Innovative Solutions and Support(ISSC) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 fiscal 2019 was $4.2 million, marking a significant increase from the same quarter in 2018 and representing the second consecutive quarter of revenue growth for fiscal 2019 [9] - Gross margins improved to 56%, up from 44% in the same quarter last year, reflecting better leverage from increased revenues and reduced direct material costs [10] - Operating expenses decreased to $2.2 million, down from approximately $2.8 million in the same quarter a year ago, due to workforce reductions and variability in expenses [11] - The company reported a net income of $202,000 or $0.01 per share, compared to a net loss of $1.3 million or $0.08 per share in the same quarter last year [13] Business Line Data and Key Metrics Changes - All three market segments—commercial air transport, general aviation, and military—contributed to revenue growth, with significant sales driven by retrofit programs and new product offerings [4][5] - Product sales accounted for approximately 88% of total revenue, with engineering services making up the remainder [9] - The military segment is seeing progress with new air data computer development contracts, with test units delivered to the navy for evaluation [6][17] Market Data and Key Metrics Changes - The commercial air transport segment saw increased orders for flat-panel displays for Boeing 757 and 767, driven by existing customer needs [14] - The general aviation market is experiencing heightened interest in the ThrustSense autothrottle, particularly following the receipt of a Supplemental Type Certificate (STC) for the King Air [18][19] - The backlog as of March 31, 2019, was $5.5 million, indicating steady progress in the company's tech strategy [20] Company Strategy and Development Direction - The company is focusing resources on fewer, more promising opportunities, leading to improved productivity and shorter development cycles [6] - The ThrustSense autothrottle is seen as a key growth opportunity, with aggressive marketing efforts underway to capitalize on its safety features and low installation costs [8][19] - The company aims to enhance its product portfolio and is optimistic about future revenue growth from the general aviation market [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving end markets and the effectiveness of the company's focused strategy [22] - The company is confident in its ability to generate positive cash flow and has sufficient cash reserves to fund operations for the foreseeable future [13] - Management acknowledged the uncertainty in the Chinese market but emphasized the pragmatic nature of business relationships, suggesting continued opportunities [35][36] Other Important Information - The company generated $900,000 in cash during the quarter, marking a positive cash flow for the second consecutive quarter [4] - The company has over $21 million in cash on hand and no debt, indicating a strong financial position [13] Q&A Session Summary Question: Clarification on 757 and 767 business sources - Management indicated that the 757 business is primarily from existing customers needing upgrades due to the end of support for existing equipment [24][27] Question: Revenue expectations for the rest of the fiscal year - Management expects a slow ramp-up in revenues, consistent with the increase in backlog [38][39] Question: Details on the STC for King Air - The STC was achieved earlier than anticipated due to a strategic deployment of the autothrottle system, allowing for earlier installations [50][52] Question: Value proposition of ThrustSense autothrottle - The ThrustSense provides significant engine protection, potentially saving owners substantial costs associated with engine repairs [80][81] Question: Future STC developments - Management is uncertain about the next STC but is optimistic about future opportunities [89] Question: Significance of the KC-46 program - The KC-46 program is a good-sized opportunity but not a significant revenue driver for the company [91][93]