Innovative Solutions and Support, Inc. (ISSC)

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Innovative Solutions and Support, Inc. (ISSC)

F3Q09 (Qtr End 06/30/09) Earnings Call Transcript

July 29, 2009 10:00 am ET


Geoff Hedrick - Chairman and CEO

John Long - CFO

Roman Ptakowski - President


Alex Hamilton - Jesup & Lamont Securities Corp.

David Campbell - Thompson, Davis & Co.

Michael Ciarmoli - Boenning & Scattergood Inc.



Good morning. My name is Lisa and I will be your conference operator today. At this time I would like to welcome everyone to the Innovative Solution & Support third quarter financial results 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you. Mr. Hedrick, you may begin your conference.

Geoff Hedrick

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 third quarter 2009 results, current business conditions, and outlook. Joining me today in our 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 statement. John?

John Long

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 includes the risks and uncertainties reflected in our company’s 10-K which is on file with the SEC.

I will now turn the call back over to Geoff Hedrick, CEO. Geoff?

Geoff Hedrick

Thanks John. We again reported another profitable quarter within the period ending June 30, 2009 so we have extended our sequential profitable quarters this fiscal year.

For the quarter, we report a net income of $1.3 million or $0.07 per fully diluted share an encouraging improvement over the comparable year earlier and especially in a most difficult economy. Over the past three profitable quarters this year, we have increased revenue by more than 40%, we have also once again achieved our cash flow goal by generating $1.8 million in cash flow in the third quarter. All in all another quarter that is consistent with our objectives for the year.

We remarked last quarter how deteriorating conditions were going to pose a challenge sustaining the revenue levels that we had achieved for the first half of the year. The decrease in revenues to $7.8 million in the third quarter was anticipated. In addition to interest rate conditions, revenues in the quarter were impacted by a customer initiated production schedule change at the end of this quarter. In light of both the weak industry conditions and the loss of grant revenues due to customer deferral, we believe our results are indicative of the strength of our business and the result of our management (inaudible).

Gross margin were 53.3% and operating margin of 13% for the third quarter, so despite the topline increase we were able to adapt quickly to the changed conditions and generate margins consistent with if not better than the first half. Cash flow was also strong this quarter at $1.8 million as we continued to reduce inventory, closely monitor receivable levels, and make other changes to better manage our working capital. Cash at the end of the quarter was at a recent high of $39.3 million. Our creditable financial performance and solid balance sheet are on track to meet our financial performance objectives for the year.

Our products are all manufactured and tested to the most recent industry standards and are all qualified for application into all three of the markets we serve. This provides flexibility in our production to meet variable demand in each market segment. Lately we have been having success in the military market both home and abroad. In the immediate term [ph] it appears that the military market has managed to remain rather resilient. In the third quarter, we booked a number of new military contracts and we are optimistic we will see more of our proposals transition into firm orders. Although the overall general aviation market has suffered, we are nearly at an inflection point with our Cessna relationship. The company flight testing is successfully completed and Cessna plans to start FAA ground and flight test for the FTC of our Flat Panel Display System this week, with the slow down in new aircraft demand its very cost-effective upgrade program is expected to expand quickly.

Though the (inaudible) has not materially increased many of our new programs are shifting away from traditional long-term contracts to book and ship and similar contractual relations. This year we have de-booked $6 million of G8 orders impacted by slow certification and the industry slowdown. This was done in the December quarter. Under new agreements including Cessna, the work never enters backlog and although the relationship may ultimately result in sales that could reach millions. Our bid pipeline is also strong with over 100 million in outstanding proposals are being worked including a letter of intent from an international airline for retrofit of their fleet.

I would like to turn it over to John Long now to review the financial results before we wrap up.

John Long

Thanks, Jeff, and thanks again for joining our call this morning. Revenues in the third quarter were $7.8 million, down 11.3% from $8.8 million a year ago. However in 2008 third quarter revenues included $3.2 million of shipments of products to an OEM customer that was subsequently discontinued. Excluding the revenues from that one product revenues from our core products were up in the quarter.

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