Innovative Solutions & Support - Earnings Call - Q4 2018

Transcript

Speaker 0

Good morning, ladies and gentlemen, and welcome to the Innovative Solutions and Support Fourth Quarter twenty eighteen Fiscal Earnings Conference Call. All participants will be in listen only mode. Please note that this event is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Hedrick, Chairman and Chief Executive Officer.

Please go ahead, sir.

Speaker 1

Good morning. This is Jeff Hedrick. I'd like to welcome you this morning to our conference call to discuss our performance for the fourth quarter and fiscal year twenty eighteen, current business conditions and our outlook for the upcoming year. Joining me today are Sharon Mascupur, our President and Raelle Wynand, our CFO. Before I begin, I'd like Rael to read the safe harbor message.

Rael?

Speaker 2

Thank you, Jeff, and good morning, everyone. I would remind our listeners that certain matters discussed in the conference call today, including new products and operational 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 other risks and uncertainties reflected in our company's 10 ks, which is on file with the SEC and other public filings. Now I'll turn the call back

Speaker 1

to Jeff. Thank you, Rell. In fiscal twenty eighteen, revenue and operating results were both down from fiscal twenty seventeen. These results are disappointing. But with our strong financial position and by entering the New Year with a portfolio of cockpit technology products that we believe are ideally positioned to capitalize on the growing demand for technologies that improve both safety and performance of aircraft in commercial, military and general aviation markets.

Over the past twelve months, we have focused on preparing for the growth opportunity we see with our patented ThrustSense autothrottle. At the board's recommendation, we engaged an outside consulting firm to perform independent assessment of the market opportunities and review our four year business plan. Flying magazine chose our ThrustSense autothrottle for its nine page November cover story. In this article, they said our technology transforms the turboprop signal and called the backup display that doubles as brains of the system ingenious. They concluded that for owners of the PC-twelve, an upgrade to the ISN X next gen 2015 cockpit can make a sound operational sense by providing maximum flexibility and access to the twenty first century aerospace tools, not to mention it removes 60 pounds of weight.

Because it is designed to function in virtually any Pratt and Whitney PT6 powered airplane, they see a very, very large market opportunity. To date, both Pilatus PC-twelve, Classic and NG have been certified and an for the King Air is expected shortly. By note, this is the first and only STC the FAA has issued to a to a turboprop autothrottle. Certifications on these models provide a blueprint for a quickly expanded expand out into the manufacturers of other PT6 aircraft so that we can we are continuously enlarging our market opportunity. Consequently, we have realigned and strengthened all of the various functions needed to support the growth of our autothrottle business.

As mentioned in the last quarter, this stronger technical and product expertise at the point of the customer contact is expected to improve market development and increase penetration. We also eliminated peripheral and other spending that was not core to our future plans and strategy, thereby reducing any drag on operations and lowering our cost structure. We are now focused on the kind of product innovations which built IS and S. We believe that there is no product currently in the market like the patented Autothrottle. Consequently, throughout development, we understood that to be a success, we're going to have to make a commitment to marketing commensurate with our engineering effort.

The market has just needed to be informed about this new functionality. Our initial marketing efforts have yielded very encouraging results. Sharon will go through them in more detail, but from an Aviation Experts in Flying magazine that conducted a flight test and an owners and operation operators at the recent NBAA show, the reception has been extremely encouraging. Let me turn it over to Rel for the discussion of financials.

Speaker 2

Thank you, Jeff. Thank you all for joining us this morning. Revenues for fiscal twenty eighteen were $13,800,000 compared to $16,800,000 for fiscal twenty seventeen. Gross margins for the year was from 48 a year ago. The relatively unchanged gross margin on lower 2018 sales reflects increased customer service revenue, which yields higher gross margins and the workforce reduction, which occurred in the 2018.

Total operating expenses for the year were $10,300,000 compared to 8,200,000.0 in 2017. However, total operating expenses were actually down approximately 1,500,000.0 compared to 2017 if you exclude the fiscal twenty seventeen bad debt reversal that reduced selling and general and administrative expenses by $3,600,000 in fiscal twenty seventeen. Research and development was down approximately $900,000 in 2018 from a year ago, in part reflecting the impact of the workforce reductions undertaken in the third quarter. While research and development expenses were down on an absolute basis, we continue to make a significant commitment to research and development as a proportion of total revenues. For the fiscal year twenty eighteen, selling, general and administrative costs were down $600,000 primarily reflecting reduced legal expense from a year ago and for giving effect to the bad debt reversal in fiscal twenty seventeen.

Even though we are already at low base, we believe that the workforce reduction undertaken in the third quarter could result in further decreases in future selling, general and administrative expenses. The year, we reported a net loss of $3,700,000 or $0.22 per share. A year ago, the $3,600,000 reversal of a bad debt reserve, a $4,100,000 legal settlement, and $700,000 earned on the sale of Pennsylvania R and D tax credits enabled us to report net income of 4,600,000 or $0.27 per share. For the 2018, we reported revenues of $3,600,000 compared to $4,200,000 in the 2017. Due to the cost savings generated by the third quarter fiscal twenty eighteen reduction in force, gross margin was 50% as compared to the fourth quarter twenty seventeen gross margin of 44%.

Also reflecting the workforce reduction, research and development expense was down $500,000 or 44% in the 2018 as compared to the 2017. The 2018 net loss was $414,000 or $02 per share. The 2017 net loss was $186,000 or $1.1 per share, which benefited from the sale of Pennsylvania State R and D tax credits. For the year, cash used in operations was $1,700,000 while we also used cash of $2,600,000 in investing activities, primarily to purchase the King Air. Nevertheless, at September 3038, we remain in strong financial condition with over $20,000,000 of cash on hand and no debt.

We believe the company has sufficient cash to fund operations for the foreseeable future. I'd like to turn the call over to Sharon.

Speaker 3

Thank you, Will. Good morning, everyone. Back in August, we indicated that our next few quarters may be a bit bumpy as our new strategy takes root. Efforts in the near term have been primarily focused on certifying our autothrottle on the King Air and other platforms as well as establishing a formal autothrottle sales and marketing program a that we believe can best capitalize on this compelling opportunity. And from that perspective, we have made progress on several fronts.

We have obtained several SCCs for our patented ThrustSense autothrottle technology. Several others are imminent. We have adopted a new marketing strategy, which is product oriented, aiming to improve our market penetration. We have also been building the infrastructure needed to ensure that the formal launch of our Autothrottle into the market is fully supported. Finally, we have reorganized such that we can concentrate our resources around our most valuable programs, which have enabled us to reduce costs and improve efficiency.

As we look into 2019, autothrottle remains our prime focus. Because FrostSense autothrottle is the first of its kind patented technology, the process for obtaining our initial STCs have been quite exhaustive and time consuming. However, now that we have been through the process, we have a template that can be repeated to pursue STCs on other general aviation platforms and importantly, to do so expeditiously. As a result, we are in the enviable position as the only source for a product that, as Jeff mentioned, is receiving enthusiastic praise from the industry. To ensure the formal launch is successful, we have built an infrastructure that can quickly scale with demand.

All of the details have been worked out, manufacturing, fielding experienced business development professionals, writing training manuals and establishing a strong customer service capability. And while we have yet to formally launch, market is already on the rise. Most recently, we experienced warm reception from OEMs, installers, operators and other attending MbAA. This has resulted in opportunities for our sales and marketing team to fly our oral thrill equipped King Air and PC-twelve to prospect locations where they are conducting live demonstrations. This is the most direct path to new orders.

Consequently, headed into calendar twenty nineteen, we feel that we are well positioned and the market is getting primed to capitalize on the innovative safety features such as engine protection, speed envelope protection and VMC protection in the case of multiengine aircraft as well as significant fuel savings that our autothrottle offers the general aviation market. Looking at some of our ongoing programs, the PC 24 program is going well, having booked 3,400,000.0 in orders over the course of fiscal two thousand and eighteen. Based on the success of this new aircraft, we may be in line for orders exceeding 40 shipsets per year over the coming years. The military market is showing renewed strength. Our KC-forty six a program continues to trend well, while in June, we were awarded a contract to develop a new f five data computer for the US Navy.

This new system will update antiquated analog equipment with new digital technology that is next gen compliant, which makes this a product that will likely be of interest to other military aircraft operators. We also continue to ship products in the air transport retrofit market where we have established a strong presence for the seven thirty seven, seven fifty seven and seven sixty seven cockpit upgrades. In summary, we are following the plan we have laid out to very carefully and deliberately bring our existing new autothrottle technology to market. Our goal is to execute efficiently from the start, and we have dedicated time and resources to assuring that we are prepared to do so. We appreciate your support and confidence in our ability continue to create value by bringing innovative new technologies to market.

Let me turn the call back to Jeff for some closing remarks.

Speaker 1

Thanks, Sharon. As you heard over, 2019, we intend to grow platforms for which we have certified the Autothrottle while simultaneously developing these markets through aggressive sales and marketing program. The Autothrottle's value proposition is compelling. It is first it is the first and only part 23 FAA certified turboprop Autothrottle, and it is and it is patented in both The United States and Europe issued. Industry authorities have flown the equipment and are impressed with its ability to to reduce pilot workload and improve aircraft safety and performance.

The upcoming year should be an exciting time for innovative solutions and support. We thank you for the continued support and encouragement. On a side note, because the turboprop autothrottle is newer than has never been certified before by the FAA, the certification, as Sharon commented, has been more protracted than anticipated. It included things like a forty five day industry comment solicitation and novelty review. Application of the Autothrottle's VMCA mitigation, which is unique and patented, serve to reduce, if not eliminate, common catastrophic multiengine aircraft accidents.

So in conclusion, I appreciate what you your attention today and look forward to any questions you may have. Operator?

Speaker 0

Thank you, Mr. Hedrick. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. And our first question will be from Scott Lewis of Lewis Capital Management.

Please go ahead.

Speaker 4

Thank you. Good morning.

Speaker 1

Good morning.

Speaker 3

First of

Speaker 4

all, just congratulations on getting your expenses close to in line with your revenues. I had a question on the utilities management system for the p c twenty four. I know that Pilates is planning on picking up the pace of manufacturing quite a bit in the next year or two. Are your current orders reflective of the very slow pace they're starting with? Or is Pilates building up some inventory to start?

Speaker 1

Build up initial inventory, obviously, to support their production line and spares. But what we expect is that we will follow their growth and they're being properly judicious in their production growth. As you know, the demand is there. The book is closed for the time being. And we expect this we follow the demand closely that gives us a line on what our expected deliveries to that to Pilatus are.

In the meantime, we continue to support their program, which is, growing well. And, of course, the acceptance of the aircraft been exceptional.

Speaker 4

Yeah. So if if your orders, you think, may, you know, double or triple from here compared to where they were this

Speaker 1

I don't know double or triple. I I remember, you have some initial orders that bring in a fair amount of equipment to put stock support locations and support support the fundamental inventory and and work in process. So after that, I would expect it to reflect historically, reflect the the actual production rate of the aircraft.

Speaker 4

K. Thank you. On the new air data system you're working for on the Navy, is that just for a a single aircraft model for the Navy or for multiple models?

Speaker 1

It's it's actually for the f five and potentially g 38 application, although we already make a g 38. It is in fact a re a a a reapplication of of an existing product that we built for the a 10 that's in service and is showing remarkable performance reliability. So we've adapted that technology to the f five, which has minimized its development cost, accelerated the time for for development. And and the the f five is probably one of the more universal aircraft that desperately need an aerated computer. Bluntly, this aerated computer can then be in turn adapted to a variety of other applications.

So that the core process is AirData processes would be identical. It is identical basically to the to the a 10. But it's only the peripheral interfaces that need to be adapted. And this new design should accommodate many of the opportunities that are out there.

Speaker 4

K. And then switching to the auto throttle STC for the King Air. I know it's very difficult to say when when the government would grant you the STC. But, Jeff, could you give me any more kind of flavor of of where you are exactly in the process? Are you at least done with flight testing?

Is it all paperwork from here?

Speaker 1

We're we're we're finished up our flight testing, and we're in a process of unfortunately, this hit right at at holiday time, so everything stopped. But we're ready to go for for the government flight test, STC flight test. So that's we've already demonstrated it to the FAA, so they're they're well versed in it. We are waiting for responses from the government now on our certification plan. And when that's authorized and ready to go, we would hope we had hoped to get it done before the end of the year.

It looks like it's going to be early next year that we should get this done. Frankly, the FAA has been unusually cooperative, recognizing this is really very new technology. One of the patented features of this is a system that will potentially eliminate a series of catastrophic malfunctions, so much so that the FAA, one of the senior people of the FAA, commented that they that we, as a country, lose one person every four days, that means die, due to a kind of aircraft accident that we would eliminate. And that he quoted that we would save lives with this. If that's actually bears out, I would not only be very proud but very pleased.

Speaker 4

Yeah. And when when you say it prevents an aircraft malfunction, are you talking about something different than just the difficulties of, you know, engine out on a twin where where you have sort of pilot error? Or is there a literal malfunction that you're

Speaker 1

Well well, no. An engine out on a on a on a twin, as you obviously know, an engine out on a twin is not right now, the the even the some of the most sophisticated aircraft are out there, like the f even the f 14. Their solution was to immediately retard the remaining engine to something about half thrust so that you wouldn't have an a a yaw moment that would cause the airplane to roll over on its back, which is how many twins people crash twins. Our system actually measures and anticipates the loss of that control and and and only proportionately reduces the thrust, meaning that you can get you'd still have a a thrust left and automatic sensing and and and haptic feedback of the of of excessive speed or underspeed, overspeed, all of those conditions. So it's quite quite remarkable.

And it's a great feature, especially when a pilot's flying a twin, single pilot.

Speaker 4

Gotcha. Thanks. And then last last question, a broader question, Jeff. You or Sharon said in the call that as a strategic matter, ISSC was going to go back to kind of its original focus of what made it successful. Can you just talk about what that focus is compared to maybe where you had gone that you thought, you know, had not been what made you originally successful?

And relatedly, just, you know, what areas you're now kind of getting out of so that you can focus on what it was that made you successful?

Speaker 1

I I think Sharon spoke to it, but I'll get it right. What we're doing is the things that built the business was called Innovative Solutions, not just the name of the business, but what we did for a living. And finding pursuing products where we could bring real product innovation, which reflected itself in better performance, better reliability and hopefully reduce costs simultaneously. Simply producing and also similar product or an ordinary solution is not an area that we believe that our that we can best serve. So essentially, we are now focusing on things like the oil throttle and the the and the utility management systems, systems that have never been designed or even conceived of before that we can either get patents on or control the uniqueness of the technology.

And that gives us a special strength in the marketplace.

Speaker 4

Okay. Thank you very much for all that. Good luck.

Speaker 1

Thank you.

Speaker 0

And the next question will be from David Campbell of Thompson Davis and Company. Please go ahead.

Speaker 5

Hi, Jeff. Hi, Sharon. Hi,

Speaker 1

Dave.

Speaker 5

I'm really sorry. I was disconnected, so I may have missed I missed some of your comments, your questions and answers. But I'll just try to

Speaker 1

reiterate it when you have a chance. I'll I'll chat with you and go over with that. I'm more than happy to do that.

Speaker 2

Plus, this is recorded. So That's recorded.

Speaker 5

Okay. Well, thank you very much. I appreciate your help. But you bought the King Air in April to essentially speed up the STC process. And I was wondering if if you were satisfied that it's doing that.

Speaker 1

Well, I think it's been it's invaluable doing that. I I I wanted I wanted to buy another airplane as much as I wanted another arthroscopic knee surgery. But it was it's it's it's served its purpose in in every single way. It the the Twin application for STC has been unusually not unusually, but it has been difficult. It's been demanding is probably the correct way of doing it and appropriately so.

Understand it's never been done before. What we're doing is all new, and by the way, patent. So without the air putting, I don't I believe we would not be able to do this program. We have extensively tested the equipment and demonstrated it even. So it's yes.

It's been a good investment from that standpoint. But, you know, I'm starting to feel like I'm playing polo. Anyway

Speaker 5

But you're the the use of the plane is about you've finished you mentioned that your flight testing has been completed. So

Speaker 3

Oh, it's

Speaker 5

when it's

Speaker 1

been completed. It's here, and we now have to demonstrate it for the for the FAA. So we still have, you know, a fair amount of time, but there'll be extensive demonstration flights to the FAA for final testing.

Speaker 5

And the other thing is, is that possible to get orders or get some feel for companies that want this product, the airlines and the SPOs that want this product until there's a an STC? I mean, you you No. I'm surprised you can't take or you can't take orders before the STC is complete.

Speaker 1

Well, it's difficult. We're we're we're now in a role where we can take orders for the for the PC 12, and we will be able to take orders for the King Air. And we've got several other aircraft we're working on as well. We're seeing a significant activity, more activity than we've seen total in the past, and we expect some very good results. We have a a pro with a lot of ex experience, Tom Grunbeck, who's who's leading the effort.

He has ten years of experience in autothrottle,

Speaker 6

so he can

Speaker 1

help bring this bring this thing to market. And it's making an awareness that an autothrottle is something more than a cruise control. People don't need a pilots certainly don't feel they need a cruise control. But if you can provide them something that truly reduces their workload and provides significant safety features, you have a winning combination. And and demonstrating and showing that.

And remember, it's all very new. Nobody's ever done this before, and that's part of the certification effort that we're going through right now.

Speaker 5

There was a $200,000 consulting fee. Is that was that in the fourth quarter charged in the fourth quarter?

Speaker 1

Yes.

Speaker 5

So fourth quarter charge for consulting fee, and that was for what was the consulting fee for?

Speaker 1

I missed that part. Consulting fee was I mentioned it. It's we we as part of as part of the and generally, as part of the the a board's responsibility that we routinely review the direction of the company and make sure that we're doing the best investment of the resources of the company for the stockholders. That's part of our fiduciary responsibility. Coupled with that, we decided that if we're gonna go into a new product area like auto product, which is an area that we don't have extensive experience in, and by the way, the industry doesn't have extensive experience, it was it was virtually mandatory that we get an informed, objective review of the marketplace.

And we and we engaged an outside expert firm that does market research and product analysis and business plan analysis. And so there we that that was a partial payment for a very extensive market research and product research program, which included things like webcasts and various other research into the individual market comments. So it's proving to be very valuable. And we all felt that it was essential because this is this honestly, this market didn't exist. It it except in the higher end airplanes because it was always seen to be too expensive in the lower end airplanes.

Lower end meaning $10,000,000

Speaker 5

What about SG and A going forward? Is that going to be at the fourth quarter level or lower?

Speaker 1

SG and A?

Speaker 5

Yes.

Speaker 2

Well, if we adjust for that, it will be lower. Now the first quarter going forward in 2019 is usually a little higher with the audit fees and things like that. Because So we're nine thirty fiscal under audit right now. So but I expect SG and A to be lower.

Speaker 1

I think we I think we have a reasonable control over the our expenses. We've got focused we're we're we're I think we're better focused. We have a a a a good team working the issues, we're not understaffed, but we're definitely not overstaffed. And now it's all a question of execution, and we're focusing very much on executing and getting the programs done on time, on budget.

Speaker 5

How many employees were actually let go?

Speaker 1

I don't I can't give you an exact number, but it was about 50.

Speaker 5

Around 50. Yeah. And and so

Speaker 1

and and so we're we have a good we have a I'm confident we have a good staff. I remind you, I've I've watched the company from the time I was the only employee that plugged in a $9.99 telephone into the wall and watched it grow from there. So I'm I have a I believe I have at least an experienced sense of what adequate staffing looks like.

Speaker 5

So when you begin to manufacture the autothrottles based on orders, will there then be an increase in staff to increase the production?

Speaker 1

There might be, but very and then it'll be direct labor. Remember, our direct labor represents less than 5% of our revenue. So I mean, if I doubled it, it would have a very small impact on the P and L. The point is that we're mindful of is that we want to make sure that we're adequately staffed to support the demand. And the happy good news is that it's just a remarkable design that takes very little manual labor.

We have automatic stuff that takes care of it. So it's really quite remarkable. I mean, we have automatic robotic machinery that can can virtually manufacture 80% of it.

Speaker 5

Right. And the k the KC 46 tanker program, that's continuing?

Speaker 1

It is. We're in a we're we're in re qualification of a of a a potentially obsolescence issue. So it's moving along smoothly, and our support is fine. And in fact, Boeing is here today.

Speaker 5

Uh-huh. Okay. Well, they congratulate them when you see them. They raised their dividend today, substantially raised their dividend.

Speaker 1

That's a good thing. Well, I can tell you that it's grown a little bit. It's not as grown a little bit, about 10 times over the last ten years. So that's pretty good. Yep.

I guess they make a good product.

Speaker 5

Right. So did you give us a backlog figure? I don't know. I don't have this press release.

Speaker 2

$3,600,000 $3600000.0.03

Speaker 5

3.6 So the backlog is basically unchanged.

Speaker 1

Yes. Now remember, the backlog doesn't reflect any of the long term programs. So we don't have all of the KC-forty six sitting in backlog. We don't have UMS. We don't have a number of products that are renewed on a quarterly, in some So cases, or annual it's a lot more than that, obviously.

And that will always be that way because the days of people giving 200 to three hundred and five hundred piece orders for over a ten year period just are gone. They prefer and appropriately renew the order on a on a on an annual basis.

Speaker 5

Right. Now when you get orders for the autothrottles, they'll come from fixed base operators, won't they?

Speaker 1

They'll come from a bunch of peep they'll come from FBOs. They'll come from fleet owners. For some fleet owners, this is terrific. For it's got we're we're seeing we're seeing a remarkable growth in in the industry. We know we had somebody record a a an interview about the auto throttle at NBAA.

And in the first week that it was online as YouTube, they got, like, 10,000 people looking at it, which I found amazing. Anyway, we're we're beginning to see a real force going, and we're working hard to apply it to a broad range of of p t six type of aircraft. And there's many of them out there, tens of thousands of

Speaker 5

But there's no other authorities that you'll need to get once you get the STC for the auto problem.

Speaker 1

An STC on every aircraft. You have to get an STC except that once you've gotten the big one is to get the twin and and the things associated with twin operation. Then subsequent STCs should be much easier. The FAA is showing the kind of prudence that you would expect from them, which is to make sure that this new technology is done and done correctly, and they're doing that. As much as I get anxious and I wanna get it done, I respect what what they're doing and happy every time I get in an airplane to know that they actually think through the problem.

So I've got no complaints at all. They've been they've been supportive, obviously, within their limits of their their judicious approach.

Speaker 5

Now will you be doing the installations of the auto throttles, or will those be really up to the to fleet Fix fix based operators.

Speaker 1

By by the dealers. It's a very easy installation depending on the aircraft. It could be, a a a one day or two day installation.

Speaker 5

By by the dealers?

Speaker 1

Right.

Speaker 5

Right. Okay. And

Speaker 1

that gives them additional revenue so they don't have to make all of their revenue by marking up the product. You know? So it's a it's a good answer. It's a good solution.

Speaker 5

Yeah. Okay. Well, let's let's

Speaker 1

hope

Speaker 5

we get some orders. Let's get the FCC done, then we get some orders. And we'll be on our way.

Speaker 1

Okay. Thank

Speaker 5

you. Be on our way. Thanks a lot, Jeff. Thanks a lot, Jerome. And, Rahul, good to see you.

Good to hear your Yep. Voice

Speaker 1

Thanks, sir.

Speaker 3

And

Speaker 0

the next question will be from Charlie Pine of Van Clemens and Company. Please go ahead.

Speaker 7

Good morning. Some of my questions have been answered, but there's a few other things I'd like to have you addressed. In the last quarter, you talked about with the restructuring that you were were going to have about $3,500,000 of cost savings going forward. You obviously had an impact in the fourth quarter on your R and D line. But I guess I'm curious to know with the workforce reduction and everything else because your SG and A was basically flat in Q1, where are you still on track to be able to deliver $3,500,000 of cost savings in 2019?

Speaker 2

Yes. I don't see yes, absolutely. I mean, you saw it, as I talked to it before, you saw G and A, obviously, in the fourth quarter was somewhat impacted by what Jeff referred to for consulting expense. So you would have seen more of that, obviously. R and D, you see.

And you see it in the gross margin. I mean, we had higher margin percentage on lower sales. So you see it in all the different phases of the cost

Speaker 1

structure. Okay.

Speaker 7

The other thing I wanted to to pursue with you was about the STC on the on on ThrustSense. You said that you've completed your flight testing, and the next stage is that the FAA has to do their flight test. How many flight tests do you anticipate, And how long will they be spending on doing the flight testing?

Speaker 1

Well, the flight testing itself is per se is probably only about four hours of testing. But getting all the paperwork done is a big part. Recognize they went out and solicited the entire industry for comments over a forty five day period and then taking the the report and and and evaluating it, etcetera, that takes another three weeks. And then you have Thanksgiving in the middle of it. Then you have Christmas, and then you have New Year.

So by the time you finish all of that, you know, I mean, they're actually working harder than any other part of our government is. I'll guarantee you that. And more effectively, I might add.

Speaker 5

Well, that's

Speaker 7

that's good that's good to hear.

Speaker 1

So they have to do you're doing honestly, it's it's as we stand in Washington, it it it is a little painful. But they're doing it in a deliberate way, and and I'm encouraged by the fact that they continue to move. I expected that if we were came into the into Thanksgiving, which we did, without the STC, that we would see absolutely nothing until the first of the year because typically, everything every business effectively slows down so much that they stop. And and in this case, they're actually moving on to to my to to my delight, actually. But I still think it's gonna be difficult to get something finished before January.

Speaker 7

Okay. So in other words, just to just to clarify, it's not it's not a succession of of of of a number of individual flight tests. They'll be just Oh, no. Just getting it will just be one four hour flight test by the FAA.

Speaker 1

Probably probably two two hour flight test, but right together. Recognize that the FAA has already done a familiarity flight test with the system and and and assessed all of the these very odd special features like VMC mitigation, the engine out mitigation. They actually sat in the airplane and witnessed it with a certain amount of dis discomfort, I might add, myself included. But it it is you know, it's terrific. They've been more than cooperative, more than in and and they had they had people from five different four different branches flying in the airplane to get oriented with the new technology.

So they've done going out of their way to to try to stay up with the with the advancements that we're gonna be certifying. So I'm I'm cautiously optimistic. I'm just it's just unfortunate that we've run into this holiday time at a time when we're trying to get flight testing done.

Speaker 7

Well, so so that being said, if, if the flight testing, you know, goes on the time line that you're hoping for, you feel and the process, you you mean, they they seem to feel pretty committed to making the process, you know, work, work smoothly, but, you know, they're they're being rigorous at it. Do you feel cautiously optimistic that you might wind up having an STC by the end of your second quarter?

Speaker 1

Yes. Yes. And I would we're going to work for a bunch of for us, it's important to get it done. It's really we're happy to say that the system works extremely well, and we're seeing increasing applications to a broad number of other aircraft. And we're very optimistic.

And by the way, patents were issued on this both in Europe and in The United States in record time without exception. I have a lot of patents, and I've never I don't remember an application that was was signed off by the by the patent office without some comment, like, why did you do this, that, and the other? So we're we're very we're we're we're enthusiastic about this program.

Speaker 7

Okay. A couple other things. Recognizing that nothing is done until it's done, once you do have in hand an STC, how how quickly afterwards do you think you'd you'd actually start to be able to recognize revenue from it, from the from from the King Airs?

Speaker 1

Some revenue almost immediately.

Speaker 7

Okay. Well, that's great to hear.

Speaker 1

Once it's and we can install it in an airplane, we believe that there's opportunities out there right now that would be ready to go near the end of the first of the second quarter or the first quarter of calendar quarter. So by spring, we would expect to be doing installations.

Speaker 7

And give give a little bit more color if you could on you said that there's there's you said that there's actually literally tens of thousands of other Pratt and Whitney of of planes with these with these similar Pratt and Whitney engines, which could also be candidates.

Speaker 1

Probably the most universal plane. It's called the PT six. And there's literally I don't remember the numbers. There's 20 or 30,000. And by the way, our system also works on on on drones.

And we've we've got a number of inquiries for a new kind of drone that's coming out. So we we see a lot of application for it. And it's a it's it's small, compact, extremely reliable, very unique. And so look. We just gotta get it done.

It's it's just the simple answer is get the freaking thing done.

Speaker 7

Well, we've been we've been we've been out here waiting a long time for it. So we're certainly ready and willing and able for that to occur. Believe us.

Speaker 1

I I believe me. I I know. You remember I'm a I'm a a a a stockholder as well.

Speaker 7

Yes. I'm I'm well aware of that.

Speaker 1

Okay. I have to be right. I have no complaints. I'm trying to give you the I'm trying to give you as accurate a a a representation of what I believe we have. I gotta be careful that my my enthusiasm doesn't alter my judgment.

That's all. And that's in part one of the reasons why I supported strongly supported an outside independent company that would come in and say, wait a second. You tell me what you're planning to do when, and let's look at the market. And they had this webcast to analyze the value of an auto throttle. So, I mean, we're trying to be sensible about this approach so we don't just run off a little too adolescently.

Alright?

Speaker 7

Okay. Last thing, just so I can just so I can check check myself, is is there actually a you referred to a a YouTube video on the ThrustSense that was out there. Is that still is that Yeah.

Speaker 2

It should be on the site, I believe, now.

Speaker 1

You you can look at our site, and I think you'll see a couple of YouTube videos. There's one of them of the system, and there was one at the show. We'll we'll try to but there should be available. If you have a problem, call in Narelle, and he'll give you the the we'll we'll we'll send you the website. Alright?

Okay. Alright. Sounds good. For your support. Thanks

Speaker 7

a lot. Happy New Year to you all.

Speaker 1

Happy New Year to you.

Speaker 0

And the next question will be from Steve Rudd of Blackwall. Please go ahead.

Speaker 6

Hi. First, thanks to all my colleagues for all their questions. Actually, were all quite good.

Speaker 1

I'm glad you're still there. I appreciate you.

Speaker 6

Yes. I'm glad you're still there as well. Just one last one You started out in your chat by saying that there was going to be some choppiness, which, of course, all of us understand is a euphemism for negative earnings. Is it that we go into the first quarter with that choppiness and then Q2, we start to see things head in a more positive direction?

Is that about a way to interpret it?

Speaker 3

I think that's pretty close. What we're seeing is that we're seeing that revenues are going up and the backlog is growing.

Speaker 6

Fair enough. And just out of curiosity, you were calling it autothrottle. And yet, to me, the most compelling part of these safety features that just may be my own orientation, you explored, I take it, names, more closely aligned marking, safety throttle, optimum throttle. Because it did feel like autopilot, or what do you call it, auto in the car.

Speaker 3

I think FrostSense is what we've That's it. Alright. As long as

Speaker 6

you get the word out, people will know what it means. So

Speaker 1

Well, that's okay. That it's more than a speed control. It's it's actually it it it puts intelligence in what thrust you put on in the airplane. You

Speaker 3

know? So Okay.

Speaker 1

By common sense, it has thrust sensor.

Speaker 6

No. I think that's that one's that one's better. So we're going focused on the, you know, what it does, and and that probably captures the sense a bit more.

Speaker 1

It's it's quite I I tell you, I I hope that I would say in the next three or four weeks, we'll have videos of of it of the the thrust sense actually doing VMC mitigation. It's it is a a remarkable experience to actually see the the autothrottle response to the the yawing of the airplane and actually correcting for it and preventing catastrophic accident. It's quite remarkable, actually. It's never been done before.

Speaker 6

Yeah. Sometimes there's a marketing thing you can work through. You know, I've seen other safety devices in other industries, and you work through insurers to have them require it as part of issuing their policy.

Speaker 1

It's a good point. And we hope when when we get this, I think the insurance companies will will recognize, especially in single engine act applications. And think about the guys that fly twins with their families on board. I can tell you having flown for years with my wife, and she would ask me how I was doing. They're concerned about their safety as well and the kids.

So all of this adds up. It's a and it's not a brutally expensive addition to the aircraft. It represents a relatively small investment compared to the price of the airplane.

Speaker 6

You can spend a tremendous amount of time marketing to your direct industry. And if you can market to the insurers, you know, they either can

Speaker 1

good idea.

Speaker 6

Very good higher. Yeah.

Speaker 1

Very good idea.

Speaker 6

Some others like that after the after the conference call.

Speaker 1

Thanks for your idea. All right.

Speaker 6

Sure.

Speaker 0

And ladies and gentlemen, that will conclude our question and answer session. And it will also conclude our conference call for today. We thank you for attending today's presentation and at this time you may disconnect your lines.