If you want full access to all our reports, data and investing ideas, join The Aerospace Forum , the #1 aerospace, defense and airline investment research service on Seeking Alpha, with access to evoX Data Analytics, our in-house developed data analytics platform.Innovative Solutions and Support (NASDAQ: ISSC ) is one of the aerospace companies that I have a strong buy rating on. The last time I covered the company was in December 2024. At that time, the companyDhierin runs the investing group The Aerospace ...

If you want full access to all our reports, data and investing ideas, join The Aerospace Forum , the #1 aerospace, defense and airline investment research service on Seeking Alpha, with access to evoX Data Analytics, our in-house developed data analytics platform.Innovative Solutions and Support (NASDAQ: ISSC ) is one of the aerospace companies that I have a strong buy rating on. The last time I covered the company was in December 2024. At that time, the companyDhierin runs the investing group The Aerospace ...

Before we dive into this company, I’m going to make a couple of disclaimers that would be imprudent to ignore. First, technical expertise - I am most certainly not an engineer or aerospace expert; my theoretical understanding ofMy main objective here on Seeking Alpha is to amalgamate my college education with my professional experience thus far, and add value through original and insightful analysis. In essence, I am seeking to build credibility on this platform and, through a trial by fire, develop defensi ...

Core Insights - Innovative Solutions and Support, Inc. (NASDAQ:ISSC) is identified as an undervalued aerospace stock despite a significant decline in share price of over 41.5% following its fiscal third quarter results announcement [1][3]. Financial Performance - The company reported a revenue of $24.1 million, reflecting a year-over-year growth of 105%, exceeding Wall Street's expectations by $4.94 million [2]. - The earnings per share (EPS) was $0.14, which was $0.02 below the consensus estimate [2]. Operational Developments - Management attributed the EPS shortfall to increased costs associated with the F-16 product line, as Honeywell incurred additional expenses to build safety stock during the transition to the new Exton facility [2]. - The construction of the Exton facility has been completed, with interior setup expected to finish by early fall, which will enhance manufacturing capacity and support the integration of the new F-16 product line [3]. Market Outlook - Despite the recent decline in share price, Wall Street analysts maintain a bullish outlook on the stock, with a 12-month price target of $15.55, indicating a potential upside of 35.22% from current levels [3].

Core Viewpoint - Pomerantz LLP is investigating claims of potential securities fraud or unlawful business practices involving Innovative Solutions and Support, Inc. (IS&S) and its officers or directors [1]. Financial Performance - On August 14, 2025, IS&S announced its fiscal third quarter results, indicating a "pull-forward of F-16 production" which is expected to impact revenue over the next two quarters [3]. - Following this announcement, IS&S's stock price dropped by $6.22 per share, representing a decline of 31.53%, closing at $13.51 per share on the same day [3]. Legal Context - Pomerantz LLP is recognized for its expertise in corporate, securities, and antitrust class litigation, having a long history of fighting for victims of securities fraud and corporate misconduct [4].

Group 1 - Pomerantz LLP is investigating claims on behalf of investors of Innovative Solutions and Support, Inc. regarding potential securities fraud or unlawful business practices by the company and its officers [1] - On August 14, 2025, IS&S announced its fiscal third quarter financial results, indicating a "pull-forward of F-16 production" which is expected to impact revenue over the next two quarters [2] - Following the announcement, IS&S's stock price dropped by $6.22 per share, or 31.53%, closing at $13.51 per share on the same day [2] Group 2 - Pomerantz LLP is recognized as a leading firm in corporate, securities, and antitrust class litigation, with a history of fighting for victims of securities fraud and corporate misconduct [3]

Core Insights - The Portnoy Law Firm has initiated an investigation into Solutions and Support, Inc. (IS&S) for possible securities fraud and may file a class action on behalf of affected investors [1][2] - IS&S's stock price dropped by $6.22, or approximately 31.5%, closing at $13.51 per share following the announcement of financial results and a statement from the CEO regarding revenue impacts [3] Group 1 - The investigation by the Portnoy Law Firm is aimed at recovering losses for IS&S investors [1] - Investors are encouraged to contact the law firm for a complimentary case evaluation and to discuss their legal rights [2] - The CEO of IS&S indicated that a "pull-forward of F-16 production" will affect revenue in the upcoming quarters [3] Group 2 - The Portnoy Law Firm has a history of recovering over $5.5 billion for investors affected by corporate wrongdoing [4] - The firm is actively seeking to represent IS&S investors who have suffered financial losses due to the recent stock price decline [1][4]

Core Viewpoint - Pomerantz LLP is investigating potential securities fraud or unlawful business practices involving Innovative Solutions and Support, Inc. (IS&S) and its officers or directors [1]. Financial Performance - On August 14, 2025, IS&S announced its fiscal third quarter results, indicating a "pull-forward of F-16 production" that will affect revenue in the upcoming two quarters [3]. - Following the announcement, IS&S's stock price dropped by $6.22 per share, representing a decline of 31.53%, closing at $13.51 per share on the same day [3].

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, cash flows, and comprehensive notes on accounting policies and acquisitions [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20-%20June%2030,%202025%20and%20September%2030,%202024) The condensed consolidated balance sheets show an increase in total assets and shareholders' equity from September 30, 2024, to June 30, 2025, primarily driven by increases in inventories, property and equipment, and additional paid-in capital and retained earnings | Metric | June 30, 2025 ($) | September 30, 2024 ($) | | :-------------------------------- | :------------ | :----------------- | | Total current assets | $39,811,433 | $34,685,698 | | Total assets | $91,784,588 | $82,382,261 | | Total current liabilities | $11,278,120 | $7,265,254 | | Total liabilities | $34,995,762 | $35,743,606 | | Total shareholders' equity | $56,788,826 | $46,638,655 | - Inventories increased significantly from **$12.7 million** at September 30, 2024, to **$20.7 million** at June 30, 2025[8](index=8&type=chunk) - Property and equipment, net, increased from **$13.4 million** at September 30, 2024, to **$18.2 million** at June 30, 2025[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20-%20Three%20and%20Nine%20Months%20Ended%20June%2030,%202025%20and%202024) The statements of operations show substantial growth in net sales and net income for both the three and nine months ended June 30, 2025, compared to the same periods in 2024, primarily driven by product sales | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total net sales | $24,144,832 | $11,765,635 | $62,049,775 | $31,813,214 | | Gross profit | $8,582,235 | $6,279,821 | $26,459,915 | $17,385,346 | | Operating income | $3,514,332 | $2,037,120 | $11,842,470 | $5,295,369 | | Net income | $2,443,814 | $1,552,520 | $8,516,348 | $3,818,186 | | Basic EPS | $0.14 | $0.09 | $0.49 | $0.22 | | Diluted EPS | $0.14 | $0.09 | $0.48 | $0.22 | - Product net sales for the three months ended June 30, 2025, increased by **223.8%** to **$16.6 million** from **$5.1 million** in the prior year[10](index=10&type=chunk) - Product net sales for the nine months ended June 30, 2025, increased by **175.3%** to **$39.8 million** from **$14.4 million** in the prior year[10](index=10&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20-%20Three%20and%20Nine%20Months%20Ended%20June%2030,%202025%20and%202024) The statements of shareholders' equity reflect an increase in total shareholders' equity, primarily driven by net income and share-based compensation, for both the three and nine months ended June 30, 2025, compared to the prior year | Metric | June 30, 2025 ($) | September 30, 2024 ($) | | :-------------------------- | :------------ | :----------------- | | Common Stock | $19,716 | $19,599 | | Additional Paid-In Capital | $56,954,206 | $55,320,500 | | Retained Earnings | $21,183,441 | $12,667,093 | | Total Shareholders' Equity | $56,788,826 | $46,638,655 | - Share-based compensation contributed **$832,120** and **$1.6 million** to additional paid-in capital for the three and nine months ended June 30, 2025, respectively[11](index=11&type=chunk)[116](index=116&type=chunk) - Net income for the nine months ended June 30, 2025, was **$8.5 million**, significantly increasing retained earnings[11](index=11&type=chunk)[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20-%20Nine%20Months%20Ended%20June%2030,%202025%20and%202024) The cash flow statements indicate a significant increase in net cash provided by operating activities for the nine months ended June 30, 2025, while investing activities shifted from a net cash provider to a net cash user, and financing activities continued to use cash | Cash Flow Activity | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $10,336,200 | $5,350,891 | | Net cash (used in) provided by investing activities | $(5,504,928) | $1,713,883 | | Net cash used in financing activities | $(4,768,490) | $(9,640,926) | | Net increase (decrease) in cash and cash equivalents | $62,782 | $(2,576,152) | - Purchases of property and equipment increased substantially to **$5.5 million** for the nine months ended June 30, 2025, from **$511,927** in the prior year[15](index=15&type=chunk) - Repayments of line of credit note decreased to **$4.8 million** for the nine months ended June 30, 2025, from **$19.2 million** in the prior year[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) The notes provide detailed explanations of the Company's accounting policies, significant transactions including recent acquisitions, financial instrument fair values, revenue recognition, and disclosures regarding income taxes, share-based compensation, earnings per share, commitments, related party transactions, and loan agreements [1. Summary of Significant Accounting Policies](index=9&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the Company's core business as a vertically integrated provider of flight solutions and equipment, operating in one segment, detailing the basis of presentation, principles of consolidation, use of estimates, reclassification of service revenues, and accounting for business combinations, asset acquisitions, intangible assets, goodwill, fair value measurements, and revenue recognition under ASC 606 - IS&S is a vertically integrated provider of flight solutions and equipment for commercial air transport, general aviation, and military markets, operating in one business segment[18](index=18&type=chunk) - The Company reclassified 'Customer service' and 'Engineering and development contracts' net sales and cost of sales into a single 'Services' category for consistent presentation[22](index=22&type=chunk) Contract Balances | Contract Balance | September 30, 2024 ($) | June 30, 2025 ($) | | :------------------------------------------------------------------------------------------------ | :----------------- | :------------ | | Contract Assets | $1,680,060 | $1,135,671 | | Contract Liabilities | $340,481 | $2,529,533 | - Lockheed Martin accounted for **52%** of net sales for the three months ended June 30, 2025, and **47%** for the nine months ended June 30, 2025, indicating significant customer concentration[51](index=51&type=chunk) [2. Supplemental Balance Sheet Disclosures](index=20&type=section&id=2.%20Supplemental%20Balance%20Sheet%20Disclosures) This section details the accounting for significant acquisitions, including the September 2024 and June 2023 Honeywell Agreements, and the July 2024 Honeywell Asset Acquisition, outlining purchase price allocations, acquired assets, and related measurement period adjustments, also providing breakdowns of inventories, prepaid expenses, intangible assets, property and equipment, and accrued expenses - The September 2024 Honeywell Agreement involved a **$14.2 million** cash consideration for military display generators and flight control computers assets, with preliminary purchase price allocation including **$8.08 million** in intangible assets and **$2.63 million** in goodwill[61](index=61&type=chunk)[63](index=63&type=chunk) - The June 2023 Honeywell Agreement, a business combination, had a **$35.9 million** cash consideration for inertial, communication, and navigation product lines, with final allocation including **$17.24 million** in intangible assets and **$4.07 million** in goodwill[68](index=68&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - The July 2024 Honeywell Asset Acquisition, an asset acquisition, involved **$4.2 million** in cash for communication and navigation product lines, allocating **$2.6 million** to property and equipment, **$430,000** to customer relationships and backlog, and **$1.24 million** to indefinite-lived license agreements[75](index=75&type=chunk) Intangible Assets | Intangible Asset Category | Gross Carrying Value (June 30, 2025) ($) | Net Carrying Value (June 30, 2025) ($) | | :-------------------------- | :----------------------------------- | :--------------------------------- | | License agreement | $9,790,000 | $9,790,000 | | Customer relationships | $12,604,327 | $10,209,051 | | Backlog | $4,850,000 | $4,122,500 | | Licensing and certification rights | $696,506 | $13,821 | | Total | $27,940,833 | $24,135,372 | - The Company changed the estimated useful lives of rotable assets from 5 years to 10 years, effective January 1, 2025, decreasing depreciation expense by **$0.4 million** (**$0.02** per diluted share) for the three months and **$0.7 million** (**$0.04** per diluted share) for the nine months ended June 30, 2025[83](index=83&type=chunk)[84](index=84&type=chunk) [3. Income Taxes](index=29&type=section&id=3.%20Income%20Taxes) This section discusses the Company's effective tax rates for the three and nine months ended June 30, 2025 and 2024, and notes the potential impact of new tax reform provisions, such as the One Big Beautiful Bill Act (OBBB), on future financial results Effective Tax Rates | Period | Effective Tax Rate (2025) | Effective Tax Rate (2024) | | :-------------------------- | :------------------------ | :------------------------ | | Three Months Ended June 30 | 21.5% | 17.6% | | Nine Months Ended June 30 | 19.9% | 19.9% | - The effective tax rate for the three months ended June 30, 2025, increased to **21.5%** from **17.6%** in the prior year, primarily due to higher taxable earnings[90](index=90&type=chunk)[175](index=175&type=chunk) - The recently signed One Big Beautiful Bill Act (OBBB) may affect the Company's effective tax rate and deferred tax assets due to provisions like elective deduction for domestic R&D and reinstatement of 100% first-year bonus depreciation[88](index=88&type=chunk) [4. Shareholders' Equity and Share-Based Payments](index=31&type=section&id=4.%20Shareholders'%20Equity%20and%20Share-Based%20Payments) This section details the Company's share-based compensation plans, including the 2019 Stock-Based Incentive Compensation Plan, 2024 RSU Bonus Grants, Market-Based Restricted Stock Units (MSUs), and Time Based Stock Options (MSOs), outlining the terms, grant-date fair values, and recognized compensation expenses for these awards - The 2019 Plan was amended on April 18, 2024, to include an additional **1,950,000** authorized shares, with **1,375,295** shares available for awards as of June 30, 2025[95](index=95&type=chunk) - **71,754** Restricted Stock Units (RSUs) were granted to key employees on February 19, 2025, vesting **50%** on the one-year and **50%** on the two-year anniversary[98](index=98&type=chunk) - **201,000** Market-Based Restricted Stock Units (MSUs) were granted to the CEO, with vesting conditional on service and stock price appreciation targets (**$10.00**, **$12.00**, **$14.00** per share), and the grant-date fair value was estimated at **$1.1 million**[100](index=100&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk) - **105,321** Time Based Stock Options (MSOs) were granted to the CEO and CFO, vesting over four years but exercisable only if the share price reaches **$9.88** for 20 consecutive trading days, with an aggregate grant-date fair value of **$474,998**[107](index=107&type=chunk)[108](index=108&type=chunk)[111](index=111&type=chunk) Share-Based Compensation Expense | Compensation Expense Type | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | | :------------------------------------------------------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | MSU awards | $253,779 | — | $483,722 | — | | MSO awards | $85,111 | — | $98,757 | — | | Stock options and restricted stock awards (employees) | $355,653 | $191,623 | $769,304 | $566,952 | | Restricted stock awards (non-employee Board members) | $137,577 | $59,278 | $282,040 | $159,003 | | Total compensation expense (2019 Plan) | $832,120 | $250,901 | $1,633,823 | $725,955 | [5. Earnings Per Share](index=37&type=section&id=5.%20Earnings%20Per%20Share) This section provides the calculation of basic and diluted earnings per share, highlighting the dilutive effect of share-based awards and the number of anti-dilutive shares excluded from the calculation Earnings Per Share Calculation | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $2,443,814 | $1,552,520 | $8,516,348 | $3,818,186 | | Basic weighted average shares | 17,601,814 | 17,461,652 | 17,554,824 | 17,455,903 | | Dilutive effect of share-based awards | 233,934 | 5,607 | 154,971 | 20,186 | | Diluted weighted average shares | 17,835,748 | 17,467,259 | 17,709,795 | 17,476,089 | | Basic EPS | $0.14 | $0.09 | $0.49 | $0.22 | | Diluted EPS | $0.14 | $0.09 | $0.48 | $0.22 | - The dilutive effect of share-based awards significantly increased for the three and nine months ended June 30, 2025, compared to the prior year, reflecting new MSU and MSO grants[118](index=118&type=chunk)[119](index=119&type=chunk) - **241,934** and **529,918** diluted weighted-average shares were excluded from EPS computation for the three months ended June 30, 2025 and 2024, respectively, due to anti-dilutive effects[121](index=121&type=chunk) [6. Commitments and Contingencies](index=39&type=section&id=6.%20Commitments%20and%20Contingencies) The Company is subject to various legal proceedings and claims in the ordinary course of business but does not believe any currently pending matters will have a material effect on its operations or financial position - The Company does not anticipate any material impact on its results of operations or financial position from current legal proceedings and claims[123](index=123&type=chunk) [7. Related Party Transactions](index=39&type=section&id=7.%20Related%20Party%20Transactions) This section discloses sales to a related party, AML Global Eclipse, LLC, and a consulting agreement with Peduzzi Associated, ltd., an entity associated with a board member, for business development services Related Party Sales | Related Party Sales | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | | :------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Sales to AML Global Eclipse, LLC | $55,317 | $110,000 | $72,197 | $203,000 | - The Company entered a consulting agreement with Peduzzi Associated, ltd. (PAL), an entity where board member Maj. General Dean serves as President, for **$9,500** per month for DoD business development services[125](index=125&type=chunk) [8. Loan Agreement](index=39&type=section&id=8.%20Loan%20Agreement) This section details the Company's loan agreements with PNC Bank, including a term loan and a revolving line of credit, which has been amended multiple times to increase the principal amount and extend maturity dates, providing expanded liquidity for acquisitions and working capital - The Company's revolving line of credit with PNC Bank was increased to an aggregate principal amount of **$35 million** with an expiration date of December 19, 2028[132](index=132&type=chunk)[193](index=193&type=chunk) - As of June 30, 2025, the outstanding balance on the revolving line of credit was **$23.3 million** with an effective interest rate of **6.3%** (or **6.4%** as per MD&A)[133](index=133&type=chunk)[194](index=194&type=chunk) - The Company was in compliance with all applicable loan covenants as of June 30, 2025[133](index=133&type=chunk) [9. Subsequent Events](index=41&type=section&id=9.%20Subsequent%20Events) This section reports on subsequent events, including the market performance condition being met for certain MSUs granted to the CEO and the Company entering into a new $100 million committed credit agreement with JPMorgan Chase Bank, N.A., replacing the existing line of credit - On July 10, 2025, the market performance condition for **67,000** units of MSUs granted to the CEO was met, leading to their vesting[135](index=135&type=chunk) - On July 18, 2025, the Company entered a new five-year, **$100 million** committed credit agreement with JPMorgan Chase Bank, N.A., replacing the existing **$35 million** line of credit[136](index=136&type=chunk) - The new credit agreement includes a **$30 million** revolving loan facility, a **$25 million** term loan, a **$45 million** delayed draw term facility, and an option for an additional **$25 million**[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition, cash flows, and results of operations, including a cautionary statement on forward-looking information, a company overview, discussion of ESG considerations, critical accounting policies, detailed analysis of operating results, liquidity, capital resources, and backlog [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=43&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns readers about forward-looking statements in the report, emphasizing that they are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially, also listing various risk factors that could impact the Company's future performance - Forward-looking statements are based on current expectations and projections, are not guarantees of future performance, and involve risks and uncertainties[140](index=140&type=chunk) - Key risk factors include market acceptance of new products, competitive environment, supply chain disruptions, regulatory approvals, and the ability to integrate acquisitions[142](index=142&type=chunk) - The Company does not undertake to publicly release revisions to forward-looking statements and does not endorse analyst forecasts[142](index=142&type=chunk)[145](index=145&type=chunk) [Objective](index=45&type=section&id=Objective) The objective of this discussion is to analyze the Company's financial condition, cash flows, and results of operations from management's perspective, providing insights into events and uncertainties that may affect future financial outcomes - The discussion aims to provide an analysis of financial condition, cash flows, and results of operations from management's perspective[146](index=146&type=chunk) - It should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024[146](index=146&type=chunk) [Company Overview](index=45&type=section&id=Company%20Overview) Innovative Solutions and Support, Inc. (IS&S) is a systems integrator designing, developing, manufacturing, selling, and servicing avionics products for retrofit and OEM markets, strategically expanding its product base through acquisitions to leverage technology and achieve cost advantages, though the integration of these acquisitions is expected to cause revenue fluctuations - IS&S operates as a systems integrator, providing air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles, and cockpit display systems for retrofit and OEM applications[147](index=147&type=chunk) - The Company's strategy focuses on leveraging computer and telecommunications technologies into advanced, cost-effective solutions for general aviation, commercial air transport, DoD/governmental, and foreign military markets[148](index=148&type=chunk) - Recent acquisitions include the June 2023 Honeywell Agreement (**$35.9 million** cash), July 2024 Honeywell Asset Acquisition (**$4.2 million** cash), and September 2024 Honeywell Agreement (**$14.2 million** cash), expanding product lines in inertial, communication, navigation, military display generators, and flight control computers[150](index=150&type=chunk)[151](index=151&type=chunk)[153](index=153&type=chunk) - The transition of military product line production from Honeywell to IS&S facilities is expected to cause significant revenue fluctuations in the short term, with an anticipated spike followed by a temporary dip[154](index=154&type=chunk)[155](index=155&type=chunk) [Environmental, Social and Governance Considerations](index=49&type=section&id=Environmental,%20Social%20and%20Governance%20Considerations) The Company is committed to identifying and addressing ESG issues, focusing on diversity in talent recruitment, promoting long-term sustainability through aircraft upgrades and GPS receivers for reduced carbon footprint navigation, and enhancing the environmental impact of its operations - Management and the Board are committed to identifying, assessing, and understanding the potential impact of ESG issues and related risks[160](index=160&type=chunk) - The Company supports long-term sustainability by upgrading existing aircraft (retrofit market) and offering GPS receivers that facilitate reduced carbon footprint navigation[162](index=162&type=chunk) - The Company is an equal opportunity employer, committed to recruiting and developing a diversity of talent[161](index=161&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights critical accounting policies and estimates, including revenue recognition, inventory valuation, and valuation of tangible and intangible assets acquired, also noting a change in the accounting estimate for the useful lives of rotable assets from 5 to 10 years, effective January 1, 2025, which prospectively decreased depreciation expense - Critical accounting policies and estimates include revenue recognition, inventory valuation, and valuation of tangible and intangible assets acquired[163](index=163&type=chunk) - The Company changed the estimated useful lives of rotable assets from 5 years to 10 years, effective January 1, 2025, decreasing depreciation expense by **$0.4 million** (**$0.02** per diluted share) for the three months and **$0.7 million** (**$0.04** per diluted share) for the nine months ended June 30, 2025[165](index=165&type=chunk)[166](index=166&type=chunk) [RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2025 AND 2024](index=51&type=section&id=RESULTS%20OF%20OPERATIONS%20FOR%20THE%20THREE%20AND%20NINE%20MONTHS%20ENDED%20JUNE%2030,%202025%20AND%202024) This section provides a detailed comparative analysis of the Company's financial performance for the three and nine months ended June 30, 2025, versus 2024, highlighting significant increases in net sales and net income, primarily driven by product sales from recent acquisitions, alongside changes in cost of sales, operating expenses, and gross margins Key Operating Metrics (% of Total Net Sales) | Metric (% of Total Net Sales) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Product Net Sales | 68.8% | 43.6% | 64.1% | 45.4% | | Services Net Sales | 31.2% | 56.4% | 35.9% | 54.6% | | Total Net Sales | 100.0% | 100.0% | 100.0% | 100.0% | | Gross Profit | 35.6% | 53.4% | 42.7% | 54.6% | | Operating Income | 14.6% | 17.3% | 19.1% | 16.6% | | Net Income | 10.2% | 13.2% | 13.7% | 12.0% | [Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024](index=52&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030,%202024) For the three months ended June 30, 2025, net sales increased by 105.2% to $24.1 million, primarily due to a 223.8% increase in product sales, largely from Honeywell military products, while gross margin decreased to 35.6% from 53.4% due to unfavorable product mix, R&D expenses decreased by 16.6%, SG&A expenses increased by 32.1% due to acquisition-related costs and increased headcount, and net income rose to $2.4 million from $1.6 million Three Months Operating Results | Metric | 3 Months Ended June 30, 2025 ($) | 3 Months Ended June 30, 2024 ($) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :----------- | | Net Sales | $24,144,832 | $11,765,635 | $12,379,197 | 105.2% | | Product Sales | $16,601,648 | $5,127,056 | $11,474,592 | 223.8% | | Services Sales | $7,543,184 | $6,638,579 | $904,605 | 13.6% | | Cost of Sales | $15,562,597 | $5,485,814 | $10,076,783 | 183.7% | | Gross Profit | $8,582,235 | $6,279,821 | $2,302,414 | 36.7% | | R&D Expense | $916,829 | $1,099,367 | $(182,538) | -16.6% | | SG&A Expense | $4,151,074 | $3,143,334 | $1,007,740 | 32.1% | | Net Income | $2,443,814 | $1,552,520 | $891,294 | 57.4% | | Diluted EPS | $0.14 | $0.09 | $0.05 | 55.6% | - The increase in product sales was primarily driven by **$11.5 million** from Honeywell military products, benefiting from accelerated production in anticipation of facility transition[170](index=170&type=chunk) - The decrease in gross margin percentage (from **53.4%** to **35.6%**) was mainly due to unfavorable changes in product mix and increased proportion of military sales[171](index=171&type=chunk) [Nine Months Ended June 30, 2025 Compared to the Nine Months Ended June 30, 2024](index=54&type=section&id=Nine%20Months%20Ended%20June%2030,%202025%20Compared%20to%20the%20Nine%20Months%20Ended%20June%2030,%202024) For the nine months ended June 30, 2025, net sales increased by 95.0% to $62.0 million, with product sales up 175.3% largely from the September 2024 Honeywell Agreement, while gross margin decreased to 42.7% from 54.6% due to product mix, depreciation, and integration costs, R&D expenses slightly decreased by 4.6%, SG&A expenses increased by 29.4% due to acquisition-related fees, amortization, and headcount, and net income more than doubled to $8.5 million from $3.8 million Nine Months Operating Results | Metric | 9 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2024 ($) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :----------- | | Net Sales | $62,049,775 | $31,813,214 | $30,236,561 | 95.0% | | Product Sales | $39,765,914 | $14,446,753 | $25,319,161 | 175.3% | | Services Sales | $22,283,861 | $17,366,461 | $4,917,400 | 28.3% | | Cost of Sales | $35,589,860 | $14,427,868 | $21,161,992 | 146.7% | | Gross Profit | $26,459,915 | $17,385,346 | $9,074,569 | 52.2% | | R&D Expense | $2,891,793 | $3,031,630 | $(139,837) | -4.6% | | SG&A Expense | $11,725,652 | $9,058,347 | $2,667,305 | 29.4% | | Net Income | $8,516,348 | $3,818,186 | $4,698,162 | 123.0% | | Diluted EPS | $0.48 | $0.22 | $0.26 | 118.2% | - Net sales for the nine months ended June 30, 2025, included **$29.3 million** from the September 2024 Honeywell Agreement[178](index=178&type=chunk) - The decline in gross margin percentage (from **54.6%** to **42.7%**) was attributed to unfavorable product mix, increased depreciation from acquisitions, and cost inefficiencies from hiring and training new personnel[179](index=179&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity is primarily supported by cash flows from operations and its revolving credit facility, expecting existing cash and anticipated cash flows, along with the credit facility, to be sufficient for at least the next 12 months, covering working capital, facility expansion, and ERP system implementation, with a new $100 million credit agreement entered into post-period end to enhance liquidity and flexibility Liquidity Metrics | Metric | June 30, 2025 ($) | September 30, 2024 ($) | | :-------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $601,759 | $538,977 | | Current assets | $39,811,433 | $34,685,698 | | Current liabilities | $11,278,120 | $7,265,254 | | Quick ratio | 1.08 | 1.81 | | Current ratio | 3.53 | 4.77 | - Net cash provided by operating activities increased to **$10.3 million** for the nine months ended June 30, 2025, from **$5.4 million** in the prior year[186](index=186&type=chunk)[199](index=199&type=chunk) - Net cash used in investing activities was **$5.5 million**, primarily for facility additions, equipment purchases, and ERP system investment[186](index=186&type=chunk)[200](index=200&type=chunk) - Net cash used in financing activities was **$4.8 million**, mainly for repayments against the line of credit[186](index=186&type=chunk)[201](index=201&type=chunk) - A new five-year, **$100 million** committed credit agreement was entered into on July 18, 2025, replacing the existing **$35 million** line of credit, providing expanded liquidity and flexibility[195](index=195&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) [Backlog](index=60&type=section&id=Backlog) The Company's backlog decreased to $72.4 million at June 30, 2025, from $89.2 million at September 30, 2024, with approximately 60% expected to be recognized as revenue over the next 12 months, and 90% over the next 24 months, driven by recent contract wins in commercial, military, and business aviation markets Backlog Summary | Backlog Metric | 3 Months Ended June 30, 2025 ($) | 9 Months Ended June 30, 2025 ($) | | :-------------------------- | :--------------------------- | :--------------------------- | | Backlog, beginning of period | $79,598,515 | $89,232,576 | | Plus: bookings during period, net | $16,940,971 | $45,211,853 | | Less: sales recognized during period | $(24,144,832) | $(62,049,775) | | Backlog, end of period | $72,394,654 | $72,394,654 | - Backlog decreased to **$72.4 million** at June 30, 2025, from **$89.2 million** at September 30, 2024[206](index=206&type=chunk) - Approximately **60%** of the backlog is expected to be recognized as revenue over the next 12 months, and **90%** over the next 24 months[206](index=206&type=chunk) - Recent contract wins include the ThrustSense® Autothrottle system for US Army C-12 aircraft and a multi-million dollar production contract for a 19" Multifunction Display (MFD) with Integrated Mission Computer[207](index=207&type=chunk) [Off-Balance Sheet Arrangements](index=60&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company has no relationships with unconsolidated entities or financial partnerships established for off-balance sheet arrangements - The Company does not have any off-balance sheet arrangements with unconsolidated entities or financial partnerships[208](index=208&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risk exposure is to changes in interest rates, particularly affecting its cash equivalents invested in variable-rate money market accounts, with a hypothetical 1% increase in interest rates having a minimal impact on interest income and cash flows - The Company's primary market risk is exposure to changes in interest rates, affecting cash equivalents in variable-rate money market accounts[209](index=209&type=chunk) - A hypothetical **1%** increase in variable interest rates would impact interest income and cash flows by approximately **$3,717** for the nine months ended June 30, 2025[209](index=209&type=chunk) - The Company does not use derivative financial instruments for speculative or trading purposes and does not participate in interest rate hedging[209](index=209&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the fiscal quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[210](index=210&type=chunk) - No material changes in internal control over financial reporting were identified during the fiscal quarter ended June 30, 2025[211](index=211&type=chunk) [PART II. OTHER INFORMATION](index=62&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section addresses legal proceedings, risk factors, equity security sales, defaults, and other miscellaneous information and exhibits [Item 1. Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings and claims in the ordinary course of business but does not anticipate any material adverse effect on its operations or financial position from these matters - The Company does not believe any currently pending legal proceedings will have a material effect on its results of operations or financial position[212](index=212&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors disclosed in the Company's Annual Report on Form 10-K, with an additional disclosure regarding the potential material adverse effect of tariffs and trade restrictions on the Company's business, supply chain, and demand for products and services - Tariffs imposed by the United States government and reciprocal trade restrictions from other nations could have a material adverse effect on the Company's results of operations, supply chain, and demand[214](index=214&type=chunk) - Uncertainty surrounding trade policies and potential escalation of trade tensions could negatively impact world trade and the global economy[214](index=214&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities, use of proceeds, or repurchases of common stock during the quarter ended June 30, 2025 - No unregistered sales of equity securities occurred during the quarter ended June 30, 2025[216](index=216&type=chunk) - The Company did not repurchase shares of its common stock during the quarter ended June 30, 2025[218](index=218&type=chunk) [Item 3. Defaults upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[219](index=219&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[220](index=220&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) No executive officer or director adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No executive officer or director adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[221](index=221&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Credit Agreement, certifications from the CEO and CFO, and XBRL-related documents - Exhibits include the Credit Agreement dated July 18, 2025, certifications of the CEO and CFO, and Inline XBRL documents[224](index=224&type=chunk) [SIGNATURES](index=66&type=section&id=SIGNATURES) The report is duly signed on behalf of Innovative Solutions and Support, Inc. by Jeffrey DiGiovanni, Chief Financial Officer, on August 14, 2025 - The report was signed by Jeffrey DiGiovanni, Chief Financial Officer, on August 14, 2025[228](index=228&type=chunk)

Financial Data and Key Metrics Changes - The company reported a revenue growth of 105% compared to Q3 2024, reaching net revenues of $24.1 million, driven by new military programs, particularly the F-sixteen program [5][14] - Adjusted EBITDA increased by 43% year-over-year, although gross margins were impacted by costs associated with building safety stock for the F-sixteen product line [6][18] - Gross profit was $8.6 million, up 37% from $6.3 million in the same period last year, but gross margin decreased to 35.6% from 53.4% due to lower margins on the F-sixteen product line [15][16] Business Line Data and Key Metrics Changes - Product sales reached $16.6 million, significantly up from $5.1 million last year, primarily due to the recently acquired military product line [15] - Service revenue was $7.5 million, largely from customer service sales related to the Honeywell acquisitions, including $1 million from the F-sixteen program [15] Market Data and Key Metrics Changes - The backlog as of June 30, 2025, was approximately $72 million, which includes purchase orders in hand but excludes additional orders from long-term programs [18] - New orders in Q3 2025 totaled $17 million, indicating strong demand and future sales potential [18] Company Strategy and Development Direction - The company is focused on a long-term growth strategy called IS and S NEXT, which emphasizes targeted commercial growth, improved operating leverage, and disciplined capital allocation [7] - The expansion of the Exton facility is expected to increase manufacturing capacity by more than threefold, supporting the goal of exceeding $250 million in revenues over the next few years [9] - The company is actively pursuing acquisitions, particularly smaller avionics manufacturers, to enhance its product lines and achieve synergies [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue and EBITDA growth of over 30% compared to fiscal year 2024, despite near-term margin volatility [13] - The company anticipates improved margins in the latter quarters of fiscal 2026 as integration efforts and cost efficiencies are realized [6][12] Other Important Information - The company closed a new five-year $100 million credit facility, providing expanded access to credit and flexibility for strategic acquisitions [21] - As of June 30, 2025, net debt was $22.7 million, down $3.5 million from the previous quarter, reflecting strong operating results [20] Q&A Session Summary Question: What is the normalized gross margin outlook given the F-sixteen impact? - Management expects gross margins in the mid-40s, depending on product mix, with military sales typically carrying lower margins [24] Question: What is the targeted net leverage ratio? - The company is comfortable with a net leverage ratio around three, depending on the size of acquisitions [25] Question: Can you elaborate on the acquisition strategy and pipeline? - The company has a pipeline that includes potential acquisitions from Honeywell and smaller avionics companies, with ongoing discussions [27] Question: What is the expected impact of the F-sixteen safety stock on future revenues? - Management anticipates nominal F-sixteen revenue for Q4 and Q1 due to the transition process, with a temporary dip expected [33] Question: How does the company view the trajectory of gross margins in the coming quarters? - Management is guiding conservatively due to the lumpiness of product mix, targeting a gross margin of around 45% [36] Question: Are there any changes in defense budgets that might impact backlog execution? - There is increased interest from government and military sectors, which is encouraging for future sales [37] Question: Is the company prioritizing acquisitions to leverage the new credit facility? - Both organic growth and acquisitions are significant parts of the growth strategy, with a focus on utilizing expanded capacity for organic growth [39]