Innovative Solutions and Support(ISSC) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues for Q1 2023 were $6.5 million, a decrease of 2.7% from $6.7 million in Q1 2022, primarily due to lower commercial aftermarket revenue [31] - Gross profit was $3.7 million compared to $4 million in the prior year, with a gross margin of 57.1% versus 59.3% in the previous year [22][35] - Net income for Q1 was $0.7 million or $0.04 per share, down from $1.1 million or $0.07 per share in Q1 2022 [40] Business Line Data and Key Metrics Changes - The decrease in commercial sales was attributed to fluctuations in sales orders for the aftermarket retrofit business [32] - Demand from the OEM business remained strong, with engineering development contracts improving due to two R&D projects [31] - New orders in Q1 were approximately $3.3 million, with a backlog of $8.5 million as of December 31, 2022, up from $6.2 million a year prior [33] Market Data and Key Metrics Changes - The company received FAA supplemental type certificate for King Airs, opening up 700 potential aircraft for their Autothrottle product [20] - The aftermarket for 757 and 767 remains cyclic, with expected revenue ranging between $5 million to $7 million annually [13] Company Strategy and Development Direction - The company is focused on expanding margins through better facility utilization and plans to achieve this via organic growth and strategic acquisitions [24] - R&D expenses are targeted to increase to 13% of sales in fiscal 2023, up from 10% in fiscal 2022 [25] - Cockpit automation is a key focus area, with ongoing development of Autothrottle for various aircraft models [26] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong cash flows and improving operating leverage as sales growth returns [42] - The company is well-positioned to capitalize on both organic and inorganic opportunities due to its debt-free balance sheet and significant liquidity [40] Other Important Information - Total operating expenses were $2.9 million in Q1, up from $2.5 million in the prior year, primarily due to non-cash long-term employee stock compensation and legal fees [37] - Cash on hand increased to $19.4 million as of December 31, 2022, up from $17.3 million at the end of fiscal 2022 [41] Q&A Session Summary Question: General and administrative expenses - The increase in G&A expenses to $2.9 million was partly due to the creation of a team for additional opportunities and the passing of the founder, with expectations for some temporary costs [45][46] Question: Future G&A expenses - Future G&A expenses are expected to be lower than Q1 but higher than historical run rates due to new compensation plans and investments in the team [48] Question: Impact of interest income - Interest income increased due to higher cash balances and interest rates, with funds reallocated to higher-yielding accounts [51] Question: Airbus cargo conversion impact - The management noted no significant impact from Airbus converting their cargo, but acknowledged the cyclic nature of the aftermarket for their products [13]