Innovative Solutions and Support Inc (ISSC) 2024 Q4 法說會逐字稿

Good evening, and welcome to the Innovative Solutions & Support's Fourth Quarter Fiscal 2024 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Paul Bartolai. Please go ahead.

晚上好，歡迎參加創新解決方案與支援 2024 財年第四季財務業績電話會議。 （操作員說明）請注意，正在記錄此事件。我現在想把會議交給保羅·巴托萊 (Paul Bartolai)。請繼續。

Thank you. Welcome to Innovative Solutions & Support's Fourth Quarter and Full Year 2024 Results Conference Call. Leading the call today are our CEO, Shahram Askarpour; and CFO, Jeff DiGiovanni. Earlier today, we issued a press release detailing our fourth quarter and full year 2024 operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at www.innovative-ss.com.

謝謝。歡迎參加創新解決方案與支援 2024 年第四季和全年業績電話會議。今天主持電話會議的是我們的執行長 Shahram Askarpour；財務長傑夫‧迪喬瓦尼 (Jeff DiGiovanni)。今天早些時候，我們發布了一份新聞稿，詳細介紹了我們第四季度和 2024 年全年的營運和財務業績。本新聞稿可在我們公司網站 www.innovative-ss.com 的投資者關係部分公開取得。

I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of the latest reports filed with the SEC. Additionally, please note that you can find reconciliations of all historical non-GAAP financial measures mentioned on this call in the press release issued earlier today. Today's call will begin with prepared remarks from Shahram Askarpour, who will provide a review of our recent business performance and strategic outlook, followed by a financial update from Jeff DiGiovanni.

我想提醒您，管理層在今天的電話會議上的評論和對問題的回答可能包括前瞻性陳述，這些陳述本質上是不確定的，超出了公司的控制範圍。儘管這些前瞻性陳述是基於管理階層目前的預期和信念，但實際結果可能存在重大差異。有關可能導致實際結果不同的一些因素的討論，請參閱向 SEC 提交的最新報告的風險因素部分。此外，請注意，您可以在今天早些時候發布的新聞稿中找到本次電話會議中提到的所有歷史非公認會計準則財務指標的調整表。今天的電話會議將以 Shahram Askarpour 準備好的演講開始，他將回顧我們最近的業務業績和戰略前景，然後由 Jeff DiGiovanni 介紹財務最新情況。

At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Shahram.

在準備好的發言結束後，我們將開通您的提問專線。這樣，我會將電話轉給 Shahram。

Thank you, Paul, and good afternoon to everyone joining us on the call today. Let's begin with a high-level overview of our fourth quarter and full year financial performance. This was a transformative year for IS&S, one in which we delivered significant year-over-year growth in revenue, net income, EBITDA and free cash flow. We generated net income of $7 million, which was up 16% from the prior year. In addition, total EBITDA was approximately $12 million, which was up 36% from the prior year and is up nearly threefold from just three years ago.

謝謝保羅，今天參加我們電話會議的每個人都下午好。讓我們先對我們第四季和全年的財務業績進行高層次的概述。對 IS&S 來說，今年是變革性的一年，我們的營收、淨利、EBITDA 和自由現金流都實現了同比顯著成長。我們的淨利潤為 700 萬美元，比上年增長 16%。此外，EBITDA 總額約 1,200 萬美元，比上年增長 36%，比三年前增長了近三倍。

During the fourth quarter, we delivered more than 18% year-over-year growth in revenue, driven by momentum from new military programs and recently acquired platforms. In recent quarters, demand across our military end markets has increased, supported by orders from both the US Department of Defense and allied foreign militaries. As a higher volume of backlog converts to revenue, we've realized improved operating leverage, a dynamic we expect to continue into the coming year. At a strategic level, we continue to build a growth platform centered exclusively on advanced avionics solutions for both commercial and military markets.

在新軍事項目和最近收購的平台的推動下，第四季度我們的收入年增超過 18%。最近幾個季度，在美國國防部和盟國軍隊訂單的支持下，我們的軍事終端市場的需求增加。隨著更多的積壓訂單轉化為收入，我們已經實現了營運槓桿的提高，我們預計這種動態將持續到明年。在戰略層面上，我們繼續打造一個專門針對商業和軍事市場的先進航空電子解決方案的成長平台。

Over time, our systems integration expertise has positioned IS&S as a preferred partner in the fleet modernization and retrofit markets, one whose in-house design, manufacturing, installation and support capabilities provide customers with safe, compliant and cost-effective solutions that enhance aircraft safety, compliance and mission readiness. We've built a strong reputation in the market that positions us to further scale our business moving forward. Today, we are introducing IS&S [Next], our long-term value creation strategy. We consider this strategy the guiding framework for our next chapter of growth as we'll outline over the coming quarters. At a high level, our strategy centers on a combination of targeted commercial growth within high-value markets improving operating leverage and a disciplined returns-driven approach to capital allocation.

隨著時間的推移，我們的系統整合專業知識使IS&S 成為機隊現代化和改裝市場的首選合作夥伴，其內部設計、製造、安裝和支援能力為客戶提供安全、合規且經濟高效的解決方案，從而提高飛機安全性、合規性和任務準備狀態。我們在市場上建立了良好的聲譽，這使我們能夠進一步擴大業務規模。今天，我們將介紹 IS&S [Next]，我們的長期價值創造策略。我們認為這項策略是我們下一個成長篇章的指導框架，我們將在未來幾季概述這項策略。在高層面上，我們的策略集中在高價值市場內有針對性的商業成長、提高營運槓桿和嚴格的回報驅動型資本配置方法的結合。

While many of these elements are already at work in our existing business, we intend to provide more transparency around our progress under this strategy each quarter moving forward. The first pillar of our growth strategy centers on targeted commercial growth within our core advanced avionics market verticals. Looking ahead, we expect commercial growth will come from several key areas, including the expansion of existing platforms, new original equipment manufacturer or OEM and retrofit programs, new product development and strategic product line acquisitions. In 2024, we delivered significant commercial growth through an expansion of our military business, continued growth in existing platforms and realized synergies resulting from our recent Honeywell product line acquisitions. Our military end markets were very strong last year.

雖然其中許多要素已經在我們現有的業務中發揮作用，但我們打算在未來每季就這項策略下的進展提供更多的透明度。我們成長策略的第一個支柱集中在我們核心的先進航空電子市場垂直領域內的有針對性的商業成長。展望未來，我們預計商業成長將來自幾個關鍵領域，包括現有平台的擴展、新的原始設備製造商或 OEM 和改造計劃、新產品開發和策略產品線收購。2024 年，我們透過軍事業務的擴張、現有平台的持續成長以及最近收購霍尼韋爾產品線帶來的協同效應，實現了顯著的商業成長。去年我們的軍事終端市場非常強勁。

And given our leadership in cockpit automation, we anticipate a continuation of this trend into 2025. Earlier this year, we announced a new foreign military platform with a major aerospace OEM to supply multifunction displays with an integrated mission computer. We've already begun executing under this contract and realize revenues in 2024. We also recently announced that our ThrustSense Autothrottle system was selected by the US Army to be installed on the C-12 aircraft.

鑑於我們在駕駛艙自動化領域的領先地位，我們預計這一趨勢將持續到 2025 年。今年早些時候，我們宣布與一家大型航空航天 OEM 合作推出一個新的外國軍事平台，以提供具有整合任務電腦的多功能顯示器。我們已經開始執行該合同，並於 2024 年實現收入。我們最近也宣布我們的 ThrustSense 自動油門系統被美國陸軍選擇安裝在 C-12 飛機上。

This advanced technology will provide full flight envelope protection from takeoff to landing, including go around, enabling pilots to automatically control engine power settings for enhanced safety and efficiency. Entering 2025, we are seeing several other similar opportunities with commercial customers entering our pipeline and anticipate that our work with both the US DoD and allied foreign militaries will remain a significant growth engine for us in the year ahead. Within our commercial end markets, we continue to experience solid growth across existing platforms and OEM contracts. This includes Pilatus for our Utility Management System, Textron for our standby instrument and our autothrottle and on the military side, Boeing on KC-46A, KC-767 and the T-7 platforms.

這項先進技術將提供從起飛到著陸（包括復飛）的完整飛行包線保護，使飛行員能夠自動控制發動機功率設置，以提高安全性和效率。進入 2025 年，我們看到商業客戶進入我們的通路中還有其他幾個類似的機會，並預計我們與美國國防部和盟國軍隊的合作將仍然是我們未來一年的重要成長引擎。在我們的商業終端市場中，我們在現有平台和 OEM 合約方面繼續實現穩健成長。其中包括用於公用事業管理系統的 Pilatus、用於備用儀器和自動油門的德事隆以及軍事方面的波音 KC-46A、KC-767 和 T-7 平台。

On the heels of our recent Honeywell product line acquisitions, cross-selling synergies have increased as expected. These acquisitions have brought us the opportunity to cross-sell our existing products into new customer relationships acquired in the transactions while also selling new product lines to our legacy customers. New product development remains integral to our long-term growth. We continue to expand the sophistication of our cockpit automation technology through functionalities that enhance safety and reduce pilot workload. The integration of AI functionality to enhance cockpit automation remains a major area of focus for our industry over the coming years.

在我們最近收購霍尼韋爾產品線之後，交叉銷售綜效如預期般增強。這些收購為我們帶來了將現有產品交叉銷售到交易中獲得的新客戶關係的機會，同時也向我們的傳統客戶銷售新產品線。新產品開發仍然是我們長期成長不可或缺的一部分。我們繼續透過增強安全性和減少飛行員工作量的功能來提高駕駛艙自動化技術的複雜性。整合人工智慧功能以增強駕駛艙自動化仍然是我們行業未來幾年的主要關注領域。

In early 2025, we will begin flight testing our new generation Utility Management System, or UMS, on the PC-24 platform with Pilatus. In layman's term, the UMS is to an aircraft what a CPU is to a laptop computer. It guides, controls and powers the most critical operating systems. Additionally, in 2025, we plan to launch our UMS2, which is a cutting-edge certifiable flight monitoring and control system. UMS2 is an AI-capable system, one whose integrated neural network processing capabilities significantly enhance crew efficiency by enabling additional cockpit automation.

2025 年初，我們將開始在 Pilatus 的 PC-24 平台上對新一代公用事業管理系統 (UMS) 進行飛行測試。通俗地說，UMS 之於飛機就如同 CPU 之於筆記型電腦。它指導、控制和驅動最關鍵的作業系統。此外，我們計劃在 2025 年推出 UMS2，這是一種尖端的可認證飛行監控系統。UMS2 是一款支援人工智慧的系統，其整合的神經網路處理功能可透過實現額外的駕駛艙自動化來顯著提高機組人員的效率。

As our UMS2 is platform agnostic, we see significant growth potential for this product line over the next several years, particularly within the military and business aviation markets. The second key pillar of our value creation strategy focuses on driving increased operating leverage across the organization. As we layer on higher base of revenue within our business, we anticipate improved fixed cost absorption and ultimately, a higher sustained run rate of EBITDA dollars. During 2025, we intend to increase the volume of maintenance, repair and overhaul work we handle at our Exton facility while also increasing the volume of subassemblies that are being manufactured internally. More on this shortly.

由於我們的 UMS2 與平台無關，因此我們看到該產品線在未來幾年內具有巨大的成長潛力，特別是在軍用和公務航空市場。我們價值創造策略的第二個關鍵支柱著重於提高整個組織的營運槓桿。隨著我們業務收入基礎的提高，我們預計固定成本吸收將得到改善，最終 EBITDA 美元的持續運作率將更高。2025 年，我們計劃增加埃克斯頓工廠的維護、修理和大修工作量，同時增加內部製造的組件數量。稍後將詳細介紹這一點。

The final pillar of our value creation strategy focuses on a returns-driven approach towards capital allocation. We demonstrated our ability to successfully allocate capital during 2024, including both investments in our organic growth initiatives as well as the deployment of capital for product line acquisitions. Our organic growth investments included the addition of R&D staff and increased manufacturing headcount as we prepare to capitalize on higher sales volumes across our business. In 2025, we intend to increase our manufacturing capacity by more than 100% through a $6 million facility expansion. This investment will add a second subassemblies line as part of the 40,000 square foot addition.

我們價值創造策略的最後一個支柱著重於以回報為導向的資本配置方法。我們展示了在 2024 年成功分配資本的能力，包括對有機成長計畫的投資以及為產品線收購部署資本。我們的有機成長投資包括增加研發人員和增加製造人員數量，因為我們準備充分利用整個業務的更高銷售量。到 2025 年，我們計劃透過 600 萬美元的設施擴建將我們的製造能力提高 100% 以上。這項投資將增加第二條組件生產線，作為 40,000 平方英尺擴建項目的一部分。

Subsequently, we anticipate this will provide us with the opportunity to acquire other strategic product lines in the future, further to my point earlier on increased operational efficiency. The highlight of our capital allocation strategy during 2024 was clearly the additional acquisitions from Honeywell. We invested nearly $20 million in the two additional acquisitions during the year, positioning us to expand our capabilities, add new customers and open the door to significant cross-selling synergies entering 2025. In July 2024, we acquired additional key assets for certain communication and navigation product lines from Honeywell for roughly $4 million in consideration. This was followed in September 2024 with the acquisition of various generations of military display generators and flight control computers from Honeywell for $14 million in cash.

隨後，我們預計這將為我們提供未來收購其他策略產品線的機會，進一步實現我先前關於提高營運效率的觀點。2024 年我們資本配置策略的亮點顯然是對霍尼韋爾的額外收購。今年，我們在另外兩項收購中投資了近 2000 萬美元，這使我們能夠擴大我們的能力，增加新客戶，並為進入 2025 年實現顯著的交叉銷售協同效應打開大門。2024 年 7 月，我們以約 400 萬美元的價格從霍尼韋爾收購了某些通訊和導航產品線的額外關鍵資產。隨後於 2024 年 9 月以 1,400 萬美元現金從霍尼韋爾收購了各代軍用顯示器產生器和飛行控制電腦。

As we have discussed, these acquisitions provide us with several unique opportunities to drive profit uplift through the in-sourcing of certain components, the potential to bring more maintenance and repair work in-house as well as attractive revenue synergy opportunities. In conclusion, 2024 represented over 30% growth in revenue and adjusted EBITDA, and we expect similar growth in 2025, exclusive of any future acquisition opportunities. We intend to remain an opportunistic acquirer of complementary product lines that expand our capabilities in advanced avionics. We believe our collective focus on commercial growth, operational efficiency and disciplined capital allocation position IS&S for sustained value creation in the year ahead, and we look forward to having you join us on that journey. With that, I'll turn the call over to Jeff for his prepared remarks.

正如我們所討論的，這些收購為我們提供了一些獨特的機會，可以透過內購某些組件來推動利潤成長，有可能帶來更多的內部維護和維修工作，以及有吸引力的收入協同機會。總之，2024 年營收和調整後 EBITDA 成長超過 30%，我們預期 2025 年也會出現類似成長（不包括任何未來的收購機會）。我們打算繼續作為互補產品線的機會主義收購者，以擴大我們在先進航空電子設備方面的能力。我們相信，我們對商業成長、營運效率和嚴格資本配置的共同關注使 IS&S 在未來一年能夠持續創造價值，我們期待您加入我們的旅程。接下來，我會將電話轉給傑夫，讓他準備好要講話。

Thank you, Shahram, and good afternoon to all those joining us. Today, I will provide a high-level overview of our fourth quarter performance, including a discussion of our working capital, balance sheet and liquidity profile at quarter end. We generated net revenues of $15.4 million in the fourth quarter, up 18% when compared to the fourth quarter last year. The increase was driven by contribution from the recently acquired Honeywell product lines, growing momentum in new military programs as well as revenue synergies from the Honeywell platforms acquired last year. It is worth noting that our fourth quarter 2024 revenues were impacted by a $1.7 million true-up payment for services performed by third-parties.

謝謝你，Shahram，祝所有加入我們的人下午好。今天，我將對我們第四季度的業績進行高度概述，包括對季度末我們的營運資本、資產負債表和流動性狀況的討論。我們第四季的淨收入為 1540 萬美元，比去年第四季成長 18%。這一成長的推動因素包括最近收購的霍尼韋爾產品線的貢獻、新軍事項目的成長勢頭以及去年收購的霍尼韋爾平台的收入協同效應。值得注意的是，我們 2024 年第四季的收入受到第三方提供服務的 170 萬美元實際付款的影響。

Additionally, we were pleased to see continued stabilization in the air transport market, and we saw sequential growth in this market when compared to the first half of the year. Product sales increased to $9.8 million during the fourth quarter, driven by contribution from our commercial air transport programs. Customer service revenue was $5.5 million, owing largely to the customer service sales from the product lines acquired from Honeywell. Gross profit was $8.5 million during the fourth quarter, up $8.1 million in the same period last year, driven by strong revenue growth, partially offset by the higher depreciation and amortization expense resulting from the Honeywell acquisitions and continued investments in growth initiatives. On that note, I think it's important to recalibrate expectations around our recent gross margin performance and our anticipated margin outlook entering 2025.

此外，我們很高興看到航空運輸市場持續穩定，與上半年相比，我們看到該市場持續成長。在我們的商業航空運輸計畫的推動下，第四季產品銷售額增至 980 萬美元。客戶服務收入為 550 萬美元，主要歸功於從霍尼韋爾收購的產品線的客戶服務銷售。第四季毛利為850 萬美元，較去年同期成長810 萬美元，這得益於強勁的收入增長，但部分被霍尼韋爾收購和持續投資增長計劃帶來的折舊和攤銷費用增加所抵消。在這一點上，我認為重新調整對我們最近的毛利率表現和進入 2025 年的預期利潤率前景的預期非常重要。

There are two primary factors that have impacted gross margin capture in recent quarters. The first factor is related to the incremental depreciation and amortization that has resulted from recent product line acquisitions. As we continue to complete product line acquisitions in the future, we expect that this will be an ongoing margin headwind. The second factor involves the forward shift in our sales mix. Historically, military sales represent less than a third of sales, while 2025 due to the recent acquisition, it will be a higher percent of sales.

有兩個主要因素影響了最近幾季的毛利率。第一個因素與最近產品線收購導致的增量折舊和攤提有關。隨著我們未來繼續完成產品線收購，我們預計這將是持續的利潤逆風。第二個因素涉及我們銷售組合的向前轉變。從歷史上看，軍售僅佔銷售額的不到三分之一，而到 2025 年，由於最近的收購，這一比例將更高。

Generally, military sales carry a lower average gross margin versus commercial contracts. However, given the significant potential we see for absolute EBITDA dollar growth in military, we believe this is good for us and work that we will continue to pursue as it advances our focus on improved operating leverage. Given these factors, we expect our consolidated gross margins will likely trend closer toward mid-50% on a normalized basis over the intermediate term, which is below historical levels. However, we anticipate that with our improved top line growth profile, we'll be able to drive increased adjusted EBITDA margin realization and profitability over time. Consequently, we believe adjusted EBITDA margin and expansion will be a comparably better measure of our relative performance over time than gross margins.

一般來說，軍售的平均毛利率低於商業合約。然而，鑑於我們看到軍事領域 EBITDA 絕對成長的巨大潛力，我們相信這對我們有利，也是我們將繼續追求的工作，因為它推動了我們對改善營運槓桿的關注。考慮到這些因素，我們預期中期來看，在正常化的基礎上，我們的綜合毛利率可能會接近 50%，低於歷史水準。然而，我們預計，隨著收入成長狀況的改善，我們將能夠隨著時間的推移推動調整後 EBITDA 利潤率實現和獲利能力的提高。因此，我們認為調整後的 EBITDA 利潤率和擴張將比毛利率更好地衡量我們隨著時間的推移的相對表現。

Research and development expense during the fourth quarter of 2024 was $1.1 million, an increase from approximately $740,000 in the comparable period last year. This increase was driven by growth in our product development efforts in support of our long-term growth strategy. Fourth quarter 2024 selling, general and administrative expenses were $3.1 million, a decrease of $3.7 million from last year. The decrease in SG&A expense in the quarter was primarily the result of some onetime expenses included in the prior year results, partially offset by incremental amortization expense related to the acquired Honeywell product lines. Fourth quarter net income was $3.2 million or $0.18 per diluted share compared to net income of $2.6 million or $0.15 per diluted share a year ago -- a year a quarter ago.

2024 年第四季的研發費用為 110 萬美元，較去年同期的約 74 萬美元增加。這一成長是由我們為支持我們的長期成長策略而進行的產品開發工作的成長所推動的。2024 年第四季銷售、一般和管理費用為 310 萬美元，比去年減少 370 萬美元。本季 SG&A 費用的減少主要是由於上一年業績中包含的一些一次性費用，部分被與收購的霍尼韋爾產品線相關的增量攤銷費用所抵消。第四季淨利為 320 萬美元，即稀釋後每股收益 0.18 美元，去年同期淨利為 260 萬美元，即稀釋後每股收益 0.15 美元。

Adjusted EBITDA was $5.6 million during the fourth quarter, up from $4.8 million last year due to our strong revenue growth and operating expense leverage. Moving on to backlog. New orders in the fourth quarter of fiscal 2024 were $95.4 million, which includes $74.3 million of backlog acquired as part of the product line acquisition announced on September 27, 2024, and backlog as of September 30, 2024, was $89.2 million. This backlog includes only purchase orders in hand and excludes orders from the company's OEM customers under long-term programs, including Pilatus PC-24, Textron King Air, Boeing T-7, the Boeing KC-46A and Lockheed Martin. We expect these programs to remain in production for several years and anticipate that they will continue to generate future sales.

由於我們強勁的營收成長和營運費用槓桿，第四季度調整後 EBITDA 為 560 萬美元，高於去年的 480 萬美元。繼續處理積壓工作。2024財年第四季的新訂單為9,540萬美元，其中包括作為2024年9月27日宣布的產品線收購的一部分而獲得的7,430萬美元的積壓訂單，截至2024年9月30日的積壓訂單為8920萬美元。該積壓訂單僅包括現有採購訂單，不包括該公司長期計劃下的OEM 客戶的訂單，包括皮拉圖斯PC-24、德事隆國王航空、波音T-7、波音KC-46A 和洛克希德馬丁。我們預計這些項目將繼續生產數年，並預計它們將繼續產生未來的銷售。

Further, due to the nature, the product lines from Honeywell do not typically enter backlog. Now turning to cash flow. During fiscal 2024, cash flow from operations was $5.8 million, up $2.1 million in the year ago comparable period. The improvement was driven by higher cash earnings and improved working capital efficiency. Capital expenditures were $700,000 during the fiscal 2024 versus $300,000 in the same period last year.

此外，由於性質原因，霍尼韋爾的產品線通常不會進入積壓狀態。現在轉向現金流。2024 財年，營運現金流為 580 萬美元，比去年同期增加 210 萬美元。這項改善是由現金收入增加和營運資金效率提高所推動的。2024 財年的資本支出為 70 萬美元，而去年同期為 30 萬美元。

As a result of these factors, free cash flow for the full year 2024 was $5.1 million, up from $1.8 million last year. Total net debt as of September 30, 2024, was $27.5 million, up from $16.4 million at the end of 2023, reflecting the incremental debt to fund the recent Honeywell transactions. This was partially offset by our strong free cash flow generation during the year. Our net leverage at the end of the fourth quarter was 2 times. We recently amended our credit agreement with PNC Bank to expand the facility to $35 million.

由於這些因素，2024 年全年自由現金流為 510 萬美元，高於去年的 180 萬美元。截至 2024 年 9 月 30 日，淨債務總額為 2,750 萬美元，高於 2023 年底的 1,640 萬美元，反映了為霍尼韋爾近期交易提供資金的增量債務。這被我們今年強勁的自由現金流產生所部分抵銷。第四季末我們的淨槓桿率為2倍。我們最近修改了與 PNC 銀行的信貸協議，將貸款額度擴大到 3,500 萬美元。

Our total cash and availability under our credit lines was $7.5 million at the end of the fourth quarter, which provides us financial flexibility to support our ongoing operations and facility expansion. That completes our prepared remarks. Operator, we're now ready for a question-and-answer portion of the call.

截至第四季末，我們的信貸額度下的現金和可用資金總額為 750 萬美元，這為我們提供了財務靈活性，以支持我們的持續營運和設施擴張。我們準備好的發言就到此結束了。接線員，我們現在已準備好進行通話的問答部分。

(Operator Instructions) Andrew Rem, Odinson Partners.

（操作員說明）Andrew Rem，Odinson Partners。

Maybe if I could start, I'm going to call it the Honeywell acquisition number three, the one you announced in early October. Can you give us a perspective on like the revenue and EBITDA contribution? Or just give us some sense of what that acquisition looks like and impact on FY25?

也許如果我可以開始的話，我會把它稱為霍尼韋爾的第三次收購，即您在 10 月初宣布的收購。您能為我們介紹一下收入和 EBITDA 貢獻等方面的看法嗎？或者只是讓我們了解一下這次收購的情況以及對 2025 財年的影響？

Well, first of all, Andrew, yes, we did the acquisition in September. There is -- are we going to be putting out backlog information?

嗯，首先，安德魯，是的，我們在 9 月進行了收購。我們是否要發布積壓資訊？

Yes. So Andrew, a couple of things on that one. Under that acquisition, the backlog came on around $74 million. So in our backlog, you include about $74 million of backlog acquired on that acquisition, which is production. So that's going to bleed off over probably a three- to four-year period.

是的。安德魯，關於這個問題有幾點。在那次收購中，積壓訂單約為 7,400 萬美元。因此，在我們的積壓訂單中，您包括了透過該收購獲得的約 7,400 萬美元的積壓訂單，即生產。因此，這種情況可能會在三到四年內逐漸消失。

And military has lower margins than commercial.

軍事領域的利潤率低於商業領域。

In terms of EBITDA, the margins, we believe it is going to be similar to our EBITDA margins because of the volume.

就 EBITDA（息稅折舊攤提前利潤）而言，我們認為，由於數量的原因，它將與我們的 EBITDA 利潤率相似。

Just to clarify you're saying that -- I think you said it in your prepared remarks as well, gross margin is lower, but were you saying EBITDA margins are closer to being similar or those also are a little lower?

只是為了澄清你的意思 - 我想你在準備好的發言中也說過，毛利率較低，但你是說 EBITDA 利潤率更接近相似還是也略低一些？

Comparable to what we have because the way we look at it is that it's an addition, it doesn't significantly increase our SG&A or engineering. So it's -- in a lot of ways, when you look at it, the gross margins fall into EBITDA.

與我們現有的相比，因為我們認為它是一個附加項，它不會顯著增加我們的 SG&A 或工程。所以，從很多方面來看，毛利率都屬於 EBITDA。

Okay. And on the backlog, should we -- does it necessarily burn off linearly? Or can it be more chunky over -- from one year to --

好的。在積壓方面，我們是否應該──它一定會線性消耗掉嗎？或者可以更粗一些——從一年到--

Yes. I mean part of the backlog being what it is was that there was an obsolescence issue that Honeywell resolved a few months ago. And because of that obsolescence issue, the deliveries over the prior year or so were very limited. So there is a catch-up that's going to be done in 2025. And it's still a little bit too early for us to be able to accurately say how much of that is going to be done in 2025 because Honeywell is going to continue operating this product line, at least for another three -- four months before it comes to us, and there's going to be a shutdown period as we experienced before, while all the test equipment gets transferred here.

是的。我的意思是，積壓的部分原因是霍尼韋爾在幾個月前解決了一個過時的問題。由於過時問題，前一年左右的交付量非常有限。因此，我們將在 2025 年進行追趕。對於我們來說，準確地說 2025 年將完成多少工作還為時過早，因為霍尼韋爾將繼續運營該產品線，至少在其推出前的三到四個月內繼續運營。說，就像我們之前經歷過的那樣，將有一段停工期，而所有測試設備都會轉移到這裡。

So if I was to be a guessing man, I would say our Q2 is going to see a big bump in revenue from this. Q3 probably would be the transition quarter would be a bit -- you'll going to get a dip and kind of it will hopefully recover by Q4. But I think some of the backlog, its period of performance is over four years. And some of it is just behind the eight ball that we've got to ship as soon as we can.

因此，如果我是猜測者，我會說我們第二季的收入將因此大幅增加。第三季度可能會是一個過渡季度——你會有所下降，但預計在第四季度恢復。但我覺得有些積壓的，它的履約期限是四年以上。其中一些就在我們必須盡快發貨的八號球後面。

Okay. And then, Jeff, you mentioned the $1.7 million true-up payment. Which segment does that fall in?

好的。然後，Jeff，您提到了 170 萬美元的真實付款。它屬於哪個部分？

That will fall in the customer service segment.

這將屬於客戶服務領域。

Okay. And then on CapEx, I think you guys said $6 million. Is that all in FY25?

好的。然後在資本支出方面，我想你們說的是 600 萬美元。這就是 25 財年的全部內容嗎？

Some of it we already spent in FY24.

其中一些我們已經在 2024 財年花費了。

Very little.

很少。

Yes.

是的。

So some in '24, but majority -- all that's going to be fiscal 2025.

所以有些是在 24 年，但大多數都是在 2025 財年。

All the architectural work and all the design work and preliminary to get timing permissions and all of that. I think we paid for all that in '24.

所有的建築工作和所有的設計工作以及獲得計時許可的初步工作等等。我認為我們在 24 年就付出了所有代價。

Right. So now you're moving forward with the construction in fiscal '25. So you'll see that in the CapEx going in 2025.

正確的。現在您正在推動 25 財年的建設工作。所以你會在 2025 年的資本支出中看到這一點。

And when do you expect to complete all that work in fiscal '25?

您預計什麼時候完成 25 財年的所有工作？

June. If any construction is completed on time.

六月。如果有任何施工按時完成。

All right. Thank you. Great quarter, you guys. Appreciate it.

好的。謝謝。很棒的季度，你們。欣賞它。

Doug Ruth, Lenox Financial Services.

道格‧魯斯 (Doug Ruth)，萊諾克斯金融服務公司。

I also want to congratulate you on the strong quarter. It's -- you really gave us a lot of information. Is there any way that you can give us any kind of projection what Q1 might look like as far as revenue?

我還要祝賀您季度業績強勁。你確實給了我們很多資訊。您是否可以透過任何方式向我們提供第一季收入的預測？

For the quarter that we're in right now?

對於我們現在所處的季度？

Unfortunately, we don't provide the forward-looking statements.

不幸的是，我們不提供前瞻性陳述。

Yes. I think I'll wait until February for that.

是的。我想我會等到二月。

Yes. Okay. And is this the norm in your business to say that the backlog could take up to four years to earn out?

是的。好的。積壓的訂單可能需要長達四年的時間才能收回，這在您的企業中是常態嗎？

It depends on -- I mean, these are -- some of these are military contracts and their production contracts. I mean, typically, for IS&S, when we have production contracts, we get releases maybe 18 months releases or a year releases. This is -- our backlog is usually not of this magnitude. These are military contracts and some of them are with Lockheed, they're on production contracts and Lockheed had, for some of these, they've gone out and issued purchase orders over the next four years. For us, it's not typical, but this is new.

這取決於——我的意思是，其中一些是軍事合約及其生產合約。我的意思是，通常，對於 IS&S，當我們簽訂製作合約時，我們可能會獲得 18 個月的版本或一年的版本。這是——我們的積壓通常不會這麼嚴重。這些是軍事合同，其中一些是與洛克希德公司簽訂的，它們是生產合同，洛克希德公司已經為其中一些合同在未來四年內發出了採購訂單。對我們來說，這並不典型，但卻是新的。

Okay. And then can you -- you mentioned that you thought that the Q2 was -- you called it a big bump. Could you explain that a little bit more? What you see happening in that quarter?

好的。然後你可以 - 你提到你認為 Q2 是 - 你稱之為一個大的碰撞。您能再解釋一下嗎？您認為該季度會發生什麼？

Yes. So well -- I mean, if you remember, when we did the acquisition from -- the first acquisition from Honeywell, the first quarter for it was our Q4 of 2023, where we got like a $6 million revenue that came from Honeywell.

是的。那麼好吧- 我的意思是，如果你還記得，當我們從霍尼韋爾進行第一次收購時，這是我們2023 年第四季度的第一季度，我們從霍尼韋爾獲得了大約600 萬美元的收入。

Yes. I remember that.

是的。我記得。

And that was because -- yes, because the next quarter, they were planning on packing all the test equipment and shipping it to us. So they typically do as much pull-in as they can in the prior quarter before shipping the equipment to make sure the customer has enough equipment to support them while we go through this transition phase. That quarter where that's going to happen looks like it's going to be Q2 of our financial 2025. So between January to March, we anticipate Honeywell is going to ship a lot of this equipment to Lockheed before they tear down the equipment to send it to us.

那是因為——是的，因為下個季度，他們計劃包裝所有測試設備並將其運送給我們。因此，他們通常會在運輸設備之前的上一季度盡可能地拉動，以確保客戶在我們經歷這個過渡階段時有足夠的設備來支持他們。發生這種情況的季度看起來將是我們 2025 年財務的第二季。因此，在一月到三月期間，我們預計霍尼韋爾將向洛克希德公司運送大量此類設備，然後他們將這些設備拆解並發送給我們。

Okay. And my final question, could you tell us what the three highest priorities are for fiscal 2025?

好的。我的最後一個問題是，您能否告訴我們 2025 財年的三個最高優先事項是什麼？

So there is -- yes, I mean, there is -- I thought we outlined that in our speech, but we've got product development where we're looking at launching our latest generation, which is -- has a lot of artificial intelligence capabilities, is certifiable artificial intelligence, which is unique in our industry at this point. So that product, we're going to be launching it. We're going to finish the flight test with Pilatus for the PC-24 version of that Utility Management System. Another priority for us is in-sourcing a lot of the subassemblies and that would allow us to hopefully increase our gross margins. I think our gross margins gradually -- we hit a low of in low 50% middle of last year.

所以，是的，我的意思是，我想我們在演講中概述了這一點，但我們已經進行了產品開發，我們正在考慮推出最新一代產品，其中有很多人為因素智能能力，就是可認證的人工智能，這在我們這個產業目前是獨一無二的。因此，我們將推出該產品。我們將與 Pilatus 一起完成該公用事業管理系統的 PC-24 版本的飛行測試。我們的另一個優先事項是內購許多組件，這將使我們有望提高毛利率。我認為我們的毛利率逐漸下降——去年年中我們跌至 50% 的低點。

And as we've kind of gained some efficiency and learning curve of our technicians, we've built it up to mid-50s. We like to be able to maintain that long term. And one way to do that because as long as we're doing acquisitions, there's always going to be inefficiencies and you're going to be training new technicians while other technicians are doing the work. So the way we can increase -- the way we can maintain that mid-50% ranges is by increasing the in-sourcing of the subassemblies. So that's a big focus for us.

隨著我們技術人員的效率和學習曲線的提高，我們已經將其提高到了 50 多歲。我們希望能夠維持這種長期發展。做到這一點的一種方法是，因為只要我們進行收購，效率總是會低下，並且您將在其他技術人員從事工作的同時培訓新技術人員。因此，我們可以增加的方式 - 我們可以保持 50% 中間範圍的方式是透過增加子組件的內包。所以這是我們的重點。

And then -- and the final is continue with our capital allocation of opportunistically identifying products that fit our profile and acquiring them. And that's -- those are the three things that are priorities for us.

然後 - 最後是繼續我們的資本分配，機會主義地識別符合我們概況的產品並收購它們。這就是——這是我們優先考慮的三件事。

Okay, that helps me and I appreciate you explaining that to me. I want to again congratulate you on a very strong quarter.

好的，這對我有幫助，我很感謝你向我解釋這一點。我想再次祝賀您度過了一個非常強勁的季度。

Thank you.

謝謝。

Gowshi Sri, Singular Research.

Gowshi Sri，奇異研究。

The first question is with the recent wins on the military side, the US Army C fleet, could you give us color on what you're excited about in the military space? And what are you guys doing that is helping you win market share? And what's making you competitive in this space? And how do you build momentum in that space?

第一個問題是最近在軍事方面取得的勝利，即美國陸軍 C 艦隊，您能給我們介紹一下您對軍事領域感到興奮的事情嗎？你們正在做什麼來幫助你們贏得市場佔有率？是什麼讓您在這個領域具有競爭力？您如何在該領域建立動力？

So I mean, essentially what we've done with the shift in strategy. I'll go back to a few years ago where they put a sequestration of dollars and the military budget got cut significantly. At the time, the strategy of our company became to shift our focus from military more towards the commercial side of things, which is what we did. three years ago, when I took over, I started building our military business development team and to focus on getting more military business. it takes a while for these things to start paying off.

所以我的意思是，本質上是我們在策略轉變方面所做的事情。我要回到幾年前，當時他們扣押了美元，軍事預算也被大幅削減。當時，我們公司的策略是將我們的重點從軍事轉向商業方面，而這就是我們所做的。三年前，當我接任時，我開始組建我們的軍事業務開發團隊，並專注於獲得更多的軍事業務。這些事情需要一段時間才能開始得到回報。

So what we've seen so far, we've seen positive results. I think the autothrottle for the US Army, autothrottle is a product that we developed many years ago, and we had not been successful in marketing it to the military. We've been selling it to Textron as a forward fit under King Air. But the US Army, the US Air Force, US Navy, they have a number of these King Air C-12s and they could use the autothrottle. About just over a year ago, we got selected by METS, which is the Multi-Engine Training System for the US Navy.

到目前為止，我們已經看到了積極的結果。我覺得美國陸軍的自動油門，自動油門是我們很多年前開發的產品，我們沒有成功地向軍隊推銷它。我們一直將其作為國王航空旗下的前裝出售給德事隆。但美國陸軍、美國空軍、美國海軍擁有多架空中國王 C-12，可以使用自動油門。大約一年多前，我們被 METS（美國海軍多引擎訓練系統）選中。

And now the US Army selected us for their C-12 platforms, and we continue marketing that into the military side. We won this other program for mission computer and the display. And we've got -- we actually got several other opportunities on the mission computer side of things that we're looking to explore. The acquisition we did from Honeywell for the F-16 flight control computer and the mission computer is going to open a lot of doors for us in terms of being at the table with the Lockheed and taking opportunity of other product lines that they are looking to acquire.

現在，美國陸軍選擇我們為其 C-12 平台提供支持，我們將繼續向軍方推銷該平台。我們贏得了任務計算機和顯示器的另一個項目。事實上，我們在任務計算機方面還有一些其他的機會，我們正在尋求探索。我們從霍尼韋爾收購 F-16 飛行控制計算機和任務計算機將為我們打開很多大門，與洛克希德公司進行談判並利用他們正在尋求的其他產品線的機會獲得。

Okay. Okay. That's good color. Given the increasing military presence, what are the potential challenges in a longer sales cycle at a more complex procurement process? Can you give us some color on what -- how you manage that or stay responsive in your R&D and product development space?

好的。好的。這顏色真好啊鑑於軍事存在的增加，在更複雜的採購流程中更長的銷售週期有哪些潛在挑戰？您能否向我們介紹一下您如何管理這一點或在研發和產品開發領域保持回應能力？

Yes, I mean the sales cycles are longer. But like I said, we started down that line about three years ago, and we're beginning to see fruits of those efforts, and we're going to continue down that path. I mean some of the things we're doing now in our organization in anticipation of some of the new contracts we're getting is making our facility more secure that we're putting a lot of controls in place. So we can take on secret programs from our military as well as putting in a system that can withstand government accounting audits and all of that. So we've changed our MRP system, which is going to go live early 2025.

是的，我的意思是銷售週期更長。但就像我說的，我們大約三年前開始沿著這條線走下去，我們開始看到這些努力的成果，我們將繼續沿著這條路走下去。我的意思是，我們現在在組織中正在做的一些事情，預計我們將獲得一些新合同，這些事情使我們的設施更加安全，我們正在實施許多控制措施。因此，我們可以接受我們軍隊的秘密計劃，並建立一個能夠承受政府會計審計等的系統。因此，我們更改了 MRP 系統，該系統將於 2025 年初上線。

We've been working on it for about a year now and because our ERP system is kind of old and antiquated. So that would allow us to be able to easily show kind of costs to the government and be able to categorize expenses differently the way the government wants to see it. So we've put in a lot of efforts into the infrastructure that would get us to a point that we can become a serious defense contract.

我們已經為此工作了大約一年，因為我們的 ERP 系統有點陳舊過時。這樣我們就能夠輕鬆地向政府展示各種成本，並且能夠以政府希望的方式對費用進行不同的分類。因此，我們在基礎設施方面投入了大量精力，這將使我們能夠成為一份嚴肅的國防合約。

And given your strategy that you mentioned, the next strategy, what percentage of revenue ideally would you think in one to three years would be military sector?

鑑於您提到的戰略，下一個戰略，您認為在一到三年內理想的收入百分比是多少？

So I think on average, about -- just about less than 1/3 of our business used to be military. I guess last year, that went down because of the acquisitions we did with Honeywell that were mainly focused towards the commercial side. I think this year, military is going to be pretty large because of that new acquisition we did from Honeywell on the F-16. I think long term, we like the idea of having third military, third business aviation and third air transport. That's formulas worked for us for over 35 years, and we like to see it that way.

所以我認為平均而言，我們的業務中只有不到 1/3 曾經是軍事業務。我想去年這個數字有所下降，因為我們對霍尼韋爾的收購主要集中在商業方面。我認為今年的軍事規模將會相當大，因為我們從霍尼韋爾購買了新的 F-16。我認為從長遠來看，我們喜歡擁有第三軍用航空、第三商務航空和第三航空運輸的想法。這個公式對我們來說已經有效了超過 35 年，我們希望這樣看待它。

But as you grow, you got to grow every sector. And when you say I'm going to grow my military fivefold because I'm going to grow the business fivefold, then that becomes significant enough that you need to put some controls in place.

但隨著你的成長，你必須發展每個部門。當你說我將把我的軍事力量擴大五倍，因為我要把業務擴大五倍時，那麼這就變得足夠重要，以至於你需要採取一些控制措施。

Okay. Okay. And I think you mentioned this about your USM2, but with the cockpit space, how do you see the interplay between military and commercial technologies evolving? Are there any other specific -- I think you mentioned the USM2 is agnostic. But is there any specific synergies or cross-[foundation] opportunities that you're targeting?

好的。好的。我想你提到了你的 USM2，但是對於駕駛艙空間，你如何看待軍事和商業技術之間相互作用的發展？還有其他具體的嗎——我想你提到 USM2 是不可知的。但是您是否有針對任何特定的協同效應或跨[基金會]機會？

Well, I think our -- again, our product development strategy from day one was that we made one product, and we sold that product to the military, to the commercial aviation as well as air transport. Now there are variation of it that go into the military. For example, we make the same display that we put in the 757/67. We put them in the C-130s, but the one that goes in the C-130 has night vision capability. So it's got two sets of lighting for light sensing.

嗯，我認為我們的產品開發策略從第一天起就是我們製造一種產品，然後將該產品出售給軍隊、商業航空以及航空運輸。現在它的一些變體進入了軍隊。例如，我們製作的顯示器與 757/67 中的顯示器相同。我們把它們裝在 C-130 上，但裝在 C-130 上的那個具有夜視能力。所以它有兩套用於光感應的照明。

But the -- kind of the backbone of the technology is the same. And going forward, we continue developing our products, like, for example, the UMS that we made for Pilatus, it was very much one platform product. We developed it specifically for Pilatus. When we came, they wanted to do a more capable UMS, which we've been developing with them, and that's the one that's going to go into flight test. I think it's scheduled for March or April.

但技術的支柱是相同的。展望未來，我們將繼續開發我們的產品，例如我們為 Pilatus 製造的 UMS，它在很大程度上是一個平台產品。我們專門為皮拉圖斯山開發了它。當我們來的時候，他們想要做一個更強大的 UMS，我們一直在與他們一起開發，這就是將要進行飛行測試的 UMS。我認為是三月或四月。

When we did that, we started taking account into, okay, how do we now make this more universal that we can put it in military aircraft as well, as well as put it in other business aircraft. And one of the things that became apparent is that if you're putting a flight control computer in the military aircraft today, they want to see artificial intelligence capabilities in it. So we added the artificial intelligence core to this product line, so we can cross-sell it in the military as well as in the business aviation side, utilize it for more cockpit automation.

當我們這樣做時，我們開始考慮，好吧，我們現在如何使其更加通用，我們可以將其放入軍用飛機中，也可以將其放入其他公務機中。顯而易見的事情之一是，如果你今天在軍用飛機上安裝飛行控制計算機，他們希望看到其中的人工智慧功能。所以我們在這個產品線中添加了人工智慧核心，這樣我們就可以在軍事和公務航空方面交叉銷售它，並利用它來實現更多的駕駛艙自動化。

Okay. And my last question is, given the issues at Boeing, do you see any kind of potential lift in terms of retrofit opportunities? Or how do you see that playing out (inaudible)?

好的。我的最後一個問題是，考慮到波音公司的問題，您認為改造機會方面有任何潛在的提升嗎？或你如何看待這種情況的發生（聽不清楚）？

So I think your question is saying, the Boeing issues are having, how does that affect IS&S?

所以我認為你的問題是，波音的問題正在發生，這對 IS&S 有何影響？

No, it's really good for IS&S. Not that we want them to have issues. But as long as they can't make new airplanes, people are going to fix their old airplanes.

不，這對 IS&S 來說確實有好處。並不是說我們希望他們有問題。但只要他們不能製造新飛機，人們就會修理他們的舊飛機。

So you're going to see that aging airframes, still a lot of repairs and maintenance, parts sales, spare sales and the market overall going up in aerospace because of that.

所以你會看到老化的機身，仍然有大量的維修和保養，零件銷售，備件銷售以及航空航天市場的整體上升。

This concludes your question-and-answer session. I would like to turn the conference back over to Shahram Askarpour for any closing remarks. Please go ahead.

您的問答環節到此結束。我想將會議轉回沙赫拉姆·阿斯卡普爾 (Shahram Askarpour) 進行閉幕致辭。請繼續。

Thank you, operator, and thank you all for your time and interest in IS&S. Have a good holidays and a good day. Thank you.

謝謝您，操作員，也謝謝大家花時間關注 IS&S。祝您假期愉快，有個愉快的一天。謝謝。

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

本次會議現已結束。感謝您參加今天的演講。您現在可以斷開連線。