Innovative Aerosystems, Inc.

Greetings and welcome to the Innovative Solution and Support, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Linacree, Chief Financial Officer. Please go ahead.

Thank you, Operator, and good afternoon, everyone. I would remind our listeners that certain matters discussed in the conference call today, including information about new products and operational and financial results for future periods, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially, either better or worse from those discussed. including other risks and uncertainties reflected in our company's 10-K, which is on file with the SEC and other public filings. Now I'll turn it over to our CEO, Shahram Askapur.

Thank you, Mike, and good afternoon, everyone. I will begin today with remarks on our performance in the fiscal second quarter of 2023, followed by comments on our long-term growth plan and strategies. I will then turn the call over to Mike, who will take us through the financials. Our second quarter results demonstrated continued momentum of our business and elevated demand for innovative products. Compared to the prior year, our net sales were up 7.2% to $7.3 million. This improvement was driven by the higher volume of our aftermarket products, including our order flow for the key years. I would like to remind our investors and stakeholders not to overanalyze our quarterly performance, as it can be subject to variations in purchase order timings for our aftermarket products, which currently represent approximately 40% of our revenue. While we are pleased with our strong performance this quarter, it is crucial to take a more comprehensive and long-term view of our financial performance and growth. As we have reported on in the past, our business is well positioned to benefit from significant operating leverage on higher sales, which was demonstrated again in the second quarter. As such, Our gross margin expanded to 64% from 61% in the prior year, primarily due to leverage on higher volume and a favorable product mix. Operating profits in the current quarter was $1.4 million, which was $380K lower than the previous year. The decrease in operating profit was primarily due to higher SG&A expenses, which were mostly one-time in nature and related to non-cash stock-based compensation and relocation expenses. Turning to net income, we achieved 1.3 million, which is a slight decrease from the prior year of 1.4 million, for the same reasons. As we continue to invest In our sales and business development initiatives, we are experiencing strong returns as indicated by our end of the quarter backlog of 14.8 million, a significant increase from a year ago and driven by new orders of 13.6 million in the quarter, which is a record in recent years. Moving forward, our goals are clear. We want to increase facility utilization to maximize our margin potential. We have a two-pronged approach to achieve this goal, through organic growth by driving new product introduction and through inorganic growth via M&A. To support our organic growth, we continue to invest in our IR&D programs. Although IR&D as a percentage of sales is still below our full year target of 13%, we anticipate meeting our target on an annualized basis as we continue to expand our engineering department selectively with highly qualified and self-motivated engineers. We believe that investing in IR&D is critical for long-term success, and we remain committed to this approach. Specifically, we remain focused and see our primary competitive advantage in the area of cockpit automation, which you have seen with the introduction and broad market success of our oral travel programs. Our long-term plan is to provide the industry with incremental automation technology that would ultimately lead to reduction in number of pilots in the aircraft. To that end, I'm pleased to announce that we have shipped our initial orders on our recently awarded STC for the ThrustSense Aeroflot for the Beechcraft King Air 200 and 300 aircraft with the Garmin Cockpit. This certification has allowed FrostSense to be installed on an additional 700 potential platforms. On the inorganic side, we are actively seeking opportunities for M&A and have been working diligently to develop a robust pipeline. During the quarter, we made important progress by obtaining shareholder approval to amend our articles of incorporation. This strategic action will enable us to secure the financing needed to implement a more aggressive M&A program and execute to our long-term goals. To this end, we are currently working closely with our banking team to evaluate the best structures for our needs, and we plan to keep our investors informed about progress in upcoming quarters. In our M&A programs, we are focused on identifying and acquiring complementary products and technologies to our existing portfolio. We are targeting smaller, wall-ton acquisitions that are under $25 million. Our goal is to expand our portfolio and fill capacity in our facility and we believe that these targeted acquisitions will allow us to do so efficiently and effectively. We are constantly evaluating potential acquisitions, targets, and look forward to providing incremental updates in the coming quarters. In summary, we believe that our performance in the second quarter demonstrates continuous momentum and strong demand for innovative products. Moving forward, we have clear goals to increase our facility utilization and maximize our margin potential through both organic and inorganic growth. Thank you for your time and interest, and we look forward to updating you with the future details in the upcoming quarters. Now I will turn the call over to Mike for a closer look at the numbers.