Innovative Solutions and Support(ISSC) - 2024 Q4 - Annual Report

Financial Performance - Net sales for fiscal year 2024 were $47,198,020, with a gross profit of $25,913,591[4] - Operating income for fiscal year 2024 was $9,661,537, compared to $7,359,048 in fiscal year 2023[4] - Net income for fiscal year 2024 was $6,998,380, with a basic net income per common share of $0.40[4] - Company reported net sales of $47.2 million in fiscal year 2024, a 35.6% increase from $34.8 million in fiscal year 2023[140] - Net income increased to $7.0 million in fiscal year 2024, up 16.1% from $6.0 million in fiscal year 2023[140] - The company's net income for fiscal year 2023 was $6.0 million, compared to $5.5 million in fiscal year 2022, with fully diluted net income per share of $0.35 in 2023 versus $0.32 in 2022[108] Expenses and Costs - R&D expenses were $3.1 million in fiscal year 2023, decreasing to 9.0% of Net sales from 9.8% in fiscal year 2022[14] - Cost of sales was $13.5 million, or 38.7% of Net sales, in fiscal year 2023, with a gross margin of 61.3% compared to 60.1% in fiscal year 2022[18] - Income tax expense was $1.6 million in fiscal year 2023, with an effective tax rate of 21.1% compared to 24.8% in fiscal year 2022[15] Cash Flow and Financing - Net cash provided by financing activities was $8.5 million for fiscal year 2024, consisting of $43.8 million in payments against the line of credit offset by $52.3 million in additional borrowings[23] - Cash used in investing activities was $16.8 million for fiscal year 2024, primarily due to the $14.2 million acquisition of military display generators and flight control computers[22] Assets and Liabilities - Total assets as of September 30, 2024, were $82,382,261, compared to $62,957,451 in 2023[4] - Total assets increased to $82.38 million in 2024 from $62.96 million in 2023[74] - Accounts receivable rose to $12.61 million in 2024 compared to $9.74 million in 2023[74] - Inventories grew to $12.73 million in 2024 from $6.14 million in 2023[74] - Long-term debt increased to $28.03 million in 2024 from $17.50 million in 2023[74] - Retained earnings improved to $12.67 million in 2024 from $5.67 million in 2023[74] Revenue and Sales - The company's net sales outside the United States were $22.8 million in fiscal year 2024, $15.5 million in 2023, and $11.1 million in 2022[45] - Customer service sales were $11.1 million in 2023, down from $4.9 million in 2022[83] - Engineering and development contracts net sales were $1.1 million in 2023, down from $0.4 million in 2022[83] - Top five customers accounted for 42% of total sales in 2024, down from 54% in 2023[77] - In fiscal year 2024, the company's three largest customers, Pilatus, Textron, and Honeywell, accounted for 23%, 7%, and 7% of total revenue, respectively[125] Acquisitions and Agreements - The company acquired additional key assets and entered into an exclusive license agreement with Honeywell in July 2024 for $4.2 million in cash[144] - Company entered into a $14.2 million agreement with Honeywell for military display generators and flight control computers in September 2024[145] - Company entered into a $35.9 million agreement with Honeywell for inertial, communication, and navigation product lines in June 2023[143] - The Company entered into the September 2024 Honeywell Agreement for $14.2 million in cash, acquiring assets related to military display generators and flight control computers[337] - The exclusive licensing from Honeywell enhances the Company's offerings in air transport, military, and business aviation markets[338] Backlog and Contracts - Backlog at September 30, 2024 was $89.2 million, including $74.3 million from a recent acquisition, with 65% expected to be recognized as revenue over the next 12 months and 98% over the next 24 months[141] - Company secured a multi-million dollar production contract for 19'' Multifunction Display with Integrated Mission Computer in August 2024[142] - The company's backlog at September 30, 2023 was $13.5 million, significantly lower than the $89.2 million backlog at September 30, 2024[141] Market Risk and Interest Rates - A hypothetical 1% increase in variable interest rates would affect interest expense by approximately $0.3 million based on $28.0 million of variable rate debt as of September 30, 2024[46] - The company's exposure to market risk primarily relates to changes in interest rates, particularly from its revolving credit facility[46] - The company's cash equivalents consist of funds invested in money market funds with variable interest rates, and a 1% increase in rates would not materially impact operations[47] Inventory and Suppliers - Inventory write-downs are recorded when the net realizable value is below cost or future demand is lower than current inventory levels[44] - Four suppliers accounted for 63.1% of total inventory purchases in 2024, up from 49.0% in 2023[79] - The company's manufacturing relies on four key suppliers: Honeywell, FilConn, APCT Inc, and Brandywine Precision Inc, which accounted for most of the company's inventory-related purchases in fiscal year 2024[123] Revenue Recognition and Accounting Policies - Revenue recognition for EDC contracts is measured over time using an input measure, such as costs incurred to date relative to total estimated costs at completion[37] - The company's accounting policies require significant judgment and estimates due to inherent uncertainty or complexity[30] - The company uses the relief from royalty method to estimate the fair value of acquired license agreements, considering future expected revenues, royalty rates, and discount rates[59] Intangible Assets and Goodwill - The fair value of acquired license agreements in the September 2024 Honeywell Agreement was estimated at $2,300,000[58] - The company's identifiable intangible assets primarily consist of license agreements, customer relationships, and backlog, recognized at fair value in business combinations[100] - The company's goodwill impairment test is performed annually or in interim periods if certain changes indicate potential impairment, with factors including macroeconomic conditions and financial performance[104] Business Strategy and Operations - The company plans to continue investing in capital equipment to support engineering development efforts and operations[22] - The company operates in one business segment, focusing on flight guidance and cockpit display systems for OEMs and retrofit applications[45] - The company's multi-channel sales strategy targets various aviation sectors, including passenger and cargo aircraft operators, general aviation, MRO dealer networks, and the Department of Defense[119] - Potential cost synergies are expected from better utilization of the Company's engineering team and operational capacity[338] Facilities and Expansion - The company is expanding its Exton facility by 40,000 square feet at an expected cost of $6 million to support commercial growth and recent transactions with Honeywell[118] - Company operates a 45,000 square foot design, manufacturing, and office facility in Exton, Pennsylvania[155] Patents and Employees - Company held over 120 U.S. and international patents as of September 30, 2024[154] - 27% of full-time employees were in engineering-related roles as of September 30, 2024[154] - Company employed 133 full-time employees as of September 30, 2024, up from 98 in September 2023[137] Cybersecurity - The Company has not identified material risks from known cybersecurity threats affecting its operations or financial condition[321] Stock and Market Value - The aggregate market value of common stock held by non-affiliates was $112.2 million as of March 31, 2024[69] Product and Technology - ThrustSense® Autothrottle system selected by US Army for C-12 (B200) aircraft, with deliveries starting in September 2024[142]