Good day, ladies and gentlemen, and welcome to the Innovative Solutions & Support Second Quarter 2012 Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Geoffrey Hedrick, Chairman and CEO. Please go ahead, sir.

Good morning. This is Geoff Hedrick. Welcome to Innovative Solutions & Support’s second quarter 2012 earnings conference call. I’m pleased this morning to be joined by Ron Albrecht, our Chief Financial Officer and Shahram Askarpour, who was appointed President of the company earlier this month. Before getting started, I’d like to ask Ron to read our Safe Harbor message.

Thank you, Geoff, and good morning, everyone. I would 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 from those discussed, including other risks and uncertainties reflected in our company’s 10-K, which is on file with the SEC. Now, I’ll turn the call back to Geoff.

Thanks, Ron. Results from the second quarter reflect our ability to balance the need to produce results in the near-term, while strategically investing to build value for our shareholders in the long term. For the second quarter, we were both profitable and cash flow positive, with net income of $289,000 or $0.02 per share, and operating cash flow of $628,000. At the same time, we continue to extend our engineering efforts on 4 very important new programs that have the potential to significantly increase our addressable market, both OEM and retrofit applications, while entering a period that will be focused on advancing our engineering and development contracts and while maintaining a strong balance sheet and commitment to our historical operational efficiency. During the second quarter, we realigned our resources to better reflect the growing demand for engineering services at a time when our production requirements had leveled off. Once again, we have demonstrated our ability to adapt to changing market conditions to meet our profitability and cash flow objections -- objectives, excuse me. The successful completion of these various engineering modification and development contracts will expand our market opportunity, enhance the Innovative Solutions & Support franchise and create value for our shareholders. Let me turn it over to Ron for a more detailed review of our recent financial performance. Ron?

Thank you, Geoff. Revenues for the second quarter were $6.8 million, up from $6.7 million in the prior year quarter. In addition, revenues in the quarter were up $2 million sequentially from $4.8 million in the first quarter of this fiscal year, driven primarily by an increase in engineering revenues. This year’s emphasis on new program development, gross margins continue to be influenced by the increased proportion of revenues generated on engineering contracts, which include certain third-party subcontractor costs, quite a higher proportion of these lower margin revenues, gross margins were 46% for the quarter and reflected the impact of operational cost reductions in the second quarter. Total operating expenses for the quarter were $2.8 million, down from $3.4 million a year ago. On a sequential basis, second quarter operational revenues were low while compared to the first quarter, reflecting the effect of certain non-recurring costs in the first quarter, offset by increased IR&D spending. For the quarter, we reported net income of $289,000 or $0.02 a share, again, a sequential improvement after a first quarter loss. Cash flow from operating activities was approximately $628,000 in the quarter, enabling us to increase our cash balances by $400,000 to $43.2 million at March 31, 2012, net of spending over $200,000 to repurchase shares in the quarter. At the end of the quarter, accounts receivable included $760,000 from sales to American Airlines prior to its bankruptcy. Based on the present status of the bankruptcy proceeding, we are not able to determine when or to the extent which these receivables will be collected. Looking to the full year, we are forecasting revenues to be roughly comparable to the last fiscal year. However, given the risks in the present economic environment, revenues for the year may be less than last year, which could result in negative profitability for the year. Potential military and American Airlines order shortfalls are the major contributors to the decreased revenue outlook. I will turn the call over to Shahram Askarpour for comments on current market position as well as an update on the progress of our business development and new programs.

Thank you, Ron. I would first like to thank Geoff and the board of directors for appointing me as President, succeeding Roman Ptakowski, following his retirement. I am very pleased to be in this new position joining Geoff, Ron and the rest of our experienced management team at what is a very exciting time for Innovative Solutions & Support. The company is executing on its growth strategy. Last year, we focused on winning engineering modification and development programs and we’re selected by several customers to develop products for their new platforms. This year, we are focused on advancing those programs through the engineering phases and bringing new products and capabilities to market. The successful execution of this strategy will result in new capabilities, both OEM and retrofit that will increase our addressable markets. Let me briefly review the status of our engineering modification and development efforts. The system integration and cockpit avionics upgrade of the National Nuclear Security Administration Boeing 737-400 classic aircraft provides NNSA with full CNS/ATM capabilities with similar efficiency and performance to the next-generation Boeing 737 aircraft at a fraction of the cost. This integration program eliminates legacy CRT display and avionics, leverages commercial off-the-shelf technology and provides a platform for future upgrades. Included are capabilities such as the Flight Management System, TCAS, Enhanced Ground Proximity Warning Systems, NexRad weather display, SatCom, and ADS-B. They have now installed the equipment for the first phase of the program and test flown it on the first aircraft. This first phase installation includes the primary and standby flight display systems. The supplemental type certification developed for the Boeing 737 classic aircraft will permit us to sell to a market of approximately 1,000 aircraft. It also moves us into a more valuable position, allowing us to increase the dollar amount of…

Thank you, Shahram. Before we open the call to questions, let me summarize with a few closing thoughts and our expectations for the balance of this year. We expect this to be an unusual year. We are engaged in a number of programs that we believe will transform our business, enhance and strengthen our industry recognition, and increase shareholder value. In bringing the various opportunities under development to market, we will again demonstrate our ability to provide the industry with technology that outperforms the competition in a fraction of the cost. With the increased industry visibility associated with these high-profile programs, we expect to expand the network of owners and operators who select Innovative Solutions & Support for their cockpit IP and related needs. For the fiscal year ending September 30, we expect revenues to be roughly comparable to 2011 after taking into account potential disruptions that may arise from current market conditions. Our goal remains to manage the business conservatively to remain profitable and generate positive cash flow. Operator, you can now open the call for questions.

[Operator Instructions] We’ll take our first question from David Campbell with Thompson, Davis & Company.

I know there’s uncertainty on American Airlines, and that’s one of your risk you cited in your revenue forecast for the year. Were there any revenue -- were there any American revenue in the March quarter or deliveries in the March quarter?

No.

No.

And that’s in spite the fact that they -- you think they just have too much inventory from previous deliveries or they stopped modifying the 757s and 767s?

I think the short answer is, yes. It’s very difficult to get good visibility on what’s going on at American operationally. But our sense is that they’ve slowed down the rate of their modification program and they are being more -- managing their inventory more closely.

Great. Right, right. Well, of course none of it -- the trustee is really in control of the situation, I guess, so it’s difficult to predict. So, your forecast of little or no change at this point in revenues for fiscal 2012 assumes no further deliveries in American Airlines?

No, we -- right now, it’s certain, but they -- we understand their continued single line, they had multiple lines, 4, 5. They’re down to a single line of modification, which slows it down by a factor of 3 or 4 to 1. We expect some additional modifications and therefore some potential additional revenues from American. In addition, we’re negotiating price adjustments for the number of units and for support contract going forward. So, there are some revenues -- revenue opportunities at American.

I can’t tell from your discussion whether you think that revenues will not exceed last year’s forecast and could be lower or will there possibly be a slight increase in year-to-year revenues?

I think the former is more logical. The impact of a couple of these things have been probably more severe than we expected while they’re -- while American is trying to look at what their inventory levels are et cetera, so that uncertainty is impacting us a bit more than we had anticipated. But we still see and they tell us that they have a long-term program and that they anticipate doing still a significant number of additional aircraft.

And the other risks in the revenue forecasts are related to the military, I think you mentioned, meaning the military budget being on the scrutiny. Is that the problem?

Well, again, it’s back to uncertainty situation. I think –- yes, I think there’s great opportunity because the military will be looking for value in even stronger way than they have in the past. And we have very cost effective solutions. That’s the good news. The bad news is, they’re trying to understand what to do, because they have that looming automatic cut that’s sitting there, and general uncertainty in their budget. So, I mean, the answer is, we don’t know. We’re watching carefully to see what happens. Obviously, in the longer term, it’s not as negative. It’s just the short term, we don’t know what -- and I’m not sure they do, either.

But there was revenue from the DoD in the first quarter?

Yes.

The other thing I want -- a couple of other things and the flat panel, you didn’t give us a breakdown between flat panel and air data sales.

It’s dominantly flat panel, although we’re seeing a number of new opportunities in air data, so that’s a very positive look as well.

But not in the March quarter, because mostly it’s flat panel?

Not in the March quarter, no.

It would be relatively typical with what you see in the last several quarters, David.

Yes, which wasn’t much air data, it’s very small. And you mentioned the 4 large programs where Shahram went through -- Shahram went through them. This fourth one I didn’t -- I’m not quite sure what that is. For what aircraft is the electronic monitoring contract? What is that?

So, we actually haven’t, we haven’t released the name of the aircraft essentially by the request of the customer. They have not announced this aircraft yet. Once they make that announcement, we’ll freely talk about it.

Is it general aviation or commercial?

No comments.

Okay. And how is Pilatus doing? Do you get any revenues from Pilatus?

Very little. Pilatus is affected to some extent by military, because some of the sales are into the military. And then, with respect to the non-military market, it’s affected by the general downturn in general aviation.

So, that’s not contributing anything. I assume FedEx is still proceeding along as planned, it that correct?

That’s correct.

So, the general aviation programs that are mentioned in your avionics improvement, that would include the Eclipse and what aircraft, the Cessna aircraft?

That’s right. Also, there are other platforms that we’ve been working with various customers.

Learjet, et cetera.

[indiscernible] full application across a number of platforms.

And you had some revenues from that in the March quarter?

That is a new product, which is based on -- it’s mainly based on the product we’ve developed in the past for Eclipse. But it’s a new product that’s in the box.

So, there weren’t any revenues here in the March quarter?

Not from that product range, no.

The classic aircraft, 737 classics really has potential, when will that be finished? When will the engineering part be completed for the -- I guess it's the 2 aircraft you are doing for the space agency, I can’t remember?

By end of this year, the fiscal year.

And then you’ll be free to sell it to commercial -- other operators of the 737s?

That’s correct.

That’s correct.

That seems to be your biggest possible new program at least that you can talk about?

Certainly, short term.

That’s what I mean, short term. The Boeing contract will presumably produce some business in the 2013 year or is that -- well, it did produce some in the March quarter, I take it. But the basic production of your tanker, assuming that DoD doesn’t screw that up, would be in fiscal 2013?

I don’t believe currently that the production is that soon.

2016, I think.

2016 is what they are --

Between now and 2016, we have a lot of deliverables, procedurals and prototypes and SIL units, et cetera.

As well as units for the test aircraft and flight testing in that basis.

[Operator Instructions] And we’ll hear next from Tim Fronda with Sidoti.

First question, the price negotiations during the last quarter, are those all resolved so we shouldn’t expect a big dip in revenues like the last quarter?

You’re talking about American? I’m trying to -- I’m sorry, I’m trying to catch up. I don’t know specifically what we’re...

I know some revenues were just delayed during the last quarter.

And we’re still -- the American revenues. And we’re still in negotiation, we hope that we can get them resolved for this quarter. Yes. That’s, I’m sorry, we did not resolve them by the end of last quarter. We are still trying to get them resolved as we speak. We hope and expect that to be done hopefully within the next month.

Okay. And can we expect the gross margin to be more in the 46% range going forward with more of a shift to EMD work?

I think that, yes, that’s probably true. We’re -- the margins on the production programs are maintained at more or less historical levels. But the engineering programs typically carry a lower margin. And you will probably notice within the -- you won’t notice this, but within the production line is third-party hardware associated with this NNSA program, which carries a lower margin. So, you may see visually that the production margins are not as high as they have been historically. But it is not really reflective of what’s going on with our own internal production. It’s more of a function of the third-party sales, which carry a much lower margin than internal production.

Okay. And final question, do you intend to use cash on hand to repurchase stock over the next few quarters, continue with that?

We have a stock repurchase program approved under the various SEC rules. We only disclose what’s been done historically and that will be disclosed in our Q2 results that should come out in the next week or so. We look at share purchases opportunistically and don’t make any forecast as to what we may or may not do.

Next we’ll hear from Dan Bergman with Bayberry Asset Management. [Operator Instructions] There are no further questions at this time.

Thank you. Since there are no further questions, I’d just like to close with an appreciation that you all attended. We are optimistic about the future in -- with regard to expanding our product offering and expanding the depth of our product offering. Shahram has refocused our marketing efforts into strategic opportunities rather than a broad spectrum view of the market. We have focused our energies towards strategically significant programs, which we believe will yield a much more stable forward look. Thank you again for attending. Bye-bye.

And, ladies and gentlemen that will conclude today’s presentation.