[10-Q] Innovative Solutions & Support Quarterly Earnings Report
Innovative Solutions and Support, Inc. reported significant growth for the quarter and nine months ended June 30, 2025. Total net sales rose to $24.1 million for the three months and $62.0 million for the nine months, up from $11.8 million and $31.8 million a year earlier. Net income was $2.44 million for the quarter and $8.52 million for the nine months, with basic earnings per share of $0.14 and $0.49 for the quarter and nine months, respectively.
Balance sheet and cash flow highlights include total assets of $91.8 million, shareholders' equity of $56.8 million, cash and cash equivalents of $601,759, inventories of $20.7 million, operating cash flow of $10.34 million for the nine months, and net cash used in financing of $4.77 million. The company completed multiple Honeywell asset transactions (June 2023, July 2024, September 2024) totaling material consideration including $35.86 million and $14.06 million purchases; certain purchase price allocations remain preliminary. Revenue concentration is notable: Lockheed Martin represented 52% of net sales for the quarter and 47% for the nine months.
Innovative Solutions and Support, Inc. ha registrato una crescita significativa per il trimestre e per i nove mesi chiusi il 30 giugno 2025. Le vendite nette totali sono aumentate a $24.1 million nel trimestre e a $62.0 million nei nove mesi, rispetto a $11.8 million e $31.8 million dell'anno precedente. L'utile netto è stato di $2.44 million per il trimestre e di $8.52 million per i nove mesi, con un utile base per azione di $0.14 e $0.49 rispettivamente.
Tra i principali dati di stato patrimoniale e flussi di cassa figurano attività totali per $91.8 million, patrimonio netto di $56.8 million, disponibilità liquide e mezzi equivalenti per $601,759, rimanenze per $20.7 million, flusso di cassa operativo di $10.34 million nei nove mesi e cassa netta utilizzata nelle attività di finanziamento pari a $4.77 million. La società ha completato più transazioni relative ad asset Honeywell (giugno 2023, luglio 2024, settembre 2024) per un controvalore rilevante, inclusi acquisti per $35.86 million e $14.06 million; alcune allocazioni del prezzo di acquisto risultano ancora preliminari. La concentrazione dei ricavi è significativa: Lockheed Martin ha rappresentato il 52% delle vendite nette nel trimestre e il 47% nei nove mesi.
Innovative Solutions and Support, Inc. informó un crecimiento significativo en el trimestre y en los nueve meses terminados el 30 de junio de 2025. Las ventas netas totales aumentaron a $24.1 million en el trimestre y a $62.0 million en los nueve meses, frente a $11.8 million y $31.8 million del año anterior. La utilidad neta fue de $2.44 million en el trimestre y de $8.52 million en los nueve meses, con una utilidad básica por acción de $0.14 y $0.49, respectivamente.
Entre los puntos destacados del balance y del flujo de efectivo figuran activos totales por $91.8 million, patrimonio de los accionistas por $56.8 million, efectivo y equivalentes por $601,759, inventarios por $20.7 million, flujo de efectivo operativo de $10.34 million en los nueve meses y efectivo neto usado en financiamiento por $4.77 million. La compañía completó varias transacciones de activos de Honeywell (junio 2023, julio 2024, septiembre 2024) por un importe material, incluidas compras por $35.86 million y $14.06 million; ciertas asignaciones del precio de compra permanecen preliminares. La concentración de ingresos es notable: Lockheed Martin representó el 52% de las ventas netas en el trimestre y el 47% en los nueve meses.
Innovative Solutions and Support, Inc.는 2025년 6월 30일로 종료된 분기 및 9개월 동안 유의한 성장을 보고했습니다. 총 순매출은 분기 기준 $24.1 million, 9개월 기준 $62.0 million으로 전년 동기의 $11.8 million 및 $31.8 million에서 증가했습니다. 순이익은 분기 $2.44 million, 9개월 누계 $8.52 million였으며, 기본 주당순이익은 분기와 9개월 각각 $0.14 및 $0.49였습니다.
대차대조표와 현금흐름 주요 항목으로는 총자산 $91.8 million, 자본(주주지분) $56.8 million, 현금 및 현금성자산 $601,759, 재고자산 $20.7 million, 9개월 영업현금흐름 $10.34 million, 자금조달 활동에서 순현금 사용액 $4.77 million 등이 있습니다. 회사는 Honeywell 자산과 관련된 여러 거래(2023년 6월, 2024년 7월, 2024년 9월)를 완료했으며, 그 중 $35.86 million 및 $14.06 million 규모의 인수가 포함되어 있습니다; 일부 취득원가 배분은 아직 예비 단계입니다. 매출 집중도는 높아 Lockheed Martin이 분기 매출의 52%, 9개월 매출의 47%를 차지했습니다.
Innovative Solutions and Support, Inc. a déclaré une croissance significative pour le trimestre et les neuf mois clos le 30 juin 2025. Le chiffre d'affaires net total est passé à $24.1 million pour le trimestre et à $62.0 million pour les neuf mois, contre $11.8 million et $31.8 million un an plus tôt. Le bénéfice net s'élève à $2.44 million pour le trimestre et $8.52 million pour les neuf mois, avec un résultat de base par action de $0.14 et $0.49 respectivement.
Les points clés du bilan et des flux de trésorerie comprennent des actifs totaux de $91.8 million, des capitaux propres de $56.8 million, des liquidités et équivalents de trésorerie de $601,759, des stocks de $20.7 million, un flux de trésorerie d'exploitation de $10.34 million pour les neuf mois et des flux nets utilisés dans les activités de financement de $4.77 million. La société a finalisé plusieurs transactions d'actifs Honeywell (juin 2023, juillet 2024, septembre 2024) pour un montant significatif, incluant des acquisitions de $35.86 million et $14.06 million ; certaines affectations du prix d'achat restent préliminaires. La concentration des revenus est notable : Lockheed Martin représentait 52 % des ventes nettes pour le trimestre et 47 % pour les neuf mois.
Innovative Solutions and Support, Inc. meldete ein deutliches Wachstum für das Quartal und die neun Monate zum 30. Juni 2025. Die Nettoumsätze stiegen auf $24.1 million im Quartal und $62.0 million in den neun Monaten, gegenüber $11.8 million bzw. $31.8 million im Vorjahr. Der Nettogewinn betrug $2.44 million für das Quartal und $8.52 million für die neun Monate; das Ergebnis je Aktie (basic) lag bei $0.14 bzw. $0.49 für Quartal und neun Monate.
Bilanz- und Cashflow-Höhepunkte umfassen Gesamtvermögen von $91.8 million, Eigenkapital von $56.8 million, Zahlungsmittel und Zahlungsmitteläquivalente von $601,759, Vorräte von $20.7 million, operativen Cashflow von $10.34 million für die neun Monate sowie netto in Finanzierungstätigkeiten verwendete Mittel von $4.77 million. Das Unternehmen hat mehrere Honeywell-Asset-Transaktionen abgeschlossen (Juni 2023, Juli 2024, September 2024) mit einer wesentlichen Gegenleistung, darunter Käufe in Höhe von $35.86 million und $14.06 million; bestimmte Purchase-Price-Allocations sind noch vorläufig. Die Umsatzkonzentration ist auffällig: Lockheed Martin machte 52 % der Nettoumsätze im Quartal und 47 % in den neun Monaten aus.
- Total net sales increased to $24.14 million for the quarter and $62.05 million for the nine months ended June 30, 2025.
- Net income grew to $2.44 million (quarter) and $8.52 million (nine months) compared with prior year periods.
- Operating cash flow strengthened with $10.34 million provided in the nine months ended June 30, 2025.
- Shareholders' equity rose to $56.79 million from $46.64 million year-over-year.
- Strategic asset acquisitions from Honeywell added intangible assets, backlog and license rights (material transactions disclosed).
- Significant customer concentration: Lockheed Martin accounted for 52% of net sales in the three months and 47% in the nine months ended June 30, 2025.
- Inventories increased to $20.72 million from $12.73 million, representing elevated working capital investment.
- Purchase price allocations remain preliminary for the September 2024 Honeywell Agreement, creating potential measurement-period adjustments.
- Contract liabilities increased to $2.53 million from $340,481, indicating more invoicing prior to performance.
Insights
TL;DR: Revenue and profitability improved materially year-over-year; operating cash flow strengthened.
The Company reported total net sales of $24.1 million for the quarter and $62.0 million for the nine months, with net income of $2.44 million and $8.52 million, respectively. Gross profit for the quarter was $8.58 million and operating income was $3.51 million, indicating improved margins versus the prior-year periods presented. Operating cash flow of $10.34 million for the nine months supports liquidity despite modest cash balances of $0.60 million. Shareholders' equity increased to $56.8 million, reflecting retained earnings growth.
TL;DR: Multiple Honeywell asset transactions expanded intangible assets and backlog; some allocations remain in measurement period.
The filing discloses three Honeywell-related transactions: a June 2023 acquisition ($35.86 million), a July 2024 asset acquisition ($4.2 million), and a September 2024 Asset Purchase and License Agreement ($14.06 million). Intangible assets, backlog and license agreements increased materially and goodwill was recorded. The September 2024 allocation remains preliminary with measurement-period adjustments noted, which could affect future amortization and goodwill balances.
Innovative Solutions and Support, Inc. ha registrato una crescita significativa per il trimestre e per i nove mesi chiusi il 30 giugno 2025. Le vendite nette totali sono aumentate a $24.1 million nel trimestre e a $62.0 million nei nove mesi, rispetto a $11.8 million e $31.8 million dell'anno precedente. L'utile netto è stato di $2.44 million per il trimestre e di $8.52 million per i nove mesi, con un utile base per azione di $0.14 e $0.49 rispettivamente.
Tra i principali dati di stato patrimoniale e flussi di cassa figurano attività totali per $91.8 million, patrimonio netto di $56.8 million, disponibilità liquide e mezzi equivalenti per $601,759, rimanenze per $20.7 million, flusso di cassa operativo di $10.34 million nei nove mesi e cassa netta utilizzata nelle attività di finanziamento pari a $4.77 million. La società ha completato più transazioni relative ad asset Honeywell (giugno 2023, luglio 2024, settembre 2024) per un controvalore rilevante, inclusi acquisti per $35.86 million e $14.06 million; alcune allocazioni del prezzo di acquisto risultano ancora preliminari. La concentrazione dei ricavi è significativa: Lockheed Martin ha rappresentato il 52% delle vendite nette nel trimestre e il 47% nei nove mesi.
Innovative Solutions and Support, Inc. informó un crecimiento significativo en el trimestre y en los nueve meses terminados el 30 de junio de 2025. Las ventas netas totales aumentaron a $24.1 million en el trimestre y a $62.0 million en los nueve meses, frente a $11.8 million y $31.8 million del año anterior. La utilidad neta fue de $2.44 million en el trimestre y de $8.52 million en los nueve meses, con una utilidad básica por acción de $0.14 y $0.49, respectivamente.
Entre los puntos destacados del balance y del flujo de efectivo figuran activos totales por $91.8 million, patrimonio de los accionistas por $56.8 million, efectivo y equivalentes por $601,759, inventarios por $20.7 million, flujo de efectivo operativo de $10.34 million en los nueve meses y efectivo neto usado en financiamiento por $4.77 million. La compañía completó varias transacciones de activos de Honeywell (junio 2023, julio 2024, septiembre 2024) por un importe material, incluidas compras por $35.86 million y $14.06 million; ciertas asignaciones del precio de compra permanecen preliminares. La concentración de ingresos es notable: Lockheed Martin representó el 52% de las ventas netas en el trimestre y el 47% en los nueve meses.
Innovative Solutions and Support, Inc.는 2025년 6월 30일로 종료된 분기 및 9개월 동안 유의한 성장을 보고했습니다. 총 순매출은 분기 기준 $24.1 million, 9개월 기준 $62.0 million으로 전년 동기의 $11.8 million 및 $31.8 million에서 증가했습니다. 순이익은 분기 $2.44 million, 9개월 누계 $8.52 million였으며, 기본 주당순이익은 분기와 9개월 각각 $0.14 및 $0.49였습니다.
대차대조표와 현금흐름 주요 항목으로는 총자산 $91.8 million, 자본(주주지분) $56.8 million, 현금 및 현금성자산 $601,759, 재고자산 $20.7 million, 9개월 영업현금흐름 $10.34 million, 자금조달 활동에서 순현금 사용액 $4.77 million 등이 있습니다. 회사는 Honeywell 자산과 관련된 여러 거래(2023년 6월, 2024년 7월, 2024년 9월)를 완료했으며, 그 중 $35.86 million 및 $14.06 million 규모의 인수가 포함되어 있습니다; 일부 취득원가 배분은 아직 예비 단계입니다. 매출 집중도는 높아 Lockheed Martin이 분기 매출의 52%, 9개월 매출의 47%를 차지했습니다.
Innovative Solutions and Support, Inc. a déclaré une croissance significative pour le trimestre et les neuf mois clos le 30 juin 2025. Le chiffre d'affaires net total est passé à $24.1 million pour le trimestre et à $62.0 million pour les neuf mois, contre $11.8 million et $31.8 million un an plus tôt. Le bénéfice net s'élève à $2.44 million pour le trimestre et $8.52 million pour les neuf mois, avec un résultat de base par action de $0.14 et $0.49 respectivement.
Les points clés du bilan et des flux de trésorerie comprennent des actifs totaux de $91.8 million, des capitaux propres de $56.8 million, des liquidités et équivalents de trésorerie de $601,759, des stocks de $20.7 million, un flux de trésorerie d'exploitation de $10.34 million pour les neuf mois et des flux nets utilisés dans les activités de financement de $4.77 million. La société a finalisé plusieurs transactions d'actifs Honeywell (juin 2023, juillet 2024, septembre 2024) pour un montant significatif, incluant des acquisitions de $35.86 million et $14.06 million ; certaines affectations du prix d'achat restent préliminaires. La concentration des revenus est notable : Lockheed Martin représentait 52 % des ventes nettes pour le trimestre et 47 % pour les neuf mois.
Innovative Solutions and Support, Inc. meldete ein deutliches Wachstum für das Quartal und die neun Monate zum 30. Juni 2025. Die Nettoumsätze stiegen auf $24.1 million im Quartal und $62.0 million in den neun Monaten, gegenüber $11.8 million bzw. $31.8 million im Vorjahr. Der Nettogewinn betrug $2.44 million für das Quartal und $8.52 million für die neun Monate; das Ergebnis je Aktie (basic) lag bei $0.14 bzw. $0.49 für Quartal und neun Monate.
Bilanz- und Cashflow-Höhepunkte umfassen Gesamtvermögen von $91.8 million, Eigenkapital von $56.8 million, Zahlungsmittel und Zahlungsmitteläquivalente von $601,759, Vorräte von $20.7 million, operativen Cashflow von $10.34 million für die neun Monate sowie netto in Finanzierungstätigkeiten verwendete Mittel von $4.77 million. Das Unternehmen hat mehrere Honeywell-Asset-Transaktionen abgeschlossen (Juni 2023, Juli 2024, September 2024) mit einer wesentlichen Gegenleistung, darunter Käufe in Höhe von $35.86 million und $14.06 million; bestimmte Purchase-Price-Allocations sind noch vorläufig. Die Umsatzkonzentration ist auffällig: Lockheed Martin machte 52 % der Nettoumsätze im Quartal und 47 % in den neun Monaten aus.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of August 1, 2025, there were
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
FORM 10-Q June 30, 2025
INDEX
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PART I. | FINANCIAL INFORMATION | |
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Item 1. | Financial Statements (Unaudited) | |
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Condensed Consolidated Balance Sheets - June 30, 2025 and September 30, 2024 (unaudited) | 1 | |
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Condensed Consolidated Statements of Operations - Three and Nine Months Ended June 30, 2025 and 2024 (unaudited) | 2 | |
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Condensed Consolidated Statements of Shareholders’ Equity - Three and Nine Months Ended June 30, 2025 and 2024 (unaudited) | 3 - 4 | |
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Condensed Consolidated Statements of Cash Flows - Nine Months Ended June 30, 2025 and 2024 (unaudited) | 5 | |
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Notes to Condensed Consolidated Financial Statements (unaudited) | 6 - 25 | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 - 35 |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 35 |
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Item 4. | Controls and Procedures | 36 |
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PART II. | OTHER INFORMATION | |
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Item 1. | Legal Proceedings | 36 |
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Item 1A. | Risk Factors | 36 |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
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Item 3. | Defaults upon Senior Securities | 37 |
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Item 4. | Mine Safety Disclosures | 37 |
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Item 5. | Other Information | 37 |
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Item 6. | Exhibits | 38 |
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SIGNATURES | 39 |
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PART I—FINANCIAL INFORMATION
Item 1- Financial Statements
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable | |
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Contract assets | |
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Prepaid inventory | | | | | | |
Prepaid expenses and other current assets | |
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Total current assets | | | | | | |
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Goodwill | | | | | | |
Intangible assets, net | | | | | | |
Property and equipment, net | |
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Deferred income taxes | | | | | | |
Other assets | |
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Total assets | | $ | | | $ | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | | | | | |
Accrued expenses | |
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Contract liability | | | | | | |
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Total current liabilities | | | | | | |
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Long-term debt | | | | | | |
Other liabilities | | | | | | |
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Total liabilities | | | | | | |
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Commitments and contingencies (See Note 6) | | | | | | |
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Shareholders’ equity | | | | | | |
Preferred stock, | |
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Additional paid-in capital | |
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Total shareholders’ equity | | | | | | |
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Total liabilities and shareholders’ equity | | $ | | | $ | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Gross profit | |
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Selling, general and administrative | |
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Total operating expenses | |
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Operating income | |
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Interest expense | |
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Interest income | |
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Other income | |
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Income before income taxes | |
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Income tax expense | |
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Net income | | $ | | | $ | | | $ | | | $ | | |
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Net income per common share: | | | | | | | | | | | | | |
Basic | | $ | | | $ | | | $ | | | $ | | |
Diluted | | $ | | | $ | | | $ | | | $ | | |
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Weighted average shares outstanding: | | | | | | | | | | | | | |
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Diluted | |
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See accompanying notes to the unaudited condensed consolidated financial statements.
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
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Balance, September 30, 2024 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | — | | | — | | | | |
Net income | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | |
Balance, December 31, 2024 | | $ | | | $ | | $ | | | $ | ( | | $ | | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | |
Net income | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | |
Balance, March 31, 2025 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | |
Net income | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2025 | | $ | | | $ | | $ | | | $ | ( | | $ | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | |
| | | | | Additional | | | | | | | | | ||
| | Common | | Paid-In | | Retained | | Treasury | | | | ||||
| | Stock | | Capital | | Earnings | | Stock | | Total | |||||
Balance, September 30, 2023 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | |
Net income | |
| — | |
| — | |
| | |
| — | |
| |
| | | | | | | | | | | | | | | |
Balance, December 31, 2023 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | |
Net income | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | |
Balance, March 31, 2024 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | |
Net income | | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2024 | | $ | | | $ | | | $ | | | $ | ( | | $ | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | |
| | For the Nine Months Ended June 30, | | ||||
|
| 2025 |
| 2024 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | |
Net income | | $ | | | $ | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| | |
| | |
Share-based compensation expense | | | | | | | |
Stock options | |
| | |
| | |
Restricted stock awards, MSOs and MSUs | |
| | |
| | |
Gain on disposal of property and equipment | |
| — | |
| ( | |
Deferred income taxes | |
| ( | |
| ( | |
(Increase) decrease in: | | | | | | | |
Accounts receivable | |
| | |
| | |
Contract assets | |
| | |
| ( | |
Inventories | |
| ( | |
| ( | |
Prepaid expenses and other current assets | |
| ( | |
| | |
Other non-current assets | |
| ( | |
| ( | |
Increase (decrease) in: | | | | | | | |
Accounts payable | |
| | |
| | |
Accrued expenses | |
| ( | |
| ( | |
Income taxes payable | |
| ( | |
| ( | |
Contract liabilities | |
| | |
| ( | |
Net cash provided by operating activities | |
| | |
| | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchases of property and equipment | |
| ( | |
| ( | |
Proceeds from the sale of property and equipment | | | — | | | | |
Net cash (used in) provided by investing activities | |
| ( | |
| | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Repayments of term note | | | — | | | ( | |
Proceeds from line of credit note | | | — | | | | |
Repayments of line of credit note | | | ( | | | ( | |
Net cash used in financing activities | |
| ( | |
| ( | |
| | | | | | | |
Net increase (decrease) in cash and cash equivalents | |
| | |
| ( | |
Cash and cash equivalents, beginning of year | |
| | |
| | |
| | | | | | | |
Cash and cash equivalents, end of year | | $ | | | $ | | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | |
Cash paid for income taxes | | $ | | | $ | | |
Cash paid for interest | | | | | | | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION | | | | | | | |
Transfer from prepaid inventory to inventory | | $ | | | $ | | |
Transfer from prepaid inventory to purchases of property and equipment | | $ | — | | $ | | |
Transfer from prepaid inventory to goodwill | | $ | — | | $ | | |
Transfer from prepaid inventory to intangible assets, net | | $ | — | | $ | | |
Transfer from prepaid expenses and other current assets to PP&E | | $ | | | $ | — | |
Transfer from other assets to PP&E | | $ | | | $ | — | |
Transfer from intangible assets to goodwill | | $ | | | $ | — | |
Transfer from prepaid expenses to other assets | | $ | | | $ | — | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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INNOVATIVE SOLUTIONS AND SUPPORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Certain of Innovative Solutions and Support, Inc.’s (the “Company,” “IS&S,” “we” or “us”) significant accounting policies are described below. All of the Company’s significant accounting policies are disclosed in the notes to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Description of the Company
Incorporated in Pennsylvania in 1988, IS&S is a vertically integrated provider of flight solutions and equipment to commercial air transport, general aviation markets, the United States Department of Defense (“DoD”) and allied foreign militaries.
We operate in
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of Company management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented. The condensed consolidated balance sheet as of September 30, 2024 is derived from the audited financial statements of the Company. Operating results for the three and nine months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2025 which cannot be determined at this time. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Principles of Consolidation
The Company’s condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The financial statements of the Company have been prepared in accordance with GAAP, which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, valuation of tangible and intangible assets acquired, long term contracts, evaluation of allowances for doubtful accounts, inventory obsolescence, product warranty cost liabilities, income taxes, revenue recognition on Engineering Development Contracts (“EDC”) programs, the useful lives of long-lived assets for depreciation and amortization, the recoverability of long-lived assets, evaluation of goodwill impairment and contingencies. Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in the condensed consolidated statements of operations in the period they are determined.
Reclassification
Historically, the Company presented Customer service and Engineering and development contracts Net Sales and Cost of sales separately on the Consolidated Statements of Operations. For the three and nine months ended June 30, 2025, the Company has aggregated these items into one category, “Services” and reclassified Customer service and Engineering and development contracts revenues as well as Cost of sales to conform the presentation of the Consolidated Statements of Operations for three and nine months ended June 30, 2024. For additional information, see Note, 3 Summary of Significant Accounting Policies, (“Reclassifications”) to the
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Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Business Combinations
The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”), to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquired set is a business.
The Company accounts for business acquisitions using the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.
During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s condensed consolidated statements of operations.
We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. Determining the fair value of assets we acquire and liabilities we assume requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. Fair value adjustments to the assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the acquisition.
Asset Acquisitions
Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. The Company allocates the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition.
Intangible Assets
The Company’s identifiable intangible assets primarily consist of license agreement and customer relationships. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired and are reported separately from any goodwill recognized.
Intangible assets with a finite life are amortized over their estimated useful life and are reported net of accumulated amortization. They are assessed for impairment in accordance with the Company’s policy on assessing long-lived assets for impairment described in the notes of the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Indefinite-lived intangible assets are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The impairment review for indefinite-lived intangible assets can be performed using a qualitative or quantitative impairment assessment. The quantitative assessment consists of a comparison of the fair value of the indefinite-lived
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intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-lived intangible asset is not considered impaired.
Goodwill
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The recorded amounts of goodwill from business combinations are based on management’s best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill. The Company’s goodwill impairment test is performed at the reporting unit level. Reporting units are determined based on an evaluation of the Company’s operating segments and the components making up those operating segments.
Goodwill is tested for impairment at fiscal year-end on September 30 or in an interim period if certain changes in circumstances indicate a possibility that an impairment may exist. Factors to consider that may indicate an impairment may exist are:
| ● | macroeconomic conditions; |
| ● | industry and market considerations, such as a significant adverse change in the business climate; |
| ● | cost factors; |
| ● | overall financial performance, such as current-period operating results or cash flow declines combined with a history of operating results or cash flow declines; |
| ● | a projection or forecast that demonstrates continuing declines in the cash flow or the inability to improve the operations to forecasted levels; and |
| ● | any entity-specific events. |
If the Company determines that it is more likely than not that the fair value of the reporting unit is below the carrying amount as part of its qualitative assessment, a quantitative assessment of goodwill is required. In the quantitative evaluation, the fair value of the reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the goodwill is deemed not to be impaired and no further action is required. If the fair value is less than the carrying value, goodwill is considered impaired and a charge is reported as impairment of goodwill in the condensed consolidated statements of operations.
Fair Value of Financial Instruments
The net carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value as the interest rate is variable and approximates current market levels. For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
| ● | Quoted prices for similar assets or liabilities in active markets; |
| ● | Quoted prices for identical or similar assets in non-active markets; |
| ● | Inputs other than quoted prices that are observable for the asset or liability; and |
| ● | Inputs that are derived principally from or corroborated by other observable market data. |
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Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2025 and September 30, 2024, according to the valuation techniques the Company used to determine their fair values.
| | | | | | | | | |
| | Fair Value Measurement on June 30, 2025 | |||||||
|
| Quoted Price in |
| Significant Other |
| Significant | |||
| | Active Markets for | | Observable | | Unobservable | |||
| | Identical Assets | | Inputs | | Inputs | |||
| | (Level 1) | | (Level 2) | | (Level 3) | |||
Assets | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | |
Money market funds | | $ | | | $ | — | | $ | — |
| | | | | | | | | |
| | Fair Value Measurement on September 30, 2024 | |||||||
|
| Quoted Price in |
| Significant Other |
| Significant | |||
| | Active Markets for | | Observable | | Unobservable | |||
| | Identical Assets | | Inputs | | Inputs | |||
| | (Level 1) | | (Level 2) | | (Level 3) | |||
Assets | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | |
Money market funds | | $ | | | $ | — | | $ | — |
The June 30, 2025 and September 30, 2024 money market funds balance differs from the cash and cash equivalents balance on the condensed consolidated balance sheet due to the timing of sweep transactions within the PNC cash investment accounts.
Revenue from Contracts with Customers
The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat-panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude and engine and fuel data measurements.
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services.
To achieve this core principle, the Company applies the following five steps:
1) | Identify the contract with a customer |
The Company’s contract with its customers typically is in the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of a purchase order issued in connection with a formal contract executed with a customer. In addition, the Company enters fixed-price contracts, in which the Company agrees to perform the specified work for a pre-determined price. The contractual terms of the fixed-price contracts are usually long-term, however they often contain a termination for convenience clause that results in the Company treating these contracts as short-term under ASC 606. To the extent our actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss. For the purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. Payment terms are defined by when payment is typically due. The Company applies judgment in
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determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) | Identify the performance obligations in the contract |
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation. In the event that a contract includes multiple promised goods or services, such as an EDC contract, which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract. In these cases, the Company considers whether the customer could, on its own, or together with other resources that are readily available from third parties, produce the physical product using only the output resulting from the Company’s completion of engineering services. If the customer cannot produce the physical product, then the promised goods or services are accounted for as a combined performance obligation.
3) | Determine the transaction price |
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
4) | Allocate the transaction price to performance obligations in the contract |
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions as well as the cost of the goods or services and the Company’s normal margins for similar performance obligations.
| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Historically, the Company has also recognized revenue from EDC contracts and is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include material, components and third-party avionics purchased from suppliers, direct labor and overhead costs.
Contract Estimates
Accounting for performance obligations in long-term contracts that are satisfied over time involves the use of various techniques to estimate progress towards satisfaction of the performance obligation. The Company typically measures progress based on costs incurred compared to estimated total contract costs. Contract cost estimates are based on various assumptions to project the outcome of future events that often span more than a single year. These assumptions include the amount of labor and labor costs, the quantity and cost of raw materials used in the completion of the performance obligation and the complexity of the work to be performed.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter in which it is identified.
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The impact of adjustments in contract estimates on our operating earnings is typically reflected in consolidated revenues. There were no material contract estimate adjustments to our condensed consolidated financial statements for the three and nine months ended June 30, 2025.
Contract Balances
Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract. The following table reflects the Company’s contract assets and contract liabilities:
| | | | | | |
| | Contract | | Contract | ||
| | Assets | | Liabilities | ||
September 30, 2024 | | $ | | | $ | |
Amount transferred to receivables from contract assets | |
| ( | | | — |
Contract asset additions | |
| | | | — |
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period | |
| — | | | ( |
Increases due to invoicing prior to satisfaction of performance obligations | |
| — | | | |
June 30, 2025 | | $ | | | $ | |
Concentrations
Major Customers and Products
In the three months ended June 30, 2025,
In the three months ended June 30, 2024,
Major Suppliers
The Company buys several of its components from sole source suppliers. Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms.
For the three and nine months ended June 30, 2025, the Company had
For the three and nine months ended June 30, 2024, the Company had
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and accounts receivable. The Company invests its excess cash where preservation of principal is the major consideration. Cash balances are maintained with
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New Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements.
In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses. The guidance primarily will require enhanced disclosures about certain types of expenses. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and may be applied either on a prospective or retrospective basis. We are evaluating the impact of the standard on our disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (CODM), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis. This ASU should be applied retrospectively for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are evaluating the impact of the standard on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. We are evaluating the impact of the standard on our disclosures.
Recently Adopted Accounting Pronouncements
None.
2. Supplemental Balance Sheet Disclosures
September 2024 Honeywell Agreement
On September 27, 2024, the Company entered into a second Asset Purchase and License Agreement (the “September 2024 Honeywell Agreement”) with Honeywell, International Inc. (“Honeywell”), pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $
The allocation of the purchase price is based upon certain preliminary valuations and other analyses. The allocation of the purchase price has not been finalized as of the date of this filing due to the timing of the transaction and due to the fact that, while legal control has been transferred, the Company has not received physical possession of certain of the acquired assets and thus these assets will be subject to settlement adjustments upon transfer as outlined in the September 2024 Honeywell Agreement. As a result, the purchase
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price amount for the transaction and the allocation of the preliminary purchase consideration are preliminary estimates, and may be subject to change within the measurement period.
The following purchase price allocation table presents the Company's estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date, and subsequent measurement period adjustments recorded during the three and nine months ended June 30, 2025:
| | | | | | | | | |
| | Amounts Recognized as of | | | | | |||
|
| Acquisition Date |
| Measurement |
| Purchase Price | |||
| | (as previously reported) | | Period Adjustments | | Allocation | |||
Total consideration | | $ | | | $ | — | | $ | |
| | | | | | | | | |
Prepaid inventory (a) | | $ | | | $ | — | | $ | |
Prepaid equipment and other current assets | | | | | | — | | | |
Intangible assets (b), (d) | | | | | | ( | | | |
Goodwill (c),(d) | | | | | | | | | |
Net assets acquired | | $ | | | $ | — | | $ | |
| (a) | Prepaid inventory consists primarily of raw materials acquired by the Company but not in the Company’s physical possession as of the acquisition date. The fair value of raw materials was estimated to equal the replacement cost. |
| (b) | Intangible assets consists of backlog, customer relationships, and license agreements related to the license rights to use certain Honeywell intellectual property and are recorded at estimated fair values. The estimated fair value of these license agreements are based on a variation of the income valuation approach and are determined using the relief from royalty method. The estimated fair value of the backlog and customer relationships are based on a variation of the income valuation approach known as the multi-period excess earnings method. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024, Note 5, “Intangible assets” for further details. |
| (c) | Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired. The goodwill recognized is primarily attributable to the expected synergies from the September 2024 Honeywell Agreement. Goodwill resulting from the September 2024 Honeywell Agreement has been assigned to the Company’s |
| (d) | For the three months ended March 31, 2025, the fair market value of Intangible Assets, mostly related to Acquired Backlog was revised down to reflect lower forecasted margin. |
Transition services agreement
Concurrent with the September 2024 Honeywell Agreement, the Company entered into a transition services agreement (the “2024 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period. The Company accounted for the 2024 TSA separate from business combination and has recognized $
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June 30, 2025, the Company recognized
Unaudited actual and pro forma information
The following unaudited pro forma summary presents consolidated information of the Company, including the product lines, as if the transaction had occurred on October 1, 2023:
| | | | | | |
| | | Three Months Ended June 30, | | | Nine Months Ended June 30, |
|
| | 2024 | |||
Net sales | | $ | | | $ | |
Net income | | $ | | | $ | |
These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations. The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the transaction and are factually supportable. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change, and the impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.
June 2023 Honeywell Agreement
On June 30, 2023, the Company entered into an Asset Purchase and License Agreement with Honeywell whereby Honeywell sold certain assets and granted perpetual license rights to manufacture and sell licensed products related to its inertial, communication and navigation product lines to the Company. The transaction involves a sale of certain inventory, equipment and customer-related documents; an assignment of certain customer contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company. The Company determined that the transaction met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting.
In connection with the transaction, the Company entered into a term loan with PNC Bank, National Association for $
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September 30, 2024, Note 8, “Loan Agreement” for further details. The purchase consideration transferred at the acquisition date was $
In the third quarter of 2024 and within one year from the acquisition date, the Company finalized its accounting of the transaction. The following purchase price allocation table presents the Company's estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date, and subsequent measurement period adjustments recorded during the one-year period ended June 30, 2024:
| | | | | | | | | |
| | Amounts Recognized as of | | | | | |||
|
| Acquisition Date |
| Measurement |
| Purchase Price | |||
| | (as previously reported) | | Period Adjustments | | Allocation | |||
Cash consideration | | $ | | | $ | — | | $ | |
Total consideration | | $ | | | $ | — | | $ | |
| | | | | | | | | — |
Prepaid inventory (a) | | $ | | | $ | ( | (d) | $ | |
Equipment | | | | | | | (d) | | |
Construction in progress | | | | | | — | | | |
Intangible assets (b) | | | | | | ( | (d) | | |
Goodwill (c) | | | | | | ( | (d)(e) | | |
Assets acquired | | | | | | ( | | | |
Accrued expenses | | | ( | | | | (e) | | — |
Liabilities assumed | | | ( | | | | | | — |
Net assets acquired | | $ | | | $ | — | | $ | |
| (a) | Prepaid inventory consists of raw materials and finished goods acquired by the Company but not in the Company’s physical possession as of the acquisition date. The fair value of raw materials was estimated to equal the replacement cost. The fair value of finished goods was determined based on the estimated selling price, net of selling costs and a margin on the selling activities, which resulted in a change in the value of the finished goods. |
| (b) | Intangible assets consist of license agreement related to the license rights to use certain Honeywell intellectual property and customer relationships and are recorded at estimated fair values. The estimated fair value of the license agreement is based on a variation of the income valuation approach and is determined using the relief from royalty method. The estimated fair value of the customer relationships is based on a variation of the income valuation approach known as the multi-period excess earnings method. Refer to Intangible assets within Note 2, “Supplemental Balance Sheet Disclosures” for further details. |
| (c) | Goodwill represents the excess of the purchase consideration over the estimated fair value of the assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to the expected synergies from the transaction. Goodwill resulting from the transaction has been assigned to the Company’s |
(d) | In the third quarter of 2024 and within one year from the acquisition date, the Company identified measurement period adjustments related to fair value estimates. The measurement period adjustments were due to the refinement of inputs used to calculate the fair value of the prepaid inventory, equipment, license agreement and customer relationships based on facts and circumstances that existed as of the acquisition date. One of the refinements of inputs used was a change in classification of prepaid inventory to equipment of $ |
(e) | During the fourth quarter of 2023, the Company identified measurement period adjustments related to the fair value estimates for accrued expenses. While the Asset Purchase and License Agreement indicated an amount of liabilities related to open supplier purchase orders to be assumed by the Company as of the acquisition date, it was determined that there were no actual liabilities outstanding related to these open supplier purchase orders as of the acquisition date; therefore, the $ |
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million assumed liabilities preliminarily recorded were reversed. The adjustments resulted in an overall decrease to goodwill of $
Transition services agreement
Concurrent with the June 2023 Honeywell Agreement, the Company entered into a transition services agreement (the “2023 TSA”) with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period. The Company accounted for the 2023 TSA separate from the business combination and has recognized $
Other
On July 22, 2024, the Company completed the July 2024 Honeywell Asset Acquisition of certain additional assets related to its communication and navigation product lines, including a sale of certain inventory and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its communication and navigation product lines to manufacture, upgrade and repair certain additional products for consideration of $
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory and consist of the following:
| | | | | | |
|
| June 30, |
| September 30, | ||
| | 2025 | | 2024 | ||
Raw materials | | $ | | | $ | |
Work-in-process | |
| | |
| |
Finished goods | |
| | |
| |
| | $ | | | $ | |
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
| | | | | | | |
|
| June 30, |
| September 30, | |||
| | 2025 | | 2024 | |||
Prepaid insurance | | $ | | | | $ | |
Honeywell TSA Agreement | | | — | | | | |
Other | |
| | | |
| |
| | $ | | | | $ | |
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Intangible assets
The Company’s intangible assets other than goodwill are as follows:
| | | | | | | | | | | | |
|
| As of June 30, 2025 | ||||||||||
|
| Gross Carrying |
| Accumulated |
| Accumulated |
| Net Carrying | ||||
| | Value |
| Impairment |
| Amortization |
| Value | ||||
License agreement (a) | | $ | | | $ | — | | $ | — | | $ | |
Customer relationships (a) | |
| | |
| — | |
| ( | |
| |
Backlog (b) | | | | | | — | | | ( | | | |
Licensing and certification rights (c) | |
| | |
| ( | |
| ( | |
| |
Total | | $ | | | $ | ( | | $ | ( | | $ | |
| | | | | | | | | | | | |
| | As of September 30, 2024 | ||||||||||
|
| Gross Carrying |
| Accumulated |
| Accumulated |
| Net Carrying | ||||
|
| Value |
| Impairment |
| Amortization |
| Value | ||||
License agreement (a) | | $ | | | $ | — | | $ | — | | $ | |
Customer relationships (a) | |
| | |
| — | |
| ( | |
| |
Backlog (b) | | | | | | — | | | — | | | |
Licensing and certification rights (c) | |
| | |
| ( | |
| ( | |
| |
Total | | $ | | | $ | ( | | $ | ( | | $ | |
| (a) | As part of the September 2024 Honeywell Agreement, the July 2024 Honeywell Asset Acquisition, and the June 2023 Honeywell Agreement transactions, the Company acquired intangible assets related to the license agreements for the license rights to use certain Honeywell intellectual property, backlog and customer relationships. The license agreements have an indefinite life and are not subject to amortization; the customer relationships have an estimated weighted average life of |
| (b) | As part of the September 2024 Honeywell Agreement, the Company acquired intangible assets related to backlog with a useful life of |
| (c) | The licensing, and certification rights are amortized over a defined number of units. |
The timing of future amortization expense is not determinable for the licensing and certification rights because they are amortized over a defined number of units. The expected future amortization expense related to the customer relationships and backlog as of June 30, 2025 is as follows:
| | | |
| | | Amortization Expense |
2025 (three months remaining) | | $ | |
2026 | | | |
2027 | | | |
2028 |
| | |
2029 |
| | |
Thereafter |
| | |
Total | | $ | |
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Property and equipment
Property and equipment, net consists of the following:
| | | | | | |
|
| | June 30, |
| September 30, | |
| | | 2025 | | 2024 | |
Computer equipment | | $ | | | $ | |
Furniture and office equipment | |
| | |
| |
Buildings and improvements | |
| | |
| |
Equipment other | |
| | |
| |
Land | |
| | |
| |
| |
| | |
| |
Less accumulated depreciation and amortization | |
| ( | |
| ( |
| | $ | | | $ | |
Depreciation and amortization related to property and equipment was $
Depreciation and amortization related to property and equipment was $
In connection with June 2023 Honeywell Agreement, during the 18- month period following closing, which ended December 31, 2024, the Company received various inventory and PP&E, which was accounted for as of the acquisition date as prepaid inventory. Rotables comprised a significant portion of the PP&E received during that 18-month period. Rotables are parts that are not designed to be discarded after a certain period of use but rather are intended to be restored to a serviceable condition and reused. The Company had historically depreciated rotables inventory on a straightline basis, over 5 years. During the second quarter of 2025, the Company updated its analysis of the economic lives of various owned rotable assets. As a result of this update, to better reflect the revised estimate of physical lives of rotable assets, the Company changed its useful lives estimate of rotable assets from
ASC Topic 250, “Accounting Changes and Error Corrections” (“ASC 250”), specifically ASC 250-10-45-17 states that, “changes in accounting estimates should not be accounted for by restating or retrospectively adjusting the amounts reported in prior period financial statements or by reporting pro forma amounts. Instead, a change in accounting estimate should be accounted for in the period of change and prospective periods.”
Adhering to the guidance found in ASC 250, the Company recognized the change in depreciation expense of Rotable assets prospectively as of January 1, 2025. The change in accounting estimate decreased depreciation expense $
Other assets
Other assets consist of the following:
| | | | | | | |
|
| | June 30, | |
| September 30, | |
| | | 2025 | | | 2024 | |
Operating lease right-of-use assets | | $ | — | | | $ | |
Other non-current assets | |
| | | |
| |
| | $ | | | | $ | |
Other non-current assets as of June 30, 2025 and September 30, 2024 consists primarily of deposits for medical claims required under the Company’s medical plan.
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Accrued expenses
Accrued expenses consist of the following:
| | | | | | | |
|
| | | June 30, |
| September 30, | |
| | | | 2025 | | 2024 | |
Warranty | | $ | | | | $ | |
Salary, benefits and payroll taxes | |
| | | |
| |
Professional fees | |
| | — | |
| |
Operating lease | | | | — | | | |
Income tax payable | | | | | | | |
Other | |
| | | |
| |
| | $ | | | | $ | |
Warranty cost and accrual information for the three and nine months ended June 30, 2025 is highlighted below:
| | | | | | |
|
| | Three Months Ending | | Nine Months Ending | |
| | | June 30, 2025 | | June 30, 2025 |
|
Warranty accrual, beginning of period | | $ | $ | | | |
Accrued expense (Adjustment) | |
| |
| | |
Warranty cost | |
| ( |
| ( | |
Warranty accrual, end of period | | $ | | $ | | |
3. Income Taxes
The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (OBBB) was signed into law, which includes a broad range of tax reform provisions that may affect the Company's financial results. The OBBB allows an elective deduction for domestic Research and Development (R&D), and a reinstatement of elective 100% first-year bonus depreciation, among other provisions. The Company is currently evaluating the impact of these provisions which could affect the Company's effective tax rate and deferred tax assets in 2025 and future periods.
As a result of the 2017 Tax Cuts and Jobs Act, the Company must amortize amounts paid or incurred for specified research and development expenditures, including software development expenses, ratably over 60 months, beginning at the mid-point of the tax year in which the expenditures are paid or incurred.
The effective tax rate for the three months ended June 30, 2025 was
The effective tax rate for the three months ended June 30, 2024 was
The effective tax rate for the nine months ended June 30, 2025 was
The effective tax rate for the nine-months ended June 30, 2024 was
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4. Shareholders’ Equity and Share-Based Payments
At June 30, 2024, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue
Share-Based Compensation
The Company accounts for share-based compensation under the provisions of ASC Topic 718, “Compensation – Stock Compensation”, by using the fair value method for expensing stock options, performance based equity awards and stock awards.
Amended and Restated 2019 Stock-Based Incentive Compensation Plan
The Company’s 2019 Stock-Based Incentive Compensation Plan (as amended, the “2019 Plan”) was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019. The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options, performance based equity awards, and other equity-based awards. Options granted under the 2019 Plan may be either “incentive stock options” as defined in Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, as determined by the Compensation Committee.
Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2019 Plan is
If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related shares of common stock subject to such award will again be available for future grant. Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from any such award) will not be available for future grant under the 2019 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award. In addition, the Compensation Committee may make adjustments in the terms and conditions of any awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.
The 2019 Plan will terminate on April 2, 2029, unless earlier terminated by the Company’s Board of Directors (the “Board”). Termination will not affect awards outstanding at the time of termination. The Board may amend, alter, suspend, discontinue, or terminate the 2019 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number of shares subject to the 2019 Plan; (ii) would decrease the price at which awards may be granted; or (iii) would require shareholder approval by law, regulation, or the rules of any stock exchange or automated quotation system.
2024 RSU Bonus Grants
On February 19, 2025, the Board authorized grants of
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Market-Based Restricted Stock Units
During the three months ended December 31, 2024, to better align executive compensation with the Company’s Total Shareholder Return, the Board approved a special one-time grant of
| 1) | an initial one-third (1/3rd) of the MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than ten dollars ($ |
| 2) | an additional one-third (1/3rd) of the MSUs shall vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than twelve dollars ($ |
| 3) | the remaining MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than fourteen dollars ($ |
Additionally, if the tranche of MSUs subject to vesting pursuant to (1) above does not vest on or before November 20, 2027, then, with respect to such MSUs, the target trading price for the Company’s common stock will be increased to twelve dollars ($
Any MSUs that have not vested on or before the fourth anniversary of the grant date are immediately forfeited.
With respect to each MSU that becomes vested in accordance with the terms of the award agreement, the Grantee will be entitled to receive
The Company estimated both the grant-date fair value of the MSUs and the derived vesting periods using a Monte Carlo simulation with the following input assumptions:
| |
Number of MSUs Granted | |
Grant Date | 11/20/24 |
Grant Date Stock Price | $ |
Expected Dividend Rate | |
Expected Volatility | |
Weighted average risk-free interest rate | |
Contractual Term |
Utilizing Monte Carlo simulation, the MSUs grant date fair value was estimated to be $
For the three and nine months ended June 30, 2025, the Company recognized $
As of June 30, 2025, unrecognized compensation expense of $
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On February 13, 2025, the market performance condition for
Time Based Stock Options with market based exercisability conditions
During the three months ended March 31, 2025, in a continuing effort to more closely correlate executive compensation with the Company’s Total Shareholder Return, the Board approved a grant of
The MSOs are similar to traditional time vested stock options and vest over
On June 16th, 2025, the Company’s closing share price exceeded the $
No MSOs are eligible for vesting or exercise prior to the first anniversary of the date of grant of the award, with the exception of accelerated vesting permitted under certain conditions subject to the plan provisions.
With respect to each MSO that becomes exercised in accordance with the terms of the award agreement, the Grantee will be entitled to receive
The Company estimated the grant-date fair value of the MSOs awards using a Monte Carlo simulation with the following input assumptions:
| |
Number of MSOs granted | |
Grant Date | 02/18/25 |
Grant Date Stock Price | $ |
Expected Dividend Rate | |
Expected Volatility | |
Weighted average risk-free interest rate | |
Exercise price | $ |
Contractual Term |
Utilizing Monte Carlo simulation, the aggregate MSOs grant date fair value was estimated to be $
For the three and nine months ended June 30, 2025, the Company recognized $
As of June 30, 2025, unrecognized compensation expense of $
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The compensation expense related to stock options, and restricted stock awards issued to employees under the 2019 Plan was $
The compensation expense related to stock options, and restricted stock awards issued to employees under the 2019 Plan was $
The compensation expense under the 2019 Plan related to restricted stock awards issued to non-employee members of the Board was $
The compensation expense under the 2019 Plan related to restricted stock awards issued to non-employee members of the Board was $
Total compensation expense associated with the 2019 Plan was $
Total compensation expense associated with the 2019 Plan was $
As of June 30, 2025, unrecognized compensation expense of approximately $
As of June 30, 2025, unrecognized compensation expense of approximately $
5. Earnings Per Share
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Nine Months Ended June 30, | | ||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 |
| ||||
Numerator: | | | | | | | | | | | | | |
Net income | | $ | | | $ | | | $ | | | $ | | |
Denominator: | | | | | | | | | | | | | |
Basic weighted average shares | |
| | |
| | |
| | |
| | |
Dilutive effect of share-based awards | |
| | |
| | |
| | |
| | |
Diluted weighted average shares | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | |
Net income per common share: | | | | | | | | | | | | | |
Basic | | $ | | | $ | | | $ | | | $ | | |
Diluted | | $ | | | $ | | | $ | | | $ | | |
Net income per share is calculated pursuant to ASC Topic 260, “Earnings per Share.” Basic EPS excludes potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed assuming the conversion, or exercise of all dilutive securities such as employee stock options MSUs and RSUs.
The number of incremental shares from the assumed exercise of time vested stock options , MSOs, and RSUs is calculated by using the treasury stock method. The number of incremental shares from assumed vestings of MSUs is calculated using the ‘if-converted method.’ As of June 30, 2025,
As of June 30, 2025 and 2024, there were
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price that exceeds the average market price of shares during the period. Additionally, the weighted-average diluted shares calculation excludes RSUs that are deemed anti-dilutive when applying the treasury stock method.
For the three months ended June 30, 2025 and 2024, respectively,
For the nine months ended June 30, 2025 and 2024, respectively,
6. Commitments and Contingencies
In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. The Company does not believe any such matters that are currently pending will, individually or in aggregate, have a material effect on the results of operations or financial position.
7. Related Party Transactions
In recent years, the Company has had sales to AML Global Eclipse, LLC (“Eclipse”), whose principal shareholder is also a principal shareholder in the Company. Prior balances are disclosed below for comparability.
Sales to Eclipse amounted to approximately $
Sales to Eclipse amounted to approximately $
On October 18, 2024, the Company entered into a consulting agreement with Peduzzi Associated, ltd. (“PAL”), an entity in which board member Maj. General Dean serves as President. PAL will provide consulting services in support of the Company’s business development growth into the DoD. The term of the agreement is for
8. Loan Agreement
On June 28, 2023, the Company and one of its subsidiaries entered into an Amendment to Loan Documents (the “Loan Amendment”) with PNC Bank, National Association (the “PNC”), which amends certain terms of that certain Loan Agreement entered into by the parties on May 11, 2023 (the “Loan Agreement” and, as amended, the “Amended Loan Agreement”) and (ii) a corresponding Term Note in favor of PNC (the “Term Note”), which together provide for a senior secured term loan in an aggregate principal amount of $
The interest rate applicable to loans outstanding under the Term Loan is a floating interest rate equal to the sum of (A) the Term SOFR Rate (as defined in the Term Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of
In addition to providing for the Term Loan, the Loan Agreement, together with a corresponding Revolving Line of Credit Note in favor of PNC, executed May 11, 2023, provided for a senior secured revolving line of credit in an aggregate principal amount of $
On December 19, 2023, the Company and PNC entered into an Amendment to the Loan (the “Restated Loan Amendment”) and a corresponding Amended and Restated Revolving Line of Credit Note (“Restated Line of Credit Note”) and Amended and Restated Line of Credit and Investment Sweep Rider (the “Restated Rider”), to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $
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On September 30, 2024, the Company and one of its subsidiaries, Innovative Solutions and Support, LLC (“ISSL,” entered into an Amendment to Loan Documents (the “Loan 2024 Amendment”) with PNC, which amends certain terms of the Loan Agreement to increase the line of credit with PNC. Concurrently with the Loan 2024 Amendment, the Company entered into (i) an Amended and Restated Revolving Line of Credit in favor of PNC (the “A&R Revolving Line of Credit”), and (ii) an Amended and Restated Line of Credit and Investment Sweep Rider with PNC (the “A&R Rider”).
The A&R Revolving Line of Credit Note provides for a senior secured revolving line of credit in an aggregate principal amount of $
The Company was in compliance with all applicable covenants throughout and at June 30, 2025. As of the three months ended June 30, 2025, the outstanding balance drawn on the A&R Revolving Line of Credit was $
On July 18, 2025, the Company entered a new
9. Subsequent Events
On July 10, 2025, the market performance condition for
On July 18, 2025, the Company entered a new
The Credit Agreement provides for a $
The new facility provides expanded liquidity and improved flexibility, better enabling the Company to execute on the its long-term growth strategy and capital allocation priorities, consistent with the Company’s focus on driving long-term value creation for its shareholders.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based largely on current expectations and projections about future events and trends affecting the business, are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. In this report, the words “anticipates,” “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “forecasts,” “expects,” “plans,” “could,” “should,” “would,” “is likely”, “projected”, “might”, “potential”, “preliminary”, “provisionally” and similar expressions, as they relate to the business or to its management, are intended to identify forward-looking statements, but they are not exclusive means of identifying them. Unless the context otherwise requires, all references herein to “IS&S,” the “Registrant,” the “Company,” “we,” “us” or “our” are to Innovative Solutions and Support, Inc. and its consolidated subsidiaries.
All forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024 and in Item 1A (Risk Factors) to Part II of this Quarterly Report on Form 10-Q, as well as the following factors:
| ● | market acceptance of the Company’s ThrustSense® full-regime Autothrottle, Vmca Mitigation, FPDS, NextGen Flight Deck and COCKPIT/IP® or other planned products or product enhancements; |
| ● | continued market acceptance of the Company’s air data systems and products; |
| ● | the competitive environment and new product offerings from competitors; |
| ● | difficulties in developing, producing or improving the Company’s planned products or product enhancements; |
| ● | the deferral or termination of programs or contracts for convenience by customers; |
| ● | the ability to service the international market; |
| ● | the availability of government funding; |
| ● | the impact of general economic trends, including tariffs and other trade restrictions on the Company’s business; |
| ● | disruptions in the Company’s supply chain, customer base and workforce; |
| ● | the ability to gain, drive and sustain regulatory approval, including domestic and international certifications, of products in a timely manner; |
| ● | delays in receiving components from third-party suppliers; |
| ● | the bankruptcy or insolvency of one or more key customers; |
| ● | protection of intellectual property rights; |
| ● | the ability to respond to technological change; |
| ● | failure to retain/recruit key personnel; |
| ● | risks related to succession planning; |
| ● | a cyber security incident; |
| ● | risks related to our self-insurance program; |
| ● | ability to successfully manage and integrate key acquisitions, mergers and other transactions, such as the recent asset acquisition of certain Inertial, Communication and Navigation product lines from Honeywell International, Inc., as well as the failure to realize expected synergies and benefits anticipated when we make an acquisition; |
| ● | potential future acquisitions or dispositions; |
| ● | the costs of compliance with present and future laws and regulations; |
| ● | changes in law, including changes to corporate tax laws in the United States and the availability of certain tax credits; and |
| ● | other factors disclosed from time to time in the Company’s filings with the United States Securities and Exchange Commission (the “SEC”). |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, or to reflect the occurrence of unanticipated events. The
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forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”) and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Investors should also be aware that while the Company, from time to time, communicates with securities analysts, it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
Objective
The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
Company Overview
The Company was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services, air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and OEMs. The Company supplies integrated FMS, FPDS, FPDS with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.
The Company has continued to position itself as a system integrator, which provides the Company with the capability and potential to generate more substantive orders over a broader product base. This strategy, as both a manufacturer and integrator, is designed to leverage the latest technologies developed for the computer and telecommunications industries into advanced and cost-effective solutions for the general aviation, commercial air transport, the DoD/governmental and foreign military markets. This approach, combined with the Company’s industry experience, is designed to enable the Company to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors.
The Company sells to both the OEM and the retrofit markets. Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, the DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies and foreign militaries. Occasionally, the Company sells its products directly to the DoD; however, the Company sells its products primarily to commercial customers for end use in DoD programs. Sales to defense contractors are generally made on commercial terms, although some of the termination and other provisions of government contracts are applicable to these contracts. The Company’s retrofit projects are generally pursuant to either a direct contract with a customer or a subcontract with a general contractor to a customer (including government agencies).
In June 2023, the Company entered into the June 2023 Honeywell Agreement with Honeywell pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.
In July 2024, the Company entered into the July 2024 Honeywell Asset Acquisition, an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell. This transaction complements the previous Honeywell license and asset acquisition completed in June 2023. Total consideration was $4.2 million in cash.
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On September 27, 2024, the Company entered into the September 2024 Honeywell Agreement with Honeywell, pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.
Following the acquisition of Honeywell’s military display generators and flight control computers business, Honeywell has continued to manufacture these products and maintain related inventory at its facilities under the September 2024 Honeywell Agreement. Revenue and costs from this production are attributed to and reported by the Company, but the Company relies on Honeywell for access to the operational and financial data needed to prepare its financial statements. The Company has limited ability to oversee the operations or verify the data received from Honeywell, making it difficult to predict revenues and gross margins. Over the coming months, the production of the military display generators and flight control computers business will cease at Honeywell facilities and transition to the Company’s facilities. During this transition process, production will be temporarily halted while the Company ramps up its production and inventory at its facilities. In anticipation of the transition, Honeywell is expected to accelerate its production of these products in the short term. This will likely lead to a spike in revenues in the short term followed by a temporary dip in revenues before revenues are normalized.
As a result, the Company anticipates revenues related to the September 2024 Honeywell Agreement will continue to fluctuate significantly over the next few quarters. The transition from Honeywell to Company facilities will involve certain risks that may impact operational performance and reported results. While the Company cannot assure that the transition will not adversely affect operations and reported results, it is committed to closely monitoring the integration process and providing updates as necessary. The Company remains confident in the long-term benefits of the Honeywell acquisitions.
Cost of sales related to product and service sales comprises materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs. Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications. The overhead portion of Cost of sales primarily comprises salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control. Cost of sales also includes warranty costs.
Cost of sales related to Engineering Development Contracts (“EDC”) sales comprises engineering labor, consulting services and other costs associated with specific design and development projects. These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within Cost of sales, with reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded R&D expenditures relate to internally-funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
Selling, general and administrative (“SG&A”) expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses.
The Company sells its products to agencies of the United States and foreign governments, aircraft operators, aircraft modification centers and OEMs. Customers have been and may continue to be affected by changes in economic conditions both in the United States and abroad. Such changes may cause customers to curtail or delay their spending on both new and existing aircraft. Factors that can impact general economic conditions and the level of spending by customers include, but are not limited to, general levels of consumer spending, increases in fuel and energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, inflation, public health crises and pandemics and other macroeconomic factors that affect spending behavior. Furthermore, spending by government agencies may be reduced in the future. If customers curtail or delay their spending or are forced to declare bankruptcy or liquidate their operations because of adverse economic conditions, the Company’s revenues and results of operations would be affected adversely. For example, in the 2020 fiscal year, certain of the Company’s customers temporarily suspended product deliveries as a result of the COVID-19 pandemic, and while these deliveries subsequently resumed, there is a possibility that the COVID-19 or similar pandemics will result in other suspensions, delays or order cancellations by the Company’s customers or suppliers.
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Environmental, Social and Governance Considerations
In recent years, environmental, social and governance (“ESG”) issues have become an increasing area of focus for some of our shareholders, customers and suppliers. Management and the Company’s Board are committed to identifying, assessing and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas of improvement.
We are committed to recruiting, motivating and developing a diversity of talent. We are an equal opportunity employer and a Vietnam Era Veterans’ Readjustment Assistance Act federal contractor. All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status, or any other characteristic protected by law.
The nature of our business also supports long-term sustainability. Historically, a majority of the Company’s sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete. The Company’s GPS receivers also facilitate reduced carbon footprint navigation. The Company also plans to enhance its focus on the environmental impact of its operations.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and consolidated results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. Management has determined that the most critical accounting policies and estimates are those related to revenue recognition, inventory valuation and valuation of tangible and intangible assets acquired. On an ongoing basis, the Company’s management evaluates its estimates based upon historical experience and various other assumptions that it believes to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes that its critical accounting policies affect its more significant estimates and judgments used in the preparation of its condensed consolidated financial statements. The Annual Report on Form 10-K for the fiscal year ended September 30, 2024 contains a discussion of these critical accounting policies. See also Note 1 to the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2025 as set forth herein.
In connection with June 2023 Honeywell Agreement, during the 18 month period following closing, which ended December 31, 2024, the Company received various components of PP&E. Rotables are parts that are not designed to be discarded after a certain period of use but rather are intended to be restored to a serviceable condition and reused. The Company had historically depreciated rotables PP&E on a straightline basis, over 5 years. During the second quarter of 2025, the Company updated its analysis of the economic lives of various owned rotable assets. As a result of this update, to better reflect the revised estimate of physical lives of rotable assets, the Company changed its useful lives estimate of rotable assets from 5 years to 10 years, effective as of January 1, 2025.
ASC 250, specifically ASC 250-10-45-17 states that, “changes in accounting estimates should not be accounted for by restating or retrospectively adjusting the amounts reported in prior period financial statements or by reporting pro forma amounts. Instead, a change in accounting estimate should be accounted for in the period of change and prospective periods.”
Adhering to the guidance found in ASC 250, the Company recognized the change in depreciation expense of Rotable assets prospectively as of January 1, 2025. The change in accounting estimate decreased depreciation expense $0.4 million, or $0.02 per diluted share, and $0.7 million, or $0.04 for the three and nine months ended June 30, 2025, respectively.
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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
JUNE 30, 2025 AND 2024
The following table sets forth the statements of operations data expressed as a percentage of total net sales for the periods indicated (some items may not add due to rounding):
| | | | | | | | | |
|
| Three Months Ended June 30, | | Nine Months Ended June 30, | | ||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 |
|
Net sales: | | | | | | | | | |
Product | | 68.8 | % | 43.6 | % | 64.1 | % | 45.4 | % |
Services | | 31.2 | % | 56.4 | % | 35.9 | % | 54.6 | % |
Total net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| | | | | | | | | |
Cost of sales: | | |
|
|
| |
|
|
|
Product | | 47.8 | % | 17.9 | % | 37.2 | % | 19.6 | % |
Services | | 16.6 | % | 28.6 | % | 20.1 | % | 25.8 | % |
Total cost of sales | | 64.4 | % | 46.6 | % | 57.3 | % | 45.4 | % |
| | | | | | | | | |
Gross profit | | 35.6 | % | 53.4 | % | 42.7 | % | 54.6 | % |
| | | | | | | | | |
Operating expenses: | | |
|
|
| |
|
|
|
Research and development | | 3.8 | % | 9.3 | % | 4.8 | % | 9.5 | % |
Selling, general and administrative | | 17.2 | % | 26.7 | % | 18.9 | % | 28.5 | % |
Total operating expenses | | 21.0 | % | 36.1 | % | 23.6 | % | 38.0 | % |
| | | | | | | | | |
Operating income | | 14.6 | % | 17.3 | % | 19.1 | % | 16.6 | % |
| | | | | | | | | |
Interest expense | | (1.7) | % | (1.5) | % | (2.0) | % | (2.2) | % |
Interest income | | 0.0 | % | 0.0 | % | 0.0 | % | 0.4 | % |
Other income | | — | % | 0.1 | % | 0.0 | % | 0.2 | % |
| | | | | | | | | |
Income before income taxes | | 12.9 | % | 16.0 | % | 17.0 | % | 15.0 | % |
| | | | | | | | | |
Income tax expense | | 2.7 | % | 2.8 | % | 3.4 | % | 3.0 | % |
| | | | | | | | | |
Net income | | 10.2 | % | 13.2 | % | 13.7 | % | 12.0 | % |
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Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024
Historically, the Company presented Net Sales and Cost of Sales related to each of Customer service and Engineering and development contracts separately on the Consolidated Statements of Operations. For the three and nine months ended June 30, 2025, the Company has aggregated these items into one category, “Services” and reclassified Customer service and Engineering and development contracts revenues as well as Cost of sales to conform the presentation of the Consolidated Statements of Operations for the three and nine months ended June 30, 2024. For additional information, see Note 3, Summary of Significant Accounting Policies, (“Reclassifications”) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
Net sales. Net sales for the three months ended June 30, 2025 increased $12.4 million, or 105.2%, to $24.1 million from $11.8 million for the three months ended June 30, 2024. Net sales of $24.1 million for the three months ended June 30, 2025 comprised $11.6 million in organic Net sales and $12.5 million in Net sales related to the September 2024 Honeywell Agreement. The increase in Net sales was driven primarily by a $11.4 million, or 223.8%, increase in Product sales of which $11.5 million were derived from Honeywell military products. This quarter’s Net sales benefitted from an acceleration of the production and sales of Honeywell’s military product line in anticipation of Honeywell ceasing production at its own facilities and transitioning that production to the Company’s facilities. Net sales also benefited from an increase in commercial air transport sales of $0.4 million partially offset by $0.4 million of reduced sales in business aviation. Services sales for the three months ended June 30, 2025 increased $0.9 million, or 13.6%, compared to Services sales for the three months ended June 30, 2024. The increase in Services sales primarily reflects increases in engineering development services of $0.9 million and an increase in customer service sales from the product lines acquired from Honeywell of $0.2 million, partially offset by a decrease in legacy customer service revenue of $0.1 million.
Cost of sales. Cost of sales was $15.6 million, or 64.4% of Net sales, for the three months ended June 30, 2025 compared to $5.5 million, or 46.6% of Net sales, for the three months ended June 30, 2024. The increase in Cost of sales was primarily the result of a significant increase in overall sales volume. The Company’s overall gross margin for the three months ended June 30, 2025 was 35.6 % compared to 53.4% for the three months ended June 30, 2024. The decrease in overall gross margin percentage for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 is primarily the result of unfavorable changes in product mix. The factors that have affected and will continue to affect the Company’s gross margins include depreciation resulting from recent product line acquisitions and the increased proportion of military sales in the Company’s sales mix.
Research and development. R&D expense decreased $0.2 million, or 16.6 %, to $0.9 million for the three months ended June 30, 2025 from $1.1 million for the three months ended June 30, 2024. As a percentage of net sales, R&D expenses decreased to 3.8% of net sales for the three months ended June 30, 2025 from 9.3% of net sales for the three months ended June 30, 2024. The decrease in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional revenues for the three months ended June 30, 2025 compared to the same period last year.
Selling, general, and administrative. SG&A expense increased by $1.1 million or 32.1%, to $4.2 million from $3.1 million for the three months ended June 30, 2024. The increase in SG&A expense for the three months ended June 30, 2025 was primarily the result of third party and other fees of $0.1 million, $0.2 million related to the amortization of customer relationships and intangible assets resulting from the combined acquisitions, $0.4 million due to employee related expenses and benefits resulting from increased headcount, and a $0.3 million increase in other operating expenses. As a percentage of Net sales, SG&A expenses were 17.2% for the three months ended June 30, 2025 compared to 26.7% for the three months ended June 30, 2024.
Interest income. Interest income was negligible for the three months ended June 30, 2025 and 2024, respectively.
Other income. The Company had no material other income for the three months ended June 30, 2025 and 2024, respectively.
Income taxes. Income tax expense was $0.7 million for the three months ended June 30, 2025 as compared to income tax expense of $0.3 million for the three months ended June 30, 2024. The effective tax rate for the three months ended June 30, 2025 was 21.5% as compared to 17.6% for the three months ended June 30, 2024. The increase in income tax expense was primarily due to higher taxable earnings for the three months ended June 30, 2025, compared to the same period last year.
Net income. As a result of the factors described above, the Company’s net income for the three months ended June 30, 2025 was $2.4 million compared to net income of $1.6 million for the three months ended June 30, 2024. On a fully diluted basis, net income per
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share was $0.14 for the three months ended June 30, 2025, compared to a net income of $0.09 per share for the three months ended June 30, 2024.
Nine Months Ended June 30, 2025 Compared to the Nine Months Ended June 30, 2024
Net sales. Net sales for the nine months ended June 30, 2025 increased by $30.2 million, or 95.0%, to $62.0 million from $31.8 million for the nine months ended June 30, 2024. Net sales of $62.0 million for the nine months ended June 30, 2025 comprised $32.7 million in organic Net sales and $29.3 million in Net sales related to the September 2024 Honeywell Agreement. The increase in Net sales was driven primarily by a $25.3 million, or 175.3%, increase in Product sales derived from the September 2024 Honeywell Agreement, an increase in commercial air transport sales of $0.3 million, an increase of $1.3 million in sales in business aviation. Service sales for the nine months ended June 30, 2025 increased $5.4 million, or 28.3%, compared to Services sales for the nine months ended June 30, 2024. The increase in Service sales primarily reflects increases in engineering development services of $2.0 million and an increase in customer service sales from the product lines acquired from Honeywell of $3.8 million, partially offset by lower legacy customer service revenue of $0.5 million.
Cost of sales. Cost of sales was $35.6 million, or 57.3% of Net sales, for the nine months ended June 30, 2025 compared to $14.4 million, or 45.4% of Net sales, for the nine months ended June 30, 2024. The increase in Cost of sales was primarily the result of a significant increase in overall sales volume. The Company’s overall gross margin for the nine months ended June 30, 2025 was 42.7% compared to 54.6% for the nine months ended June 30, 2024. The decrease in overall gross margin percentage for the nine months ended June 30, 2025, compared to the nine months ended June 30, 2024, is primarily the result of unfavorable changes in product mix, increased depreciation and cost inefficiencies due to hiring and training of additional personnel and other integration costs associated with the September 2024 Honeywell Agreement. The factors that have affected and will continue to effect the Company’s gross margin include depreciation resulting from recent product line acquisitions and the increased proportion of military sales in the Company’s sales mix.
Research and development. R&D expense decreased $0.1 million, or 4.6%, to $2.9 million for the nine months ended June 30, 2025 from $3.0 million for the nine months ended June 30, 2024. As a percentage of net sales, R&D expenses decreased to 4.8% of net sales for the nine months ended June 30, 2025 from 9.5% of net sales for the nine months ended June 30, 2024. The decrease in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional revenues for the nine months ended June 30, 2025 compared to the same period last year.
Selling, general, and administrative. SG&A expenses increased $2.6 million or 29.4%, to $11.7 million from $9.1 million for the nine months ended June 30, 2024. The increase in SG&A expense for the nine months ended June 30, 2025 was primarily the result of increases in professional services fees and other related fees of $0.3 million primarily due to acquisition related expenses and corporate initiatives. In addition, the Company incurred increased depreciation and amortization expenses of $0.8 million related to the customer relationships and intangible assets resulting from the combined acquisitions and $1.2 million due to employee related expenses and benefits resulting from increased headcount, and $0.3 million increase in other operating expenses. As a percentage of Net sales, SG&A expenses were 18.9% for the nine months ended June 30, 2025 compared to 28.5% for the nine months ended June 30, 2024.
Interest income. Interest income was negligible for the nine months ended June 30, 2025 and decreased by $0.1 million as compared to the nine months ended June 30, 2024. The decrease in interest income was primarily the result of a general decrease in interest rates as compared to the nine months ended June 30, 2024.
Other income. The Company had no material other income for the nine months ended June 30, 2025 and 2024, respectively.
Income taxes. Income tax expense was $2.1 million for the nine months ended June 30, 2025 as compared to income tax expense of $1.0 million for the nine months ended June 30, 2024. The effective tax rate for the nine months ended June 30, 2025 was 19.9%, in line with the effective tax rate for the nine months ended June 30, 2024.
Net income. As a result of the factors described above, the Company’s net income for the nine months ended June 30, 2025 was $8.5 million, compared to net income of $3.8 million for the nine months ended June 30, 2024. On a fully diluted basis, net income per share was $0.48 for the nine months ended June 30, 2025, compared to a net income of $0.22 per share for the nine months ended June 30, 2024.
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Liquidity and Capital Resources
The following table highlights key financial measurements of the Company:
| | | | | | |
| | | As of | | | As of |
| | | June 30, | | | September 30, |
|
| 2025 |
| 2024 | ||
Cash and cash equivalents | | $ | 601,759 | | $ | 538,977 |
Accounts receivable | | $ | 11,536,254 | | $ | 12,612,482 |
Current assets | | $ | 39,811,433 | | $ | 34,685,698 |
Current liabilities | | $ | 11,278,120 | | $ | 7,265,254 |
Contract liability | | $ | 2,529,533 | | $ | 340,481 |
Other non-current liabilities | | $ | 23,717,642 | | $ | 28,478,352 |
Quick ratio (1) | |
| 1.08 | |
| 1.81 |
Current ratio (2) | |
| 3.53 | |
| 4.77 |
| | | | | | | |
|
| Nine Months Ended June 30, |
| ||||
| | 2025 |
| 2024 | | ||
Cash flow activities: |
| |
|
| |
|
|
Net cash provided by operating activities | | $ | 10,336,200 | | $ | 5,350,891 | |
Net cash (used in) provided by investing activities | |
| (5,504,928) | |
| 1,713,883 | |
Net cash used in financing activities | |
| (4,768,490) | |
| (9,640,926) | |
| (1) | Calculated as: the sum of cash and cash equivalents plus accounts receivable, net, divided by current liabilities. |
| (2) | Calculated as: current assets divided by current liabilities. |
The Company’s principal source of liquidity has been cash flows from current year operations and cash accumulated from prior years’ operations, supplemented with our revolving credit facility. Cash is used principally to finance inventory, accounts receivable, contract assets, payroll, debt service and acquisitions, as well as the Company’s known contractual and other commitments. The Company’s existing cash balances and anticipated cash flows from operations, together with borrowings under our revolving credit facility, are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months. Apart from what has been disclosed in this Management’s Discussion and Analysis, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources. The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board.
Debt Facility
In connection with the June 2023 Honeywell Agreement, the Company entered into a term loan with PNC Bank for $20.0 million to fund a portion of the June 2023 Honeywell Agreement. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024, Note 20, “Loan Agreement” for further details. In addition to providing for the Term Loan, The Loan Agreement, together with a corresponding Line of Credit Note in favor of PNC, executed on May 11, 2023, provides for the senior secured Revolving Line of Credit in an aggregate principal amount of $10,000,000, with an expiration date of May 11, 2028.
On December 19, 2023, the Company and PNC entered into the Restated Loan Amendment and the corresponding Restated Line of Credit Note and Restated Rider, to increase the aggregate principal amount available under the Company’s senior secured revolving line of credit from $10,000,000 to $30,000,000 and extend the maturity date until December 19, 2028. The proceeds of the Restated Line of Credit Note will be used for working capital and other general corporate purposes, for acquisitions as permitted under the Restated Loan Amendments and to pay off and close the loan evidenced by that certain Term Note executed in favor of PNC, dated June 28, 2023, which provided for a senior secured term loan in aggregate principal amount of $20,000,000, with a maturity date of June 28, 2028.
On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company entered into the Loan 2024 Amendment with PNC, which amends certain terms of the Loan Agreement to increase the line of credit with PNC. Concurrently with the Loan 2024 Amendment, the Company entered into (i) A&R Revolving
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Line of Credit Note, and (ii) A&R Rider. The A&R Revolving Line of Credit Note provides for a senior secured revolving line of credit in an aggregate principal amount of $35,000,000, with an expiration date of December 19, 2028 (the “Revolving Line of Credit”). The interest rate applicable to loans outstanding under the Revolving Line of Credit is a rate per annum equal to the sum of (A) Daily SOFR (as defined in the A&R Revolving Line of Credit Note) plus (B) an unadjusted spread of the Applicable SOFR Margin plus (C) a SOFR adjustment of ten basis points. The Applicable SOFR Margin ranges from 1.5% to 2.5% depending on the Company’s funded debt to EBITDA ratio, as defined in the A&R Revolving Line of Credit Note. The A&R Rider provides for how PNC will make advances to the Company under the Revolving Line of Credit.
As of June 30, 2025, the outstanding balance drawn on the A&R Revolving Line of Credit was $23,258,511 with an effective interest rate of 6.4 percent. As of June 30, 2025, the Company had availability of $11,741,489 under the A&R Revolving Line of Credit.
2025 Credit Agreement
On July 18, 2025, the Company entered a new five-year, $100 million committed credit agreement (the "2025 Credit Agreement") with a lending syndicate led and arranged by JPMorgan Chase Bank, N.A.. See footnote 9. Subsequent Events, for additional disclosures related the July 18, 2025 Credit Agreement.
Future Funding Requirements
The Company’s existing cash balances, anticipated cash flows from operations and current banking facility are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months, which include funding requirements for working capital, construction in process related to progress payments in support of the Company’s facilities expansion as well as computer software integration associated with the Company’s ERP system.
Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.
The Company did not pay cash dividends in fiscal years 2023 or 2024. The Company intends to retain future earnings, if any, to finance the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividend in the future will be at the discretion of the Board and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant.
Operating activities
Net cash provided by operating activities was $10.3 million for the nine months ended June 30, 2025 and consisted primarily of funding from net income of $8.5 million and changes in working capital.
Investing activities
Net cash used in investing activities was $5.5 million for the nine months ended June 30, 2025 and consisted of expenditures related to additions and improvements in the Company’s facilities, purchases of equipment and computer software investment related to the Company’s ERP (“Enterprise Resource Planning”) implementation.
Financing activities
Net cash used in financing activities was $4.8 million for the nine months ended June 30, 2025 and consisted of payments against the Company’s line of credit.
Summary
Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors. IS&S has experienced increases in expenditures since its inception and anticipates that expenditures will continue in the foreseeable future. The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. However, the Company may need to develop and introduce new or enhanced products, respond to competitive pressures, invest in or acquire businesses or technologies, or
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respond to unanticipated requirements or developments. If insufficient funds are available, the Company may not be able to introduce new products or compete effectively.
Backlog
| | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
|
| | June 30, 2025 |
| |||
Backlog, beginning of period | | $ | 79,598,515 | | $ | 89,232,576 | |
Plus: bookings during period, net | |
| 16,940,971 | |
| 45,211,853 | |
Less: sales recognized during period | |
| (24,144,832) | |
| (62,049,775) | |
Backlog, end of period | | $ | 72,394,654 | | $ | 72,394,654 | |
Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders. The backlog excludes potential future sole-source production orders from products developed under the Company’s engineering development contracts (“EDC”) programs, including the Pilatus PC-24, the KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs. Although the Company believes that the orders included in backlog are firm, most of the backlog involves orders that can be modified or terminated by the customer.
At June 30, 2025, our backlog was $72.4 million compared with $89.2 million at September 30, 2024. Backlog is converted into sales in future periods as work is performed or deliveries are made. We expect to recognize approximately 60% of our backlog over the next 12 months and approximately 90% over the next 24 months as revenue, with the remainder recognized thereafter.
During fiscal 2024, we made important progress on our commercial growth strategy highlighted by several key awards and contract wins across our commercial, military and business aviation markets. In October 2024, we announced our ThrustSense® Autothrottle system was selected by the US Army to be installed on their C-12 (B200) aircraft equipped with ProLine21 avionics suites®. Deliveries of the IS&S ThrustSense Autothrottle system for this application began in September 2024, with ongoing installations anticipated. In August 2024, we received a multi-million dollar production contract from a major aerospace company to supply our 19” Multifunction Display (MFD) with Integrated Mission Computer. This order marks our latest OEM contract and builds on existing programs with Pilatus for the PC-24, Textron for the King Air 260/360 and Boeing for the KC-46A, KC-767 and the T-7A.
Off-Balance Sheet Arrangements
The Company has no relationships with unconsolidated entities or financial partnerships, such as Special Purpose Entities or Variable Interest Entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s operations are exposed to market risks primarily as a result of changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. The Company’s exposure to market risk for changes in interest rates relates to its cash equivalents. The Company’s cash equivalents consist of funds invested in money market accounts, which bear interest at a variable rate. The Company does not participate in interest rate hedging. Cash balances are maintained with two major banks. Balances on deposit with certain money market accounts and operating accounts may exceed the Federal Deposit Insurance Corporation limits. A change in interest rates earned on the cash equivalents would impact interest income and cash flows but would not impact the fair market value of the related underlying instruments. Assuming that the balances during the nine months ended June 30, 2025 were to remain constant and the Company did not act to alter the existing interest rate sensitivity, a hypothetical 1% increase in variable interest rates would have affected interest income by approximately $3,717 with a resulting impact on cash flows of approximately $3,717 for the nine months ended June 30, 2025.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of June 30, 2025 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of such controls that occurred during the fiscal quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II–OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. There can be no assurance that we will prevail in any such litigation. The Company does not believe any such matters that are currently pending will, individually or in aggregate, have a material effect on the results of operations or financial position.
Item 1A. Risk Factors
For information regarding the Company’s risk factors, refer to the “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2024, filed with the SEC on December 30, 2024. Other than as set forth below, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form10-K for the fiscal year ended September 30, 2024 and Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2025.
Tariffs imposed by the United States government could have a material adverse effect on our results of operations.
During Fiscal 2025, the United States government announced tariffs on goods imported into the United States from numerous countries. In response, multiple nations countered with reciprocal tariffs and trade restrictions. In light of these events, there continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies , treaties and tariffs. The U.S. government has stated that it is willing to negotiate with other countries regarding the tariffs and trade restrictions. If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the United States or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy. The tariffs implemented by the United States and other countries along with any additional tariffs or trade restrictions implemented by such countries, may negatively impact demand and the Company’s supply chain, resulting in an increase in some product costs. Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market’s fear of an economic slowdown could lead to a decrease in demand for our products and services, which could have a material adverse impact on our business, financial condition and results of operations.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the quarter ended June 30, 2025.
Use of Proceeds
Not applicable.
Purchase of Equity Securities
We did not repurchase shares of our common stock during the quarter ended June 30, 2025.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the quarter ended June 30, 2025, no executive officer or director of the Company
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Item 6. Exhibits
(a) Exhibits
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| |
10.1 | Credit Agreement, dated as of July 18, 2025, among Innovative Solutions and Support, Inc., Innovative Solutions and Support, LLC, the other loan parties party thereto, the lenders party thereto, and JP Morgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of Form 8-K, filed by the registrant on July 22, 2025) |
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31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith. |
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31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith. |
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32.1* | Certification Pursuant to U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith. |
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101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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* This certification is not deemed filed with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, irrespective of any general incorporation language contained in such filing.
** Denotes compensatory plan or arrangement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| INNOVATIVE SOLUTIONS AND SUPPORT, INC. | |
| | |
Date: August 14, 2025 | By: | /s/ Jeffrey DiGiovanni |
| | Jeffrey DiGiovanni |
| | Chief Financial Officer (on behalf of Registrant and as Principal Financial Officer and Principal Accounting Officer) |
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FAQ
What were ISSC's net sales for the quarter and nine months ended June 30, 2025?
How much net income did ISSC record for the quarter and nine months?
What cash flow and liquidity figures did ISSC report?
What Honeywell transactions did ISSC disclose in the 10-Q?
How concentrated are ISSC's revenues by customer?
What changes to long-term debt and equity are reported?
