ISSC

Innovative Solutions and Support, Inc. (ISSC)

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Exchange: NASDAQ
Industry: Technology
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Innovative Solutions & Support Inc. (ISSC)

F3Q08 Earnings Call

July 31, 2008 10:00 am ET

Executives

Ray Wilson - Chief Executive Officer

Roman Ptakowski - President and Chief Operating Officer

John Long - Chief Financial Officer

Analysts

Steve Denault - Northland Securities

David Campbell - Thompson Davis & Co

[Reed Alison – William D. Ritter]

Howard Katz – Smith Barney

Alex Hamilton - Jesup & Lamont

Michael Ciarmoli - Boenning and Scattergood

Presentation

Operator

Welcome to the Innovative Solutions conference call. (Operator Instructions) At this time I would like to turn the event over to Ray Wilson, Chief Executive Officer.

Ray Wilson

Joining me today from our corporate office in Exton, Pennsylvania is Roman Ptakowski our President and COO and John Long our Chief Financial Officer. The purpose of the call this morning is purely to discuss our revised Q4 and 2009 impact. At this time we really do not want to discuss the wide arrange of questions and we’ll try and contain the subjects to those pertinent for today.

Before we get started let me remind you that this conference call may contain forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and that represent our expectation of at least about future events and financial performance. Forward-looking statements are subject to known and unknown risks and uncertainties including those described in our Annual Report and Form 10-K for the year ended September 30, 2007, and other filings we make with the Securities and Exchange Commission.

Actual results could differ materially from those suggested by forward-looking statements. We do not make any new commitment to revise or update any forward-looking statements to reflect new information, events, or circumstances occurring or existing after the date of any forward-looking statement is made.

As we announced last night we are revising our financial expectations for the fourth quarter and fiscal year ended September 30, 2008. This was necessitated by a change in delivery schedules recently communicated to us by a major customer. The result of the change is a decrease in our forecast fourth quarter revenues and consequently profit due to the limited time available to adapt to planned production.

In light of this development we’re also reducing our expense base. We had built resources over the past 18 months to support customer production plans and we’re taking actions to align resources with the production requirements. Our new forecast for the fourth quarter is as follows. Revenues are now expected to be in range $10 to $12 million with our revenue for the year now forecast to be between $30 and $32 million, an increase of 64% over the prior fiscal year sales of $18.3 million.

Gross margins are expected to be in the order of 42% to 46%. As noted in our press release we have begun cutting costs. A number of people left the company yesterday and we’ll continue to identify efficiency opportunities to align our overall resources with production requirements to achieve profitability in fiscal year 2009. Our management team is intensely focused on delivering profitability and we are disappointed that we will not achieve that goal this quarter.

Despite this setback we continue to believe that our existing backlog of diversified mix of commercial, general aviation and military order and improving operational efficiency will enable us to achieve profitability in fiscal 2009. We are prepared to take any further hard actions to achieve our objective. Our business is strong and should grow significantly next year. We have momentum with a range of other customers including American Airlines, FedEx, Cessna, US Military, floor board flat panels, displays and their data products.

Our adjusted current backlog as of now is $62 million. That takes out the said customer for the whole of next year and beyond. Not only marginally from June 30, because as we have clearly articulated we only carry about eight weeks of production from this major customer in our backlog. We believe that the cost cutting efficiency enhancing efforts that are underway coupled with our backlog will allow us to achieve profitability in our 2009 fiscal year with this level of business.

With that we’ll take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Steve Denault - Northland Securities.

Steve Denault - Northland Securities

Can you give us a sense, a couple things you mentioned, one was that you thought, I think you said, your verbal remarks you thought business could grow substantially in 2009 over 2008 including the most recent developments. Considering that can you help us understand, what do you need to do from a cost structure perspective, how easy are the changes and the cost cuts in order to get yourself back to some level of profitability?

Ray Wilson

You started off talking about business growth and then went on to talk about how we view cost cuts. Can I just mention that in terms of business growth I mentioned already in my script the backlog and where it stands and you can see it’s still very substantial. Beyond that, in that firm backlog there’s around $30 million of deliveries for next year, on top of which as you know and we’ve explained several times in the past we have customers who actually just roll their orders forward.

A good example is FedEx where they place orders with us three months ahead of their schedule requirement. Consequently if we roll up people like FedEx into this forward looking situation we get to around $37 million firm and quasi firm order for the financial year. I’ll leave it to you to work out, you guys are better than we are what the total revenues for the year might be. As you can see even that would be substantial growth over what we’re now seeing for this year. There’s more to come I think.

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