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Innovate Solutions & Support – Another Dividend

ISSC had a curious press release after the market closed last night. The company announced a special dividend of 50c to common shareholders, payable December 21th.

What makes the announcement curious is that:

  1. The company just announced a special dividend of 65c 3 months ago.
  2. The company reported fiscal Q4 earnings literally hours before with nary a mention that such a dividend was coming

In fact, on the call, ISSC was asked about what they planned to do with the remaining cash on the balance sheet. After the first special dividend, the company had cash of $12.6 million, down from $22.4 million prior to that first dividend payout.

Roger Goldman:

My question, as it usually is, goes to the use of cash. We’ve got a company with no debt, with solid operating profit and, even after the dividend, a fair amount of cash on the books. Any thoughts of either an acquisition or a small regular cash dividend that I think would have a great impact on the stock price?

 Geoffrey S. M. Hedrick, Innovative Solutions and Support, Inc. – Founder, Chairman & CEO:

 It’s a good question. Some of that I can answer. Some of them, if you can…

Roger Goldman:

 No. I know you can’t. I know you can’t.

 Geoffrey S. M. Hedrick, Innovative Solutions and Support, Inc. – Founder, Chairman & CEO:

 But it’s a reasonable question. Absolutely. Look, we have — we know we generate a lot of cash. And our interest is we’re operating in a business not for us to look at cash that doesn’t generate any income at all. I mean I personally have cash accounts that they’re paying interest in pennies.

So we have no interest in doing that anymore. If we can reasonably invest it in other things, we’re doing some automation on the floor and CapEx kind of things.

 We are actually looking at dividends on a long-term basis because we believe that the business itself will generate cash on a regular basis, and that we believe that our stockholders could make good use of cash. So we’re very conscious of that. That’s what precipitated the $0.65. And yes, we continue to look at it, especially in light of what might be changes in taxation policy.

Does this sound like another special dividend was imminent?

ISSC put up a very good revenue number in the quarter. Revenue was $6.3 million, up from $4.8 million the year before.

The stock sold off during the day yesterday because the backlog was low. It ended the quarter at just about $3.6 million, whereas it was above $6 million the previous quarter.

Investors focused on that and fled the stock but they must have missed the call. Because on the call a number of very bullish comments were made.

The company said they expected a better than seasonal Q4 quarter, that they were seeing exponential growth from retrofits, that the retrofit business is ‘looking better every day’ and that they expect “that the growth is going to be exponential.”

They singled out Textron on the call.

We announced last quarter that Textron had awarded us an OEM production contract to supply our ThrustSense Autothrottle with LifeGuard protection on the new King Air 360 twin turboprop. In November, Textron celebrated delivery of its first Beechcraft King Air 360 turboprop aircraft.

 More recently, Textron announced that the ThrustSense Autothrottle is standard equipment on the new King Air 260. Delivery is scheduled to begin in the first half of 2021.

 We are pleased to be working with Textron and are grateful for the support through the certification and moved into production. They are a strong supporter of our technology. The IS&S autothrottle is the first among a list of 360 upgrades mentioned in their King Air 360 promotional material.

For those new to the story, these are my notes on what they have said on Textron and the retrofit opportunity in the past.

  • Textron retrofit business could be more than the OEM business – sounds like it should be – the 5,000 aircraft out there are all operating, they are significant investments, retrofit cost is small compared to the expensiveness of the airplane
  • Have not sold one retrofit yet and market opportunity is $250mm to $300mm

After announcing all this in the morning, apparently they got the board of directors together in the afternoon and decided to dish out 67% of their remaining cash to shareholders in a second dividend. Just cuz.

Like I said, curious.

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