[Innovative Solutions & Support Third Quarter 2025 Results](index=1&type=section&id=Innovative%20Solutions%20%26%20Support%20Third%20Quarter%202025%20Results) [Management Commentary and Strategic Outlook](index=1&type=section&id=Management%20Commentary%20and%20Strategic%20Outlook) Management reported strong Q3 results with 105% revenue growth, despite temporary gross margin impacts, while expanding capacity and securing a $100 million credit facility Q3 2025 Financial Highlights (vs. Q3 2024) | Metric | Q3 2025 | Change | | :--- | :--- | :--- | | Net Revenue | $24.1 million | +105.2% | | Gross Profit | $8.6 million | +36.7% | | Gross Margin | 35.6% | N/A | | Net Income | $2.4 million | +50.0% | | Diluted EPS | $0.14 | +55.6% | | Adjusted EBITDA | $4.4 million | +43.3% | - Gross margin was negatively impacted by elevated costs on the F-16 product line as Honeywell expedited production to build safety stock before the full production transition to IS&S Margins are expected to **improve in the latter half of fiscal 2026** post-transition[2](index=2&type=chunk) - The company completed the construction of its Exton facility, which will **expand manufacturing capacity** and allow for the integration of the F-16 product line[2](index=2&type=chunk) - A new five-year, **$100 million syndicated credit facility** was secured, providing an additional **$65 million in liquidity** to support long-term growth strategies, including organic initiatives and strategic acquisitions[2](index=2&type=chunk)[11](index=11&type=chunk) - The company reaffirms its full-year fiscal 2025 target of growing both revenue and EBITDA by **more than 30%** compared to fiscal 2024[2](index=2&type=chunk) [Third Quarter 2025 Financial Performance](index=2&type=section&id=Third%20Quarter%202025%20Financial%20Performance) Third quarter revenue surged **105.2% to $24.1 million** driven by the F-16 product line, showing strong operating leverage and a **$72.4 million** backlog - Revenue growth was driven by the recently acquired F-16 product line, though a pull-forward of deliveries is expected to cause a **reduction in F-16 revenues over the next two quarters**[5](index=5&type=chunk) - Operating expenses increased to **$5.1 million** from **$4.2 million**, but as a percentage of revenue, they decreased significantly to **21.0%** from **36.1%**, demonstrating strong operating leverage[7](index=7&type=chunk) Q3 2025 vs Q3 2024 Performance | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $24.1M | $11.8M | +105.2% | | Gross Profit | $8.6M | $6.3M | +36.7% | | Operating Expenses | $5.1M | $4.2M | +21.4% | | Net Income | $2.4M | $1.6M | +50.0% | | Diluted EPS | $0.14 | $0.09 | +55.6% | - As of June 30, 2025, the company's backlog was **$72.4 million**, including only firm purchase orders and excluding potential future OEM program orders[9](index=9&type=chunk) [Balance Sheet, Liquidity and Cash Flow](index=2&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Cash%20Flow) IS&S reported **$22.7 million** net debt, enhanced liquidity with a new **$100 million** credit facility, and maintained **$4.8 million** free cash flow Balance Sheet and Liquidity as of June 30, 2025 | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $0.6 million | | Total long-term debt | $23.3 million | | Net debt | $22.7 million | | Total cash and availability | ~$12.3 million | - In July 2025, the company secured a new **$100 million credit agreement**, including a **$30 million revolving loan**, a **$25 million term loan**, a **$45 million delayed draw term facility**, and a **$25 million accordion feature**[11](index=11&type=chunk)[12](index=12&type=chunk) Cash Flow for Nine Months Ended June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Cash flow from operations | $10.3 million | $5.4 million | | Capital expenditures | $5.5 million | $0.5 million | | Free cash flow | $4.8 million | $4.8 million | [Financial Statements](index=7&type=section&id=Financial%20Statements) This section presents unaudited condensed consolidated balance sheets and statements of operations for the specified periods [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (unaudited) | (in thousands) | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | **ASSETS** | | | | Total current assets | $39,811 | $34,686 | | Goodwill | $6,703 | $5,213 | | Intangible assets, net | $24,135 | $27,012 | | Property and equipment, net | $18,153 | $13,372 | | **Total assets** | **$91,785** | **$82,382** | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $11,258 | $7,265 | | Long-term debt | $23,259 | $28,027 | | **Total liabilities** | **$34,996** | **$35,744** | | **Total shareholders' equity** | **$56,789** | **$46,639** | | **Total liabilities and shareholders' equity** | **$91,785** | **$82,382** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (unaudited, for the three months ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total net sales | $24,145 | $11,766 | | Gross profit | $8,582 | $6,280 | | Operating income | $3,514 | $2,037 | | Net income | $2,444 | $1,553 | | Diluted EPS | $0.14 | $0.09 | Condensed Consolidated Statements of Operations (unaudited, for the nine months ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total net sales | $62,050 | $31,813 | | Gross profit | $26,460 | $17,385 | | Operating income | $11,842 | $5,295 | | Net income | $8,516 | $3,818 | | Diluted EPS | $0.48 | $0.22 | [Non-GAAP Financial Measures and Reconciliations](index=3&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section defines and reconciles non-GAAP financial measures, including EBITDA, Adjusted EBITDA, and Free Cash Flow, to their GAAP equivalents [Reconciliation of Net Income to EBITDA and Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20to%20EBITDA%20and%20Adjusted%20EBITDA) Reconciliation to Adjusted EBITDA (unaudited, for the three months ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net Income | $2,444 | $1,553 | | Income tax expense | $668 | $331 | | Interest expense | $407 | $173 | | Depreciation and amortization | $820 | $611 | | **EBITDA** | **$4,339** | **$2,667** | | Acquisition related costs | $68 | $175 | | Other strategic initiatives | $0 | $234 | | **Adjusted EBITDA** | **$4,407** | **$3,076** | [Free Cash Flow](index=9&type=section&id=Free%20Cash%20Flow) Free Cash Flow Calculation (unaudited) | (in thousands) | Three Months Ended June 30, 2025 | Nine Months Ended June 30, 2025 | | :--- | :--- | :--- | | Operating Cashflow | $7,207 | $10,336 | | Capital Expenditures | ($3,688) | ($5,505) | | **Free Cashflow** | **$3,519** | **$4,831** | [Net Debt and Net Debt Leverage](index=9&type=section&id=Net%20Debt%20and%20Net%20Debt%20Leverage) Net Debt Calculation (unaudited, as of June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total Debt | $23,259 | $9,859 | | Cash | ($602) | ($521) | | **Net Debt** | **$22,657** | **$9,338** | | **Leverage Ratio** | **1.1x** | **0.8x** |

Company Overview - Innovative Solutions and Support (ISSC) designs, produces, and sells avionics solutions, focusing on electronic devices and systems used in aircraft [1]. Product Line - The company's main product lines include Flat Panel Display Systems, which are multi-function LCD screens [1]. Investment Philosophy - The company emphasizes diversification not only in assets but also in methods and investment philosophies, suggesting that diversification involves applying different methods to different goals [1]. Investment Strategies - The company adopts a "long only" investment approach, avoiding shorting companies, and engages in delta-neutral options plays to benefit from a stock or fund's lack of movement [1]. - Various options strategies are utilized, including covered calls, iron condors, butterflies, calendar spreads, and call-put spreads [1]. Analysis and Reporting - The company primarily analyzes and writes about stocks and funds that it owns or intends to own, indicating a focus on personal investment interests [1].

Core Insights - Innovative Solutions & Support, Inc. (ISSC) reported significant financial growth in Q2 2025, with revenue more than doubling year-over-year to $21.9 million and net income surging 300% to $5.3 million [7] Financial Performance - Adjusted EPS for Q2 was $0.30, compared to $0.07 in Q2 2024 [7] - Adjusted EBITDA increased 219% to $7.7 million, compared to $2.4 million in Q2 2024 [7] - Operating expenses rose modestly to $4.3 million, representing 19.6% of revenue, with SG&A falling from 36.7% year-over-year [4] Operational Analysis - Military sales now account for 40-50% of total revenue, up from less than 10% in 2022, driven by $10.8 million from Honeywell-related programs and organic defense contracts [3] - Gross margin rebounded to 51.4%, up from 41.4% in Q1 2025, as Honeywell integration costs subsided [5] Strategic Developments - The Exton facility expansion is on track to triple capacity by mid-2025, positioning ISSC for over $250 million in revenue potential [5] - Backlog stood at $80 million as of quarter-end, excluding long-term OEM programs [14] 2025 Outlook - Revenue growth is expected to exceed 30%, with military revenue projected to exceed 40% of total sales by FY 2025 year-end [8] - EBITDA margins are expected to sustain above 30% as scale benefits offset defense mix headwinds [9]

Group 1 - Innovative Solutions And Support (NASDAQ: ISSC) faced significant declines in its stock price following the release of poor Q1 2025 profitability results, but this downturn is viewed as temporary [1] - The company reported its Q2 2025 results, which may indicate a recovery in performance [1] Group 2 - The analysis emphasizes the importance of long-term fundamentals in driving share prices, suggesting that earnings per share predictions are crucial for assessing the company's future [1]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements for Innovative Solutions and Support, Inc., including balance sheets, statements of operations, and cash flows, with notes on recent Honeywell acquisitions [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) Core financial statements reflect significant growth in assets, revenues, and net income, primarily due to recent acquisitions, with Q2 2025 net sales doubling to $21.9 million Condensed Consolidated Balance Sheet Highlights | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | **Total current assets** | $41,461,571 | $34,685,698 | | **Total assets** | $89,886,245 | $82,382,261 | | **Total current liabilities** | $8,515,313 | $7,265,254 | | **Total liabilities** | $36,373,353 | $35,743,606 | | **Total shareholders' equity** | $53,512,892 | $46,638,655 | Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total net sales** | $21,936,214 | $10,739,516 | $37,904,943 | $20,047,579 | | **Gross profit** | $11,267,223 | $5,582,362 | $17,877,680 | $11,105,524 | | **Operating income** | $6,984,320 | $1,643,050 | $8,328,138 | $3,258,249 | | **Net income** | $5,336,342 | $1,208,316 | $6,072,534 | $2,265,666 | | **Diluted EPS** | $0.30 | $0.07 | $0.34 | $0.13 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended) | Cash Flow Activity | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $3,129,364 | $4,416,839 | | **Net cash (used in) provided by investing activities** | ($1,817,015) | $1,917,162 | | **Net cash used in financing activities** | ($625,678) | ($8,857,115) | | **Net increase (decrease) in cash** | $686,671 | ($2,523,114) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, Honeywell acquisition accounting, revenue recognition, customer concentration, share-based compensation, and loan agreements, with the company operating in a single avionics segment - The company operates in a single business segment that designs, develops, manufactures, sells, and services avionics products for retrofit and OEM applications[19](index=19&type=chunk) - For the three months ended March 31, 2025, five customers (Lockheed Martin, Atlas Air, Boeing, Pilatus, and Kalitta Air) accounted for a combined **72% of net sales**, with Lockheed Martin alone representing **48%**[52](index=52&type=chunk) - Details the September 2024 Honeywell Agreement, a **$14.2 million cash transaction** for assets related to military display generators and flight control computers, with the purchase price allocation being preliminary[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - The company's revolving line of credit with PNC Bank was increased to **$35 million**, with an outstanding balance of **$27.4 million** at an effective interest rate of **5.9%** as of March 31, 2025[130](index=130&type=chunk)[131](index=131&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A covers significant revenue and net income growth, driven by Honeywell acquisitions, analyzing operational results, liquidity, capital resources, and backlog, noting gross margin pressure from product mix changes [Company Overview](index=42&type=section&id=Company%20Overview) IS&S is an avionics systems integrator for OEM and retrofit markets, with recent Honeywell acquisitions expanding product lines and potentially causing near-term revenue fluctuations during production transition - The company is a systems integrator for air data equipment, engine display systems, autothrottles, and cockpit display systems, serving both OEM and retrofit markets[138](index=138&type=chunk) - Recent acquisitions from Honeywell (June 2023, July 2024, September 2024) have significantly expanded the company's product lines, particularly in inertial, communication, navigation, and military display systems[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - The company anticipates revenue fluctuations over the next few quarters as production of the acquired Honeywell military product lines transitions from Honeywell's facilities to IS&S's facilities[146](index=146&type=chunk)[147](index=147&type=chunk) [Results of Operations](index=48&type=section&id=RESULTS%20OF%20OPERATIONS) Substantial growth in Q2 2025, with net sales up 104.3% to $21.9 million and net income quadrupling to $5.3 million, primarily due to Honeywell acquisition, while gross margin slightly decreased Q2 2025 vs. Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $21.9M | $10.7M | +$11.2M | +104.3% | | **Gross Profit** | $11.3M | $5.6M | +$5.7M | +101.8% | | **Net Income** | $5.3M | $1.2M | +$4.1M | +341.7% | Six Months 2025 vs. Six Months 2024 Performance | Metric | YTD 2025 | YTD 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $37.9M | $20.0M | +$17.9M | +89.1% | | **Gross Profit** | $17.9M | $11.1M | +$6.8M | +61.3% | | **Net Income** | $6.1M | $2.3M | +$3.8M | +165.2% | - The increase in net sales was primarily driven by an **$8.3 million increase in Product sales**, of which **$7.9 million** was from the acquired Honeywell military products[164](index=164&type=chunk) - Gross margin for Q2 2025 decreased slightly to **51.4%** from **52.0%** in Q2 2024, attributed to changes in product mix and increased depreciation from recent acquisitions[165](index=165&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by cash from operations and an expanded $35 million revolving credit facility, with $27.4 million outstanding, deemed sufficient for the next 12 months - The company's senior secured revolving line of credit with PNC was increased from **$10 million to $35 million** to support working capital and acquisitions[184](index=184&type=chunk)[185](index=185&type=chunk) - As of March 31, 2025, the outstanding balance on the revolving line of credit was **$27.4 million**, with **$7.6 million** of availability[188](index=188&type=chunk) - For the six months ended March 31, 2025, net cash provided by operating activities was **$3.1 million**, net cash used in investing activities was **$1.8 million**, and net cash used in financing activities was **$0.6 million**[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Backlog](index=57&type=section&id=Backlog) Backlog stood at $79.6 million as of March 31, 2025, including $66.0 million from the Honeywell acquisition, with 59% expected to convert to revenue within 12 months Backlog Movement (Six Months Ended Mar 31, 2025) | Description | Amount | | :--- | :--- | | **Beginning Backlog (Sep 30, 2024)** | $89,232,576 | | **Bookings during period** | $28,270,882 | | **Sales recognized during period** | ($37,904,943) | | **Ending Backlog (Mar 31, 2025)** | $79,598,515 | - The company expects to recognize approximately **59% of its backlog as revenue over the next 12 months** and **81% over the next 24 months**[198](index=198&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is interest rate changes affecting cash equivalents, with a hypothetical 1% rate increase having a minor impact on interest income - The company's main market risk is from interest rate changes on its cash equivalents, where a hypothetical **1% increase** in variable interest rates would have increased interest income by approximately **$14,917** for the six months ended March 31, 2025[201](index=201&type=chunk) [Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2025[204](index=204&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[205](index=205&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) The company does not anticipate any currently pending legal proceedings to materially affect its financial results or position - The Company does not believe any currently pending legal proceedings will have a material effect on its results of operations or financial position[206](index=206&type=chunk) [Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) Highlights tariff risks from U.S. and retaliatory actions, potentially impacting supply chain, product costs, and demand, as detailed in the Annual Report on Form 10-K - The company highlights the risk that tariffs imposed by the U.S. government and reciprocal actions from other nations could have a material adverse effect on its results of operations by negatively impacting demand and the supply chain[208](index=208&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or common stock repurchases occurred during the quarter ended March 31, 2025 - There were no unregistered sales of equity securities during the quarter ended March 31, 2025[209](index=209&type=chunk) - The company did not repurchase any shares of its common stock during the quarter ended March 31, 2025[213](index=213&type=chunk) [Defaults upon Senior Securities](index=61&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) No defaults upon senior securities were reported - None reported[214](index=214&type=chunk) [Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[215](index=215&type=chunk) [Other Information](index=61&type=section&id=Item%205.%20Other%20Information) No executive officer or director adopted or terminated a Rule 10b5-1 trading plan during the quarter ended March 31, 2025 - During the quarter, no executive officer or director adopted or terminated a Rule 10b5-1 trading plan or any non-Rule 10b5-1 trading arrangement[216](index=216&type=chunk) [Exhibits](index=62&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) - The exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL documents (Exhibits 101, 104)[220](index=220&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenue growth of just over 100% in the second quarter, driven by new military programs and contributions from legacy platforms [6][7] - EBITDA increased by over 200% and profit by over 300% compared to the previous year, indicating significant operating leverage [7][14] - Net revenues reached $21,900,000, more than double the revenues from the same quarter last year [16] - Gross profit was $11,300,000, up from $5,600,000 in the same period last year, with a gross margin of 51.4% [17][18] - Net income for the quarter was $5,300,000, compared to $1,200,000 in the previous year, with GAAP earnings per share increasing to $0.30 [20] Business Line Data and Key Metrics Changes - Product sales were $13,200,000, significantly up from $4,900,000 last year, primarily due to the recently acquired military product line [17] - Service revenue was $8,800,000, largely driven by customer service sales from the Honeywell product lines [17] - The company expects at least 40% of its revenue to come from military customers during fiscal 2025 [9][12] Market Data and Key Metrics Changes - The air transport business showed notable strength, benefiting from delays in production of new airplanes from major manufacturers [6][28] - The backlog as of March 31 was approximately $80,000,000, with new orders in the second quarter totaling $20,800,000 [20] Company Strategy and Development Direction - The company is focused on expanding its military business and has made significant investments in infrastructure and systems capabilities [9][12] - The ISNS Next strategy aims for targeted commercial growth, improving operating leverage, and disciplined capital allocation [8] - The company is also expanding its facility in Exton, Pennsylvania, which is expected to double its footprint and increase production capabilities by more than threefold [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving over 30% revenue growth for fiscal 2025, despite potential supply chain challenges [26][27] - The company is optimistic about the ongoing integration of the Honeywell product lines and expects to see continued growth in both military and commercial markets [11][12] - Management highlighted the importance of maintaining a competitive advantage through US-based production and strategic acquisitions [14][54] Other Important Information - Cash flow from operations was $1,300,000, compared to $200,000 in the previous year, with capital expenditures increasing to $1,600,000 [21][22] - The company maintains a net debt of $26,200,000, with a net leverage of 1.4 times, providing financial flexibility for ongoing operations [22] Q&A Session Summary Question: Can you provide details on the Honeywell product lines and FY 2025 guidance? - Management does not anticipate further delays post-transition and is confident in achieving over 30% growth for FY 2025 [26][27] Question: What is driving the improvement in air transport revenue? - The improvement is attributed to high demand for aftermarket upgrades due to delays in new airplane production [28] Question: What percentage of sales were to the Department of Defense? - Approximately 40% of sales were associated with military contracts, including the F-sixteen program [33][36] Question: Are there plans for additional hiring? - The company continues to seek talented engineers and individuals to support growth, with hiring ongoing [44][45] Question: What is the status of the clean room expansion? - The clean room expansion is on track, with no concerns about completion [48][50] Question: What is the timeline for the integration of the Honeywell product lines? - The integration is expected to be largely complete by summer, coinciding with the facility expansion [68]

Financial Data and Key Metrics Changes - The company reported revenue growth of just over 100% in Q2 2025, with net revenues reaching $21.9 million, compared to $10.8 million in the same quarter last year [6][17] - EBITDA increased by over 200%, reaching $7.6 million, while net profit surged by over 300% to $5.3 million [7][21] - Gross profit was $11.3 million, up from $5.6 million year-over-year, with a gross margin of 51.4%, slightly down from 52% in the same period last year [18][19] Business Line Data and Key Metrics Changes - The military programs, particularly the F-16 program, significantly contributed to revenue, with $10.3 million associated with military sales [34][36] - Product sales reached $13.2 million, a substantial increase from $4.9 million in the previous year, driven by the Honeywell military product line [17][18] - Service revenue was $8.8 million, largely from customer service sales related to the Honeywell acquisition [18] Market Data and Key Metrics Changes - The company expects at least 40% of its revenue to come from military customers during fiscal 2025, indicating a strong focus on defense contracts [10][38] - The air transport market showed notable strength, benefiting from delays in new airplane production, leading to increased demand for aftermarket upgrades [30] Company Strategy and Development Direction - The company is executing its long-term value creation strategy, ISNS Next, focusing on targeted commercial growth, improving operating leverage, and disciplined capital allocation [8] - Investments in infrastructure and systems capabilities are being made to support military business growth, including the integration of an ERP system [9][12] - The expansion of the Exton, Pennsylvania facility is on track to be completed by mid-2025, which will triple production capabilities [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving over 30% revenue growth for fiscal 2025, despite potential supply chain challenges related to the Honeywell transition [29][71] - The company is optimistic about maintaining strong operating leverage and profitability, even with recent margin pressures due to acquisition-related costs [14][19] Other Important Information - The company has a backlog of approximately $80 million as of March 31, 2025, which includes purchase orders but excludes additional orders from OEM customers [21][22] - Cash flow from operations improved to $1.3 million, up from $200,000 in the previous year, reflecting higher net income and changes in working capital [22] Q&A Session Summary Question: Can you provide details on the Honeywell product lines and FY 2025 guidance? - Management does not anticipate further delays post-transition and expects to achieve over 30% growth for the year [28][29] Question: What is driving the improvement in air transport revenue? - The increase is attributed to high demand for aftermarket upgrades due to production delays from major manufacturers [30] Question: What percentage of sales were to the Department of Defense? - Approximately 40% of sales were military-related, with $10.3 million associated with the F-16 program [34][38] Question: Are there plans for additional hiring? - The company continues to seek talented engineers and individuals to support growth, particularly for the F-16 platform [46][47] Question: What is the status of the clean room expansion? - The clean room expansion is on track, with no concerns about completion [50][53] Question: How is the ERP system expected to impact productivity? - The ERP system aims to improve data utilization for better business decisions, though the financial impact is still uncertain [76]

Innovative Solutions & Support Second Quarter 2025 Results [Second Quarter 2025 Highlights & Management Commentary](index=1&type=section&id=Second%20Quarter%202025%20Highlights%20%26%20Management%20Commentary) The company reported strong Q2 2025 results with significant growth in revenue and EBITDA, driven by key product lines and strategic initiatives Q2 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 | Change YoY | | :--- | :--- | :--- | | Net Revenue | $21.9 million | +104% | | Gross Profit | $11.3 million | +102% | | Gross Margin | 51.4% | -60 bps | | Net Income | $5.3 million | +340% | | Diluted EPS | $0.30 | +329% | | Adjusted EBITDA | $7.7 million | +219% | - The strong performance was driven by contributions from the F-16 product line and the air transport market[2](index=2&type=chunk) - The company is on track to achieve its full-year target of growing both revenue and EBITDA by **more than 30%**[2](index=2&type=chunk) - Key strategic initiatives progressed during the quarter, including the Exton facility expansion to **triple capacity**, integration of acquired Honeywell products, and implementation of a new NetSuite ERP system[2](index=2&type=chunk) [Second Quarter 2025 Financial Performance](index=2&type=section&id=Second%20Quarter%202025%20Financial%20Performance) Revenue surged 104% to $21.9 million, driven by new programs and acquisitions, while operating leverage improved significantly - Revenue growth was driven by new military programs, the acquired Honeywell military product line, and growth in the air transport market, including an acceleration of some sales[4](index=4&type=chunk) Gross Profit and Margin Comparison (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Gross Profit | $11.3 million | $5.6 million | | Gross Margin | 51.4% | 52.0% | - Operating expenses as a percentage of revenue fell to **19.6% from 36.7%** in the prior-year quarter, highlighting significant operating leverage as the business scales[6](index=6&type=chunk) Net Income and EPS Comparison (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $5.3 million | $1.2 million | | Diluted EPS | $0.30 | $0.07 | - New orders in Q2 2025 were **$20.8 million**, and the backlog as of March 31, 2025, was **$79.6 million**, excluding additional orders from long-term OEM programs[8](index=8&type=chunk) [Balance Sheet, Liquidity and Free Cash Flow](index=2&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Free%20Cash%20Flow) The company maintained a net debt position of $26.2 million with total liquidity of $8.8 million, while free cash flow decreased due to facility expansion investments Liquidity Position as of March 31, 2025 | Metric | Amount | | :--- | :--- | | Long-Term Debt | $27.4 million | | Cash and Cash Equivalents | $1.2 million | | Net Debt | $26.2 million | | Total Cash & Credit Availability | ~$8.8 million | Cash Flow Summary (Six Months Ended March 31) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Cash Flow from Operations | $3.1 million | $4.4 million | | Capital Expenditures | $1.8 million | $0.3 million | | Free Cash Flow | $1.3 million | $4.1 million | [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) A conference call to discuss second quarter results is scheduled for May 15, 2025, with webcast and replay details available - A conference call to discuss Q2 2025 results is scheduled for **9:00 AM ET on Thursday, May 15, 2025**[11](index=11&type=chunk) Conference Call Dial-In and Replay Information | Type | Number | Passcode | | :--- | :--- | :--- | | Domestic Live | (844) 739-3798 | N/A | | International Live | (412) 317-5714 | N/A | | Domestic Replay | (844) 512-2921 | 10199274 | | International Replay | (412) 317-6671 | 10199274 | [Financial Statements](index=7&type=section&id=Financial%20Statements) The statements detail the company's financial position and performance, including balance sheets, operations, and non-GAAP reconciliations [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $89.9 million, driven by increases in inventories and accounts receivable, while shareholders' equity rose to $53.5 million Balance Sheet Summary (in millions) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $41.5 | $34.7 | | Total Assets | $89.9 | $82.4 | | Total Current Liabilities | $8.5 | $7.3 | | Long-Term Debt | $27.4 | $28.0 | | Total Liabilities | $36.4 | $35.7 | | Total Shareholders' Equity | $53.5 | $46.6 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales more than doubled to $21.9 million, leading to a significant increase in net income to $5.3 million for the quarter Income Statement Summary - Three Months Ended March 31 (in millions) | Account | 2025 | 2024 | | :--- | :--- | :--- | | Total Net Sales | $21.9 | $10.7 | | Gross Profit | $11.3 | $5.6 | | Operating Income | $7.0 | $1.6 | | Net Income | $5.3 | $1.2 | | Diluted EPS | $0.30 | $0.07 | [Reconciliation of Non-GAAP Measures](index=9&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) The company reconciled GAAP net income to non-GAAP measures, reporting an Adjusted EBITDA of $7.7 million and a net debt leverage ratio of 1.4x Reconciliation of Net Income to Adjusted EBITDA - Q2 2025 | Metric | Amount (in millions) | | :--- | :--- | | Net Income | $5.3 | | Adjustments (Taxes, Interest, D&A, etc.) | $2.3 | | EBITDA | $7.6 | | Other Adjustments | $0.1 | | **Adjusted EBITDA** | **$7.7** | Net Debt Leverage | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Net Debt | $26.2 million | $10.1 million | | Leverage Ratio | 1.4x | 0.8x |

Core Insights - Innovative Solutions and Support (NASDAQ: ISSC) has experienced high sales growth following the acquisition of Honeywell product lines, but this has negatively impacted profit margins [1]. Group 1 - The company develops avionics systems and has seen significant sales growth due to the recent acquisition [1]. - The acquisition of Honeywell product lines has led to both increased revenue and challenges in maintaining profit margins [1].

Group 1 - The aerospace and defense contractors are facing challenges due to President Trump's announcement of significant budget cuts to the defense budget [1] - The Trump Administration's objective is to reduce the defense budget, which has implications for contractors working with the U.S. Department of Defense [1] Group 2 - The article does not provide any additional relevant information regarding companies or industries beyond the defense sector [2][3]