Innovative Aerosystems, Inc.

Good evening and welcome to the Innovative Solutions and Supports Fourth Quarter Fiscal 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note This event is being recorded. I would now like to turn the conference over to Paul Bertolini. Please go ahead.

Thank you. Welcome to Innovative Solutions and Supports fourth quarter and full year 2024 results conference call. Leading the call today are our CEO, Sheram Askapur, 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. 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 that could cause actual results to differ, please refer to the risk factor 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 Sharon Moskapor, who will provide a review of our recent business performance and strategic outlook, followed by a financial update from Jeff DiGiovanni. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Sharam.

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 three-folds from just three years ago. 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 and 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. 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, a 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 discipline returns driven approach to capital allocation. While many of these elements are already at work in our existing business, we intend to provide more transparency around our progress under the 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 And given our leadership in cockpit automation, we anticipate the continuation of this trend into 2025. Earlier this year, we announced a new foreign military platform with a major aerospace OEM to supply multi-function displays with an integrated mission computer. We've already begun executing under this contract and realized 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. 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 anticipated our work with both the U.S. 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 instruments and our auto throttle, and on the military side, Boeing on KC-46A, KC-767, and the T-7 platform. 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. In early 2025, we will begin flight testing our new generation utility management system, or UMS, on the PC24 platform with Pilatus. In layman's terms, 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 UMS-2, 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. 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 Exxon facility, while also increasing the volume of sub-assemblies that are being manufactured internally. More on this shortly. 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 we'd add a second sub-assemblies line as part of the 40,000 square foot addition. 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. As we have discussed, these acquisitions provide us with several unique opportunities to drive profit uplift through the insourcing 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.