Financial Data and Key Metrics Changes - The company reported a 48% year-over-year revenue growth in Q3 2024, with total net revenues reaching $11.8 million [4][13] - Consolidated revenue growth over the trailing 12 months was 54%, with adjusted EBITDA increasing by 75% and EPS growing by approximately 28% [5] - Gross profit for Q3 2024 was $6.3 million, up 33% from $4.7 million in the same period last year, resulting in a gross margin of 53.4% [14][15] Business Line Data and Key Metrics Changes - Product sales decreased to $5.1 million in Q3 2024, primarily due to a large order from the previous year, but this was partially offset by increased shipments to general aviation and military customers [13] - Customer support revenue surged to $6.4 million, up from $1.3 million last year, largely due to sales from the Honeywell product lines [14] Market Data and Key Metrics Changes - The company experienced some weakness in the cargo market, although trends appeared to be stabilizing with sequential growth relative to the second quarter [13] - The military market is a significant focus, with a recent multi-million dollar contract awarded for a foreign military platform, indicating strong potential for future growth [8][46] Company Strategy and Development Direction - The long-term growth strategy includes five initiatives: expansion of existing platforms, new OEM and retrofit programs, pipeline opportunity growth, new market opportunities, and acquisitions [8][11] - The company aims to leverage the customer base from the Honeywell acquisition for cross-selling opportunities, particularly in international markets [6][7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about organic growth continuing in double digits, despite challenges in the air cargo market [22][23] - The company is well-positioned for growth in 2025, with ongoing integration of Honeywell products expected to drive additional benefits [12] Other Important Information - The company has made significant progress in integrating Honeywell assets, with expectations for further improvements in margins and operational efficiencies [15][16] - Total net debt decreased to $9.3 million, down from $16.4 million at the end of 2023, reflecting strong free cash flow [18] Q&A Session Summary Question: Completion of equipment movement to IS&S facility - Management confirmed that the movement of equipment is substantially completed, with one remaining unit expected in November [20] Question: Impact on margins - Management indicated that the new equipment should not impact margins negatively, as they are training technicians to handle the new equipment [21] Question: Organic growth expectations - Management expects to maintain organic growth in double digits, with a focus on military initiatives to recover from market fluctuations [22][23] Question: Details on military contract - The military contract awarded is significant, with a value well into several million dollars, and is expected to contribute to future revenues [29][30] Question: Inventory management post-Honeywell acquisition - Management clarified that the inventory acquired includes units for rental and resale, which are being effectively utilized [33][34] Question: Future acquisitions and CapEx - Management is considering expanding factory space to accommodate future acquisitions and growth, with planning permissions already in place [25][50]

Acquisition and Agreements - The Company entered into an Asset Purchase and License Agreement with Honeywell for $35.9 million, acquiring certain assets related to inertial, communication, and navigation product lines [131]. - The Honeywell Agreement is expected to enhance the Company's offerings and accelerate growth through potential cost synergies [132]. Product Development and Innovation - The FAA-certified ThrustSense® Autothrottle is designed to automate power management for speed and power control, enhancing safety and reducing pilot workload [129]. - The Company has developed a Flight Management System (FMS) that optimizes in-flight fuel savings and complies with regulatory environments, addressing market demand for aging aircraft upgrades [126]. - The NextGen Flight Deck features ThrustSense® Integrated PT6 Autothrottle and is available for retrofit in various aircraft, enhancing avionics capabilities [127]. - The Company continues to invest in research and development for new products, expensing associated costs as incurred [134]. - The Company aims to enhance its focus on environmental impact and sustainability through its product offerings and operational practices [141]. Financial Performance - Net sales for the three months ended March 31, 2024 were $10,739,516, an increase of 46.3% compared to $7,340,454 for the same period in 2023 [146]. - For the six months ended March 31, 2024, net sales were $20,047,579, an increase of 44.7% compared to $13,856,709 for the same period in 2023 [157]. - Customer service sales increased by $3,702,919 or 265.4%, while product sales decreased by $1,049,562 or 17.7% compared to the prior year quarter [146]. - Cost of sales increased by $2,556,851 or 98.3% to $5,157,154, representing 48.0% of net sales for the three months ended March 31, 2024 [147]. - Gross profit margin decreased to 52.0% for the three months ended March 31, 2024, down from 64.6% in the same period of 2023 [147]. - Research and development expenses increased by $164,921 or 19.0% to $1,031,119, representing 9.6% of net sales for the three months ended March 31, 2024 [150]. - Selling, general and administrative expenses rose by $461,558 or 18.9% to $2,908,193, accounting for 27.1% of net sales for the three months ended March 31, 2024 [151]. - Net income for the three months ended March 31, 2024 was $1,208,316, compared to $1,271,103 for the same period in 2023 [156]. Cash Flow and Financing - Cash and cash equivalents decreased to $574,079 as of March 31, 2024, down from $3,097,193 as of September 30, 2023 [168]. - The Company increased its senior secured revolving line of credit from $10 million to $30 million, extending the maturity date to December 19, 2028 [170]. - Net cash provided by operating activities was $4.4 million for the six-month period ended March 31, 2024, compared to $2.2 million for the same period in 2023 [175]. - Net cash provided by investing activities was $1.9 million for the six-month period ended March 31, 2024, primarily from the sale of the Company's King Air aircraft [176]. - Net cash used in financing activities was $8.9 million for the six-month period ended March 31, 2024, due to loan repayments and line of credit repayments [177]. - The Company's backlog at the end of the six-month period was $10,432,682, with expectations to fill the majority within the next twelve months [180]. - The Company anticipates that its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months [179]. - The Company has no off-balance sheet arrangements with unconsolidated entities or financial partnerships [181]. Economic and Market Conditions - The Company’s products are affected by economic conditions, which may lead to customer spending delays or reductions [136]. - A hypothetical 1% increase in variable interest rates would have affected interest income by approximately $10,416 for the six-month period ended March 31, 2024 [182]. - The effective tax rate for the six-month period ended March 31, 2024 was 21.5%, compared to 21.4% for the same period in 2023 [165]. - The interest rate on the Restated Line of Credit ranges from 1.5% to 2.5% based on the Company's funded debt to EBITDA ratio [171]. - The Company has not sold any shares under the ATM Sales Agreement, which allows for the sale of up to $40 million of common stock [174].

Exhibit 99.1 Over the first half of fiscal 2024, the Company generated $4.4 million of positive cash flow despite all one-time expenses associated with the acquisition and integration. New orders in the second quarter of fiscal 2024 were approximately $6.6 million, and backlog as of March 31, 2024, was $10.4 million. The backlog includes only purchase orders in hand and excludes orders from our OEM customers under long-term programs, such as Pilatus PC-24, Textron King Air, Boeing T-7 Red Hawk and the Boein ...

Financial Data and Key Metrics Changes - Total net revenues for the second fiscal quarter of 2024 were $10.7 million, representing a 46.3% increase compared to $7.3 million for the second fiscal quarter of 2023 [66] - For the six months ended March 31, 2024, total revenues were $20 million, a 44.7% increase from $13.9 million for the same period in 2023 [66] - Net income for the second quarter was $1.2 million or $0.07 per share, compared to $1.3 million or $0.07 per share in the year-ago quarter [69] - Overall gross margin was 52% for the three months ended March 31, 2024, down from 64.6% in the same quarter of 2023 [34] Business Line Data and Key Metrics Changes - Product sales decreased by $1 million or 17.7%, while customer service sales increased by $3.7 million or 265.4% compared to the year-ago quarter [33] - EDC sales increased by $700,000 compared to the year-ago quarter, reflecting increased EDC business [33] - Selling, general and administrative expenses were $2.9 million, an increase of $500,000 or 18.9% in the three months ended March 31, 2024 [35] Market Data and Key Metrics Changes - Increased interest in product lines in the military sector, both domestically and internationally, is expected to contribute to organic growth [8] - New orders in the second quarter of fiscal 2024 were approximately $6.6 million, with a backlog of $10.4 million as of March 31, 2024 [36] Company Strategy and Development Direction - The company is focused on integrating products acquired from Honeywell and expects to complete the integration of the Inertial Reference Unit business by the end of summer [62] - The long-term growth strategy includes growth by acquisition and modest organic growth, with plans to opportunistically evaluate additional acquisitions [31][64] - The company is developing new cockpit automation upgrades to enhance safety and reduce pilot workload, targeting future single-pilot operations [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate cash flow to support its growth strategy, having reduced borrowings by approximately $10 million in the first six months post-acquisition [64] - Management acknowledged delays in the integration process with Honeywell, which have negatively impacted margins but expect improvements as synergies are realized [12][38] Other Important Information - Research and development expenses increased to $1.0 million, a 19% increase compared to the same quarter last year, driven by higher salaries and benefits due to increased headcount [68] - The company is ramping up business development efforts with the addition of the Honeywell global business development team to extend its network into new international markets [91] Q&A Session Summary Question: What are the EBITDA financial expectations for the 2024 fiscal year, especially regarding margins? - Management indicated that margins are expected to improve once the integration with Honeywell is complete and synergies are realized [15][16] Question: What financial effect is expected from UMS expansion into PC-24, and which existing product lines will enhance organic revenue? - Management confirmed ongoing production contracts with Pilatus for PC-24 and highlighted the potential for future development in adjacent markets [50] Question: Can you summarize the one-time costs in the quarter and their impact on margins? - Management detailed that one-time costs included acquisition-related expenses and legal fees, which negatively impacted margins [19][41] Question: How long will it take to burn off the Honeywell inventory acquired, and when might gross margins improve? - Management indicated that the current quarter may represent a low point for gross margins, with expectations for improvement in the third quarter as integration progresses [54][52]

Financial Data and Key Metrics Changes - Revenues increased by 43% year-over-year, with net income rising by 51% [18][24] - Gross margin for the first quarter was 59.3%, up from the previous year but slightly down sequentially from the fourth quarter [24][38] - Net income for the quarter was $1.1 million or $0.06 per share, compared to $700,000 or $0.04 per share in the same quarter last year [26] - Cash flow from operations was $4.2 million, and total debt decreased from $19.5 million to $10.6 million [27][38] Business Line Data and Key Metrics Changes - The addition of Honeywell product lines contributed significantly to revenue, with a growing proportion of revenues becoming recurring in nature [19][20] - Selling, general and administrative expenses increased due to higher sales and marketing expenses and amortization related to the Honeywell acquisition [25][39] Market Data and Key Metrics Changes - The company is experiencing a slowdown in commercial air transport and cargo markets but is countering this with renewed strength in military markets [19] - New orders in the quarter were approximately $10.4 million, resulting in a backlog of about $14.6 million [44] Company Strategy and Development Direction - The company aims to leverage the integration of Honeywell products to sustain growth both organically and through potential acquisitions [22][41] - There is a focus on developing technologies that reduce pilot workload, with a long-term vision of achieving single-pilot operations in air transport aircraft [20][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the anticipated slowdown in certain markets but expressed confidence in the military sector and the potential of new product lines [19][30] - The company plans to continue investing in research and development, with a commitment to enhancing its product offerings [38][42] Other Important Information - The company has retained an executive search firm to find a permanent CFO, indicating ongoing organizational development [41] - The integration of Honeywell products is progressing, with expectations for top and bottom line benefits to ramp up gradually [40] Q&A Session Summary Question: Is the management team and the Board of Directors able to buy stock? - The window for stock purchases opens on the third business day after earnings and closes a couple of weeks before the end of the quarter [3] Question: What is the outlook for gross margins within the customer service segment? - Gross margins have decreased due to increased overhead absorption and material costs, with customer service revenue being a larger portion of total sales [52][56] Question: How is the company addressing the reduced shipments of displays for the retrofit in the commercial market? - The company is focusing on military contracts and new opportunities, expecting military efforts to drive growth in the coming years [46] Question: What is the status of inventory and its relation to the Honeywell transition? - Inventory has increased due to the transition of Honeywell products and last-time buys, with expectations for normalization in the second half of the year [59][60] Question: What are the expectations for capital expenditures (CapEx) for the full year? - CapEx has been high due to investments in IT infrastructure and new product lines, with expectations for continued spending in these areas [61][72]

Financial Performance - Net sales for the three months ended December 31, 2023, were $9,308,063, an increase of 42.8% compared to $6,516,256 for the same period in 2022 [171]. - Product sales decreased by $664,100 or 13.1%, while customer service sales increased by $3,166,098 or 298.4% compared to the year-ago quarter [171]. - Gross profit margin improved to 59.3% for the three months ended December 31, 2023, up from 57.1% in the prior year [172]. - Net income for the three months ended December 31, 2023, was $1,057,350, compared to $698,651 for the same period in 2022, with diluted net income per share increasing to $0.06 from $0.04 [180]. - Selling, general and administrative expenses rose by $744,956 or 32.9% to $3,006,819, representing 32.3% of net sales compared to 34.7% in the prior year [176]. - Research and development expenses increased by $230,699 or 34.4% to $901,144, but as a percentage of net sales, it decreased to 9.7% [175]. - The effective tax rate for the three-month period ended December 31, 2023, was 21.8%, down from 24.5% in the prior year [179]. Cash Flow and Financing - The Company reported cash and cash equivalents of $467,334 as of December 31, 2023, down from $3,097,193 at September 30, 2023 [182]. - Net cash provided by operating activities was $4.2 million for the three-month period ended December 31, 2023, primarily from net income of $1.1 million and a decrease in accounts receivable of $4.2 million [189]. - Net cash provided by investing activities was $2.0 million for the three-month period ended December 31, 2023, mainly from proceeds of $2.2 million from the sale of the Company's King Air aircraft [190]. - Net cash used in financing activities was $8.9 million for the three-month period ended December 31, 2023, consisting of payments against the Company's line of credit [191]. - The Company entered into a Restated Loan Amendment to increase its revolving line of credit from $10 million to $30 million, maturing on December 19, 2028 [184]. - The Company has the ability to offer and sell up to $40 million of shares of its common stock through an at-the-market equity offering Sales Agreement with Stifel [186]. Business Operations and Strategy - The Company entered into an Asset Purchase and License Agreement with Honeywell for $35.9 million, acquiring certain assets related to inertial, communication, and navigation product lines [150]. - The Honeywell Agreement is expected to enhance the Company’s offerings and accelerate growth in the air transport, military, and business aviation markets [151]. - The Company’s FMS and FPDS product lines are designed to meet regulatory demands and address the high costs of maintaining aging aircraft [144]. - The Company’s strategy as a systems integrator aims to leverage technology for cost-effective solutions in aviation markets [142]. - The Company’s products are sold to various customers, including OEMs, commercial air transport carriers, and government agencies, with a focus on both retrofit and new production markets [149]. - The Company aims to continue investing in R&D for new products and improvements, expensing associated costs as incurred [153]. Market and Economic Conditions - The Company’s sales and operations may be affected by economic conditions, including consumer spending and government agency budgets [156]. - The majority of the Company's backlog is expected to be filled within the next twelve months, and future operating results may be negatively impacted if new business orders do not continue to equal or exceed sales recognized [195]. - A hypothetical 1% increase in variable interest rates would have affected interest income by approximately $13,744 for the three-month period ended December 31, 2023 [197]. Sustainability and ESG Commitment - The Company is committed to addressing ESG issues and enhancing the sustainability of its operations [159]. - The Company anticipates continued increases in expenditures in the foreseeable future due to market acceptance of products and business expansion [192]. - The Company has no off-balance sheet arrangements or relationships with unconsolidated entities [196]. - The Company does not use derivative financial instruments for speculative purposes and maintains cash balances with two major banks [197].

Financial Performance and Risks - During fiscal year 2023, approximately 3.3% of the Company's total sales were from fixed-price EDC arrangements, which carry the risk of potential cost overruns [121]. - As of September 30, 2023, 8% of the Company's backlog was expected to be filled beyond fiscal 2024, indicating lower revenue visibility compared to historical expectations [128]. - The Company derived 54% of its revenue from the top five customers during fiscal year 2023, highlighting a concentrated customer base [125]. - The Company's revenue and operating results may vary significantly from quarter to quarter due to factors such as demand changes and delays in product approvals [137]. - The Company is subject to credit risk due to the concentration of accounts receivable from key customers, which could lead to significant write-offs if any key customer defaults [126]. - The Company may encounter risks related to product liability claims, which could exceed the coverage of its insurance [143]. - The Company faces risks from potential declines in revenues and profitability due to economic issues affecting customers [169]. Competition and Market Position - The Company faces intense competition from larger firms like Honeywell and Collins Aerospace, which may impact its market share and pricing strategies [132]. - The Company plans to increase revenues from international sales, particularly in Europe and Asia, but faces risks such as regulatory differences and economic instability [129]. - The Company’s growth strategy includes evaluating acquisition opportunities and strategic partnerships to enhance its market position [145]. Research and Development - The Company spends a large portion of its R&D efforts on developing products like FPDS, FMS, and ThrustSense® Autothrottle, which are crucial for future growth [117]. - The Company holds 32 U.S. patents and 85 international patents as of September 30, 2023, with three U.S. and six international patent applications pending [153]. Regulatory and Compliance - The Company's products must receive regulatory approval from the FAA and EASA, and failure to meet evolving standards could render its products obsolete [138]. - The Company is subject to various laws and regulations, and failure to comply could result in significant costs and operational impacts [160]. Financial Management and Debt - As of September 30, 2023, the balance of the Term Loan was $19.5 million, with no balance drawn on the Revolving Line of Credit [168]. - The company entered into a Restated Loan Amendment on December 19, 2023, increasing the revolving line of credit from $10 million to $30 million, maturing on December 19, 2028 [171]. - The interest rate for the Restated Line of Credit ranges from 1.5% to 2.5% based on the company's funded debt to EBITDA ratio [172]. - A hypothetical 1% increase in variable interest rates would have impacted interest income by approximately $99,000 for fiscal 2023 [251]. - The company is subject to compliance with financial and negative covenants related to its indebtedness, remaining compliant as of September 30, 2023 [170]. - Future financing costs may be adversely affected by volatility in capital markets, impacting credit availability [168]. - The company may incur additional indebtedness under existing credit facilities or new financing arrangements, which could harm its financial condition [169]. - The proceeds from the Restated Line of Credit will be used for working capital, acquisitions, and to pay off the previous term loan [171]. Internal Control and Investor Confidence - The Company’s ability to maintain effective internal control over financial reporting is crucial, as any material weaknesses could lead to loss of investor confidence and affect stock value [161]. - The Company’s common stock has experienced significant price fluctuations, influenced by external factors such as geopolitical events and economic sanctions [166]. Cybersecurity and Operational Risks - The Company faces cybersecurity threats that could disrupt operations and damage its reputation [154].

Financial Data and Key Metrics Changes - In Q4 2023, revenue increased by 79% year-over-year, with net income rising by 63% from the previous year [49][50] - The fourth quarter net income was $2.6 million or $0.15 per share, compared to $1.7 million or $0.09 per share in Q4 2022 [42] - Cash flow from operations for the year was $2.1 million, with cash at September 30, 2023, amounting to $3.1 million, an increase of approximately $500,000 from June 30, 2023 [51] Business Line Data and Key Metrics Changes - The company was awarded a development contract for the second generation of UMS for Pilatus, which is expected to enhance capabilities including AI [3] - The autothrottle OEM business has continued to perform well, particularly with Textron, and the company is pursuing additional platforms in military and regional airline markets [3] Market Data and Key Metrics Changes - Backlog at September 30, 2023, was $13.5 million, with new orders in Q4 2023 approximately $12.7 million [42][50] - The company anticipates that the integration of Honeywell products will lead to annualized top-line growth of 40% once fully completed [8] Company Strategy and Development Direction - The company aims to leverage momentum from recent growth to sustain both organic and acquisition-driven growth [7] - Plans include further product innovation and maintaining high investment levels in R&D, particularly in cockpit automation [7] - The integration of Honeywell products is expected to enhance product offerings and accelerate technology development towards autonomous flight [8] Management's Comments on Operating Environment and Future Outlook - Management noted that the strong fourth quarter results were achieved despite operational burdens, and they expect results in the current and next quarters to be weaker due to integration challenges [8][50] - The company is optimistic about future growth opportunities and plans to evaluate additional acquisitions [8] Other Important Information - The company converted its $20 million term loan into a $30 million revolving line of credit, reducing total debt from $20 million to less than $12 million [2] - The fourth quarter saw onetime expenses related to the Honeywell transaction, including legal and professional fees [42] Q&A Session Summary Question: What impact will the Honeywell acquisition have on R&D expenses? - Initially, the impact on R&D will be minimal, but modifications to designs will require some R&D investment going forward [44] Question: How will customer concentration change with the acquisition? - Customer concentration is expected to change as new channel partners are integrated [56] Question: Can the company provide more detail on revenue contributions from legacy versus Honeywell products? - Detailed breakdowns will be available in the upcoming 10-K filing [62] Question: What has been the experience with the integration of Honeywell products? - The integration has been smoother than expected, with no significant negative surprises reported [73] Question: Is the company prepared for another acquisition in the near future? - The company is confident in its management's ability to pursue additional acquisitions as opportunities arise [76]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [For the transition period from to ] Commission File No. 000-31157 INNOVATIVE SOLUTIONS AND SUPPORT, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-250740 ...

Innovative Solutions and Support, Inc. (NASDAQ:ISSC) Q3 2023 Earnings Conference Call August 10, 2023 10:00 AM ET Company Participants Shahram Askarpour - Chief Executive Officer Mike Linacre - Chief Financial Officer Conference Call Participants Tim Moore - EF Hutton Operator Good day and welcome to Innovative Solutions & Support Third Quarter Fiscal 2023 Financial Results Call. [Operator Instructions] Please note that this event is being recorded. I’d now like to turn the conference over to Mr. Shahram As ...