Innovative Solutions and Support, Inc. (ISSC)
F2Q09 (Qtr End 03/31/09) Earnings Call Transcript
April 30, 2009 10:00 am ET
Geoff Hedrick – Chairman and CEO
John Long – CFO
Roman Ptakowski – President
Steve Denault – Northland Securities
David Campbell – Thompson Davis & Company
Michael Ciarmoli – Boenning & Scattergood
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Thank you. Mr. Hedrick, you may begin your call.
Good morning. This is Geoff Hedrick, I am the chairman and CEO of Innovative Solutions & Support and I would like to welcome you this morning to our conference call to discuss the second quarter 2009 results, our business conditions, and outlook. Joining me today at the Exton headquarters are Roman Ptakowski, our president; and John Long, our CFO.
Before I begin, I would like to ask John to read our safe harbor message. John?
Thanks Geoff. Good morning. I’d like to remind our listeners that certain matters discussed in the conference call today including operational and financial results for future periods are forward-looking statements and are subject to the risks and uncertainties that could cause actual results to differ materially, either better or worse, than those discussed, including other risks and uncertainties reflected in our company’s 10-K which is on file with the SEC.
I will now turn the call back to Geoff Hedrick, CEO. Geoff?
Thanks John. We are reporting strong results for the second quarter ending March 31 of this year. Revenues were up over 50% from a year ago exceeding our high-end guidance and revenues have driven primarily by our Flat Panel Display Systems’ shipments.
We reported net income of $1.3 million or $0.08 a share consistent with our expectations and in the second quarter we improved the bottom line by nearly $6 million from the comparable year earlier. We generated strong cash flow in aggregate an outstanding quarter which we met or exceeded our financial goal. As a result, we believe that the demand for both our Flat Panel systems and Air Data systems will continue to increase as a result of renewed interest in modernizing and improving safety and reliability of existing aircrafts.
We are pleased with the progress in the Cessna program where the company flight testing has successfully been completed and they expect to flight test first for STC with FAA next month. We expect revenues from Cessna to ramp up as the product is rolled out into their distribution system later this year.
In a minute, Roman will talk about progress achieved penetrating the military market. Keep in mind the Cessna opportunity is quite significant but very little will appear in the backlog, due to the nature of the product and this is true with Vantage as well. With growth of retrofit enquiries we feel that we are at the beginning of the initial signs of a major revitalization of the retrofit market. I would like to turn it over to John Long to go through the financial results in more detail before wrapping up and provide our perspective on the third quarter.
Thanks, Geoff, and thanks again for joining our call this morning. Revenues in the second quarter were $10.5 million, up 53% from $6.8 million a year ago and on the upper end of guidance previously provided for the quarter. Growth has been driven by steady execution to existing customer production schedules for the contracts in our backlog as well as the important contribution of inner quarter orders.
Our revenue growth in the quarter was driven by record Flat Panel Display System revenues from a mix of solid customers in each of our three market segments. In the quarter, Flat Panel Display System revenues were $8.2 million while Air Data product revenues were approximately $2.3 million. Gross margins in the second quarter were about 50% consistent with the first quarter margins of 50.3%.
Clearly, incremental product revenues, favorable product mix, and efficiency initiatives are delivering the leverage of our fixed engineering resource and manufacturing overhead as anticipated. Obviously, we are pleased with the margin so far this year. For this year current production levels should enable us to sustain gross margins in the mid-to-high 40% ranges. Longer term our goal is to continue to expand the gross margins through additional leverage of our fixed manufacturing overhead.
Total operating expenses for the quarter were $3.9 million of which $1.6 million was for research and development. Our R&D was about 50% of revenue for the quarter, which as Geoff has previously mentioned is in line with our long-term historical average. R&D productivity has improved quite significantly and I would say more than 50% through a more focused effort as well as some organizational changes and workforce reductions that we have taken over the past six months. Selling, general, and administrative spending in the quarter totaled about $2.3 million compared to $4.7 million in the year ago quarter.
Last year, we did have about $1.3 million of legal expenses in our general and administrative. SG&A this quarter is again below the $2.5 million to $2.7 million quarterly run rate we initially had anticipated. SG&A is also down marginally from the first quarter. For the quarter, SG&A was about 21.5% of revenue and it is trending towards historical averages.