INNOVATIVE SOLUTIONS & SUPPORT INC Q4 FY2024 earnings call

• Strategic focus on IS&S Next, a long-term value creation strategy centered on targeted commercial growth, improved operating leverage, and returns-driven capital allocation. • Commercial growth from existing platforms, new OEM/retrofit programs, product development (e.g., UMS and UMS II), and acquisitions from Honeywell. • Plan to increase operating leverage by handling more maintenance/repair work and internal sub-assembly manufacturing. • Capital allocation includes organic growth investments and strategic acquisitions, with a $6M facility expansion planned for 2025.

In the fourth quarter of Fiscal 2024, net revenues were $15.4 million, up 18% year-over-year. Product sales were $9.8 million driven by commercial air transport programs, and customer service revenue was $5.5 million from Honeywell product line acquisitions. New orders in the quarter were $95.4 million, including $74.3 million of backlog from the September acquisition, which is expected to bleed off over 3-4 years. Gross profit was $8.5 million, but gross margins are impacted by acquisition-related depreciation and a sales mix shift to lower margin military sales.

• Backlog from the September acquisition will bleed off over 3-4 years. • Anticipate Q2 2025 to see a significant revenue bump from the acquired Honeywell product lines. • $6M CapEx for facility expansion in 2025, with some work already completed in FY24. • Military sales, while lower margin, are expected to contribute to absolute EBITDA growth.

• Incremental depreciation and amortization from product line acquisitions impacting gross margins. • Sales mix shift to lower margin military sales, which may affect overall margins in the intermediate term. • Uncertainty in backlog realization timing due to obsolescence issues and transition periods from Honeywell.

Q: What's the revenue and EBITDA impact of the September acquisition?

A: The acquisition brought $74M backlog, bleeding off over 3-4 years; military sales have lower margins but EBITDA margins are comparable to existing.

Q: Projection for Q1 revenue?

A: Management won't provide forward-looking statements, will wait till February for projections.

Q: Potential challenges with military sales cycles?

A: Longer sales cycles, but efforts are in place to improve infrastructure for defense contracts, including new ERP system.

Q: Military vs commercial technology interplay?

A: Similar technology with variations; e.g., displays for military have night vision capabilities, and UMS II is AI-capable for cross-selling.