sounds like it's it's.
Doug Ruth: Approximately at least at least here, which is yeah, I would say at least 40% at least 40% military.
Doug Ruth: We're experiencing it.
Doug Ruth: And you hit thought that like sort of as a run rate that it would be around 40% I do think that that is going to hold true for the for the year.
Doug Ruth: Yes.
Doug Ruth: Okay.
Doug Ruth: And then what about hiring where additional people hired during the quarter.
Doug Ruth: But very very little.
Doug Ruth: We just hired another military sales presence as well.
Doug Ruth: Okay.
Doug Ruth: This quarter past quarter, yes.
Doug Ruth: Okay.
Doug Ruth: You are you are you thinking that you're done hiring it for for the year or will there be additional people hired still.
Doug Ruth: Still this year.
Doug Ruth: Or has that not been decided.
Doug Ruth: I think that.
Doug Ruth: We continue to look for talented engineers.
Doug Ruth: We continue look for talented individuals' that contribute to our organization.
Doug Ruth: We are a growing business and.
Doug Ruth: You can hire people.
Doug Ruth: After you got after you've got the.
Doug Ruth: The contracts because then it will be too late.
Doug Ruth: So we continue looking for talent.
Doug Ruth: Terms of the.
Doug Ruth: The hiring we.
Doug Ruth: We're doing to support the F 16 platform.
Doug Ruth: That we are.
Doug Ruth: Our completed doing that.
Doug Ruth: But but but there are other acquisitions that really looking yet.
Doug Ruth: Also looking at some significant growth from our.
Doug Ruth: From our base business.
Doug Ruth: And so we.
Doug Ruth: Constantly in the hiring mode.
Speaker Change: Okay and are you are you working through search firms are you advertising open positions on your own website or or Linkedin or.
Doug Ruth: Everybody, yes, so we I think are.
Speaker Change: Every every job posting is on our.
Our website as.
Doug Ruth: As well as.
Speaker Change: Well as.
Speaker Change: Depending on the position.
Speaker Change: Do work with some recruiters we have I mean, we have.
Speaker Change: Inside recruiter as well as the most of our HR Department.
Speaker Change: So we do all.
Speaker Change: Okay, now I know that our clean rooms can be very complicated is there any concern about you completing.
Speaker Change: Bleeding your clean room.
Speaker Change: You specifically mentioned that during your common charm.
Speaker Change: No no it's just I mean.
Speaker Change: Obviously, our production floor here is it clean room facility.
Speaker Change: Just expanding it.
Speaker Change: It's not part of the original building the contractors that are building the building for us.
Speaker Change: Yes.
Speaker Change: They build a structure in painted and all of that and so we're almost done.
Speaker Change: And then we go in there and we got if we got to put anti started flooring down and put some partition walls. Some soundproofing walls for some areas.
Speaker Change: And you know those kinds of things.
Speaker Change: Which should we do routinely.
Speaker Change: Okay. So do you feel like you've got it under control.
Speaker Change: Yes.
Speaker Change: What about the did you mention the status of the next generation utility management system that was something that we you had generally been talking about.
Speaker Change: Yeah.
Speaker Change: It's it's.
Speaker Change: I guess put another.
Speaker Change: It's it is going on track they still planning on doing some flight testing on it.
Speaker Change: Over the next months.
Speaker Change: And.
Speaker Change: Yeah.
Speaker Change: Yep.
Speaker Change: The project as we're finishing some qualification testing and getting it ready for flight tests.
Speaker Change: Okay.
Speaker Change: I really like your strategy or the acquisition strategy of using reverse engineering cause over and over when we hear about one company buying another company part of it is what's instead of having the products made in America.
Speaker Change: Let's see if we can get them made somewhere else at a lower cost for the fact that you are.
Speaker Change: What's bringing the staff here to Pennsylvania, and let's take cost out of it.
Speaker Change: I think to that.
Speaker Change: Really plays to the companies.
Speaker Change: Competitive advantages are you.
Speaker Change: Are there any are you close to any additional acquisitions at this point.
Speaker Change: Okay.
Speaker Change: With that strategy.
Speaker Change: Yes, we're always evaluating some.
Speaker Change: And we also looking at some.
Speaker Change: Potentially foreign companies that we've made by them, bringing bringing their production into United States.
Speaker Change: The theory of outsourcing some are cheap.
Speaker Change: Like you shift your problem.
Speaker Change: Somewhere else, where it's outside your control.
Speaker Change: And yeah.
Speaker Change: Yes.
Speaker Change: And is your customers the end up suffering.
Speaker Change: So we've kind of always the philosophy of the company has always been to steer away from that.
Speaker Change: Okay.
Speaker Change: And then Jeff it's far is a financial covenant do you feel that all that debt.
Speaker Change: Do you have those set up properly that you're you're comfortable that your.
Speaker Change: You're you're maintaining the covenants.
Speaker Change: Yes, the covenants I mean, where we have a lot of headway in the covenant So feel very confident where we are what our covenants.
Speaker Change: You folks deserve a lot of crazy you really performed exceptionally well.
Speaker Change: I'm grateful for it.
Speaker Change: For the shareholders.
Speaker Change: And.
Speaker Change: Congratulations to both of you went to U K.
Speaker Change: James.
James: Thank you Frank Thank you very much.
James: Thank you very much.
James: Our next question comes from Andrew <unk> with Goldman.
James: Partners. Please go ahead.
Speaker Change: Hi, gentlemen.
Speaker Change:
Speaker Change: Since you guys once an offset which is.
Doug Ruth: In regard to Doug's comment manufacturing in the U S.
Speaker Change: You're smarter than truck.
Doug Ruth: And we got that in the case.
Speaker Change: My question.
Speaker Change: On revenue.
Speaker Change: Okay.
Speaker Change: Thanks for your time.
Speaker Change: 8 million came from.
Speaker Change: And then later you said.
Speaker Change: Got about $3 million.
Speaker Change: On the teen customer.
Speaker Change: So.
Speaker Change: If I parse out between products and customer service.
Speaker Change: On the acquisition of $5 8 million for product.
Speaker Change: For customer services.
Speaker Change: Is that right.
Speaker Change: Eight in total three of which 3 million was customer service or the Delta seven eight product.
Speaker Change: Okay got it and then.
Speaker Change: Okay 6 million Capex.
Speaker Change: Okay.
Speaker Change: Full year.
Speaker Change: Yes.
Speaker Change: And then.
Speaker Change: Sequentially.
Speaker Change: <unk> was down and I think I wanted.
Speaker Change: Yeah.
Speaker Change: I wanted to ask about 700000.
Speaker Change: But what's kind of a normalized model.
Speaker Change: For G&A.
Speaker Change: DNA sorry.
Speaker Change: Okay.
Speaker Change: Oh I would say.
Speaker Change: Those two together we're looking at that.
Speaker Change: And then that would be a normalized level or look at it.
Speaker Change: The six month period.
Speaker Change: So depreciation went down a little bit because we had amortized.
Speaker Change: Amortization changes are.
Speaker Change: Let's acquisition during that period, where you have to be SaaS and paas.
Speaker Change: The items to make sure. It was it was correct with the valuation so.
Speaker Change: So we will be closing that vacation period in next quarter.
Speaker Change: So.
Speaker Change: And then part of it.
Three per quarter.
Speaker Change: Revenue.
Speaker Change: Would you expect that to be kind of similar magnitude or.
Speaker Change: Much smaller.
Speaker Change: Well I think given given the good chunk of it.
Speaker Change: Is tightening.
Speaker Change: Honeywell by change, it's really difficult.
Speaker Change: Difficult for us.
Speaker Change: Okay.
Speaker Change: To predict that.
Speaker Change: But I.
Speaker Change: I don't anticipate.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Right, we don't expect a huge thing between Q2 right now Q3.
Speaker Change: Okay.
Speaker Change: Right right.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: So then we could.
Speaker Change: Sequentially in the fourth quarter.
Speaker Change: Paul.
Speaker Change: Decline.
Speaker Change: Okay.
Speaker Change: But.
Speaker Change: A meaningful decline.
Speaker Change: Yeah, you know barring something goes completely wrong.
Speaker Change: Yes.
Speaker Change: But with the supply chain.
Speaker Change: I don't see.
Speaker Change: There's we have $80 million backflow as well.
Speaker Change: Yeah.
Speaker Change: In the March.
Speaker Change: So.
Speaker Change: As long as long.
Speaker Change: We can execute.
Speaker Change: And then even.
Speaker Change: For the transition.
Speaker Change: Yeah.
Speaker Change: If it's if it goes.
Honeywell has put in place.
Speaker Change: And they get the material from the supply chain.
Speaker Change: On time.
Speaker Change: It really shouldn't be much.
Speaker Change: Sure.
Speaker Change: But there was a lot of them.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Can you just comment.
Speaker Change: In terms of.
Speaker Change: Making.
Speaker Change: The transition.
Speaker Change: Previously you guys said.
Speaker Change: Okay.
Speaker Change: Somewhere.
Speaker Change: That facility expansion.
Speaker Change: Perfect.
Speaker Change: It is nearly complete and then you got to move.
Speaker Change: Uh huh.
Speaker Change: Should we be thinking.
Speaker Change: The.
Speaker Change: Great.
Speaker Change: Honeywell will be largely complete sometime.
Speaker Change: Later in the summer.
Speaker Change: The rough timeline.
Speaker Change: Okay.
Speaker Change: That is helpful.
Speaker Change: Okay.
Speaker Change: Alright, great quarter you guys.
Speaker Change: Okay.
Speaker Change: Thanks, John.
But the teams so I appreciate it thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: We have a follow up question from Gal sheets, three with singular research. Please go ahead.
Gal Sheets: Hi, Thanks.
Speaker Change: My follow up on the ERP system does that.
Gal Sheets: As that goes online.
Gal Sheets: Will that improve productivity gains on the inventory management labor cost is that SG&A.
Gal Sheets: Looking to go below 50% in FY 'twenty six.
Gal Sheets: So any European implementation, you still have some tweaks you've got it to on a go forward basis. Our goal is to really utilize the data to create actual data to make business decisions and previously the data was you know we had to really work to get the data and the answers. So I think youll see improvements from our production when I would say.
Gal Sheets: Production in terms of getting the data and making the right business decisions on a go forward basis now how does that translate into the P&L, it's too soon to.
Gal Sheets: To know what those are.
Gal Sheets: In fact, we will be.
Gal Sheets: So on a quarterly basis that SG&A level is going to be look still look around $3 million to $4 million.
Gal Sheets: That's correct I mean keep in mind, we're still the company's growing to organizations growing so you're always going to have some additional costs.
Gal Sheets: Gotcha.
Gal Sheets: And on the X tons capacity, which is going to hit triple by mid.
Gal Sheets: 2025.
Speaker Change: What kind of utilization rate is needed to kind of achieve that mid 30, Oh, 30% growth on topline and as at the EBITDA level.
Gal Sheets: Given that how does the current backlog to support this.
Gal Sheets: So right now the 30% growth is based on everything that we have here today and it really excludes a lot that the new building can produce.
Gal Sheets: Okay.
Gal Sheets: Lack of new building and the facility, we could do about $250 million, we project north of that.
Gal Sheets: And revenue of this building.
Gal Sheets: Got you.
Gal Sheets: Thanks, a lot and congratulations.
Gal Sheets: Thank you.
Gal Sheets: This concludes our question and answer session.
Gal Sheets: I would like to turn the conference back over to Sharon as Kapoor for any closing remarks.
Sharon Kapoor: Thank you operator, and thank you all for your time and interest in <unk>.
Gal Sheets: Have a good day.
Gal Sheets: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Gal Sheets: [music].
Gal Sheets: Yeah.
Gal Sheets: [music].