Innovative Aerosystems - Q4 2023
December 21, 2023
Transcript
Operator (participant)
Welcome to the Innovative Solutions and Support fourth quarter and year-end fiscal 2023 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Shahram Askarpour, CEO. Please go ahead.
Shahram Askarpour (CEO)
Good morning. This is Shahram Askarpour, Chief Executive Officer of Innovative Solutions and Support. Welcome to our conference call to discuss our performance for the fourth quarter and full year fiscal 2023, current business conditions and outlook for the coming year. Joining me is Relland Winand, our CFO. Before we begin, I'd like Relland to provide cautionary statements about forward-looking information.
Relland Winand (CFO)
Thank you, Shahram, and good morning, everyone. I would remind our listeners that certain statements made and matters discussed in the conference call today, including those about new products and operational and financial results for future periods, contain forward-looking information. The forward-looking statements are subject to assumptions, risks, and uncertainties that could cause actual results to differ materially, either better or worse, from those discussed. I specifically call our listeners' attention to our disclaimer regarding forward-looking statements at the end of the earnings release, which was included in a Form 8-K filed yesterday, which disclaimer, along with other public filings referred in it, describes these assumptions, risks, and uncertainties. I also remind our listeners that plans and expectations we express speak only as of today's date, and listeners should not place undue reliance on any forward-looking statements. Now I'll turn the call back to Shahram.
Shahram Askarpour (CEO)
Thank you, Rell. I will begin today with remarks on our performance in the fiscal fourth quarter and full year 2023, followed by comments on our long-term growth plan and strategy, including the recent Honeywell products purchase and license. I will then turn the call back to Rell, who will take us through the financials. For the quarter, revenues were up 79%, with net income increasing 63% from a year ago. Our fiscal year 2023 results were driven by continued organic growth in our production contracts and aftermarket sales, as well as the full quarter of Honeywell product sales, which we acquired at the end of June. As anticipated, the Honeywell products supported our strong margins, which were up sequentially from the third quarter and similar to a year ago.
We have also continued to generate strong cash flow, which contributed to reduce the borrowings used for our June acquisitions. This strong fourth quarter led to our fifth consecutive year of revenue growth, strong cash flow, and another increase in the full year earnings. Our cash has also enabled further pay down of our borrowings in the current quarter, despite the heavy one-time significant expenses incurred for auditing fees, legal expenses, and costs of hiring and training new technical personnel in relation to the acquired products. We are fortunate to have a great relationship with our bank, PNC, and they have been very supportive of our growth strategy. This week, we converted our $20 million term loan to a revolving line of credit that has enabled us to reduce our total debt from $20 million to less than $12 million.
It is noteworthy that we achieved the strong fourth quarter growth results despite the additional burdens under which we operated over the past year by amending our bylaws, negotiating a bank agreement, as well as facilitating and subsequently integrating a substantive acquisition. Despite these non-recurring events, our team delivered financial performance that maintained our track record of steady, profitable growth. Our goal now is to leverage this momentum to sustain this growth over both the near and longer term, organically and through additional acquisitions. To that end, we have several plans in motion. Organically, we have plans to continue further product innovation and to sustain our high level of investment in research and development, especially in the area of cockpit automation, that will ultimately lead to single pilot operations in large transport aircraft. Our value proposition is to focus on products that continue to reduce pilot workload and improve safety.
For instance, we plan to add capabilities to existing technologies, such as our flat panel displays, to include automated emergency checklists and pilot alerting systems. We expect these technologies to serve as stepping stones that will help prepare the market for single-pilot flights in air transport aircraft. We were recently awarded a development contract for the second generation of UMS for Pilatus. We expect that second-generation technology will expand capabilities such as AI and improve the versatility of the UMS. In the process, we anticipate this will create new platforms that can be adopted for other aircraft, and eventually constitute another step along the path to autonomous flight.
In order to maintain our leadership in cargo retrofit business, we are in the process of adding new features to our products that we expect would allow increase in content and selling price, protecting this business's overall revenue in the face of any potential slowdowns in the cargo conversion market. Our overall OEM business has continued to do well with Textron, and we have continued to pursue additional platforms in the military and regional airline markets. Across the board, we are increasing our business development activities by working to grow our sales and marketing group, both domestically and internationally. The acquired Honeywell products have put us in front of a new set of buyers, which we believe our sales team can use that relationship to introduce them to our broader range of products. Secondly, we plan to leverage acquired technologies to enhance and expand our product offerings.
As an example, with the Honeywell product lines, we now have our own radios and adjacent technology capabilities we previously had to buy on the open market to integrate into our products. Acquisitions such as this are complementary to our existing product portfolio, and will likely accelerate our ability to develop new technologies needed to eventually achieve autonomous flight. As a direct result of this acquisition, we believe that we are on pace to achieve annualized 40% top line growth once the Honeywell integration has been fully integrated, completed. Those integrations are making steady progress. As planned, this quarter and next, we are moving inventory, installing the purchased equipment in our facility, and training our employees.
Having anticipated some of the disruptions arising from the integration over the first and second quarters of FY 2024, and by customer requests, we accelerated some of the deliveries into the September 2023 quarter. Consequently, we expect results in the current quarter and the next to be weaker than the results of the Q4 2023. As the second part of our growth strategy, we continue to evaluate other acquisitions, opportunities, and plan to execute additional complementary acquisitions as these opportunities arise. Thank you for your time and interest. We look forward to updating you in the upcoming quarters. Now, I will turn the call over to Relland for a closer look at the numbers.
Relland Winand (CFO)
Thank you, Shahram, and thank you all for joining today. I will review our financial results for the fourth quarter and full year of fiscal 2023. Revenue in the fourth quarter was up 79%, primarily due to the contribution from the sales of products purchased and licensed from Honeywell. As Shahram noted, revenues in the fourth quarter included the pull forward of Honeywell products, some of which would have otherwise been delivered in the first and second quarters of 2024. Work was accelerated in the September quarter to meet our delivery commitments before production was anticipated to be slowed by the movements of inventory and equipment, as well as other disruptions that are typical when undertaking an integration of this size and complexity.
As a result, we expect results in the current quarter and the next to be weaker than the results of the Q4 2023. Fourth quarter gross margin was 62%, a sequential improvement from the third quarter and unchanged from the same quarter a year ago. Margins reflect both the better absorption of our fixed overhead as a result of revenue growth, as well as the impact of the margins of the Honeywell products. In the fourth quarter of fiscal 2023, research and development expense increased in absolute terms, consistent with our commitment to innovation, but decreased relative to sales. As Shahram previously mentioned, we anticipate that research and development will continue to increase as the company works to develop new features and capabilities to our existing product base.
As the Honeywell product line integration continues into the spring, we expect expenses to remain somewhat above what we would see as our normalized run rate. The fourth quarter of fiscal 2023 increase in selling general and administrative expenses reflect one-time costs associated with the Honeywell transaction, including the higher legal, accounting, professional fees, and amortization expense. In addition, selling general and administrative expense in the fourth quarter of fiscal 2022 was reduced by $1.2 million due to a gain on the sale of the company's PC-12 aircraft. Interest income was up in the quarter due to an increase in interest rates on our interest-bearing cash deposits. Interest expense in the quarter reflects costs associated with the borrowings used to consummate the Honeywell transaction.
We expect interest, interest expense to trend down, not only as interest rates are anticipated to fall, but also due to our continued pay down of these borrowings under the terms of the revolver facility. Tax expense in the fourth quarter of fiscal 2023 was $0.7 million, compared to $0.76 million in the fourth quarter of 2022. Fourth quarter net income was $2.6 million, or $0.15 per share, up from $1.7 million, or $0.09 per share in the fourth quarter of fiscal 2022. Backlog as of September 30, 2023, was $13.5 million, and new orders in the fourth quarter of fiscal year 2023 were approximately $12.7 million.
As always, quarterly orders can vary due to a number of factors that are not meant to provide an indicator of future revenues. Virtually all the Honeywell revenues are from inter-quarter book and ship orders that are not included in the backlog. Cash at September 30, 2023, was $3.1 million, of about $500,000 from June 30. Over the three months ended September 30, 2023, we also reduced our term loan debt by $500,000. This week, the company converted its $20 million term loan into a $30 million revolving line of credit, as it was combined with the company's $10 million revolving line of credit. Under the terms of the agreement, our cash balance will be swept daily against the outstanding revolver balance, thereby reducing interest expense.
This revolving line of credit is expected to allow the company greater flexibility when the next acquisition opportunity presents itself. As previously noted, cash flow has continued to improve into the fiscal 2024 quarter, including the collection of a significant amount of receivables and the sale of the company's King Air aircraft for $2.3 million, so that our current net debt position has been reduced to less than $12 million. For the year, the company generated $2.1 million of cash flow from operations. With that, operator, we're ready for questions.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.
Theodore O'Neill (CEO)
Thank you very much. A couple of questions. You -- and you may have covered this first question in your presentation when you announced the acquisition of the Honeywell business. As I was looking through the unaudited pro forma combined statement of operation for the acquisition, there wasn't anything in here for R&D, and I was wondering what impact the acquisition is gonna have on R&D expense going forward, and then more broadly, its impact, the Honeywell integration impact on margins at SG&A?
Shahram Askarpour (CEO)
So, to—I guess, to your first question, it's gonna be very, at least initially for the first year, it's gonna be little impact on the R&D. Going forward, as we're going to modify some of these equipments that the... Let me put it this way, we're gonna modify some of the designs, to make it more suitable to work closely with our equipment. It will require some R&D, and those are not significant amount of dollars. They'll be part of our R&D programs that we run.
Relland Winand (CFO)
The G&A? Yeah, so G&A will be up a little bit. We're still incurring audit fees, legal fees relative to this. It's not what it was in the fourth quarter, but it will still be somewhat a little bit elevated, yes.
Theodore O'Neill (CEO)
Okay. And Rell, can I read anything into this increase in accounts receivable from year-over-year?
Relland Winand (CFO)
Yeah. So it, the accounts receivable is, it all depends on when you ship things out, right?
Theodore O'Neill (CEO)
Oh, right.
Relland Winand (CFO)
So, we had a lot of later shipments. We had a big quarter, and the shipments went out later, and some vendors or customers are 45 days, you know, so that's—we've been collecting it all. So that's really, as I said, helped in this, in this quarter, but it's a little atypical for us, but it's a matter of timing.
Theodore O'Neill (CEO)
Okay. Yeah, makes sense. And then the customer concentration for the year, is that gonna change much with the acquisition?
Relland Winand (CFO)
Concentration-
Shahram Askarpour (CEO)
Of the customers?
Theodore O'Neill (CEO)
Yeah, yeah, like your top five customers.
Shahram Askarpour (CEO)
Yeah, to some extent, it will. I think there's gonna be a couple of major customers being the channel partners that we're gonna get a lot of business from.
Relland Winand (CFO)
Yeah.
Shahram Askarpour (CEO)
Yes. It will change.
Theodore O'Neill (CEO)
Okay. All right. Thanks very much.
Relland Winand (CFO)
Thank you.
Shahram Askarpour (CEO)
Thank you.
Operator (participant)
... The next question comes from John Moran with Robotti & Company. Please go ahead.
John Moran (Senior Investment Associate)
Hi. Thank you. The first question is just around the net debt number that you're reporting in your quarter. And I'm just... Is that a sustainable level relative to the new size of the business, absent any acquisitions, or is that gonna-
Relland Winand (CFO)
Well-
John Moran (Senior Investment Associate)
Go up and down? Or, are you gonna be net-
Relland Winand (CFO)
It depends. Yeah. It, it'll go hopefully down as we're profitable and generate more cash. It's going to continue to, to come down. So I just gave you a snapshot of where we are relatively now, but as we generate more cash, it's gonna become lower and lower until we, if we borrow again. But it, it, they sweep our account, our cash, and it's just net, net, net all the time. So we expect it to keep decreasing.
Shahram Askarpour (CEO)
Yeah, I mean, we started-
John Moran (Senior Investment Associate)
So am I over-
Shahram Askarpour (CEO)
Months ago. Sorry, John?
John Moran (Senior Investment Associate)
Oh, I'm sorry. So, am I oversimplifying it to read into it that you've generated $8 million in cash since the closing of the deal?
Shahram Askarpour (CEO)
We did not generate $8 million.
Relland Winand (CFO)
Yeah. Yeah, it's mostly... Well, mostly this now, this quarter now, right? We collected receivables-
John Moran (Senior Investment Associate)
Right.
Relland Winand (CFO)
We sold a plane. So it's really, you're taking it from the 930-
John Moran (Senior Investment Associate)
Okay, yeah, the plane.
Relland Winand (CFO)
Into the now. Into the now. Yeah.
Shahram Askarpour (CEO)
Meanwhile, we are spending money like drunk sailors. On lawyers and accountants. One year's of Honeywell's books.
Relland Winand (CFO)
Yeah. Yeah.
Shahram Askarpour (CEO)
Honeywell is a big company.
Relland Winand (CFO)
No free lunch.
John Moran (Senior Investment Associate)
The other question I had was around the backlog and the orders and that you're reporting in the quarter for the legacy business. That does seem up fairly dramatically from where you were a year, you know, just what that's been... I know it's gone up and down, but is that, is there something driving that in particular or?
Shahram Askarpour (CEO)
I mean, it our kind of the previous organic product lines, they you know year to year have a different—this year, I mean, because we got a big new contract from Pilatus, which actually kind of guarantees us for another 15-20 years on that platform. And
Relland Winand (CFO)
Some of the OEMs advance, give us POs in advance.
Shahram Askarpour (CEO)
They gave us POs. So, it's, this is what it was this quarter.
Relland Winand (CFO)
Yeah.
John Moran (Senior Investment Associate)
I'm sorry. That number, I don't have it right in front of me. So, they were $12 million and $13 million. I can't remember what's the backlog and new orders or something like that. I mean, that was running at $7 million, $8 million, $9 million. That's mostly related to Pilatus?
Relland Winand (CFO)
A lot of it is.
Shahram Askarpour (CEO)
A lot of it is, yeah.
Relland Winand (CFO)
Not all of it, of course, but-
John Moran (Senior Investment Associate)
Okay.
Relland Winand (CFO)
Yeah.
John Moran (Senior Investment Associate)
Okay, great. Thank you.
Shahram Askarpour (CEO)
And, uh-
Relland Winand (CFO)
You got Textron. I mean, it's a combination-
Shahram Askarpour (CEO)
Yeah.
Relland Winand (CFO)
but the volume is Pilatus.
John Moran (Senior Investment Associate)
Great. Thank you very much.
Relland Winand (CFO)
Thanks.
Shahram Askarpour (CEO)
Yeah, we have the C-130 stuff in there.
Relland Winand (CFO)
Yeah, of course.
Operator (participant)
The next question comes from Andrew Rem with Odinson Partners. Please go ahead.
Andrew Rem (Portfolio Manager)
Morning, gentlemen. Just on the kind of... Can you guys break out or provide a little bit more detail on the revenue? How much was kind of legacy versus the Honeywell contribution?
Shahram Askarpour (CEO)
It's kind of hard to do that on this call right now. I think our-
Andrew Rem (Portfolio Manager)
Okay.
Shahram Askarpour (CEO)
When it comes out-
Relland Winand (CFO)
Yeah, we'll have to break it down.
Shahram Askarpour (CEO)
There will be notes in there as to exactly contribution of the Honeywell. So,
Andrew Rem (Portfolio Manager)
Okay. So then you guys can break that out in the 10-K, is that?
Shahram Askarpour (CEO)
That's where it's gonna go. Yeah.
Relland Winand (CFO)
Yeah. You have to—I think, the 10-K, we have to ending this year, and then going forward, I believe it'll all be one.
Shahram Askarpour (CEO)
Believe it or not, the audits are still working on it.
Andrew Rem (Portfolio Manager)
Okay.
Shahram Askarpour (CEO)
I never imagined it would be that hard.
Relland Winand (CFO)
Everything's hard.
Andrew Rem (Portfolio Manager)
Okay.
Relland Winand (CFO)
Yeah, it will be disclosed.
Andrew Rem (Portfolio Manager)
Okay, perfect. On R&D, can you guys maybe just give updated or guidance? Last year, I think you guys said you wanted to kind of push R&D to kind of 13%-14%. But given the Honeywell, it doesn't sound like it will necessarily consume a lot of R&D resources. But can you maybe just reframe how you're thinking about R&D?
Shahram Askarpour (CEO)
Yeah. So, I guess 13% of $20-odd million is,
Relland Winand (CFO)
Yeah
Shahram Askarpour (CEO)
... is still less than 10%-
Relland Winand (CFO)
Yeah
Shahram Askarpour (CEO)
- of $40-odd million. So, so as a percentage of revenue, our R&D percentage is gonna go down.
Relland Winand (CFO)
Which I-
Shahram Askarpour (CEO)
But in terms of dollar value, we're increasing the size of our engineering department and using some of the revenues that come from these, the Honeywells to further our internal growth strategy.
Relland Winand (CFO)
Yeah, so it'll grow, it'll go higher in absolute terms, but as a percentage of sales grow, that's gonna be faster than the increase in UVP. So you'll see that relationship-
Shahram Askarpour (CEO)
Yeah.
Relland Winand (CFO)
-go down.
Andrew Rem (Portfolio Manager)
Okay, and then also in the queue, will you guys break out some of these, what sounds like kind of either short-term or one-time related items, both in ... Yeah, but I guess in the fourth quarter specifically?
Relland Winand (CFO)
Yeah, well, it's kind of what I said here, but yeah, a little bit more detail. In the MD&A, you know, the comparison, it'll be, it'll be addressed in there. Yes.
Shahram Askarpour (CEO)
I think in the Q4, was it just over $1 million-
Relland Winand (CFO)
Yes
Shahram Askarpour (CEO)
of one-time expenses in this Q4?
Relland Winand (CFO)
That's really-
Shahram Askarpour (CEO)
And a half.
Relland Winand (CFO)
If you look at it, that's the difference. If you-
Shahram Askarpour (CEO)
Yeah
Relland Winand (CFO)
... add the 1.2 back and look at it, that's really the-
Shahram Askarpour (CEO)
Yeah.
Relland Winand (CFO)
It's all about.
Shahram Askarpour (CEO)
It's about $1 million. And I can't imagine the quarter that we are in is not gonna be any better either.
Relland Winand (CFO)
Well, it won't be as high, but it'll be-
Shahram Askarpour (CEO)
Yeah, I'm good.
Relland Winand (CFO)
More than normal.
Shahram Askarpour (CEO)
An army of people sitting here charging us.
Andrew Rem (Portfolio Manager)
Okay, and then can you guys give an update in terms of on the integration, kind of what have you completed and what is left to do?
Shahram Askarpour (CEO)
Sure. So one of the product lines is completely here. We've got our people trained, and we are actually performing on it. And that's on the radio side. On the IRU side, we're gonna do that in the transfer of all the equipment and the training and all of that, it's gonna occur after the holidays. And the reason for that is that product line is mainly for the air transport market, and the airlines-
Relland Winand (CFO)
Nervous
Shahram Askarpour (CEO)
were very nervous about us doing that in November, December time period, because they felt that it may impact their busy period. So we work—our team works on a daily basis with the Honeywell integration team, and we evaluate each one of these requests from the customers on a daily basis to make sure there's no disruptions in the operation. Obviously, there's slowdown that we that occurred during this quarter, because on the radio side, when you think about it, they had to pack all of these test equipment, inventory them, make sure they were right, ship them here, unpack them here. They had to be set up here.
Relland Winand (CFO)
Evaluate them.
Shahram Askarpour (CEO)
We had to have their team come here-
Relland Winand (CFO)
Yeah
Shahram Askarpour (CEO)
make sure everything works right, and do another final stage of training to our people. During that period, nothing happens. We're not shipping anything.
Relland Winand (CFO)
This is why the pull forward-
Shahram Askarpour (CEO)
Yeah
Relland Winand (CFO)
in Q4. Thank you.
Shahram Askarpour (CEO)
The same thing is gonna happen next quarter, in the, you know, January to March quarter with the IRU stuff, where again, they have to be packed and set up over here.
Relland Winand (CFO)
The process.
Shahram Askarpour (CEO)
That's the process.
Andrew Rem (Portfolio Manager)
Okay. All right. Well, great quarter, gentlemen. Thanks a lot.
Relland Winand (CFO)
Thank you.
Shahram Askarpour (CEO)
Thank you.
Operator (participant)
The next question comes from Doug Ruth with Lenox Financial Services. Please go ahead.
Doug Ruth (President)
Good morning. Congratulations on the strong quarter. I have three questions: What is the company's relationship now with the Hedrick family?
Shahram Askarpour (CEO)
So they have this. There's independent trusts that are managed by different people within the Hedrick family that each own some number of shares.
Relland Winand (CFO)
Yeah.
Shahram Askarpour (CEO)
And the trust, the state also owns some shares, but none of them are, I guess, significant enough to have a reporting,
Relland Winand (CFO)
Yeah, they're below the threshold.
Shahram Askarpour (CEO)
Requirement on them. They're below the threshold, and they're all managed by different people. So, it's—that's the way it is.
Doug Ruth (President)
But there's no representation on the board of directors, and they're not.
Shahram Askarpour (CEO)
Never have.
Doug Ruth (President)
There's not too much of a relationship with any family member at this point, then?
Shahram Askarpour (CEO)
No. Since Jeff passed, nobody from the Hedrick, they need board or be represented on the board.
Doug Ruth (President)
All right. Then the second question is the relationship with the large shareholder, Christopher Harborne. Is he involved? Is he asking for a board seat, or is there any interaction with the company and his entity? Hello?
Relland Winand (CFO)
No.
Shahram Askarpour (CEO)
Yeah, yeah. No, no, he hasn't. I said, Harborne, we have a business relationship with one of his companies, where we're a supplier to it. But, if we ever have any conversations with him, it's always regards to that business.
Doug Ruth (President)
... Okay, and then the final question, are the board members and the management team eligible to buy stock at this point in time, or are you in a blackout period? Maybe you could offer some advice there.
Relland Winand (CFO)
In a blackout period. So 15 days before the end of the quarter, it begins the blackout period, and then you can—blackout period is lifted the third business day after earnings begin. Due to the lateness, it all won't continue.
Shahram Askarpour (CEO)
And then again to the next.
Relland Winand (CFO)
Yeah, you don't get anything till after.
Shahram Askarpour (CEO)
After.
Relland Winand (CFO)
Yeah, so.
Operator (participant)
The next question comes from Roger Goldman, who's a private investor. Please go ahead.
Roger Goldman (Shareholder)
Hi, guys. First of all, congratulations. Really well done. This seems like it's going exactly according to the way you told us it would go. And in that connection, any surprises so far with the integration, either good news or bad news?
Shahram Askarpour (CEO)
Surprises from my end, it's, you know, navigating a large company and the level of commitment.
Roger Goldman (Shareholder)
Yeah.
Relland Winand (CFO)
It's a challenge.
Shahram Askarpour (CEO)
I knew it was gonna be a challenge, but it's, you know, it's... In internal communications within Honeywell, where, you know, you're talking to a group of people that you signed an agreement with, and we all understand what it is. But then at the end of the day, you're getting information from some guy down there somewhere, and
Relland Winand (CFO)
Yeah, I know.
Shahram Askarpour (CEO)
They, they have their own opinion.
Roger Goldman (Shareholder)
Yeah. Yeah.
Relland Winand (CFO)
A lot of levels.
Shahram Askarpour (CEO)
Yeah.
Relland Winand (CFO)
A lot of layers.
Shahram Askarpour (CEO)
It takes a little bit harder, but I think we've learned a lot of lessons here, this time around out of this, that, you know, in, better ways of making this happen smoothly. Having said that, we're told by folks at Honeywell that this has been by far the smoothest transition that they've done on any of these transactions.
Roger Goldman (Shareholder)
Great.
Relland Winand (CFO)
It's all relative, I guess.
Shahram Askarpour (CEO)
Yeah.
Relland Winand (CFO)
It's all relative.
Roger Goldman (Shareholder)
Yeah. Yeah. Yeah. Well, you know, a lot of people and companies have made a lot of money doing just what you're doing, which is unencumbering a division from all the corporate, I don't want to say nonsense, but all the corporate structure inherent in being a small division of a big company. And sometimes there are financial surprises, sometimes good, sometimes bad, that don't rise to the level of, "Well, oh, we've got to redo the contract, or we've got to walk away." But nonetheless, they're kind of shocking. And what I'm hearing you say is, it's more difficult managerially, but financially, it's right on target. Is that correct?
Shahram Askarpour (CEO)
Yes, we have... It is right. We have not had any negative surprises-
Relland Winand (CFO)
Yeah.
Shahram Askarpour (CEO)
- on the front end.
Roger Goldman (Shareholder)
Okay. That's a good way to say it. I hear you. Second, I think the bank, I was gonna ask you a question about the bank financing. It sounds like you're generating a ton of cash, and you're using it to pay down a ton of debt. The bank would be cooperative if you made another acquisition and that debt went up again substantially?
Shahram Askarpour (CEO)
Yes, actually.
Roger Goldman (Shareholder)
Question.
Shahram Askarpour (CEO)
Just this conversation with them, that they would be very happy to provide us, based on the EBITDA of the next business that we will buy.
Relland Winand (CFO)
Yeah.
Roger Goldman (Shareholder)
Right.
Relland Winand (CFO)
You got to-
Roger Goldman (Shareholder)
Yep.
Shahram Askarpour (CEO)
Term loan, for that EBITDA, that then later on we can convert-
Relland Winand (CFO)
Right, if the deal supports it.
Shahram Askarpour (CEO)
To the line of credit.
Relland Winand (CFO)
Yeah. Yep, they've been very supportive.
Shahram Askarpour (CEO)
So they've been very supportive.
Roger Goldman (Shareholder)
Right. And, and you're gonna save probably $500,000-$1 million in interest this year, so good job on that. And, and do you have, do you feel that you have the management to make another acquisition in the next year?
Shahram Askarpour (CEO)
Yes, we do.
Roger Goldman (Shareholder)
Okay. I was hoping for a really simple answer like that. Thanks. And last question is, I know Mike left. Anything there we should know or?
Shahram Askarpour (CEO)
Nothing related to the company. It was a personal decision.
Roger Goldman (Shareholder)
Okay. All right, good. Thanks for stepping back in, Rell. This is a critical, critical time for the company. Critical, critical time. Anyway, I just want to end by saying, as you guys know, I've been first my dad, and now my sister and I have been longtime shareholders, and this is what we've been hoping for, for years and years. Just well done. Well done. You guys are on your way to something really building a fabulous company here.
Relland Winand (CFO)
Thank you for your support.
Shahram Askarpour (CEO)
Thank you very much. Bye.
Relland Winand (CFO)
Have a good one. Happy holidays.
Operator (participant)
This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.