Innovative Solutions and Support(ISSC) - 2025 Q4 - Annual Report

Financial Performance - Net sales for fiscal year 2025 increased by $37.1 million, or 78.6%, to $84.3 million from $47.2 million in fiscal year 2024, driven by a $29.8 million, or 122.7%, increase in product sales from the September 2024 Honeywell Agreement[236] - Gross profit margin for fiscal year 2025 was 48.1%, down from 55.0% in fiscal year 2024, primarily due to unfavorable changes in product mix and increased costs associated with the September 2024 Honeywell Agreement[237] - Net income for fiscal year 2025 was $15.6 million, compared to $7.0 million in fiscal year 2024, with fully diluted net income per share increasing to $0.88 from $0.40[242][243] - Net sales for fiscal year 2024 increased by $12.4 million, or 36.0%, to $47.2 million from $34.8 million in fiscal year 2023, driven by a 7% increase in product sales and an 87.6% increase in service sales[244][265] - Net income for fiscal year 2024 was $7.0 million, up from $6.0 million in fiscal year 2023, with fully diluted net income per share increasing to $0.40 from $0.35[250] Expenses - Research and development expenses decreased to $4.0 million, or 4.7% of net sales, for fiscal year 2025, down from 8.8% in fiscal year 2024[238] - Selling, general, and administrative expenses increased by $4.3 million, or 35.8%, to $16.4 million for fiscal year 2025, representing 19.4% of net sales compared to 25.6% in fiscal year 2024[239] - Cost of sales for fiscal year 2025 was $43.8 million, or 51.9% of net sales, compared to $21.2 million, or 45.0% of net sales, for fiscal year 2024[237] - Cost of sales rose to $21.3 million, or 45.0% of net sales, in fiscal year 2024, compared to $13.5 million, or 38.7% of net sales, in fiscal year 2023, resulting in a gross margin decrease to 55.0% from 61.3%[245] - Research and development expenses increased to $4.1 million in fiscal year 2024, representing 8.8% of net sales, slightly down from 9.0% in fiscal year 2023[246] - Selling, general, and administrative expenses rose by $1.3 million, or 11.9%, to $12.1 million in fiscal year 2024, with a decrease in SG&A as a percentage of net sales to 25.6% from 31.1%[247] Cash Flow and Financing - Cash generated from operating activities in fiscal year 2024 was $5.8 million, compared to $2.1 million in fiscal year 2023, primarily driven by net income and changes in working capital[265] - Cash used in investing activities for fiscal year 2024 was $16.8 million, mainly due to a $14.2 million acquisition of military display generators and flight control computers[267] - The company entered into a Credit Agreement on July 18, 2025, providing credit facilities of up to $100.0 million, including a $25 million initial term loan and a $30 million revolving credit facility[253][254] - Net cash used in financing activities was $4.6 million for the fiscal year ended September 30, 2025, primarily due to $27.0 million in borrowings against the 2025 Initial term loan[268] - Net cash provided by financing activities was $8.5 million for the fiscal year ended September 30, 2024, consisting of $43.8 million in payments against the Company's line of credit offset by $52.3 million in additional borrowings for acquisitions[269] Future Outlook - The Company anticipates fluctuations in revenues related to the September 2024 Honeywell Agreement over the next few quarters due to the transition of production from Honeywell facilities to its own[228] - The Company believes its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months, but may need to develop new products or respond to competitive pressures[270] - The Company expects existing cash balances and anticipated cash flows to satisfy liquidity needs for at least the next 12 months[261] Tax and Other Income - Other income for fiscal year 2025 was $1.5 million, primarily from Employee Retention Tax Credits, offset by a one-time settlement fee[240] - The effective tax rate for fiscal year 2025 was 21.7%, up from 20.9% in fiscal year 2024, due to increased earnings[241] Business Operations - The Company operates in one business segment as a systems integrator for flight guidance and cockpit display systems, with net sales outside the United States amounting to $16.4 million, $22.8 million, and $15.5 million for the fiscal years ended September 30, 2025, 2024, and 2023, respectively[283] - The Company recognizes revenue in accordance with ASC 606, with revenue recognized when a customer obtains control of promised goods or services[277] - The Company allocates the purchase price of acquired entities to the underlying tangible and identifiable intangible assets based on their estimated fair values, impacting future operating results[280] - Inventories are stated at the lower of cost or net realizable value, with write-downs for slow-moving and obsolete inventories based on future product demand assessments[282] Risk Factors - The Company's exposure to interest rate risk is related to its variable rate debt of $24.3 million as of September 30, 2025, where a +/-1% change in interest rates would affect interest expense by approximately $0.3 million[284] - The Company does not believe inflation had a material effect on its financial position or results of operations during the past three years[271] Sustainability Efforts - The Company is committed to advancing sustainability efforts, including improving energy efficiency and minimizing waste across operations[274]