Innovative Solutions and Support Inc (ISSC) 2025 Q1 法說會逐字稿

Good day and welcome to the Innovative Solutions & Support First Quarter 2025 Results Conference Call and Webcast. (Operator Instructions)

大家好，歡迎參加創新解決方案與支援 2025 年第一季業績電話會議和網路廣播。（操作員指示）

Please note this event is being recorded. I would now like to turn the conference over to Paul Bartolai. Please go ahead.

請注意，此事件正在被記錄。現在我想將會議交給保羅·巴托萊 (Paul Bartolai)。請繼續。

Thank you, Michael. Good afternoon, everyone, and welcome to Innovative Solutions & Support First Quarter 2025 Results Conference Call. Leading the call today are our CEO, Shahram Askarpour; and CFO Jeffrey DiGiovanni.

謝謝你，麥可。大家下午好，歡迎參加創新解決方案與支援 2025 年第一季業績電話會議。今天主持電話會議的是我們的執行長 Shahram Askarpour 和財務長 Jeffrey DiGiovanni。

Earlier today we issued a press release detailing our first quarter 2025 operational and financial results. This release is publicly available in the investor relations section of our corporate website at www.innovative-SS.com.

今天早些時候，我們發布了一份新聞稿，詳細介紹了我們 2025 年第一季的營運和財務表現。本新聞稿可在本公司網站 www.innovative-SS.com 的投資者關係部分公開查閱。

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.

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，並且超出了公司的控制範圍。

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 factor section of our latest reports filed with the SEC.

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，請參閱我們向美國證券交易委員會提交的最新報告中的風險因素部分。

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, who'll provide a review of our recent business performance and strategic outlook, followed by a financial update from Jeff.

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 GAAP 財務指標的對帳表。今天的電話會議將以 Shahram 的準備好的發言開始，他將回顧我們最近的業務表現和戰略展望，然後由 Jeff 提供財務更新。

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

在這些準備好的發言結束後，我們將開放式熱線回答您的問題。說完這些，我將把電話轉給 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 first quarter financial performance. During the first quarter, we delivered more than 70% year over year growth in revenue, driven by momentum from new military programs and contributions from our legacy platforms.

謝謝你，保羅，祝今天參加我們電話會議的各位下午好。讓我們先概述一下第一季的財務表現。在第一季度，我們的營收年增超過 70%，這得益於新軍事計畫的推動以及我們傳統平台的貢獻。

Organic growth, which was in the mid top a single digit range, was mainly driven by continued momentum across our military and markets, a trend we expect to continue. We are also seeing improved trends in our commercial business and expect growing momentum as we move through the fiscal year, as our fiscal Q1 is typically a busy period for air transport.

有機成長處於中高個位數範圍內，主要得益於我們軍事和市場的持續成長勢頭，我們預計這一趨勢將會持續下去。我們也看到商業業務的趨勢有所改善，並且預計隨著整個財政年度的推進，這一勢頭將不斷增強，因為我們的財政第一季通常是航空運輸的繁忙時期。

Our gross profit increased approximately 20% as our strong revenue growth was partially offset by the significant investments we are making to support our growth initiatives, which I will discuss in more details here shortly.

我們的毛利成長了約 20%，因為我們強勁的收入成長被我們為支持成長計畫而進行的大量投資所部分抵消，我將在此稍後詳細討論。

A backlog was approximately $81 million as of December 31, 2024, compared to $14.6 million in the prior year. On our last quarter, we introduced ISSC Next, our long-term value creation strategy. As a quick refresher, our strategy strengths on a combination of targeting commercial growth within high-value markets, improving operating leverage, and a disciplined returns-driven approach to capital allocation.

截至 2024 年 12 月 31 日，積壓訂單約為 8,100 萬美元，而前一年為 1,460 萬美元。在上個季度，我們推出了 ISSC Next，這是我們的長期價值創造策略。簡單回顧一下，我們的策略優勢在於瞄準高價值市場內的商業成長、提高營運槓桿以及嚴格的回報驅動的資本配置方法。

During the 1st quarter, we continue to execute against our initiatives. I would like to take a moment to highlight just a few of the key achievements that reflect our commercial growth priorities.

第一季度，我們繼續執行我們的舉措。我想花點時間強調反映我們商業成長重點的一些關鍵成就。

We continue to make significant investments in our growth initiatives which is impacting our margins in the near term but will place us in a strong strategic position to take advantage of some of the exciting opportunities in our markets and drive profitable growth in the coming quarters.

我們將繼續對成長計劃進行大量投資，這將在短期內影響我們的利潤率，但將使我們處於強大的戰略地位，以利用我們市場中的一些激動人心的機會並推動未來幾個季度的盈利增長。

Some of these investments included the following.

其中一些投資包括以下內容。

First, as activity in our military markets continue to accelerate, we've made significant investments in both infrastructure and systems capabilities to support the high-performance requirements of our defense customers.

首先，隨著軍事市場活動的不斷加速，我們在基礎設施和系統能力方面進行了大量投資，以支援國防客戶的高性能要求。

To that end, we have integrated a modern ERP system. A more robust IT infrastructure and strengthen our security and accounting services to make us compliant with defense federal acquisition regulation supplement or deface requirements. These are critical investments as we continue to win and bid for larger DOD programs.

為此，我們整合了現代化的 ERP 系統。更強大的 IT 基礎設施並加強我們的安全和會計服務，使我們符合國防聯邦採購法規補充或污損要求。隨著我們繼續贏得並競標更大的國防部項目，這些都是至關重要的投資。

Second, we are also continuing the expansion of our Exton Pennsylvania facility. When completed in mid-2025, we will have doubled our footprint and increased our production capabilities by more than three-fold.

其次，我們也持續擴建位於賓州埃克斯頓的工廠。預計 2025 年中期竣工後，我們的生產能力將增加兩倍，佔地面積也將擴大三倍以上。

I watched the progress from my office window every day, and I'm happy to report that the groundwork is complete, the steel structure is up, and the completion of the internal and external walls will commence shortly.

我每天都從辦公室窗戶觀察工程進展，現在我很高興地告訴大家，地基已經完工，鋼結構已經建造完成，內外牆的施工很快就會開始。

As a side note, we've been funding this development out of our P&L. Importantly, we are adding this capacity with a capital investment of only $6 million providing for the opportunity of a very strong return. We also think it's worth reminding everyone that IS&S manufactures 100% of its products in our Exton facility.

順便說一句，我們一直在使用我們的損益表來資助這項開發。重要的是，我們僅以 600 萬美元的資本投資就增加了這一產能，從而提供了獲得非常豐厚回報的機會。我們也認為值得提醒大家的是，IS&S 100% 的產品都是在我們的埃克斯頓工廠生產的。

We think this is important and puts us in an enviable position as the new administration makes its significant push for reshoring of manufacturing and an America first mentality.

我們認為這很重要，並且使我們處於令人羨慕的地位，因為新政府正在大力推動製造業回流和美國​​優先的心態。

Third, during the 1st quarter, we made significant investments in support of our most recent acquisition from Honeywell.

第三，在第一季度，我們進行了大量投資以支持我們最近從霍尼韋爾的收購。

Much of the spending during the 1st quarter was made ahead of the expected growth from these platforms, and we also made investments that resulted in some duplicative costs as we train our staff to transition the manufacturing of the products from Honeywell into our Exton facility.

第一季的大部分支出都超出了這些平台的預期增長，而且我們還進行了一些投資，導致了一些重複成本，因為我們培訓員工將產品製造從霍尼韋爾轉移到我們的埃克斯頓工廠。

The integration is on track, and we are excited by the opportunities from this most recent acquisition. And finally, we also continue to strengthen our workforce across the organization to support our strategic growth initiatives.

整合工作正按計畫進行，我們對此次收購帶來的機會感到非常興奮。最後，我們也將繼續加強整個組織的員工隊伍，以支持我們的策略成長計畫。

Our headcount is up over 25% from last year, which will help us, as we scale the business. In terms of new product development, we remain highly focused on the opportunity within cockpit automation leading to autonomous flight.

我們的員工人數比去年增加了 25％ 以上，這將有助於我們擴大業務規模。在新產品開發方面，我們仍然高度關注在駕駛艙自動化領域實現自主飛行的機會。

Our next generation our Utility Management System or UMS2 remains on track to have our first test flight by mid-2025 for the Pilatus PC-24. We also believe the next generation of our AI-enabled Utility Management System is the ideal certifiable platform for flight automation. With our initial focus being military customers and applications.

我們的下一代公用事業管理系統或 UMS2 仍有望在 2025 年中期為 Pilatus PC-24 進行首次試飛。我們也相信，我們下一代支援人工智慧的公用事業管理系統是飛行自動化的理想可認證平台。我們最初的重點是軍事客戶和應用。

We believe the military market is the most immediate and logical market to deploy our autonomous flight capabilities. The unfortunate recent events bring to the surface the need for more automation in the flight deck to enhance safety.

我們相信軍事市場是部署我們的自主飛行能力最直接、最合理的市場。最近發生的不幸事件凸顯了飛行甲板需要更多自動化來提高安全性。

We are encouraged by the growth opportunities across our commercial air transport, business aviation, and military markets, and we are confident we are making the necessary investments to strategically position IS&S to win in the market.

我們對商業航空運輸、公務航空和軍事市場的成長機會感到鼓舞，我們有信心進行必要的投資，以使 IS&S 在戰略上佔據優勢以贏得市場。

In conclusion, we are off to a solid start for our fiscal 2025 and are excited by the opportunities that lie ahead. We have made investments necessary to support our new programs.

總而言之，我們的 2025 財年已經有一個良好的開端，我們對未來的機會感到興奮。我們已經進行了必要的投資來支持我們的新項目。

We have made important progress regarding the integration of our most recent acquisition, and we are making the necessary investments to support our organic growth initiatives.

我們在最近的收購整合方面取得了重要進展，並且正在進行必要的投資以支持我們的有機成長計劃。

That said, we still intend to remain a strategic acquirer. While we have most recently been focused on complementary product lines from large avionics suppliers that expand our capabilities in advanced avionics.

儘管如此，我們仍然打算繼續作為策略性收購者。而我們最近一直專注於大型航空電子供應商的互補產品線，以擴展我們在先進航空電子方面的能力。

We're also evaluating opportunities to acquire smaller avionics manufacturers, where we anticipate synergies will be realized by incorporating their outsourced production in our facility.

我們也正在評估收購小型航空電子設備製造商的機會，我們預計透過將其外包生產納入我們的工廠將實現協同效應。

Looking ahead, we intend to build on the momentum evident within our business and remain on track to deliver both revenue and EBITDA growth of over 30% when compared to fiscal year 2024.

展望未來，我們打算繼續鞏固業務成長勢頭，並繼續努力實現與 2024 財年相比營收和 EBITDA 成長 30% 以上的目標。

With that, I'll turn the call over to Jeff for his prepared remarks.

說完這些，我會把電話轉給傑夫，讓他發表準備好的演講。

Thank you, Shahram, and good afternoon to all those joining us.

謝謝你，Shahram，祝所有參加我們活動的人下午好。

Today, I will provide a high-level overview of our first quarter performance, including a discussion of our working capital, balance sheet, and liquidity profile at quarter end.

今天，我將對我們的第一季業績進行高階概述，包括討論我們的營運資金、資產負債表和季度末的流動性狀況。

We generated net revenues of $16 million in the first quarter, up just over 70% when compared to the first quarter last year. The increase was driven primarily by contribution from the recently acquired Honeywell military product line, as well as 7% organic growth due to in part including the continued momentum of our new military programs.

我們第一季的淨收入為 1,600 萬美元，與去年第一季相比成長了 70% 多一點。這一增長主要得益於最近收購的霍尼韋爾軍用產品線的貢獻，以及 7% 的有機增長，部分原因是包括我們新軍事計劃的持續發展勢頭。

Product sales were $10 million during the first quarter, more than double last year's levels, driven primarily by the recent acquired military product line offset by reduced shipments to the business aviation customers. Service revenue was $6 million owing largely to the customer service sales from the product lines acquired from Honeywell and increased NRE revenue partially offset by lower legacy customer service revenue.

第一季的產品銷售額為 1,000 萬美元，是去年同期的兩倍多，主要原因是最近收購的軍用產品線，但對商務航空客戶的出貨量減少抵消了這一影響。服務收入為 600 萬美元，主要得益於從霍尼韋爾收購的產品線的客戶服務銷售額以及 NRE 收入的增加，但部分被傳統客戶服務收入的降低所抵消。

Gross profit was $6.6 million during the first quarter, up from $5.5 million in the same period last year, driven by strong revenue growth partially offset by higher depreciation expense resulting from the Honeywell acquisition, duplicate costs in support of the migration of the recent Honeywell acquisitions, and continued investments in growth initiatives as Shahram discussed.

第一季毛利為 660 萬美元，高於去年同期的 550 萬美元，這得益於強勁的收入增長，但部分抵消了收購霍尼韋爾導致的折舊費用增加、支持最近霍尼韋爾收購遷移的重複成本以及對增長計劃的持續投資，正如 Shahram 所討論的那樣。

Our first quarter gross margin was 41.4%, down from 59.3% in the same period last year.

我們第一季的毛利率為41.4%，低於去年同期的59.3%。

As I discussed last quarter, there are several factors that have been impacting our gross margin capture in recent quarters, which continued during the first quarter and will remain a factor in the near term.

正如我上個季度所討論的，有幾個因素在最近幾個季度影響了我們的毛利率，這些因素在第一季度持續存在，並且在短期內仍將是一個因素。

These factors include incremental depreciation from recent product line acquisitions and the shift in our sales mix, as military sales will be a higher percentage of sales, more specifically during the first quarter, the impact of the acquired Honeywell military product line volume, the lower margin was approximately 500 basis points.

這些因素包括最近產品線收購帶來的增量折舊和銷售組合的變化，因為軍事銷售將佔銷售額的更高比例，更具體地說，在第一季度，收購的霍尼韋爾軍用產品線數量的影響，利潤率較低約為 500 個基點。

Increased third party expenses from Honeywell with respect to their transition services was approximately another 200 basis points, and higher depreciation from recent acquisitions was roughly a 500 basis points headwind to gross margins.

霍尼韋爾在過渡服務方面的第三方費用增加了約 200 個基點，而最近收購導致的更高折舊對毛利率造成了約 500 個基點的阻力。

As it relates to the product mix, generally, military sales carry a lower average gross margin versus commercial contracts. However, there is minimal operating expenses associated with these contracts, so the incremental EBITDA margins are strong.

就產品組合而言，一般來說，軍事銷售的平均毛利率低於商業合約。然而，與這些合約相關的營運費用很少，因此增量 EBITDA 利潤率很高。

And 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 approved operating leverage.

鑑於我們看到軍事領域絕對 EBITDA 美元增長的巨大潛力，我們相信這對我們有利，並且我們將繼續開展工作，因為它推動我們對核准經營槓桿的關注。

In addition to these factors, during the 1st quarter, we incurred costs to support the ramp up of recently acquired product lines from Honeywell, as well as inefficiencies due to hiring and training additional personnel.

除了這些因素之外，在第一季度，我們還產生了成本來支持最近從霍尼韋爾收購的產品線的增長，以及由於僱用和培訓額外人員而導致的效率低下。

Many of these costs were duplicative in nature and will not be a factor as we fully transition the product line into IS&S.

其中許多成本本質上是重複的，但當我們將產品線完全轉變為 IS&S 時，這些成本將不再是一個因素。

Given these factors, we continue to expect our consolidated gross margins will likely trend closer to mid 30% on a normalized basis, which is below historical levels. As we complete the integration and begin to enjoy the scale benefits of these investments, we will be able to drive increased adjusted EBITDA margin realization and net profitability over time.

考慮到這些因素，我們繼續預期我們的綜合毛利率在正常化基礎上可能趨近於 30% 左右，低於歷史水準。隨著我們完成整合並開始享受這些投資的規模效益，我們將能夠隨著時間的推移推動調整後的 EBITDA 利潤率實現和淨獲利能力的提高。

Operating expenses during the first quarter of 2025 was $5.3 million and increased from $3.9 million in the comparable period last year. This increase was driven by approximately $400,000 from increase in product development efforts in support of our long-term growth initiatives, incremental expenses from Honeywell acquisitions, including $700,000 of amortization expense. And $300,000 in employee costs, primarily due to increase in headcount and another $300,000 of acquisition certain one-time expenses.

2025 年第一季的營運費用為 530 萬美元，高於去年同期的 390 萬美元。這一成長是由於為支持我們的長期成長計畫而增加的產品開發力度約為 40 萬美元，以及霍尼韋爾收購的增量費用，其中包括 70 萬美元的攤銷費用。員工成本為 30 萬美元，主要原因是員工人數增加，另外還有 30 萬美元的某些一次性收購費用。

We've increased our headcount by over 25% to support our future growth initiatives across the organization. Operating expenses represented 33% of revenue during the first quarter, down from 42% in the first quarter of last year owing to improved operating leverage.

我們將員工人數增加了 25% 以上，以支持整個組織未來的成長計畫。由於營運槓桿提高，第一季經營費用佔營收的 33%，低於去年第一季的 42%。

First quarter of net income was $700,000 or $0.04 a share compared to net income of $1.1 million or $0.06 per diluted share a year ago.

第一季淨收入為 70 萬美元，即每股 0.04 美元，而去年同期淨收入為 110 萬美元，即每股 0.06 美元。

EBITDA was $2.7 million during the first quarter, up from $2.1 million last year, or 28% increase, largely due to our revenue growth and operating expense leverage. Excluding acquisition related costs and other one-time expenses, first quarter adjusted EBITDA was $3.1 million, up from $2.5 million last year.

第一季的 EBITDA 為 270 萬美元，高於去年的 210 萬美元，增幅為 28%，主要歸功於我們的營收成長和營運費用槓桿。不包括收購相關成本和其他一次性費用，第一季調整後的 EBITDA 為 310 萬美元，高於去年的 250 萬美元。

Moving on to backlog, new orders in the first quarter of fiscal '25 were $7.5 million and backlog as of December 31, was $80 million as compared to $14.6 million this time last year. The backlog includes only purchase orders in hand and excludes orders from companies OEM customers under long-term programs, including Pilatus PC-24, Textron King Air, Boeing T-7 Red Hawk, Boeing KC-46A, and F-16 with Lockheed Martin.

談到積壓訂單，25 財年第一季的新訂單為 750 萬美元，截至 12 月 31 日的積壓訂單為 8,000 萬美元，去年同期為 1,460 萬美元。積壓訂單僅包括手頭上的採購訂單，不包括長期計劃下的公司 OEM 客戶的訂單，包括皮拉圖斯 PC-24、德事隆空中國王、波音 T-7 紅鷹、波音 KC-46A 和洛克希德馬丁的 F-16。

We expect these programs to remain in production for several years and anticipate they will continue to generate future sales. Further, due to their nature, the product lines from Honeywell do not typically enter backlog.

我們預計這些項目將持續生產數年，並預計它們將繼續產生未來的銷售。此外，由於其性質，霍尼韋爾的產品線通常不會積壓。

Now turning to cash flow during the first quarter of '25, cash flow from operations was $1.8 million compared to $4.2 million in the year ago comparable period. This decrease is primarily due to the inventory buildup in support of anticipated production and the timing of payables and capitalized costs with the European implementation along with the impact of growth initiatives discussed above.

現在來看看 25 年第一季的現金流，營運現金流為 180 萬美元，去年同期為 420 萬美元。這一下降主要是由於支持預期生產的庫存累積、歐洲實施的應付款項和資本化成本的時間以及上述成長措施的影響。

Capital expenditure was $300,000 during the first quarter of '25 versus $200,000 in the same period last year. As a result of these factors, free cash flow during the first quarter was $1.6 million versus free cash flow of $4 million last year.

25 年第一季的資本支出為 30 萬美元，而去年同期為 20 萬美元。由於這些因素，第一季的自由現金流為 160 萬美元，而去年的自由現金流為 400 萬美元。

Total net debt as of December 31, was $25.9 million, our net leverage ratio at the end of the quarter was 1.8%.

截至 12 月 31 日的總淨負債為 2,590 萬美元，本季末的淨槓桿率為 1.8%。

Our total cash and availability on our credit line was $9 million at the end of the first quarter, which provides us financial flexibility to support our ongoing operations and facility expansion.

截至第一季末，我們的現金總額和可用信用額度為 900 萬美元，這為我們提供了財務靈活性，以支持我們正在進行的營運和設施擴建。

That completes our prepared marks, operator, we're now ready for question-and-answer portion of the call.

接線員，我們的準備工作已經完成，現在我們可以進行電話問答部分了。

We will now begin the question-and-answer session. (Operator Instructions)

我們現在開始問答環節。（操作員指示）

Gowshihan Sriharan, Singular Research.

Gowshihan Sriharan，奇異研究。

Congratulations, guys. Can you hear me? Yes.

恭喜你們，夥伴們。你聽得到我嗎？是的。

Thank you for taking my call. Congratulations. In terms of this military revenue being, now being, a significant portion of the growth story, what strategies or investments are you making, to remain, relevant to being market share? I know you mentioned you had. A gentleman you hired a couple of years ago, what are the investments are required or spend that's necessary to continue to take market share and save up.

感謝您接聽我的電話。恭喜。鑑於軍事收入目前已成為成長的重要組成部分，您正在採取哪些策略或進行哪些投資來保持與市場份額的相關性？我知道你提到你曾經有過。您幾年前僱用的一位先生，為了繼續佔領市場份額並節省開支，需要進行哪些投資或花費？

So far, for most part, we've been a second-tier supplier to the deal means that we've always worked through an integrated, even on some of the OEMs we worked through an integrated. We really haven't had any large size programs directly with the DOD and in order to have those kinds of contracts and be primed for it, which part of that also applies to the product lines that we bought from Honeywell for the F-16 platform.

到目前為止，在大多數情況下，我們一直是交易的二線供應商，這意味著我們始終透過整合的方式來開展工作，甚至對於一些 OEM，我們也透過整合的方式來進行工作。我們確實沒有與國防部直接進行任何大型項目，為了獲得此類合約並做好準備，其中一部分也適用於我們從霍尼韋爾為 F-16 平台購買的產品線。

We got to be compliant to a lot of these [differs] defense acquisition requirements, and so being [afi] compliant in terms of account, got what they call it certified government accounting is one of those requirements, being able to have an IT organization that meets the requirements of the DOD is another one. Having your system in such a way that you can obtain security clearance. You have a means of protecting government documentation.

我們必須遵守許多不同的國防採購要求，因此在會計方面遵守 [afi] 規定，獲得他們所謂的註冊政府會計是其中一項要求，能夠擁有一個符合國防部要求的 IT 組織是另一項要求。讓您的系統能夠獲得安全許可。您有保護政府文件的方法。

Yeah, so all of that is required for you to become a tier one supplier to the Department of Defense. And we have implemented all of those, it's all going to be completed within the next few weeks.

是的，所以所有這些都是成為國防部一級供應商的必要條件。我們已經實施了所有這些，並將在未來幾週內完成。

That requires you to bring in consultant. It requires you to buy new tools, new, we put in a new ERP system which has been in works for over a year, but we, we're putting it in place our ERP system, which was an MRP called Minx, was came into market in the in the 1980s and we were at the point now where there were only two companies out there that were using this with no support.

這就需要你聘請顧問。它要求你購買新的工具，新的，我們引入了一個已經運行了一年多的新 ERP 系統，但是我們正在實施我們的 ERP 系統，這是一個稱為 Minx 的 MRP，於 20 世紀 80 年代進入市場，我們現在處於這樣的情況：只有兩家公司在沒有任何支持的情況下使用它。

So, we've put in a Modern ERP system in place which would significantly help us, run the business more efficiently because we can readily see information that management needs to see in terms of variances, cost and labour variances, another important information that now it takes a lot of people to manually generate all of these things. All of that will automatically available by the system.

因此，我們建立了現代 ERP 系統，它將極大地幫助我們更有效地經營業務，因為我們可以隨時看到管理層需要查看的差異、成本和勞動力差異方面的信息，另一個重要信息是，現在需要很多人手動生成所有這些信息。所有這些都將由系統自動提供。

So, it does a significant amount of time and cost saving for us, the implementation of that. So, we're applying for security clearance, we're putting all that in place, and you, gets us to a point we're looking at some of the serious military programs now and even in order to be able to bid on those programs. You have to be compliant with a lot of default regulations.

因此，實施該措施可以為我們節省大量時間和成本。所以，我們正在申請安全許可，我們正在把所有事情都落實到位，而你，讓我們現在正在考慮一些嚴肅的軍事項目，甚至為了能夠競標這些項目。你必須遵守許多預設規定。

If you bring a program which is less than $2 million, I think which is the [PIA] limit, then which is typically in the past we've done, if you don't have to have any of this stuff in place as soon as you go above that a whole bunch of regulations applied to you.

如果你的專案金額少於 200 萬美元，我認為這是 [PIA] 限額，那麼這通常是我們過去所做的，如果你不必立即實施任何這些措施，那麼一旦超過這個限額，就會有一大堆法規適用於你。

But that's where we want to go, we want to grow the business, so we're going to get serious about it.

但這就是我們想要去的地方，我們想要發展業務，所以我們會認真對待它。

Okay, awesome. In terms of, I know you guys had a foreign military engagement end of last year. How does the margin profiles of the foreign military engagements compared to the domestic market? I would assume you're able to extract better pro margin profiles or pricing from the foreign military programs.

好的，太棒了。就此而言，我知道你們去年年底有過一次對外軍事接觸。與國內市場相比，海外軍事行動的利潤率如何？我認為您能夠從外國軍事計劃中提取更好的利潤概況或定價。

Yeah, I think if your foreign military cell doesn't go through the US DOD, then it's you treat it as a commercial deal. If it's a procurement through there, because our government buy, I guess gives funding to some of the allied nation to procure material but essentially you, that's going through the US DOD budget. So, it still applies to you.

是的，我認為如果你的外國軍事單位不通過美國國防部，那麼你就可以將其視為一項商業交易。如果是透過那裡進行採購，由於我們的政府購買，我想會向一些盟國提供資金來採購材料，但本質上，這是透過美國國防部的預算進行的。所以，它仍然適用於你。

But in areas that kind of in the past where we sold systems to the United Arab Emirates Air Force or Pakistan Air Force that was not coming through US funding. It's treated like a commercial deal and some of the benefits of contracts also is that once your system is on a US Air Force aircraft, it puts you in a strong position to put that system in other Air Forces aircrafts, and if it's not something that's funded by the DOD, you get a premium price for it.

但在過去，我們向阿聯酋空軍或巴基斯坦空軍出售的系統並非由美國資助。它被視為一項商業交易，合約的好處還在於，一旦你的系統安裝在美國空軍飛機上，你就有能力將該系統安裝在其他空軍飛機上，如果它不是由國防部資助的，你就可以獲得溢價。

Okay, got you. And so with this 40%, military mix of business as the company basically continues to shift, particularly, in favour of the military, I know you guys had a 60% usually gross margin target. So what would you anticipate the new margin profile to look like, kind of, and will that be something you'll be targeting towards the end of the year?

好的，明白了。因此，隨著公司業務結構中軍事業務佔比達到 40%，基本上繼續向軍事領域轉變，我知道你們的毛利率目標通常是 60%。那麼您預期新的利潤率狀況會是什麼樣的呢？這會是您在今年底前設定的目標嗎？

I think, let me put it this way, when we look to buy a program, buy say a product line, we really take a look at what EBITDA it gives us. And that's how we, that's how we buy it, that's how we value a product. So, at the end of the day, gross margins on military programs are significantly lower than commercial business.

我想，讓我這樣說吧，當我們想要購買一個項目，購買一條產品線時，我們真正會看一看它給我們帶來了多少 EBITDA。這就是我們購買產品的方式，這就是我們評價產品的方式。因此，最終，軍事項目的毛利率明顯低於商業項目。

But here's what you don't have. You typically don't have any engineering expense because they separately pay for any engineering work you have to do. As with commercial programs, we have a high engineering burden on the products to deal with obsolescence and as well as your development efforts, in the military, they pay for your obsolescence engineering, they pay for your development that gets paid.

但這就是你所沒有的。您通常不需要支付任何工程費用，因為他們會單獨支付您必須做的任何工程工作。就像商業項目一樣，我們在產品上承擔著很高的工程負擔，以應對產品的淘汰和開發工作，在軍隊中，他們會為你的淘汰工程付費，為你獲得報酬的開發付費。

So, you don't have the engineering overhead in terms of SG&A, the sales side of the SG&A is very bare minimum military programs. You don't need to go to, you don't need to keep on reselling the same thing to the military. Once you've been selected and you're in there, we've got programs with US Airforce now that we had 35 years ago and they're still continuing.

因此，您不需要承擔銷售、一般和行政費用 (SG&A) 方面的工程費用，銷售方面的 SG&A 只是最低限度的軍事項目費用。你不需要去，你不需要繼續向軍隊轉售同樣的東西。一旦你被選中並加入，我們現在就與美國空軍開展 35 年前的項目，而這些項目仍在繼續。

And they just send you their equipment, they give you orders when they need the product. So, it has a much lower burden on your SG&A and almost zero burden on your engineer. So, in a way, the fact that the margin is not as good because by the nature of defense contract, you have to justify all your costs. It kind of dilutes your gross margin we think it's probably going to be at best around 50% gross margin.

他們只是向您發送他們的設備，並在需要產品時向您下訂單。因此，它對您的銷售、一般和行政費用 (SG&A) 的負擔要小得多，對您的工程師的負擔幾乎為零。因此，從某種程度上來說，利潤率並不高，因為根據國防合約的性質，你必須證明所有成本的合理性。這會稀釋你的毛利率，我們認為毛利率可能在 50% 左右。

What we want to do is to focus on gross margin to actual EBITDA and profit margin of the business. We believe that even though the military platforms have lower gross margin, in terms of EBITDA as a percentage of revenue, they meet the same margins as the commercial, which what really matters.

我們想要做的是關注毛利率與實際 EBITDA 以及業務利潤率的關係。我們認為，儘管軍用平台的毛利率較低，但以 EBITDA 佔收入的百分比計算，其利潤率與商用平台相同，這才是真正重要的。

Got you. And just my final question before I jump back in line. In terms of, leveraging the balance sheet, how will you balance the need for the, this significant infrastructure spend, investments required, in terms of expansion of production capacity, and with the pursuit of, strategic acquisitions?

明白了。在我重新排隊之前，這是我的最後一個問題。在利用資產負債表方面，您將如何平衡大量基礎設施支出、擴大生產能力所需的投資以及策略性收購的追求？

Yeah, so, right now the building and even the strategic initiatives are really getting funded through operations in our credit facility that we have today, as I mentioned right now, the availability with our cash on hand and our availability on our line is about $9 million which provides enough, as we look at acquisitions, that profile can change because we want to stay, around the 3 times leverage ratio on a go forward basis. You know we're being very diligent with any acquisition and being very mindful of the leverage ratios we want to be.

是的，現在，建設甚至戰略計劃實際上都是透過我們今天的信貸安排運營獲得資金的，正如我現在提到的，我們手頭的現金和信用額度上的可用資金約為 900 萬美元，這足夠了，當我們考慮收​​購時，這種情況可能會改變，因為我們希望在未來保持大約 3 倍的槓桿率。您知道，我們對任何收購都非常謹慎，並且非常注意我們想要的槓桿率。

Yeah, I mean, our yes, but significantly impacted this quarter because of the investments that we made, but if you were to adjust for them, it would have been significantly higher than last year.

是的，我的意思是，是的，但是由於我們所做的投資，本季度受到了顯著影響，但如果對其進行調整，那麼它將比去年高得多。

Awesome. Thank you, guys and congratulations.

驚人的。謝謝你們，恭喜你們。

Douglas S. Ruth, Lenox Financial Services

道格拉斯·S·露絲，萊諾克斯金融服務公司

Hi, Shahram, Jeff, thank you for hosting the conference call. I was curious, could you share with us your strategy, with where the acquisition opportunities are coming from? Are you working with an investment banker? How exactly are you finding, the opportunities?

嗨，Shahram、Jeff，感謝你們主持電話會議。我很好奇，您能否與我們分享您的策略以及收購機會來自哪裡？您正在與投資銀行家合作嗎？您究竟是如何發現這些機會的呢？

So, we have a Business Development Vice President, that has significant experience in merger and acquisitions. He ran mergers and acquisitions for Rockwell Collins for many years and he is retired, he's working for us, retired from Rockwell Collins. He's working for us. We also talk to a lot of the bankers. I do and he does. As well as we have our marketing guys that are in the field and talking to the cost.

因此，我們有一位業務發展副總裁，在併購方面擁有豐富的經驗。他多年來一直負責羅克韋爾柯林斯公司的併購工作，現在他已經退休了，他正在為我們工作，他從羅克韋爾柯林斯公司退休了。他正在為我們工作。我們也與許多銀行家進行了交談。我如此，他也如此。我們還有行銷人員在現場討論成本。

I think most of the industry by now knows our strategy for acquisitions, and we get informed of these product lines when they come out for sale or licensing, as well as, small avionics companies, we get the portfolio from, there's a series of bankers that we talk to as well that deal with our bite size.

我認為現在大多數業內人士都知道我們的收購策略，當這些產品線出售或授權時，我們就會得到通知，此外，我們從小型航空電子公司獲得投資組合，我們還與一系列處理我們小規模業務的銀行家進行交談。

I mean, most of the stuff that comes out in our industry is, orders of magnitude larger than we could afford. But when the ones that are within our bite size come about, we get to know them, and we evaluate probably 1 or 2 quarter of small companies that come up.

我的意思是，我們行業中出現的大多數產品都比我們能承受的要大幾個數量級。但是，當那些在我們掌控範圍內的公司出現時，我們就會去了解它們，並且我們會對出現的 1 到 2/4 的小公司進行評估。

But I mean, we're only going to do it if makes sense. I mean, one of my thoughts is that, if our government starts putting tariffs on imports from other countries, a lot of the small aviation manufacturers, the manufacturers that I know, they outsource their production. They don't have production capabilities. We are kind of a very unique in that area that we [have] manufacturing capabilities in house for everything.

但我的意思是，只有有意義的時候我們才會這麼做。我的意思是，我的想法之一是，如果我們的政府開始對來自其他國家的進口產品徵收關稅，那麼很多小型航空製造商，我所知道的製造商，都會將生產外包。他們沒有生產能力。我們在該領域非常獨特，我們擁有所有產品的內部製造能力。

And that's kind of always been the strength of IS&S when it comes to whether there is tariffs, whether there is supply chain issues, our cost of material is small relative to our sale prices because of all the value-added things that we do in-house. So even if material goes up, it doesn't significantly impact our profitability.

無論是否存在關稅、供應鏈問題，這始終是 IS&S 的優勢，由於我們在內部進行所有增值工作，因此我們的材料成本相對於銷售價格而言較小。因此，即使材料價格上漲，也不會對我們的獲利能力產生重大影響。

And so, that combination and that formula allows us to, if they stop putting tariffs and a lot of these guys getting the boards made in Southeast Asia, their prices are going to go up. And we may be able to pick them up for a good price and then bring their production in-house, and benefit from it just Idea that, we believe may pay off if you pick the right company.

因此，如果他們停止徵收關稅，而許多製造商又在東南亞生產電路板，那麼這種組合和公式就允許我們這樣做，他們的價格就會上漲。我們也許能夠以優惠的價格收購它們，然後將其生產轉移到公司內部，並從中獲益，我們相信，如果您選擇合適的公司，就有可能獲得回報。

Yeah, now this 1 to 2 per quarter, is that number is that generally been fairly stable? Is it seem like it's increasing? Is it decreasing or what do you see there?

是的，現在每季有 1 到 2 個，這個數字整體比較穩定嗎？看起來好像在增加嗎？它正在減少嗎或你看到了什麼？

It's that, that's been pretty stable. okay. That's been pretty much, but I mean for majority of them you look at it and you see there's nothing that I'm interested in buying there once you dig in a little bit into it and we just looked that one couple of weeks ago.

就是這樣，一直很穩定。好的。差不多就是這樣了，但我的意思是，對於其中的大多數，你看一下，你會發現，一旦你深入研究一下，你會發現那裡沒有我感興趣的東西，我們幾週前才看過。

And kind of they really, they got one product that is of interest. The rest of the business is losing money, and I don't think if we get it, we're going to be losing money on it as well. You, if you can buy that product line from them, that's good. But some of them are like this.

而且他們確實得到了一個他們感興趣的產品。其餘業務都在虧損，我認為如果我們不收購它，我們也會虧損。如果你可以從他們那裡購買該產品線，那就太好了。但有些是這樣的。

Yeah, we're being very disciplined with the approach, and it has to fit in our [balliwick]. So, I really want to make sure it's, something that makes sense for IS&S.

是的，我們對這個方法非常嚴格，它必須符合我們的[巴利威克]。所以，我真的想確保它對於 IS&S 來說是有意義的。

Okay, well I appreciate you answering my questions. I want to wish you all the best and we're looking for you know just this growth to continue, so thank you for taking my question.

好的，非常感謝您回答我的問題。我希望你們一切順利，我們希望這種成長能持續下去，所以感謝你們回答我的問題。

Andrew Rem, Odinson Partners

安德魯雷姆（Andrew Rem），奧丁森合夥人

Hey gentlemen, can you just remind us, on the 4th quarter call you guys talked about this pull forward effect, that you're expecting to come in the 2nd quarter just any revised thoughts that you have now that we're in it.

嘿，先生們，您能否提醒我們，在第四季度的電話會議上，你們談到了這種提前效應，您預計第二季度會出現任何您現在所修改的想法。

Right, so what I think you're saying, Andrew, is when we talked a little bit there might be a little bit of an uptick in Q2 around the military product line that we may see. So yeah, there is a potential there might be an uptick in the revenue side from the Honeywell military product line.

好的，安德魯，我認為你的意思是，當我們稍微交談時，我們可能會看到第二季軍事產品線出現小幅上漲。所以，霍尼韋爾軍用產品線的收入有可能上升。

A lot of that is still being operated at Honeywell under the transition services agreement, so we do have visibility there, but from, we're in constant contact with them on a weekly basis, some of those deliveries may be getting delayed a little bit and they're having some potential issues, that's what we want to get a transition to IS&S in a timely fashion, but there potentially could be an uptick in the revenue on that product line in Q2.

根據過渡服務協議，其中許多產品仍在霍尼韋爾運營，因此我們確實可以了解情況，但是，我們每週都會與他們保持聯繫，其中一些交付可能會稍微延遲，而且他們可能會遇到一些潛在問題，這就是我們希望及時過渡到 IS&S 的原因，但該產品線的收入可能會在第二季度有所上升。

So, is it still on the plan that the manufacturing will transition over in the 2nd quarter or maybe some of that pushes into the 3rd quarter?

那麼，計劃是否仍是在第二季完成製造業轉型，或將部分轉型延後到第三季？

So, it's going to be in the 3rd quarter. 2nd quarter is the quarter we're in now. And so, the transition is going to happen in the 3rd quarter, I'm hoping that it will happen in the 3rd quarter. Let me put it that way. Because right now I think they're talking about May, and they have Honeywell has to build sufficient amount of backlog and deliver it to Lockheed. Before they can shut down the line and go through the transition.

所以，它將在第三季發生。我們現在處於第二季。因此，轉變將在第三季發生，我希望它將在第三季發生。讓我這樣說吧。因為現在我認為他們正在談論五月，他們必須讓霍尼韋爾累積足夠數量的積壓訂單並將其交付給洛克希德。在他們關閉生產線並完成過渡之前。

And I think there was some [heing] part or whatever that they had issue. We've actually told them that we can manufacture it for them here in house to try to expedite it, but we still haven't seen the drawing for it. But it's going to be somewhere around, I would think either May or June time frame, hopefully it won't get into July. But definitely not this quarter.

我認為他們在某個部分或其他方面有問題。我們實際上已經告訴他們​​，我們可以在公司內部為他們生產，以嘗試加快速度，但我們仍然沒有看到它的圖紙。但我認為時間大概在五月或六月左右，希望不要到七月。但本季肯定不會。

Okay, and then Jeff, is there any financial benefits that we can expect over time from the ERP implementation?

好的，那麼 Jeff，從長遠來看，我們可以從 ERP 實施中獲得什麼財務效益嗎？

Yeah, so I think when you have an ERP system, what does that give you? It gives you better data so management can make, on time reaction to information. So, I think we'll see efficiencies throughout the organization, how we manage the business. So my expectation is people will then be able to look at the data to make better decisions than trying to, I don't want to say create the data but trying to, extract data to make it a usable form.

是的，所以我認為當您擁有 ERP 系統時，它會為您帶來什麼？它為您提供更好的數據，以便管理層能夠及時對資訊做出反應。所以，我認為我們會看到整個組織的效率以及我們如何管理業務。所以我的期望是人們將能夠透過查看數據來做出更好的決策，而不是試圖，我不想說創建數據，而是試圖提取數據以使其成為可用的形式。

So now they'll have time to analyse that we can look at labour changes, even products, with suppliers too so yeah, I'm envisioning we'll have some better information for all the users of the financials.

所以現在他們將有時間進行分析，我們可以查看勞動力變化，甚至產品，以及供應商，所以是的，我設想我們將為所有財務用戶提供更好的資訊。

I think in general today that everybody that wants anything, they go in there, they pull the data export it to Excel spreadsheet, and they try to manipulate it on Excel and then generate time consuming, generate charts and it takes time to do that as, with the new ERP system. All of these are all available in your, yeah, on your screen.

我認為，今天每個人想要任何東西，他們都會進入那裡，提取數據並將其導出到 Excel 電子表格中，然後嘗試在 Excel 上對其進行操作，然後生成耗時的圖表，而使用新的 ERP 系統則需要花費時間來完成這些工作。所有這些都可以在您的螢幕上看到。

Correct.

正確的。

Alright and then, it sounds like there's a lot going on. I mean you, you've got the acquisition and then I guess in conjunction with that you talked about some of the things that you're the IT system, the ERP getting in compliance with the military standards, and then you know obviously you've got the construction project which is up and running. Will you be at kind of a normalized by the time you exit fiscal '25 with all of this stuff going on?

好吧，聽起來有很多事情發生。我的意思是，您已經完成了收購，然後我想您也談到了一些事情，例如您的 IT 系統、ERP 是否符合軍事標準，然後您顯然知道您已經啟動並運行了建設專案。在所有這些事情發生之後，到 2025 財年結束時，您的財務狀況會恢復正常嗎？

I like to think that by Q4. We should be in good shape, with all of this.

我認為到第四季就會出現這種情況。有了這些，我們應該會保持良好的狀態。

Yeah I would. I think we should be able to be normalized depending on any other acquisitions for what we have in front of us.

是的，我會的。我認為我們應該能夠根據我們面前的任何其他收購來實現正常化。

Yeah, I think might be by end of Q3 we should be.

是的，我認為到第三季末我們就可以做到。

Yeah, the building will be done will be and listen.

是的，建築將會完工，請聽我說。

I mean barring a big delay from Honeywell to do that. To do the transition, it should be, we should be, because right now we're paying, in a way, we're paying double duty here. We're paying cost of goods sold to Honeywell, we also have a team here that are getting trained to do the job. So that affects our gross margins and profitability.

我的意思是，除非霍尼韋爾大幅推遲這項措施。我們應該進行轉變，因為現在我們在某種程度上承擔了雙重責任。我們正在向霍尼韋爾支付銷售商品的成本，我們這裡還有一支正在接受培訓以完成這項工作的團隊。這會影響我們的毛利率和獲利能力。

As soon as the transition happens over here, then we don't have to pay the Honeywell technicians. We just, we're just paying ours.

一旦過渡完成，我們就不需要支付霍尼韋爾技術人員的費用了。我們只是，我們只是在支付我們的費用。

And then Jeff, if I understood your comments right, maybe this quarter is kind of the low point for gross margin, and then they can kind of improve, but I'm also kind of wondering if we should really just maybe just thinking about this business. Don't worry, get too hyper focused on gross margin and just maybe focus on and EBITDA margin.

然後傑夫，如果我理解正確的話，也許這個季度是毛利率的低點，然後他們可以有所改善，但我也有點想知道我們是否真的應該只是考慮一下這項業務。別擔心，不要過度關注毛利率，也許只需關注 EBITDA 利潤率。

Correct. I think you really want to focus on those EBITDA margins because again if you we have that big tick in Q2 on the military, it's volume in the product mix that's going to impact those gross margins. But even as I mentioned, this quarter, depreciation expense was $500,000 higher than it was, this time last year, Q1 last year, so that impacted, those margins about 500 basis points.

正確的。我認為你確實應該關注那些 EBITDA 利潤率，因為如果我們在第二季度在軍事方面取得如此大的進展，那麼產品組合的數量將會影響這些毛利率。但正如我所提到的，本季的折舊費用比去年同期（去年第一季）高出 50 萬美元，因此對利潤率的影響約為 500 個基點。

So, you have things like that with these acquisitions. So yes, I would say EBITDA is the better metric to look at, from that perspective and focusing on margins because again it's going to be around product mix.

所以，透過這些收購，你就會遇到類似的事情。所以是的，我認為從這個角度來看，EBITDA 是更好的衡量指標，並且專注於利潤率，因為它將圍繞產品組合。

So, if we kind of look out at a more normalized what are is your current expectation for what that can look like?

那麼，如果我們以更規範的方式看待它，您目前對它的期望是什麼？

EBITDA margin so we're actually projection. Keep it a year over year by 30% and we feel confident about that number today.

EBITDA 利潤率，所以我們實際上只是預測。保持同比增長 30%，我們對今天的這個數字充滿信心。

Yeah, even with Q1

是的，即使是第一季

Yeah, I mean Q1 was 28%, so we're right there, so we still feel confident with the 30%.

是的，我的意思是第一季是 28%，所以我們就在這個水平，所以我們仍然對 30% 充滿信心。

Okay. All right. Well, nice quarter. Thanks a lot, guys.

好的。好的。嗯，這是一個不錯的季度。非常感謝大家。

Thank you, man, I appreciate it.

謝謝你，老兄，我很感激。

This concludes our question and answer session. I would like to turn the conference back over to Shahram Askarpour for any closing remarks.

我們的問答環節到此結束。我想將會議交還給 Shahram Askarpour 並請他做最後發言。

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

謝謝您，接線生。感謝大家對 IS&S 投入的時間與興趣。祝你有美好的一天。

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

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。