Earnings Call
Innovative Solutions & Support Inc (ISSC)
Earnings Call Transcript - ISSC Q2 2020
Operator, Operator
Good day and welcome to Innovative Solutions and Support Second Quarter 2020 Earnings Conference Call and Webcast. All participants will be in listen-only mode. 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 call over to Geoffrey Hedrick, Chairman and Chief Executive Officer. Please go ahead, sir.
Geoffrey Hedrick, CEO
Good morning. This is Geoff Hedrick. Welcome this morning to our conference call to discuss our performance for the second quarter of fiscal year 2020, current business conditions, and our outlook for the coming year. Joining me are Shahram Askarpour, our President; and Relland Winand, our CFO. Before I begin, I would like Rell to read the Safe Harbor message. Thanks.
Relland Winand, CFO
Thank you, Geoff and good morning everyone. I would remind our listeners that certain matters discussed in the conference call today, including new products and operational and financial results for future periods, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially, either better or worse from those discussed, including other risks and uncertainties reflected in our company's 10-K, which is on file with the SEC and other public filings. Now, I'll turn the call back to Geoff.
Geoffrey Hedrick, CEO
The pandemic is changing how we live and work, including the lives of our dedicated employees at IS&S. As an essential business, we have successfully maintained our operations to fulfill our commitments to customers in critical sectors like the military and cargo air carriers, which are vital in delivering needed medical supplies across the country. We identified challenges early and took decisive actions to protect the health of our employees, families, customers, and partners, while also implementing measures to minimize the impact on our business. These efforts have proven beneficial. All IS&S team members have adhered to the new safety protocols and continued to come to work, and I consider them personal heroes. The past three months have shown quarter-over-quarter revenue growth, marking our sixth revenue growth quarter in the last seven. We generated significant cash flow and achieved one of our strongest quarters for new business backlog, which has risen to nearly $10 million, the highest in years. Margins were affected by cost fluctuations during the quarter, but we anticipate they will return to prior levels in upcoming quarters. We will deliver production quantities of our Autothrottle to the OEM this quarter, signifying our second major OEM contract in the general aviation market. The Autothrottle has taken six years to develop, culminating in FAA certification of OEI upset protection and its inclusion in a major OEM production line. We believe the general aviation market and Autothrottle offer fantastic opportunities, allowing us to further penetrate both OEM production and retrofits. In a competitive landscape, this innovative Autothrottle sets us apart, particularly for aircraft operators in charter travel, military, and specifically for multi-engine aircraft where our ThrustSense Autothrottle offers unique, patented lifesaving VMCa upset protection. As a pilot for over 30 years, I have always questioned why multi-engine aircraft were reported to have more fatalities than single-engine, and it never made sense to me. We now understand the reasons, and today, an FAA engineer told us that although one person dies every four days in these incidents, IS&S is taking steps that will save lives, which fills me with pride. Interest in our flat panel display technology remains strong within the air cargo industry, as operators are installing these displays in aircraft to increase capacity in response to growing shipping demands, especially from the healthcare sector during this pandemic. Our second-quarter results indicate that our commitment to safeguarding our employees and those around us has not significantly impacted our operations, and our end markets appear to be less affected than many others. However, we acknowledge that investors are concerned about the future and the potential impacts of this pandemic in the coming quarters. While no one can predict with certainty, we recognize this represents an additional risk. Our supply chain has not faced major disruptions, though we have seen some minor issues with certain connectors. We still rely on the FAA to officially commence other trials, but they are currently under a shelter-in-place order, which could delay the approval process. Additionally, some new business meetings and demonstrations are being postponed due to the pandemic. As stated earlier, the key takeaway is that we continue to receive new orders and are diligently working to fulfill our commitments. We are actively recruiting to meet the increased demand arising from the uncertainties tied to COVID-19 and to ensure we maintain liquidity during this time. Initially, we chose to participate in the Federal Paycheck Protection Program under the CARES Act. However, with new guidance from the SBA and Treasury Department adding uncertainty to the qualification for our PPP loan, we believe it is wise to repay the loan, allowing that resource to go to companies that may need it more. The first half of the year has been positive, and we are hopeful about maintaining this upward trajectory for the rest of the year and into the future. I will now hand it over to Rell for some detailed financial information.
Relland Winand, CFO
Thank you, Geoff and thank you all for joining us this morning. Revenues for the second quarter of fiscal 2020 were $4.8 million, a 15% increase over the second quarter of 2019 reflecting increased product demand, as well as increased customer service revenue which was over $1.2 million in the quarter. There continues to be engineering revenue associated with the F5 development contract. Gross margins for the quarter were 47.5%. That is down from last quarter as well as a year ago due to product mix, an increase in warranty costs, and higher labor expense as we ramp up ahead of future production demands. We fully expect margins to return to levels recently achieved as these expenses normalize. Total operating expenses for the second quarter of fiscal 2020 were $2.2 million, down from the first quarter and little change from a year ago, so normalized expenses remain relatively stable despite the revenue growth we are experiencing. Research and development expense was up slightly from a year ago reflecting an increase in the amount of internally funded R&D which is expensed as incurred in contrast to funded R&D which is charged across the goods sold. With the wind down of the F5 development contract, funded R&D has been significantly reduced. Selling, general and administrative expenses were essentially unchanged, as we work hard to keep costs under control. Interest and other income added $75,000 to the bottom line this quarter, which is a little less than last quarter, mostly due to the decrease in interest rates. Due to loss carrybacks, we recognized a $309,000 tax benefit in the quarter. A loss carryback resulted from the Coronavirus Aid, Relief, and Economic Securities Act, or CARES Act, which has been signed into law. The CARES Act amends the net operating loss provision, allowing for the carryback of losses to each of the two taxable years preceding the taxable year of loss. We reported quarterly net income of $438,000 or $0.03 per share, more than double the same quarter a year ago, as well as sequential improvement from $332,000 or $0.02 per share in the first quarter. For the first half of the year, net income is more than twice that of the first half of fiscal 2019. The company remains in a strong financial position and generated positive cash flow of $500,000 from operating activities in the quarter. As of March 31, 2020, we had $22.6 million of cash on hand and no debt. We believe that the company has sufficient cash to fund operations for the foreseeable future. Now, I'd like to turn the call over to Shahram.
Shahram Askarpour, President
Thank you, Rell, and good morning, everyone. It has certainly been an important, exciting, and challenging first six months. As Geoff explained, as an essential business, we have remained open over the course of Pennsylvania's shelter-in-place directive. Our first priority was the safety and health of our employees. So we acted swiftly to enact a plan that met and went beyond federal and state guidelines, while maximizing the productivity of our workforce. Additionally, production crews during the month of April were split into two different shifts, with each shift working one week on and one week off, but paid for both weeks. Although short-term productivity was reduced as a result of the measures taken, we believe the overall results of this quarter will not be significantly impacted. We are currently meeting our delivery deadlines, and in fact, we are now hiring to staff up to meet the increasing production requirements. As heard from Geoff, we expect to start shifting production for the Autothrottle this quarter. This is an encouraging endorsement of our Autothrottle technology from a leader in the general aviation industry. As we have mentioned in the past, the ability to incorporate VMCa mitigation in our Autothrottle provides a tangible competitive advantage to twin-engine aircraft. And it seems OEMs want to capitalize on this advantage by incorporating the technology into new production aircraft. It offers a great selling point to prospective buyers as it offers potentially lifesaving rollover protection for twin-engine aircraft. VMCa mitigation technology is a standard part of our Autothrottle. We have been anticipating an influx of orders throughout production, and while it may not be a year of big Autothrottle shipments, it is shaping up to be the beginning of a ramp-up, we believe, has significant potential. Once again, quickly reviewing the programs driving current results: the PC-24 program remains on track to deliver approximately 50 Pilatus aircraft this year. There's only a quarter of two of deliveries carried in our backlog, those for which appeal is enhanced. You can understand why we believe our backlog greatly understates our future revenue potential. In the commercial transport market, we are experiencing steady demand for Boeing 757 and 767 portfolio of cockpit technology, primarily from the air cargo market, which is converting traditional aircraft into cargo planes. In the military market, we were recently awarded the production contract for the F5 data computer that has been under development. This is the U.S. Navy fleet retrofit, but with many foreign militaries flying the F5, we hope to expand sales into the global market. Our production KC-46 program also remains on track. The new orders in the second quarter are roughly $8.3 million, giving us an almost $7 million backlog at quarter-end. Throughout the areas where we are feeling the effect of the Coronavirus pandemic is in prospect meetings and demos, which are being pushed out to July and later. In addition to revenue generated from backlog, you will also continue to experience a steady demand for customer service, cooler books, and shift work and the contribution from long-term contracts. A fraction of the total contract is recorded in our committed backlog. Let me turn the call back to Geoff for some closing remarks.
Geoffrey Hedrick, CEO
Thank you, Shahram. Well, current conditions make it particularly difficult to forecast future sales with a real degree of certainty. We're confident that the prior progress we've achieved has positioned us well to prosper over the longer term. I want to turn it over to the operator for lines for questions and answers now. Thank you. We will now begin the question-and-answer session. The first question will come from David Campbell with Thompson Davis & Company. Please go ahead.
David Campbell, Analyst
Hey, good morning, everybody.
Geoffrey Hedrick, CEO
Good morning. How are you doing?
David Campbell, Analyst
Thank you for all the good news.
Geoffrey Hedrick, CEO
We're happy to provide it to you. It’s been a good time. It's an interesting time.
David Campbell, Analyst
Yes. It surely is.
Geoffrey Hedrick, CEO
Especially with a massive downturn in commercial air transport, which is down 95%—hard to believe. We just sent somebody out to Wichita. I think he said there were only about 20 people on the airplane. Although, he said on one of the flights, there was a woman that was completely wrapped in plastic with her wrist and ankles taped and ventilating for breath.
David Campbell, Analyst
She didn't want to take any chances.
Geoffrey Hedrick, CEO
What it speaks to interestingly enough is there's a lot more interest in flying from charters and business jets, where you can control, number one, the people that are going to be on board the airplane with you. And number two, you don't have 100 people showing up. As an example, we had some friends down in Palm Beach who chartered an eight-passenger citation to bring them back up. When the price was distributed among the eight passengers, it was about the same as our first-class ticket. So it's interesting that we may even actually see a strengthening in that market. We're delighted that we've established our foot in the door. Just by the way, David, I did some looking. If I look at the three production programs, what we call the ongoing OEM type production programs, their revenue at the end of next year will be equal to some street programs' revenue last year—total revenue last year, and that'll be just in those three ongoing programs. So it's a problem, but it looks very promising. The problem is we're on a spectacularly successful trajectory.
David Campbell, Analyst
Yes. I know that. Thanks for the comments. I just wanted to ask a sort of technical question about the taxes. The CARES Act provided us some tax benefit in the second fiscal quarter. Well, that's the only quarter though. Will the third quarter go back to the normal tax rate?
Relland Winand, CFO
Right. I mean, yes, the effect of the CARES Act and going forward is in the past quarters, we have done well. We really haven't had any tax expense. So I don't expect that expense.
Geoffrey Hedrick, CEO
The truth is, David, this quarter, this past quarter tended to mitigate the periodic fluctuations in period costs. So whatever kind of level goes out this coming quarter, they will be there, but we expect an upturn in both volume and margin. So it will all balance out for a change; it works with us rather than against us.
David Campbell, Analyst
So assuming there's pre-tax income in the third and fourth quarters, there shouldn't be any charges for taxes?
Geoffrey Hedrick, CEO
Yes. Yes.
David Campbell, Analyst
Okay, great. Well, what about the rest of the business? The flat panels growth in the cargo conversion market is likely to continue since the passenger market will probably stay down for some time. And they'll be using these passenger planes for cargo.
Geoffrey Hedrick, CEO
Very good. That's a very accurate observation, David. The reality, I mean, think of it. You're an airline or a carrier, and you've got a whole lot of airplanes, specifically 757s and 767s, which you don't need now because there aren't enough people to carry and I don't expect large markets for several years because people, myself included, might be apprehensive about going to Europe or traveling. So, it’s going to be down those areas redundantly, so the obvious thing is that you convert to package carriers. The other thing that we've learned in the last three or four months is that people rely far more heavily on Amazon and alike. You can even see deliveries in that area; the online ordering, I understand, has gone up by about 25% or 30% just in the last, and I expect that people are getting used to it. I certainly am getting used to it. Very nice. So we can probably expect more and more, and take a look at the aggressive action that Amazon has taken to essentially build its own fleet of airplanes. A lot of them are on charter, but they’re committed to that to the Amazon operation. I think they’re over 80 now, and it’s reasonable that they could be up to several hundred committed cargo aircraft, and they all would be converted from 757s and 767s presently in service.
David Campbell, Analyst
It's amazing to me that these 757s and 767s all have old technology…
Geoffrey Hedrick, CEO
Well, the 757s and 767s at the time were very advanced. That was the good news. There were literally other airplanes that were in production at the same time, the 737s and 757s really were analog airplanes while the 757s and 767s were substantially sort of digital airplanes. They were a transitionary airplane and that’s why they’ve got a lot of life scheduled and they’re a very efficient way of moving cargo. The 767 has a lot of box space to move a lot of packages.
David Campbell, Analyst
Right. Thank you very much, and good…
Geoffrey Hedrick, CEO
I’ll tell you, when you look at deliveries now, I was looking at something this morning, and they say, you can't deliver it in an hour. Why would you want to start your car and drive to the store, wearing a mask? I don’t want to do that. Anyway, I'm sorry to get carried away. You go ahead.
David Campbell, Analyst
No. I'm just saying thanks for the comments, and thanks for doing such a good job building the business. And I'll talk to you soon. Thank you.
Geoffrey Hedrick, CEO
Thank you for your support. Go ahead.
Operator, Operator
Our next question will come from Michael Frederick, investor. Please proceed.
Unidentified Analyst, Analyst
Good morning, everyone.
Geoffrey Hedrick, CEO
Good morning.
Unidentified Analyst, Analyst
Hey. I have a question, a follow-up question from the last call. You haven't been able to announce the new OEM partner yet. Has that been pushed way back? Or is that still on schedule for maybe the next quarter?
Geoffrey Hedrick, CEO
The simple answer is, I don't know.
Relland Winand, CFO
Up to the…
Geoffrey Hedrick, CEO
I mean, we have obligations under agreements that don't allow us to divulge certain things. And that's all. There’s nothing very dramatic about it to be blunt with you, and it doesn't really affect our business in any way. But you're right, it is a little odd, I would say.
Unidentified Analyst, Analyst
Yeah. And I’ll be honest with you…
Geoffrey Hedrick, CEO
Hopefully, I understand that it is odd. And don't come to their senses, we’ll see.
Unidentified Analyst, Analyst
Yes. And I'll be honest with you; it's not really hard to figure out who it is, but anyway.
Geoffrey Hedrick, CEO
But I…
Unidentified Analyst, Analyst
Yes. I won't say any more. But anyhow, another question I had for you. You said that you had three OEM programs. Is that the PC-24, the tanker and the new OEM? Are we talking about? Or just two OEMs…
Geoffrey Hedrick, CEO
Yes. Yes. That's exactly what it is.
Unidentified Analyst, Analyst
Okay. Okay.
Geoffrey Hedrick, CEO
No, that's exactly what it is. And they're all solid programs. Obviously, the tanker is solid, the PC-24 has been a spectacular success as an airplane, they keep raising their rates, and we're adapting our manufacturing to accommodate as much as double the rate. So we're stronger. The third OEM that we don't talk about, quite frankly, we couldn't be more pleased with their cooperation and support and the realization that this is a significant safety feature for their aircraft and will be unique to them for that aircraft in the world, a real lifesaver.
Unidentified Analyst, Analyst
That's fantastic. That's fantastic.
Geoffrey Hedrick, CEO
It’s nice; we've got good pointers. I think the prospect of a lot of business is promising.
Unidentified Analyst, Analyst
Great. So you mentioned that you believe by the end of next year, the three OEM programs will surpass last year's revenues?
Geoffrey Hedrick, CEO
That's right.
Unidentified Analyst, Analyst
Okay. Great. I have one more quick question about the backlog. Should we assume that items in the backlog will be delivered in the next two quarters, or are we looking at something different regarding the qualifications?
Geoffrey Hedrick, CEO
I don’t think interim that. It's just remember the backlog really doesn't reflect all the potential business, as an example. Any OEM may agree to put their equipment based on the airplane, let’s say standard. They’ll only give you purchase orders for the next 20 years, they only release purchase orders over a six-month period separately. Boeing did it kind of a double standard; they will release a six-month group. So the only thing we ever see in our backlog are those that six-month period. The total, if you looked at the total over the next 10 years of the program would be obviously orders of magnitude larger.
Unidentified Analyst, Analyst
Okay. But to make it into backlog, you're essentially saying you need a purchase order?
Geoffrey Hedrick, CEO
These are orders with a defined payback schedule. Is that right? It sounds right, yeah.
Unidentified Analyst, Analyst
And ballpark, I mean, how much time we’re talking about that? Although, we delivered over how many months?
Geoffrey Hedrick, CEO
I can't answer that. I don't know.
Unidentified Analyst, Analyst
All right. Okay. Okay. All right. Well, guys, great report. Just doing great. Appreciate it. Take care.
Geoffrey Hedrick, CEO
Thanks for your support.
Operator, Operator
Our next question will come from George Marema with Pareto Ventures. Please go ahead.
George Marema, Analyst
Hey, good morning, guys. That was a fantastic new order number today. To follow-up on that. Approximately out of this new orders, how much of this was new OEM Autothrottle business versus the retrofit markets? And just in general, how is the retrofit market for the Autothrottle performing?
Geoffrey Hedrick, CEO
Well, the business for the Autothrottle is starting to really blossom now. We're getting a lot of interest. We've been doing PC-12 and now we're doing King Air as well. So the retrofit opportunity is orders of magnitude larger than the OEM business. To give you some idea, off just one airplane, there's a total market of over 5,000 opportunities, so that's huge. We're looking at other airplanes that we're working on now where they built over roughly 1,000 of the airplanes. And this Autothrottle has gone from being a cruise control to a lifesaver in a multi-engine airplane. As you're aware of the Addison, Texas scenario that we saw on the news, where the airplane just generally rolled over on its back and into the warehouse is not an uncommon terminal scenario. Our system has been certified to prevent that.
George Marema, Analyst
Right. Are you guys in discussion with additional OEMs on this Autothrottle?
Geoffrey Hedrick, CEO
Yes, we are.
George Marema, Analyst
Okay. So on the new orders, I'm assuming that some of that is from the Autothrottle business, correct?
Geoffrey Hedrick, CEO
It’s important to note that this has been developing over the last couple of months. We are refining our understanding of what relevance means, but it may be too early to draw conclusions. Overall, things are progressing well despite the pandemic and other challenges. We are pleased with our ability to expand our business and look toward the future under difficult conditions. If we remain focused and work diligently, we hope to continue this momentum.
George Marema, Analyst
Okay. As you look out into the back half of this year into next year, do you expect the gross margins in terms of product mix to sort of stay in this normal zone you've had in the last couple of years or do you see any longer...?
Relland Winand, CFO
It will go up. There are a bunch of fixed costs associated with them. Obviously, building and things like that, that don't need to be expanded and therefore the gross margin should go up. Remember, I do remember being around a while, the year that we did over $60 million returned $18 million in profit and cash, 30% net after tax. I don't expect to do that again, but that gives you an idea of how sensitive the margins are to volume.
George Marema, Analyst
Okay, already. All right. Thank you.
Geoffrey Hedrick, CEO
Thank you.
Operator, Operator
Our next question will come from Roger Goldman, Investor. Please go ahead.
Unidentified Analyst, Analyst
Thank you. Good morning. And I'm an investor. You guys knew my dad, who was a long-term investor, and he died a couple of months ago and now my sister, brother, and I are investors and thank you very much for the good results and a good report. A quick question about your cash. Are you guys getting into the banking business? That's a theoretical question, of course, but you got a lot of cash on the balance sheet and questions, are there any interesting opportunities out there to do something with it in a low-interest rate environment?
Geoffrey Hedrick, CEO
Well, we're looking at that. I'm reminded about two seconds. It was serendipitous, that in a time when the Federal Government felt that it had to loan money to the industry to keep it alive, and so they would have cash flow and wouldn't go out of business. Our business was needed and had reserved it in place. So I will make no apologies for it.
Unidentified Analyst, Analyst
No, I wasn't expecting you to.
Geoffrey Hedrick, CEO
And one other thing. Yes, we're going to look at how we best use that. The company has now transitioned into a position we believe will generate cash ongoing in the future, and that will change the equation. So we will look at that.
Unidentified Analyst, Analyst
I mean that we will consider how to best utilize the resources we have. The company has reached a point where we believe it will consistently generate cash moving forward, and this will alter our strategy. So we will assess that.
Geoffrey Hedrick, CEO
The company and I always enjoyed your jazz. If I remember right, he was 95, but I still remember him saying to me, 'I got a third of my net worth in you guys, so get going.'
Unidentified Analyst, Analyst
That's right. But he died peacefully with all his marbles in January and basically told me, I'm the executor basically told me don't you dare sell that stock.
Geoffrey Hedrick, CEO
He was a good man.
Unidentified Analyst, Analyst
Yes, thank you. Thank you.
Geoffrey Hedrick, CEO
How old was he?
Unidentified Analyst, Analyst
97 with all his marbles.
Geoffrey Hedrick, CEO
97, with all his marbles. He came in from Jersey?
Unidentified Analyst, Analyst
That's correct. Hopefully, it runs in the family. Thank you so much. I wasn't asking for anything specific regarding how you utilize the cash, but there will be many opportunities available. Asset values for many companies will decline, and in this environment, having cash is crucial.
Geoffrey Hedrick, CEO
And we obviously are mindful.
Unidentified Analyst, Analyst
I'm not asking you to disclose anything, but just wanted to comment on it.
Geoffrey Hedrick, CEO
Roger, I think we're okay. Trust me, we discuss it constantly.
Unidentified Analyst, Analyst
Okay. That's good enough for me.
Geoffrey Hedrick, CEO
What are you doing with the money? So anyway…
Unidentified Analyst, Analyst
Now, okay. Well, I'm looking forward to meeting you. We're in Palm Beach in the winter and actually, your comment about chartering is spot on. That's how we're getting North.
Geoffrey Hedrick, CEO
It's a sensible way to do it.
Unidentified Analyst, Analyst
Yes.
Geoffrey Hedrick, CEO
If you are in the right kind of airplane, you can land in Westchester and places like that without…
Unidentified Analyst, Analyst
Actually, we're going right into Westchester.
Geoffrey Hedrick, CEO
You know our plans here?
Unidentified Analyst, Analyst
Where?
Geoffrey Hedrick, CEO
Westchester, New York HPN or Westchester PA.
Unidentified Analyst, Analyst
Okay. Well, I'll come visit you.
Geoffrey Hedrick, CEO
Where were you? In New York or Pennsylvania?
Unidentified Analyst, Analyst
No, we're in Western Mass in the summer and Palm Beach in the winter.
Geoffrey Hedrick, CEO
Okay.
Unidentified Analyst, Analyst
Pretty good life.
Geoffrey Hedrick, CEO
Yes. I grew up in Westchester County. Anyway, you have a good day.
Unidentified Analyst, Analyst
Okay.
Geoffrey Hedrick, CEO
And we're doing our work and you enjoy it with your family.
Unidentified Analyst, Analyst
Great. Well, thank you and the best is yet to come.
Geoffrey Hedrick, CEO
Bet you.
Operator, Operator
The next question will come from Steve Rudd with Blackwell. Please go ahead.
Steve Rudd, Investor
Hi guys. First, I'm very grateful that you are coming into work and organizing things as well as you have. And happy to hear everybody's voice on the call. We talked about delivering production quantities of Autothrottle this quarter, and if I remember correctly, the units cost up to $50,000 per unit, so how many units are we talking about for this quarter?
Geoffrey Hedrick, CEO
A couple of dozen.
Steve Rudd, Investor
A couple of dozen?
Geoffrey Hedrick, CEO
Yes.
Steve Rudd, Investor
Okay. So that would be then a significant impact on revenue.
Geoffrey Hedrick, CEO
I hope so.
Steve Rudd, Investor
Okay, all right. That sounded different than what we had, and my numbers are about…
Geoffrey Hedrick, CEO
To be honest, I'm great. I'm really pleased that our customer has committed themselves in such a terrific way. It's been a great partnership, and the program is moving along exceedingly well. The simulators for the aircraft are being built as we speak, and they'll be training people within a couple of months. So the program is progressing very well.
Steve Rudd, Investor
Okay. So the incremental revenue could be as much as $1 million or more?
Geoffrey Hedrick, CEO
We don't really; we're not going to estimate that.
Steve Rudd, Investor
I was just trusting my math.
Geoffrey Hedrick, CEO
The best thing we can do, there are a lot of moving marbles right now.
Steve Rudd, Investor
All right.
Geoffrey Hedrick, CEO
We're trying to keep them together.
Steve Rudd, Investor
Okay, fair enough. I didn't mention that our gross margins were 47.5%. I believe they are higher for Autothrottle, so for the incremental sales, I'm assuming our sales, with a base of $4.8 million for this quarter, will be above that, considering our margins in Autothrottle are slightly better. It should average a gross margin greater than 47.5% for the current quarter.
Geoffrey Hedrick, CEO
When gross margins reach the 45% to 50% range, it's unrealistic to expect significantly higher figures, even though we've achieved over 65% in the past. Setting a target at that level may hinder faster business growth, as the density of the curve diminishes at those margins.
Steve Rudd, Investor
Okay. That makes sense.
Geoffrey Hedrick, CEO
The only people that can maintain those kind of margins are Heidi Fleiss.
Steve Rudd, Investor
All right. I won't dwell too much on the Me Too movement, and I'm not associated with it in any negative manner. So let's discuss the CARE Act and its remarkable comments. Let's focus on the CARE Act.
Relland Winand, CFO
What is the magnitude of the benefits that we're going to get on the tax benefit because I somehow that blew past me. Yes, the biggest benefit for us was simply the ability to carry back losses. As you may recall, we enacted a law about a year ago that allowed only forward loss utilization. However, this change in late March permitted companies to carry back losses. Since we operate on a fiscal two-year cycle, I assume the emphasis was on cash.
Steve Rudd, Investor
Correct.
Relland Winand, CFO
So you file it. If the company can get some cash carry the loss back, it's another way of funding some company, so that's the benefit we received from it. Now we just…
Steve Rudd, Investor
What's the dollar amount that we should expect to get back as you're talking for a refund, right?
Relland Winand, CFO
Yes, about $309,000 refund.
Steve Rudd, Investor
Okay, very good. And we get to take that from an accounting point of view, do we then take that into income or it gets; we have to restate the prior years, what happens with that?
Relland Winand, CFO
No, no. It’s a now thing, so in our Q2, you'll see a tax benefit of $309,000 in the P&L.
Steve Rudd, Investor
Okay. So that'll give us, from the just a number point of view, it'll give us a nice presentation, just to that point. Very good. The new order number that we had for, that was stated in the press release, is it I take it as corrected. None of that new order number is Autothrottle or does it include that the roughly two dozen that we just talked about or what amount?
Geoffrey Hedrick, CEO
It doesn't include.
Relland Winand, CFO
It doesn't include it.
Steve Rudd, Investor
Okay. So it includes the units we just chatted about?
Relland Winand, CFO
Yes.
Geoffrey Hedrick, CEO
Okay. All right, terrific. Listen, all of you take good care of yourselves and your employees, and hats off to you. You're in the business of saving lives, and we really, really appreciate what you're doing. Thank you for your support. I guess that wraps it up. Thank you for your attention today. Thank you for coming and thank you for supporting our company.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.