Innovative Solutions and Support(ISSC) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net revenues for the second fiscal quarter of 2024 were $10.7 million, representing a 46.3$7.3 million for the second fiscal quarter of 2023 [66] - For the six months ended March 31, 2024, total revenues were $20 million, a 44.7$13.9 million for the same period in 2023 [66] - Net income for the second quarter was $1.2 million or$0.07 per share, compared to $1.3 million or$0.07 per share in the year-ago quarter [69] - Overall gross margin was 52% for the three months ended March 31, 2024, down from 64.6% in the same quarter of 2023 [34] Business Line Data and Key Metrics Changes - Product sales decreased by $1 million or 17.7$3.7 million or 265.4% compared to the year-ago quarter [33] - EDC sales increased by $700,000 compared to the year-ago quarter, reflecting increased EDC business [33] - Selling, general and administrative expenses were$2.9 million, an increase of $500,000 or 18.9$6.6 million, with a backlog of $10.4 million as of March 31, 2024 [36] Company Strategy and Development Direction - The company is focused on integrating products acquired from Honeywell and expects to complete the integration of the Inertial Reference Unit business by the end of summer [62] - The long-term growth strategy includes growth by acquisition and modest organic growth, with plans to opportunistically evaluate additional acquisitions [31][64] - The company is developing new cockpit automation upgrades to enhance safety and reduce pilot workload, targeting future single-pilot operations [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate cash flow to support its growth strategy, having reduced borrowings by approximately$10 million in the first six months post-acquisition [64] - Management acknowledged delays in the integration process with Honeywell, which have negatively impacted margins but expect improvements as synergies are realized [12][38] Other Important Information - Research and development expenses increased to $1.0 million, a 19% increase compared to the same quarter last year, driven by higher salaries and benefits due to increased headcount [68] - The company is ramping up business development efforts with the addition of the Honeywell global business development team to extend its network into new international markets [91] Q&A Session Summary Question: What are the EBITDA financial expectations for the 2024 fiscal year, especially regarding margins? - Management indicated that margins are expected to improve once the integration with Honeywell is complete and synergies are realized [15][16] Question: What financial effect is expected from UMS expansion into PC-24, and which existing product lines will enhance organic revenue? - Management confirmed ongoing production contracts with Pilatus for PC-24 and highlighted the potential for future development in adjacent markets [50] Question: Can you summarize the one-time costs in the quarter and their impact on margins? - Management detailed that one-time costs included acquisition-related expenses and legal fees, which negatively impacted margins [19][41] Question: How long will it take to burn off the Honeywell inventory acquired, and when might gross margins improve? - Management indicated that the current quarter may represent a low point for gross margins, with expectations for improvement in the third quarter as integration progresses [54][52]