Innovative Solutions and Support Inc Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Theodore O'Neill - Litchfield Hills Research LLC - Analyst : Thank you very much. I have two questions. The first one is about on the sales side. The reduced shipments of displays for the retrofit in the commercial market. Do you have a view on if and when that, why change and what would be the driver for it?

Question: Theodore O'Neill - Litchfield Hills Research LLC - Analyst : Okay that makes sense. And on the SG&A expense, the amortization of the customer relationships that was in the SGA in the quarter, is it a significant part of the increase? And does it continue on for many more quarters?

Question: Theodore O'Neill - Litchfield Hills Research LLC - Analyst : Okay. Thanks very much.

Question: Theodore O'Neill - Litchfield Hills Research LLC - Analyst : Okay, thanks, guys.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Morning, gentlemen. I just had a question to start with how should we think about gross margins within the customer service segment?

Question: Andrew Rem - Odinson Partners LLC - Analyst : Right? So your fourth quarter right is 68.5%. And prior to fiscal '23 year to date, it has been running 71%. And so I don't know if I mean, you mentioned some under-absorption, but you had much higher revenue this quarter than a first, second, or third quarter of last year.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Yes, I'm just trying to understand the nuances.

Question: Andrew Rem - Odinson Partners LLC - Analyst : While the year to date through the first three quarters of fiscal three was running 70%, 71%. Then fourth quarter was 68.5%, and then now you're at 59%. So I'm just trying to understand the nuance what moves the gross margin around and this quarter's revenue in customer service was higher than the revenue run rate in the first three quarters of last year.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Okay. And then on the cost materials side, how long does it take you to kind of get some price recovery there.

Question: Andrew Rem - Odinson Partners LLC - Analyst : On costs on the cost of materials, how long does that take you to get its recovery.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Okay. And then on inventories, obviously, you had a pickup in the fourth quarter due to Honeywell, but you also had another pickup this quarter about $1.7 million. Can you just help us understand what's going on? And is this related to are you excess inventory as you make these product transitions is that's what's driving it?

Question: Andrew Rem - Odinson Partners LLC - Analyst : We expect in the second half of the year kind of inventory to kind of normalize as you get up the product transition, we get that behind you. You brought in all of the Honeywell inventory. Is that reasonable?

Question: Andrew Rem - Odinson Partners LLC - Analyst : Okay. And then on CapEx, go ahead.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Alright. And on CapEx, can you just comment on it was pretty high this quarter. How should we think about that for the full year?

Question: Andrew Rem - Odinson Partners LLC - Analyst : Just looking at 182,000 versus 300,000 for the full year fiscal 2023? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2024 / 3:00PM, ISSC.OQ - Q1 2024 Innovative Solutions and Support Inc Earnings Call

Question: Andrew Rem - Odinson Partners LLC - Analyst : Can you guys comment then on like if we just think about CapEx and what the incremental components? So you mentioned IT infrastructure would be incremental for this year and then some incremental CapEx related to everything that you're doing around Honeywell, can you kind of so if we if you've got a base CapEx spend a couple of hundred thousand and then how much incremental from these IT and Honeywell related.

Question: Andrew Rem - Odinson Partners LLC - Analyst : Alright. Well, I guess it's better for me, but I did want to say that you guys have done a pretty amazing job to generate generated good cash flow here. We've taken a turning point for out of your debt. I had speculated that maybe you guys could exit this fiscal year and below one times. I think it looks like you maintained the current trajectory you guys are going to flow right through that. So kudos to you guys and the team for doing a great job of improving the balance sheet so quickly. So anyway, thanks a lot. Appreciate it.

Question: Doug Ruth - Lenox Financial Services, Inc. - Analyst : I wanted to start off by congratulating you on a really strong quarter. You've done a wonderful job. I had a question. Is the management team and the Board of Directors to do you folks now have the ability to buy stock?

Question: Doug Ruth - Lenox Financial Services, Inc. - Analyst : Okay. I think the investment community would really appreciate that thought if the Board and some of the managers could buy some stock, I think it would really make a significant difference. And again, I want to congratulate you on a really strong quarter. Thank you for what you're doing for the shareholders.