Good day and welcome to Innovative Solutions & Support Third Quarter Fiscal 2023 Financial Results Call. [Operator Instructions] Please note that this event is being recorded. I’d now like to turn the conference over to Mr. Shahram Askarpour, CEO. Please go ahead, sir.

Good morning. This is Shahram Askarpour, Chief Executive Officer of Innovative Solutions & Support. Welcome to our conference call to discuss our performance for the third quarter of fiscal 2023, current business conditions and outlook for the coming year. Joining me is Mike Linacre, our CFO. Before we begin, I’d like Mike to read the Safe Harbor statement.

Thank you, Shahram and good morning, everyone. I would remind our listeners that certain matters discussed in the conference call today, including new products and operational and financial results for future periods are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially, either better or worse from those discussed, including the impact of the Honeywell product line license and asset acquisition and other acquisitions as well as other risks and uncertainties reflected in our company’s 10-K, which is on file with the SEC and other public filings. Now I will turn the call back to Shahram.

Thank you, Mike. I will begin today with remarks on our performance in the fiscal third quarter of 2023, followed by comments on our long-term growth plan and strategy, including the recent acquisitions from Honeywell. I will then turn the call over to Mike, who will take us through the financials. Revenues in the third quarter increased 15% to $8 million and were also up sequentially from the second quarter. This improvement was driven by the steady contribution of our production contracts and the growth in revenue from our aftermarket products, including our King Air Autothrottle and flat panel displays for the air cargo market. We are also generating revenues from new programs or services, including our new autothrottle installation services and ThrustSense Autothrottle for the Beechcraft King Air 200 and 300 aircraft, with this new STC has opened a new market of potentially 700 additional aircraft. Margins were also up from a year ago, which led to another strong quarter of bottom line results. All in all, financial performance that continues to illustrate steady, profitable growth. In addition, at the end of the third quarter, we licensed and acquired several product lines from Honeywell Aerospace. The products both enhance our current offering and leverage our existing infrastructure, making this an ideal fit with the acquisition strategy we have articulated. These products can be found on literally thousands of aircraft in our target air transport and business aviation market, and we believe we have the potential to expand them into the military market as well. This acquisition, together with continued strong organic revenue, represents an important inflection point in our revenue growth rate. Once fully integrated in 2024, we expect these new products to drive consolidated revenue growth to approximately 40% with an even more significant impact on earnings, where…

Thank you, Shahram, and thank you all for joining us today. I will review our financial results for the third quarter of fiscal 2023. Revenue growth in the third quarter was 15%, an acceleration relative to the second quarter revenue growth. This quarter, we once again generated revenues from both our stable OEM production contracts, which offer a solid base of predictable recurring revenue as well as an increase in aftermarket sales. Revenue was also well diversified among our target commercial air transport business and military markets. In particular, we saw new orders from the air cargo market for commercial air transfer Boeing 757 and 767 flat panel display conversions, an increase at our production military contract and strong autothrottle installations revenue, which is a new business this year. The company completed an acquisition of several Honeywell product lines on June 30, 2023. The company did not recognize any revenues and net income related to those product lines in the third quarter of 2023. Keep in mind that both quarterly financial performance and new bookings are subject to variation in the timing of purchase orders, especially with our aftermarket products. On average, 40% of our revenues are from aftermarket sales. Consequently, as a management team, we evaluate our performance on an annualized basis, and we encourage our investors to do the same. Third quarter gross margin was 59.5% compared to 58.5% in the third quarter a year ago. This improvement in gross margin reflects better absorption of our fixed overhead as a result of revenue growth, a favorable product mix similar offset by a slight increase in direct material costs. Overall, for the year, margins continued to trend in line with historical averages with any fluctuation from quarter-to-quarter, primarily attributable to product mix as well as leveraging of our fixed…

First question me from Tim Moore, EF Hutton. Please go ahead.

Thanks and congratulations on the strong impressive organic sales growth in the quarter in your core business. And Mike, thanks for the color on the September quarter commentary, that’s appreciated. Maybe, Shahram, I got a question for you. Is there any update on the UMS? I know you gave comments on the King Air autothrottle progress and the great progress of flat display panels for air cargo, but just wondering if there is any update on UMS or even more ThrustSense autothrottle incoming inquiries or interest by new possible customers, are them trying it out?

Sure. Yes. I mean the UMS is a long-term program. We are actually in the process of developing the next generation of that product line in partnership with Pilatus. With regards to autothrottle, we are looking at additional platforms, actually, some of them in the regional airline market that we are in current conversations, but pretty preliminary with regards to the kind of the market that we are in on the King Air side, we are expanding our sales activities internationally and we are seeing good interest coming from organizations across the world on the King Air platforms. Obviously, as more and more aircraft is produced by Textron with our autothrottle in it, some of these customers who already have existing fleets, they look into upgrading their existing aircraft to bring them in line with the new aircraft that they are taking delivery results. So, the prospects look promising.

Great. That’s very helpful insights and details. And just related to that, you have started to touch on it maybe with King Air going nationally, but can you maybe talk a little bit about the change or the enhancement in business development opportunities, innovative solutions. I recall maybe you added a VP of Sales about a year ago, and it sounds like there are some really good development opportunities to cross-sell with Honeywell and penetrate both of your sides better. Is there any kind of progress or tactics you are thinking about for that?

Yes. I mean we have just added another VP of Technical Sales as well to our business development activities to increase, obviously, with the acquisition of the product lines from Honeywell we need to strengthen our sales force. A lot of international sales are going to result from the Honeywell acquisition. So, we have hired the sales guy full-time in the Australia, New Zealand area that would also support some of our Southeast Asia region. We are also looking at strengthening our partnership in Europe. And we are in conversations, actually, our new VP of Sales is actually in Europe this week to talk about partnerships as well as sort of finding a place where we would maybe inventory, some equipment in Europe to support these new product lines that we acquired. So, we are busy growing our sales and marketing group as well as customer service and customer support group, it’s exciting times for us.

Well, that’s a great update, really that added color on the sales and technical team development build out. I mean you have such a good opportunity set and you are investing in the proper hiring. Just a quick question. Your core business from what I recall, and Mike mentioned this pre-acquisition, Honeywell and pre-license was about 40% aftermarket. What will the pro forma mix be, and was Honeywell a bit more book and ship? Is it higher aftermarket? And do you think the company’s overall mix will be about 50% aftermarket?

Yes. But we have also been – we are also busy with OEMs to get new OEM content. We have certainly got another OEM program, which we haven’t been able to announce yet because the aircraft hasn’t been announced. So – but that’s about a year out in terms of production revenues. But I like the mixture of 40-40-20 is good because, obviously, on the aftermarket, margins are better than OEM. So, we will rebuild the OEM side of it to get us to – back to 40-40-20. And through maybe the next acquisition that we do, we will have some more OEM contents on it. And that would help as well.

That’s interesting. Thanks for taking my questions sharing that color and looking forward to that next OEM award announcement, the aircraft gets announced. And my last question is, I know this is probably not a fair question. I realize it’s only six weeks into the acquisition of some Honeywell products and the license deal. But given that the team got there very quickly, I think they were there the first week of July, and that their experience from the heritage that they have with the Honeywell lines, how is integration going and the progress with the new team, just kind of curious about that?

Actually, it’s progressing well according to our plan. So, we have been fortunate that the team at Honeywell have been very cooperative. We have a very good relationship with them. They have been very supportive of this. Obviously, they want this to be successful. Again, this acquisition wasn’t about the highest bidder, it was about who is actually going to be able to work well with Honeywell and their customers to have a successful transition. And we were chosen based on that. And everything is progressing well and we continue executing it.

Great. That’s wonderful. Well, thanks Shahram and that’s it for my questions. I will follow-up with Mike, offline later on.

Thanks Tim.

Thank you.

[Operator Instructions]