Good morning. My name is Mindy and I will be your conference operator today. At this time I would like to welcome everyone to the Innovative Solution & Support Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you. Mr. Hedrick, you may begin your call.

Good morning. This is Geoff Hedrick, I am the chairman and CEO of Innovative Solutions & Support and I would like to welcome you this morning to our conference call to discuss the second quarter 2009 results, our business conditions, and outlook. Joining me today at the Exton headquarters are Roman Ptakowski, our president; and John Long, our CFO. Before I begin, I would like to ask John to read our safe harbor message. John?

Thanks Geoff. Good morning. I’d like to remind our listeners that certain matters discussed in the conference call today including operational and financial results for future periods are forward-looking statements and are subject to the risks and uncertainties that could cause actual results to differ materially, either better or worse, than those discussed, including other risks and uncertainties reflected in our company’s 10-K which is on file with the SEC. I will now turn the call back to Geoff Hedrick, CEO. Geoff?

Thanks John. We are reporting strong results for the second quarter ending March 31 of this year. Revenues were up over 50% from a year ago exceeding our high-end guidance and revenues have driven primarily by our Flat Panel Display Systems’ shipments. We reported net income of $1.3 million or $0.08 a share consistent with our expectations and in the second quarter we improved the bottom line by nearly $6 million from the comparable year earlier. We generated strong cash flow in aggregate an outstanding quarter which we met or exceeded our financial goal. As a result, we believe that the demand for both our Flat Panel systems and Air Data systems will continue to increase as a result of renewed interest in modernizing and improving safety and reliability of existing aircrafts. We are pleased with the progress in the Cessna program where the company flight testing has successfully been completed and they expect to flight test first for STC with FAA next month. We expect revenues from Cessna to ramp up as the product is rolled out into their distribution system later this year. In a minute, Roman will talk about progress achieved penetrating the military market. Keep in mind the Cessna opportunity is quite significant but very little will appear in the backlog, due to the nature of the product and this is true with Vantage as well. With growth of retrofit enquiries we feel that we are at the beginning of the initial signs of a major revitalization of the retrofit market. I would like to turn it over to John Long to go through the financial results in more detail before wrapping up and provide our perspective on the third quarter.

Thanks, Geoff, and thanks again for joining our call this morning. Revenues in the second quarter were $10.5 million, up 53% from $6.8 million a year ago and on the upper end of guidance previously provided for the quarter. Growth has been driven by steady execution to existing customer production schedules for the contracts in our backlog as well as the important contribution of inner quarter orders. Our revenue growth in the quarter was driven by record Flat Panel Display System revenues from a mix of solid customers in each of our three market segments. In the quarter, Flat Panel Display System revenues were $8.2 million while Air Data product revenues were approximately $2.3 million. Gross margins in the second quarter were about 50% consistent with the first quarter margins of 50.3%. Clearly, incremental product revenues, favorable product mix, and efficiency initiatives are delivering the leverage of our fixed engineering resource and manufacturing overhead as anticipated. Obviously, we are pleased with the margin so far this year. For this year current production levels should enable us to sustain gross margins in the mid-to-high 40% ranges. Longer term our goal is to continue to expand the gross margins through additional leverage of our fixed manufacturing overhead. Total operating expenses for the quarter were $3.9 million of which $1.6 million was for research and development. Our R&D was about 50% of revenue for the quarter, which as Geoff has previously mentioned is in line with our long-term historical average. R&D productivity has improved quite significantly and I would say more than 50% through a more focused effort as well as some organizational changes and workforce reductions that we have taken over the past six months. Selling, general, and administrative spending in the quarter totaled about $2.3 million compared to $4.7 million in…

Thank you, John. The quarter’s revenues were generated across a diverse customer base from each of our three market segments. In the commercial air transport market segment, we continued to shift Flat Panel Display Systems to both cargo carriers and to revenue passenger airlines. General aviation revenues this quarter included shipments for Pilatus PC-12 applications and additional shipments to support Cessna’s flight testing and product qualification requirements. In our military sector, the company’s revenues were generated by air transport, cargo and aerial re-fuelling as well as Homeland Security applications. Included in our military segment were continued shipments of our enhanced situational awareness displays. These are used by tactical officers to aid in their mission planning and execution. This is a good example of how our innovations of Flat Panel Displays are now being used on some of the world’s most sophisticated aircrafts. During the quarter, we further increased the productivity of our engineering staff for broader utilization of software and other tools to increase the quality and efficiency of their efforts. We were able to meet delivery scheduled on time and add new development programs to our portfolio within the limitations of our current resources. Backlog at the end of the second quarter was $39 million, down from $46 million at December 31. The reduced backlog is net of the $3.7 million of new business booked in the quarter and a $10.5 million of shipments. We had no cancellations or de-bookings in the quarter. The military segment is showing increasing signs that long delayed maintenance and upgrade programs are going to be funded. In the first three weeks of April we have booked $4 million of military orders some of which have been three years in the making. These are good wins but significantly these contracts from the Department of…

Thanks Roman. Before beginning and opening questions, I would like to summarize today’s remarks. First we forecast that we will be cash positive, profitable, and grow the business. We are pleased we are accomplishing these objectives in a very difficult economic environment. The current economic environment is shifting the emphasis from building new aircrafts to retrofitting existing fleets a market which has historically been the basic mission of our company. Cessna is coming onboard and our success with the military is very encouraging. Finally over the last few months, we have instituted major changes throughout the organization to prepare for additional growth and improve operations and generate returns on investments. Consequently we are prosecuting our backlog very efficiently without any slowdown in our efforts to pursue new opportunities. As you have heard this morning, in the first half of the fiscal year we achieved both top and bottom line objectives while simultaneously improving our overall financial strength. Margins are moving up and costs are moving down, the formula for success for the long term. For the balance of the year we expect to hold the line on costs so that we will continue to achieve profit objectives and build value for our shareholders. Due to the global economic conditions it may be more difficult to sustain revenue growth of the first half of the year in the second half. In these markets cash is king and we intend to continue to add to our strong financial position. On the whole this should make for a year of an incredible turnaround over last year’s financial performance and the economic head winds we have been battling. Therefore, we expect to exit the fiscal 2009 in a very strong financial position with momentum in all of our business segments. The only question will be the rate of that momentum since only owners and operators know when they are finally ready to proceed with the projects in our pipeline. So we believe we are on the inside track. Let me now provide you with expectations for 2009 reiterating John’s. Based on our current conditions, we expect revenues to be in the $37 million to $39 million range, which implies approximately a 25% growth rate over 2008 which is remarkable considering disastrous economic conditions. Earnings per share are expected to be in the range of 28% to 30% significantly higher in the projections earlier this year and that assumes a 6% tax rate. With that, operator, would you please open the conference call for questions?

(Operator instructions). Your first question comes from Steve Denault from Northland Securities. Your line is open. Steve Denault – Northland Securities: Good morning everyone, nice quarter. I just wanted to make sure that I heard everything correct. So your EPS guidance for this year is $0.28 to $0.30?

Right, that is correct Steve, yes. Steve Denault – Northland Securities: Okay, what was the backlog, I totally missed it.

Roman, do you want to touch on that?

The backlog at the end of the quarter was $39 million. Steve Denault – Northland Securities: Okay.

And it has grown –

In the first three weeks of the new quarter we booked an additional $4 million.

$4 million, our backlog has grown since the end of the quarter. Steve Denault – Northland Securities: Okay then I heard $50 million military proposals outstanding, what was the general aviation proposals outstanding?

Commercial and GA combined it is about $55 million, more than $55 million. Steve Denault – Northland Securities: Okay and of course I missed your comments on the Cessna’s PC, did you say next month?

They are going to go into FAA flight test which means the FAA is going to fly four and they expect STC issued I think in June, isn’t it? Yes, they are going to fly test in May with the FAA I think they do ground testing next week and they will be in FAA flight test I guess later this month of May and with a STC probably issued in June. It is pretty remarkable, very, very fast track. Steve Denault – Northland Securities: Okay, how do you see this playing out, obviously there is a lot of Cessnas on the ground, in terms of rolling it out to whether it be company owned retrofit locations first or – how should we think about it?

For the Cessna program, they have 34 centers worldwide and I do believe a distribution channel and installation channel for the equipment. We just expect that almost four days this week out in Wichita training and bringing all the field sales and installation people up to date and briefing them on the program, Cessna is preparing the people and putting the full-court press worldwide. We expect the installations to be done by these 34 centers and sponsored and promoted by Cessna. Steve Denault – Northland Securities: Okay with revenues, you would start recognizing and realizing revenues anticipated sometime late in calendar ’09.

By the way, recognized revenues are ready because we have been shipping and building their pipeline to be prepared for the rollout. They already have certain amount of customers, they are not disclosing that amount although we will honor their request and we will continue to ship systems.

How many systems? Yes, we have shipped over 10 systems already, 10 aircraft systems already. Steve Denault – Northland Securities: Okay.

And they will actively and aggressively be not only installing on their test airplane but on other airplanes simultaneously which is some endorsement in itself. Steve Denault – Northland Securities: Okay and will that largely look like book and build business?

Essentially yes.

It will be book and build. What else it does is pretty interesting, a couple of other OEMs, one in particular went to Cessna and asked to see the airplane and have contacted us to ask us if we can do a similar program for them. The value proposition is really essential for especially the OEMs in these difficult times recognize that all of the company-owned distribution centers and FBOs are selling less fuel, doing less maintenance and they are having a very serious impact on their business. So, retrofit business is very welcome but more importantly perhaps is the fact that it is an excellent way to maintain customer loyalty. It keeps the customer in that airplane and allows them to upgrade it so that when they are ready to trade it in for a new airplane the airplane itself will be worth more and more easily sold. So, it is a real value operation, not only improving the performance and situational awareness of the aircraft reliability and all the factors of the equipment retrofit it enhances the value and salability of the aircraft when they are ready to trade in. So it is very, very good for the OEMs and that is why we are seeing a significant interest in several major biz jet OEMs. Steve Denault – Northland Securities: When does the FedEx retrofits conclude?

What?

When do they conclude? Steve Denault – Northland Securities: Yes, when are they – when will you essentially be done with that program?

As long as FedEx keeps acquiring 757s, we continue shipping. We expect it to go on for years. Steve Denault – Northland Securities: Okay. And I think last quarter you referenced 8 million being shippable from your backlog in the third and fourth fiscal quarters. Does that still hold true?

I don’t think that I recall the reference, but generally speaking, we’ve got 75% to 80% coverage for the second half.

And that coverage Steve, as Roman said, is right in that 75% range, 75% plus range and growing. Steve Denault – Northland Securities: Okay, perfect. Thank you.

Okay. Thank you, Steve.

Thank you, Steve.

Your next question comes from David Campbell from Thompson Davis & Company. Your line is open. David Campbell – Thompson Davis & Company: Good morning, everybody.

Good morning, David. How are you? David Campbell – Thompson Davis & Company: Thanks. Good, thanks. I just wanted to ask you about cash since cash is king these days. You had good cash flow from operations in the quarter. It looks like about –?

How much you need? David Campbell – Thompson Davis & Company: Well, it’s very unique. I would say about $2 million of cash from operations in the quarter, but you still have more receivables than at the end of September. And given the fact that your revenues are going to be lower in the next two quarters, some of that – will some of that receivable come down and therefore cash go up some more in the last two quarters?

Yes, David. We – as I said in my comments, we anticipate the profitability being basically equivalent to the cash flow and the day sales did improve from the end of December to the end of March here. So, yes, there is – so again, contingent upon how the sales sequentially occurred over the next two quarters, we are going to have a cash flow impact, but net-net, we are looking to drive profitability equal to cash flow here as we go through the balance of the fiscal year.

David, the receivables are in pretty good shape. As you know, everybody in the business is pushing out their payables big time and we haven’t been severely affected. In fact, we’ve been able to do exactly the opposite. So, it’s – we’ve managed it well I think, and we have good customers as well. David Campbell – Thompson Davis & Company: Well, I would almost rather see the receivables going up. That means the sales are going up.

Let me tell you something. In these economic conditions, when everybody is talking about cutting 30%, 40%, 50% off their top line, we are happy that we’ve been able to grow. Think about it, we grow at 25% in a time when virtually every company out there has significantly reduced their revenues and of course, devastated their profits. David Campbell – Thompson Davis & Company: Right. But of course, you are not going to be able to do that in the next six months according to your forecast, which is basically unchanged from – for a long time.

By the way, it still – and it’s about the same, but it still represents both profitability and cash generation and by the way, still marginally better than last year. David Campbell – Thompson Davis & Company: All right. Well, not the fourth quarter. Fourth quarter last year, you had $10 million in revenues and your forecast –?

We only got paid for half of that, remember? David Campbell – Thompson Davis & Company: Right.

If you are talking about revenues that we can recognize and we get paid for, it was a lot less than that. David Campbell – Thompson Davis & Company: Right. Let me ask you a couple of things. In your – for $55 million of proposals for flight-panel applications, commercial and business jet, do you have any commercial applications, any commercial proposals?

Yes we do. Included in the numbers I gave were $50 million – more than $50 million for military and over $55 million for commercial and general aviation.

That’s commercial air transport, as in package – as in passenger carriers.

Passenger carriers, as well as commercial cargo carriers. David Campbell – Thompson Davis & Company: So, those passenger carriers would be new customers?

That’s correct. David Campbell – Thompson Davis & Company: Okay. Let’s hope that they feel the same way about – it’s better to fix the old ones than keep buying new ones or something, but – is that – that’s really a big – that would be a big plus if you got some of those passenger plane companies. There is no question about that. Well, I think basically it covers my questions right away. I’ll keep – let somebody else have it. Thank you very much.

Thank you, David.

Thank you, David.

(Operator instructions). Your next question comes from Michael Ciarmoli from Boenning & Scattergood. Your line is open. Michael Ciarmoli – Boenning & Scattergood: Hey guys, nice quarter. Thanks for taking the call. Just in the quarter and in the backlog, was there any specific customer concentration, notable customers that accounted for more than 10% of revenues or higher like American or FedEx?

American Air, as you will see disclosed and as we disclose in every 10-Q, they were a significant percent for the quarter and that will be in the 10-Q. I won’t get into the percentages right now and I think they were basically the primary, American Air. Michael Ciarmoli – Boenning & Scattergood: Okay. And what about as a percentage of backlog? Are they still – so it sounds like you’ve got about $16 million of that backlog is going to be recognized near term and the balance $23 million or so is going to be longer term, I presume that’s related to American and FedEx?

It’s related to them and others, yes.

We have some military programs that go out.

That also stretch out.

Yes. Michael Ciarmoli – Boenning & Scattergood: Okay. So, I mean –?

We are seeing a movement and as you can imagine, when you get a program the size of American Airlines, currently it’s over 200 aircraft, a very large program, it always represents a significant portion of your backlog because – I mean, the one order was larger than the revenues previous year. Michael Ciarmoli – Boenning & Scattergood: Right. So, I mean –?

And what happened is – and that’s going to – and that’s probably going to move up, we are going to have to watch it. That is a good revenue stream for the next couple of years. So, we see that as being a very positive base. But we – all the revenues are starting to fill up that backlog, and the percentage of American will rapidly because a smaller and smaller percent. Michael Ciarmoli – Boenning & Scattergood: When you say new revenues, I mean I’m looking at – backlog is down 20% sequentially, 47% year-over-year, you are talking – growth is probably to going to slow the back-half of this year and you are talking about the revitalization of the retrofit market. Where is that confidence coming from? I know you got the proposals out there. Can we get an update? I think on the last quarter you talked about the 767 and 757 proposals being out there. Has there been any progress? Are you getting closer to closing those deals?

Well, a couple of things. First of all, when you go to the previous year-ago backlog, the year-ago backlog included things like Eclipse and about $7 million of other backlog that moved so slowly that we un-booked it. So, there was – then if you looked at the net backlog, it wasn’t very significant. We had to strip out almost $15 million of that. That’s number one. Where we see real strength is obviously in Cessna as the – and the proposals we have out. Furthermore, the military, as we are seeing with this $50 million worth of potential in military programs. We see that as a very strong – going forward. So, all in all, we see a very strong future. Just as an example, we said we booked over $4 million in the first three weeks of this quarter. Michael Ciarmoli – Boenning & Scattergood: On Cessna, now how are they going to – are they going to order units up front to kind of keep their main distribution facility, keep product on hand and inventory on hand or is this going to be as orders come in from the centers, you will kind of ship them out?

Yes, we’ve already ordered 15 ship sets and there are more on order and they will be inventorying them. And remember, they have 34 centers working the problem. So, we look at releases in groups of five or ten at a time. I think it’s a contractual obligation, ten at a time. So, we will see – we expect to see, as soon as the FCC comes, further releases. But they’ve already released a significant number that we’ve already – in most cases, we’ve actually delivered. So, yes, the answer to your question, they are stocking them, they are supporting their field, and they are doing it in anticipation of sales. Michael Ciarmoli – Boenning & Scattergood: Okay. And then just any update – I mean, the proposals, you guys talked about the proposals last quarter on the 757 and 767. Are they progressing, moving forward, what are the sticking points if they are still hanging out there and not getting closed?

Well, I think there is no sticking points per se, but I think everybody is moving cautiously. They are continuing an evaluation and they actually haven’t delayed the schedules significantly. They always planned on making the decision over about a seven-month or eight-month period. So, it’s – actually, we don’t see a delay, but it’s not moving quickly. I think they are continuing to carefully watch the economy like all of us and try to determine what’s going to happen. But the 757, 767 is a uniquely good value proposition. These are aircraft that provide excellent fuel economies, they have plenty of capacity, and they cost a fraction of what any comparable sized aircraft new guys. So, it’s a – there is a real demand and a real interest both from the people, passenger carriers and the package carriers. Michael Ciarmoli – Boenning & Scattergood: So then on the new proposals that you are kind of suggesting you’ve got today, we don’t expect to hear anything for – the decision process could take six to eight months?

We expect a number of these to close favorably during the second half of the year. Michael Ciarmoli – Boenning & Scattergood: Okay.

And as they do, we’ll certainly –

Some of the 50 – the outstanding bids are bids that have been there for some period of time and we hope that they’ll close sooner than later, but on an average, this kind of thing takes probably upwards to six months for it, whether it’s military or commercial. Michael Ciarmoli – Boenning & Scattergood: Okay. And then last question. You mentioned cash is king. Can you just walk me through the rationale for the one-time dividend again? Is that going to be something you do with the cash going forward or what are the plans for the cash?

Well, the rationale for the one-time dividend, as we discussed before, we had hoped that first of all, we’ve got it pegged out a successful litigation. Nobody believed that would be successful, but we were pleased that it was. And we were able to provide our stockholders with some cash at a period of time where the alternative might have been to sell our stock to support a margin cost. And we found out in a number of cases that that was actually a successful play. Cash is king, and it’s king as long as you can continue to generate it. A significant amount of cash like our annual revenue in cash is very important. So, that was the rationale, I think it was successful and we continue to generate more cash. Michael Ciarmoli – Boenning & Scattergood: All right. Fair enough. Thanks guys.

Thank you, Michael.

Thanks, Mike.

Your next question comes from David Campbell from Thompson Davis & Company. Your line is open. David Campbell – Thompson Davis & Company: Yes, hi. I just wanted some updates on the status of the 747 applications, the Pilatus program and Marshall Aerospace.

Marshall Aerospace, we’ve virtually delivered everything.

Correct.

And that’s going well. The Pilatus continue to grow, a program that at one point was not considered a terrific program, is proving to be very, very profitable and generating a lot of revenue and we continue to get more orders and internally we make more and more special features available for the Pilatus aircraft. The third was – David Campbell – Thompson Davis & Company: 747.

747 program, we continue to have work on the EIDS, but we – because that’s a relatively small fleet, we don’t see that as a major generator. David Campbell – Thompson Davis & Company: So, the STC has not been attained for the 747?

Not yet, no. We are not applying for the STC, it’s through another party. So, our control over that process is somewhat compromised. David Campbell – Thompson Davis & Company: Right. But the Marshall Aerospace, you say, has all been delivered. But I mean that was supposed to be significant, they were supposed to be doing significant work in Europe for – with the C-130s and the KC-10s and stuff like that. Is that just sort of –?

Marshall is working on C-130s and L-1011, TriStars. We’ve delivered the product, as Geoff said. They are now going through their shakedown cruises with the aircraft and so on. Marshall’s intent – and I’ll speak to them only to a point, but Marshall’s intent is to take that same application and make it available to other European operators and we are there to support them with that.

They haven’t finished their work.

They haven’t finished their work, right. And KC-10 is the Boeing Royal Netherlands Air Force application. And that’s gone very successful, we keep working with them, we’ve expanded the applications of what they are doing and we hope, as we said, to use that success to help us with the United States Military and other KC-10 operators. David Campbell – Thompson Davis & Company: Right – right. So, I guess in terms of cash from – for fiscal 2009, we should think in terms of maybe another couple of million and besides the 37.5 million you ended the year with – ended this month – quarter with that would bring you to around 39.5 million by the end of the year?

That sounds correct, David. I’m comfortable with that, yes.

Well, that sounds about right. David Campbell – Thompson Davis & Company: Okay, right. Well, thanks, good luck on your new business and we can’t wait for some announcements on it.

Thank you very much, David.

Thank you, David.

(Operator instructions).

Okay. There are no more questions. Are you there, operator?

Yes. At this time, there are no more questions.

Yes, okay. And I just like to summarize what went on today. Today, we were fortunate to report not only growth, but profitable and cash generating growth. We are pleased with the performance. It’s a very – continues to be very uncertain economic conditions as all of our comparable companies are reporting, but we make the best out of a difficult situation. And that continues to improve as we have gone through this quarter. We expect to have a reasonable growth this year and we’ll have a number of products and positions for the future. So, we have an optimism for the future and some concern about the uncertainty of the economy, but we are making the best of a difficult situation. Thank you for joining us today. Bye-bye.

Thank you. This concludes today’s Innovative Solutions & Support second quarter earnings conference call. You may now disconnect your lines.