Good morning and welcome to the Innovative Solutions & Support First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Geoffrey Hedrick, Chairman and CEO. Mr. Hedrick, you may begin.

Thank you and good morning. This is Geoff Hedrick, Chairman and CEO of Innovative Solutions & Support. I'd like to welcome you this morning to our conference call to discuss our first quarter fiscal 2013 results, current business conditions and outlook. Joining me today in our Exton headquarters are Shahram Askarpour, our President; and Ron Albrecht, our CFO. Before I begin, I would like Ron to read our Safe Harbor statement. Ron?

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 that 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 Form 10-K which is on file with the SEC. Now, I'll turn the call back to Jeff.

Thanks Ron. In the first quarter, we reported revenues of $6.5 million, up 35% from a year ago, and a net income of over $300,000 or $0.02 a share compared to our loss of $0.02 a share last year -- a year ago this quarter. This was the fourth consecutive profitable quarter. Importantly, we booked $16 million in new orders during the quarter, ending with a backlog of almost $30 million. This is an increase of about $10 million or 50% from the start of the quarter. The strong start to the year keeps us on pace to achieve our targets and to grow revenue up 20%, and remain profitable. During the quarter, we returned $25 million to our shareholders through a special dividend, maintaining $17 million in cash at quarter's end, yet another sign of our commitment to creating value to our shareholders. The increase in revenue orders and backlog are all indicators of our progress in implementing a new strategy to develop products that offer real consumer and customer value, outstanding performance, competitive price and features that meet the needs of aircraft today and in the future. This quarter reflected continued progress in balancing the need to produce results in the near-term while continuing to invest in programs, both internally and customer-funded, which are essential to achieve our long-term growth objectives. Each of our key markets showed progress. The C-130 military contract represents a new order for many of our existing products. 50 ship set order from Eclipse is the first production release of a 300 ship set order for the 550 aircraft. These production -- these engineering modification and production efforts fuel a potential of almost $100 million of production orders, so that these first production releases are important to unlocking that potential. We continue to invest heavily, 35% of revenue this past quarter, in new product development. The cost of this investment is partially borne by a customer-funded modification and enhancements. This funding further leverages and broadens our core competencies. While our industry continues to face a challenging market, we believe that we are building a portfolio of products that will enable us to grow by increasing our share of existing and emerging markets. In today's difficult economic conditions, the customers increasingly emphasize the need for products that will offer a high performance-to-cost value proposition. And customers in each of these 3 markets, commercial, general aviation and military, are recognizing our ability to meet these demanding criteria through [ph] special and very valuable offering. As a result, we are experiencing growing interest in our portfolio of products. Over the remainder of this year, one of our key objectives is to prepare the organization for these significant growth opportunities. Now let me turn it over to Ronald Albrecht for some more detailed discussion of our financial performance. Ron?

Thanks Geoff, and thank you, all, for joining us this morning. For the 3 months ended December 31, 2012, the company reported its fourth consecutive profitable quarter. For the quarter, revenue was $6.5 million, up 35% from revenue of $4.8 million in the first quarter of fiscal 2012. The company reported first quarter of fiscal 2013 net income of $318,000, or $0.02 per share, compared to a loss of $343,000, or $0.02 per share loss, in the same quarter a year ago. Flat Panel Display sales accounted for $4.4 million, or approximately 60% of revenue. Air Data product shipments added $300,000. The balance, for approximately $1.8 million, rose from engineering modification development work. Gross margins in the first quarter were 46.5% of revenues, up from 44.7% a year ago. While they were among the highest margins in recent quarters, they still reflect the increased levels of lower margin engineering modification and development programs, which represented approximately 28% of revenue for the quarter. Total operating expenses in the quarter were $2.7 million, down from $2.8 million a year ago. Spending on internally-funded research and development increased less than $100,000. However, engineering cost of sales combined with internally-funded research and development resulted in total R&D spend of approximately 34% of revenue for the quarter. Selling, general and administrative expense in the quarter was $1.8 million, down from $2 million in the first quarter of last year, and also down sequentially from $1.7 million in the fourth quarter as we continue to control costs. We reported first quarter operating income of approximately $385,000, an improvement of over $1 million compared to the $658,000 operating loss reported in the first quarter of our last fiscal year. Net income for the quarter was $318,000 or $0.02 a share. As Geoff mentioned, during the first quarter, the company used cash of $25 million to pay a special dividend of $1.50 per share. For the quarter, operating activities consumed another roughly $1.6 million, primarily related to timing differences between expenditures on engineering modification and development programs and related receipts from customers. The company ended the quarter with over $17 million in cash on hand and remains debt-free. We believe that post-dividend, we retain sufficient cash to fund operations for the foreseeable future. Now I will turn the call over to Shahram Askarpour for some comments on current market conditions and our business development offers. Shahram?

Thank you, Ron, and good morning, everyone. The company's growth strategy is focused on developing products with unique features and benefits that meet stringent industry requirement, accommodate foreseeable future regulatory and operator requirements and are both cost-effective and versatile. Our platforms address military, commercial, air transport and general aviation market. Our products and solutions are targeted at both new build and retrofit applications. Most recently, through both internally-funded and engineering modification and development programs, a significant percentage of our effort has focused on leveraging of proprietary and technologically advanced flight management technology to broaden our product portfolio and increase our addressable market. Engineering modification and development programs enhance our core competence and allow us to invest further into areas where we see a product need to grow. The emerging increased demands for a cost-effective and state-of-the-art Flight Management System is driven by upcoming mandates and the direct fuel savings that result from precision navigation and proprietary performance management algorithms of our Flight Management System. With respect to other product developments, our internally-funded engineering efforts have resulted in the introduction of our Integrated Standby instrument and NextGen Cockpit/IP II. These new products address large markets. For instance, most new and retrofitted aircraft include an integrated standby as a backup for the primary display systems. Although there are several competitors in the market, we have introduced a unit with more needed features than competing products, and with an excellent price-to-performance ratio. The NextGen Cockpit/IP II is a large format display system boasting the highest display resolution available in the industry for primary instrument. This integrated system includes such functionalities as advanced flight management, electronic flight bag and a comprehensive crew alerting and engine display. We believe this cockpit suite offers a number of technical innovations at a competitive price. The recently announced…

Thanks, Shahram. Before we open the call to questions, I'd like to provide a few closing thoughts and some insight to our plans for the balance of fiscal 2013. As I've mentioned in our last call, we are focused on strategies that will generate top line growth over the longer term. In the first quarter, we saw a combination of revenues from customer supported and shared engineering for existing products and new products. Given the significant growth opportunities represented by these products still in development, we are investing well over the historic 20% of revenue in product development this year, which is substantially, in fact, maybe 2x or 3x what our competitors are doing. We believe that this is a critical time to invest. We think that the economy is showing some signs of slow but consistent recovery. Certainly the demand is growing and will continue to grow independent of the economy and we'll be increasingly looking for a high performance versus price ratio. With Eclipse being the first of various customer supported programs to go into production, it is clear that this strategy is coming to fruition. We believe it is the time to continue to invest or grow the business because we think the opportunities are there and available. As always, we are committed to remaining profitable. And we have been profitable for the last 4 quarters, as well as the last 4 years. Our objective is to meet our financial commitments and invest heavily in the growth of the company. For the full year, we expect sales to increase compared to 2012 by 20%. We expect to increase operating income, although the increase will be constrained by high levels of investment and engineering. In addition, in the past quarter, we were pleased to return $25 million to the shareholders who have patiently stood by our stock. The Board of Directors took into consideration the likely significant tax increases and decided that we return unused cash to our shareholders. We believe this action demonstrate further our dedication to creating value for our shareholders. Operator, would you please open the call for questions?

[Operator Instructions] Our first question comes from David Campbell of Thompson, Davis & Company.

Ron I appreciate your description of the revenues, breakdown of the revenues, which you haven't done before in terms of actual numbers. I'm referring to the Air Data, the Air Data number and the EMD number, $1.8 million. Do you have comparable data for the first quarter of 2012 fiscal year? And do you have data for the whole fiscal year?

I don't have it readily available, David. Let me just see what I do have for the first quarter last year. I don't have that breakdown, David, I'm Sorry.

Okay. Well it should be...

If I could though elaborate a little bit. I would suggest that the NRE revenues would be very, very low. And that most of the -- and most of the revenues would be distributed between the Air Data and the Flat Panel Displays.

Yes. As far as the...

I think we probably provided that information last year, I just didn't...

Well they weren't -- not in precise numbers. The EMD revenue is $1.8 million. In other words, that would be a big increase and the Air Data revenues would be a big decrease. The Air Data is somewhat seasonal, if I recall. So but still...

David, EMD revenues, remember, we look at EMD revenues as really being supportive revenues. We don't -- they're really geared to expand and leverage our capability and not intended to generate short-term revenues or income. We're pleased as hell that we're able to get our customers to share in the significant costs of development of many of our products. And that's been very helpful to us and actually helpful to them because it gives them a much better product. But we couldn't run [indiscernible] on EMD. I mean, it is -- it traditionally makes no money for you. The good news is it reduces our operating expenses. And it's very variable. And it depends specifically on where in the development cycle any quarter sort of drops. That's why it's very difficult to compare quarter-to-quarter and even year-to-year, except that it's nice when we are able to spend all 35% of revenue and still break even and not chew a huge amount of cash.

But does the decrease in Air Data sales bother you or worry you?

No not at all. In fact, we are seeing -- we are actually seeing a transformation, as Shahram spoke about some of our new products including the -- a very, very, very sophisticated standby instrument. Our Air data product line will move in integrating that Air Data capability into things like the integrated standby. So we actually see the technical capability and manufacturing capability of being contained in a larger system. And more and more, we'll see the company taking on a broader systems approach. As a systems integrator, we will be selling a broad spectrum of products. And you'll see less and less of them identified specifically as an Air Data product or a Flat Panel product.

Can I try to respond to David's question as he asked it, specifically? If you go back and look at our -- I think that last year, we had about $700,000 of EMD revenues in the first quarter compared to about $1.8 million this year, David, if that helps you at all. As I recall, the breakdown between Flat Panel and Air Data of the remaining sales last year of roughly $4 million is about 90-10, Flat Panel to Air Data.

Yes, no, that's helpful. I probably should have another line item in my spreadsheet to show this -- these revenue sources, then I'll just have to sort of estimate the remaining quarters of fiscal '12 until you report them for fiscal '13. That's probably what I should do. But -- so it's really a misnomer. I mean, the Air Data sales is really parts of much bigger systems.

You're right, exactly right. By the way, did you see -- I guess you did see that article about the military looking at Eclipse?

Yes I sent it to you.

I know you sent me a copy of it, but we also distributed one, as you noticed. The -- it's yet another opportunity. It's interesting, this aircraft is remarkable in that it's a twin engine jet that goes over 400 miles an hour, has a surface ceiling of 41,000 feet and has, perhaps, one of the most, if not the most -- certainly in class the far and most advanced cockpit in the world, including things like auto throttle and dual flight management systems and things like that which are amazing. And it sells $2.8 million. That would be a bargain and an ideal training aircraft for the military. And increasingly, with the cuts in the military and general cuts in spending, this is -- it's going to be more and more and more important, as you have noted, that you get a lot of performance for the price because they don't have any money.

Now you -- Shahram or someone said during the conference call this morning that this first 50 ship sets is part of what you thought would be eventually $100 million of production orders.

Well, no. We said -- what we said was that the developments that we're involved in today, which are a significant number of major development programs, which are partially supported in many cases by our customers are all directed toward a potential $100 million worth of subsequent production which could occur over the next 10 years.

So it's not just the Eclipse?

It's not just Eclipse. Eclipse would be -- it would -- they'd have to buy a lot of military airplanes to make that $100 million order. But there are a number of other programs in which we are the defined source in developing systems for, that will go into production and generate tens of millions, if not $50 million-plus individually of production revenue.

Right. Can you breeze any update on the original equipment manufacturing potential?

No, right now that order specifically is going to be announced at EBACE in Switzerland. So we're not prepared to share that OEM program.

So it's not part of your current backlog?

It is -- only the initial development stage and first few production units. We don't put anything in backlog that isn't released. So as in any OEM program, they typically release it on an annual basis so you only see the releases -- you see a small portion of the total backlog. It's nice to talk about programs that you're -- if you're on a, as an example a 787 and know that the 787 has 800 orders or 1,000 orders. And you can say, "Well, gee, therefore I have 1,000 orders." In fact, people that are supplying on an aircraft would probably only have an order for fewer than 50 at any given time.

Now the potential for the multifunction standby units. What is that -- what aircraft is that related to? And is any of that in your backlog?

No it isn't in our backlog and it's related to all 3 market segments: general aviation, commercial air transport and military. So it's a wonderful new product that, frankly, Shahram spearheaded about 2 years ago in his closet or something. He sort of hid it from all of us until he was sure that it was going to work out as well as it did, and it's been a huge success. It looks extremely promising in the market, it's excellent. And it adds beautifully to our complements of products. Just incidentally, on the production of the 757/767, there's probably been a total of 300-plus ship sets of standbys that we purchased indirectly or directly for almost $35,000 each. So that's been tens of millions of dollars we could have gotten generated out of the company itself and will in the future.

So you have to buy someone else's equipment?

You can tell I'm a little upbeat.

Yes so I mean, you had to buy someone else's equipment for that?

Yes. It's a better product --a much better product, too. So it's another one of our products. And now we actually have gotten other -- and very significant developments. I've been talking about becoming a systems integrator so we aren't dependent on yet another layer of overhead to sell to our end customer. We have major systems integration program on the books right now, production in the C-130, which includes an FMS and we're completing the 737, which is a huge systems integration program of approximately $2 million an airplane, including radios and comms and navs and even in-cockpit printers.

But as far as standby units are concerned, you haven't gotten any orders for those yet?

We have an order. Yes we have orders, a small order, initial order. 2, I'm told 2 orders but we're still in the final stages of qualification testing. So we wouldn't want any more right now anyway. We're just coming out now and releasing it to the customers.

Now the next generation cockpits, is that a general term for all of these things?

I don't know how accurate it is. I mean, it's reasonably applicable that it's a NextGen cockpit because a NextGen cockpit will include a full CNS/ATM, the navigation and communication systems that include things like digital communication between the controllers and the pilot, the flight crew. And that enhanced computer communication in the cockpit, as well as enhanced radio frequencies. And by the way, in GPS, you know commercial airplanes don't use GPS, unless one of the pilots happen to carry a portable one on board. But the new cockpits will all have GPS and guess what we do? We make one of the most advanced GPS navigator in the industry, Beta 3 navigator.

Right, right, right. Then last question I have. In general, the military budget is up for grabs right now. I mean, they don't seem to know what's going to happen after March 1. Any thoughts on how that might affect your business?

Actually, my experience is that whenever there's been dramatic cutbacks, it offers great opportunity. Great opportunity to provide performance at a much lower price. And it will -- and if anything, we think it presents a great opportunity. I remind you, my dad started his first business in 1931. That probably wasn't a good time to start an ad agency.

The next question comes from Scott Lewis of Lewis Capital Management.

Just a couple of questions, one on the 737 for the National Nuclear Regulatory Agency. Have you finished both planes on that project?

Not yet.

And are you kind of waiting on marketing until that's been wrapped up?

No. Oh, on marketing system, we're obviously in the short throws of test flying the final configuration. Remember, there was -- there were, I think, 17 different systems that were put on that airplane. So integrating that into -- and installing it in the cockpit is taking some time. We actually had to relocate it and find a new installer to install the equipment. The original installer did not do a good job and we moved it to actually one of our customers and installation centers, ABX. They're now called AMES -- the old ABX Airfreight and they're working on that airplane as we finish. I think they're just finishing it up now, getting it ready for flight test so...

Yes, we did some flight testing in December.

We did some flight testing already, but this is -- an enormous amount of equipment is going in. As soon as we finish the first airplane, the second airplane just is a question of installation, no certification or test flying.

Okay. So I assume you have to get an STC still? You discussed one of those types of certificates?

We're working on that right now.

We're doing that right now. And it's going well, it's not a problem. But we've had -- I mean there have probably been 6 or 8 aircraft problems -- cracked structures and minor problems that have delayed the program. These are the kind of things that every time you bring an aircraft into maintenance, you look through and you find little bits and pieces and hangar rash on the airplane that need to be repaired.

Right. And then the second question on -- you guys mentioned that you're seeing some particular interest in the new Flight Management System. And I was wondering, is that something you're going to sell independent of the kind of Cockpit/IP II or are those integrated together always?

So on the Cockpit/IP II, it is an integrated flight management system into the system. That product, we've been -- it's a next generation of what we developed for the -- initially was developed for the Eclipse, which is best for business and for general aviation. What we have done is that we've taken that Flight Management System, enhanced it significantly with performance algorithms, and things that require time of arrival. And so that's where we talk about the 737 flight management system and that's going to go into the air transport market. We also have taken that platform and we're putting it into the C-130 for the military market and that's the program that we announced back in December, I believe, for a military air force program.

This is key for NextGen navigation. For the next generation, it's a -- this kind of system is essential. It provides GPS navigation, which, as an example, few aircraft other than a few general aviation aircraft have. It allows so-called Required Navigational Performance takeoffs and landings and which increases the number of operations out of an airport. And has things like required time of arrival. Meaning that now you can essentially control an airplane's time that it arrives at a specific destination within a minute. And that greatly enhances the utilization of the runways both for takeoff and landing. So this is the next generation. It essentially enables the next generation cockpit so that every aircraft by 2020 is going to have this kind of system.

And so this is a -- maybe like, a GPS in a computer and some software. It's not necessarily flat panel displays included?

Well, no. Typically, it will include flat panel displays only because if you take a look at the fleets that are flying, virtually every aircraft, with the exception of a few airplanes, maybe the 787, have 10-year, 15 or even 20-year-old cockpit displays. Even the newest airplanes have a 15-year-old technology in the cockpit that has been passed by 2 generations to provide hugely enhanced performance, reliability and a dramatic reduction in cost. So that potentially every aircraft is a candidate. I mean, as an example, one of our new cockpits offer in 3 displays more pixels, more display units than the most advanced cockpit flying, the 787. And it has 4 displays. That has 30% higher performance. And that's just a 4-year-old airplane, or a 5-year-old design. Think of what it -- how they compare to a 15-year-old aircraft. And we're talking about the latest and greatest that are coming off the production line, including things like 380 and even 350.

What we are saying is that on the customers who are actually looking at our Flight Management System, that they will entertain a display operator as well, because a lot of that functionality, they want to see it on the forward field of view and the existing display system does not allow them to do that.

Exactly.

Okay. So it's almost like a new computer operating system. You want the new, latest Windows operating system, you're going to probably buy a whole new PC or laptop. You're not going to just upgrade your 5-year-old laptop.

More importantly, unlike an operating system, an operating system is more often just convenience and [indiscernible]. In this case, it is essential to fly the airplane. You will not be able to fly your airplane in 2020 unless you upgrade the airplane. I don't know if you remember RVSM, we did a lot of great work in RVSM. You couldn't fly in the North Atlantic or anywhere without RVSM. And now it's a mandatory. This will essentially be the same thing. You will not be able to conduct flight operations in most of the United States and already in Europe is the case, unless you are equipped with these new features. And many of them are, if not essential, are highly dependent on an expanded cockpit. So we don't just make the cockpit displays, we make all the systems that do it. And we have developed an extremely sophisticated navigation and control engine that we originally developed and applied to the Eclipse and now have expanded it to the C-130 and the 737, and it'll be applicable to every -- essentially, every aircraft. It does an amazing job of controlling the navigation of the airplane.

Since there are no more questions, this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.

Thank you.