Innovative Solutions and Support(ISSC) - 2025 Q3 - Quarterly Results

Innovative Solutions & Support Third Quarter 2025 Results Management Commentary and Strategic Outlook 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] - 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] - 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][11] - The company reaffirms its full-year fiscal 2025 target of growing both revenue and EBITDA by more than 30% compared to fiscal 2024[2] Third Quarter 2025 Financial Performance 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] - 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] 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] Balance Sheet, Liquidity and Cash Flow 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][12] 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 This section presents unaudited condensed consolidated balance sheets and statements of operations for the specified periods Condensed Consolidated Balance Sheets 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 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 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 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 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 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 |