INNOVATIVE SOLUTIONS AND SUPPORT, INC. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are based largely on
current expectations and projections about future events and trends affecting
the business, are not guarantees of future performance, and involve a number of
risks, uncertainties and assumptions that are difficult to predict. In this
report, the words "anticipates," "believes," "may," "will," "estimates,"
"continues," "anticipates," "intends," "forecasts," "expects," "plans," "could,"
"should," "would," "is likely" and similar expressions, as they relate to the
business or to its management, are intended to identify forward-looking
statements, but they are not exclusive means of identifying them. Unless the
context otherwise requires, all references herein to "
The forward-looking statements in this report are only predictions, and actual
events or results may differ materially. In evaluating such statements, a number
of risks, uncertainties and other factors could cause actual results,
performance, financial condition, cash flows, prospects and opportunities to
differ materially from those expressed in, or implied by, the forward-looking
statements. These risks, uncertainties and other factors include those set forth
in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year
ended
market acceptance of the Company's ThrustSense® full-regime Autothrottle, Vmca ? Mitigation, FPDS, NextGen Flight Deck and COCKPIT/IP® or other planned products
or product enhancements;
? continued market acceptance of the Company's air data systems and products;
? the competitive environment and new product offerings from competitors;
? difficulties in developing, producing or improving the Company's planned
products or product enhancements;
? the deferral or termination of programs or contracts for convenience by
customers;
? the ability to service the international market;
? the availability of government funding;
the availability and efficacy of vaccines (including vaccine boosters) and ? their global deployment in response to the COVID-19 pandemic (including as a
result of the impact of any newer variants or strains of SARS-CoV-2);
? the impact of general economic trends on the Company's business,
? disruptions in the Company's supply chain, customer base and workforce,
including as a result of the COVID-19 pandemic;
? the ability to gain regulatory approval of products in a timely manner;
? delays in receiving components from third-party suppliers;
? the bankruptcy or insolvency of one or more key customers;
? protection of intellectual property rights;
? the ability to respond to technological change;
? failure to retain/recruit key personnel;
? risks related to succession planning;
? a cyber security incident;
? risks related to our self-insurance program;
? potential future acquisitions;
? the costs of compliance with present and future laws and regulations;
? changes in law, including changes to corporate tax laws in
and the availability of certain tax credits; and
? other factors disclosed from time to time in the Company's filings with the
Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may result in fluctuations in the price of the Company's common stock.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, or to reflect the occurrence of unanticipated events. The
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forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the "Securities Act"), and 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Investors should also be aware that while the Company, from time to time, communicates with securities analysts, it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
Company Overview
The Company has continued to position itself as a system integrator, which
capability provides the Company with the potential to generate more substantive
orders over a broader product base. This strategy, as both a manufacturer and
integrator, is designed to leverage the latest technologies developed for the
computer and telecommunications industries into advanced and cost-effective
solutions for the general aviation, commercial air transport,
For several years the Company has been working with advances in technology to provide pilots with more information to enhance both the safety and efficiency of flying, and has developed its COCKPIT/IP® Cockpit Information Portal ("CIP") product line, that incorporates proprietary technology, low cost, reduced power consumption, decreased weight, and increased functionality. The Company has incorporated Electronic Flight Bag ("EFB") functionality, such as charting and mapping systems, into its FPDS product line.
The Company has developed an FMS that combines the savings long associated with
in-flight fuel optimization in enroute flight management combined with the
precision of satellite-based navigation required to comply with the regulatory
environments of both domestic and international markets. The Company believes
that the FMS, alongside its FPDS and CIP product lines, is well suited to
address market demand driven by certain regulatory mandates, new technologies,
and the high cost of maintaining aging and obsolete equipment on aircraft that
will be in service for up to fifty years. The shift in the regulatory and
technological environment is illustrated by the dramatic increase in the number
of Space Based Augmentation System ("SBAS") or Wide Area Augmentation System
("WAAS") approach qualified airports, particularly as realized through Localizer
Performance with Vertical guidance ("LPV") navigation procedures. Aircraft
equipped with the Company's FMS, FPDS and SBAS/WAAS/LPV enabled navigator, will
be qualified to land at such airports and will comply with
The Company has developed and received certification from the
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The Company has developed, it's
We believe the ThrustSense® Autothrottle is innovative in that it is the first autothrottle developed for a turbo prop that allows a pilot to automatically control the power setting of the engine. The autothrottle computes and controls appropriate power levels thereby reducing overall pilot workload. The system computes thrust, holds selected speed/torque, and implements appropriate speed and engine limit protection. When engaged by the pilot, the autothrottle system adjusts the throttles automatically to achieve and hold the selected airspeed guarded by a torque/temperature limit mode. The autothrottle system takes full advantage of the integrated cockpit utilizing weight and balance information for optimal control settings and enabling safety functions like a turbulence control mode.
The Company sells to both the OEM and the retrofit markets. Customers include
various OEMs, commercial air transport carriers and corporate/general aviation
companies,
Customers have been and may continue to be affected by changes in economic
conditions both in
On the other hand, the Company believes that in adverse economic conditions,
customers that may have otherwise elected to purchase newly manufactured
aircraft may be interested instead in retrofitting existing aircraft as a
cost-effective alternative, thereby creating a market opportunity for
The ongoing COVID-19 pandemic is nevertheless a significant event, driver of market trends, and source of uncertainty that may ultimately have a direct or indirect material impact on the Company's business, financial position, liquidity, or ability to service customers or maintain critical operations. In direct response to the COVID-19 pandemic, the Company has taken specific actions to seek to ensure the safety of its employees, including temperature monitoring, frequent sanitization of workspaces, observance of social distancing protocols, and other increased safety measures.
Cost of sales related to product sales comprises material, components and
third-party avionics purchased from suppliers, direct labor, and overhead costs.
Many of the components are standard, although certain parts are manufactured to
meet
Cost of sales related to Engineering Development Contracts ("EDC") sales comprises engineering labor, consulting services, and other costs associated with specific design and development projects. These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales, with the reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded research and development ("R&D") expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
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Selling, general and administrative expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and consolidated results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in
The Company believes that its critical accounting policies affect its more
significant estimates and judgments used in the preparation of its consolidated
financial statements. The Annual Report on Form 10-K for the fiscal year ended
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 2022 AND 2021
The following table sets forth the statements of operations data expressed as
a percentage of total net sales for the periods indicated (some items may not
add due to rounding):
Three Months Ended December 31,
2022 2021
Net sales:
Product 94.4 % 100.0 %
Engineering development contracts 5.6 % 0.0 %
Total net sales 100.0 % 100.0 %
Cost of sales:
Product 42.0 % 40.7 %
Engineering development contracts 0.9 % 0.0 %
Total cost of sales 42.9 % 40.7 %
Gross profit 57.1 % 59.3 %
Operating expenses:
Research and development 10.3 % 11.0 %
Selling, general and administrative 34.7 % 27.0 %
Total operating expenses 45.0 % 38.0 %
Operating income 12.1 % 21.3 %
Interest income 1.8 % 0.0 %
Other income 0.3 % 0.2 %
Income before income taxes 14.2 % 21.5 %
Income tax expense 3.5 % 4.6 %
Net income 10.7 % 16.9 %
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Three Months Ended
Net sales. Net sales were
Cost of sales. Cost of sales increased
Research and development. R&D expense decreased
Selling, general and administrative. Selling, general and administrative expense
increased by
Interest income. Interest income increased by
Other income. Other income is mainly composed of royalties earned and increased
by
Income tax expense. The income tax expense for the three months ended
The effective tax rate for the three months ended
Net income. The Company reported net income for the three months ended
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Liquidity and Capital Resources
The following table highlights key financial measurements of the Company:
December 31, September 30,
2022 2022
Cash and cash equivalents $ 19,443,231 $ 17,250,546
Accounts receivable 3,316,519 4,297,457
Current assets 29,223,993 28,202,319
Current liabilities 3,443,012 3,940,303
Contract liability 91,779 259,183
Other non-current liabilities (1) 421,938 15,065
Quick ratio (2) 6.61 5.47
Current ratio (3) 8.49 7.16
Three Months Ended December 31,
2022 2021
Cash flow activities:
Net cash provided by operating activities
(32,716) (77,348)
Net cash provided by financing activities 408,846 -
(1) Excludes contract liability
(2) Calculated as: the sum of cash and cash equivalents plus accounts receivable,
net, divided by current liabilities
(3) Calculated as: current assets divided by current liabilities
The Company's principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years' operations. Cash is used principally to finance inventory, accounts receivable, contract assets, and payroll, as well as the Company's known contractual and other commitments (including those described in Note 7, "Leases"). The Company's existing cash balances and anticipated cash flows from operations are expected to be adequate to satisfy the Company's liquidity needs for at least the next 12 months. Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.
The declaration and payment of any dividend in the future will be at the discretion of the Company's Board of Directors.
Operating activities
Net cash provided by operating activities for the three-month period ended
Net cash provided by operating activities for the three-month period ended
Investing activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing activities
Net cash provided by financing activities was
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Net cash used in financing activities was
Summary
Future capital requirements depend upon numerous factors, including market
acceptance of the Company's products, the timing and rate of expansion of
business, acquisitions, joint ventures and other factors.
Environmental, Social and Governance Considerations
In recent years, environmental, social and governance ("ESG") issues have become an increasing area of focus for some of our shareholders, customers and suppliers. Management and the Company's Board of Directors are committed to identifying, assessing, and understanding the potential impact of ESG issues and related risks on the Company's business model, as well as potential areas of improvement.
We are committed to recruiting, motivating and developing a diversity of talent. We are an equal opportunity employer and a Vietnam Era Veterans' Readjustment Assistance Act federal contractor. All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status, or any other characteristic protected by law.
The nature of our business also supports long-term sustainability. Historically, a majority of the Company's sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete. The Company's GPS receivers also facilitate reduced carbon footprint navigation. The Company also plans to enhance its focus on the environmental impact of its operations.
Backlog
Backlog represents the value of contracts and purchase orders, less the revenue
recognized to date on those contracts and purchase orders. Backlog activity for
the three-month period ended
Three Months Ended
December 31, 2022
Backlog, beginning of period $ 11,778,988
Bookings, net 3,251,226
Recognized in revenue (6,516,256)
Backlog, end of period $ 8,513,958
At
Off-Balance Sheet Arrangements
The Company has no relationships with unconsolidated entities or financial partnerships, such as Special Purpose Entities or Variable Interest Entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
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