Innovative Solutions and Support(US:ISSC)2025-05-15 20:30PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 applications19 - 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 - 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 preliminary616263 - 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, 2025130131 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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 markets138 - 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 systems143144145 - 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 facilities146147 Results of Operations 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 products164 - 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 acquisitions165 Liquidity and Capital Resources 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 acquisitions184185 - As of March 31, 2025, the outstanding balance on the revolving line of credit was $27.4 million, with $7.6 million of availability188 - 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 million192193194 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 months198 Quantitative and Qualitative Disclosures About Market Risk 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, 2025201 Controls and Procedures 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, 2025204 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting205 PART II. OTHER INFORMATION Legal Proceedings 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 position206 Risk Factors 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 chain208 Unregistered Sales of Equity Securities and Use of Proceeds 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, 2025209 - The company did not repurchase any shares of its common stock during the quarter ended March 31, 2025213 Defaults upon Senior Securities No defaults upon senior securities were reported - None reported214 Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable215 Other Information 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 arrangement216 Exhibits 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