INNOVATIVE SOLUTIONS & SUPPORT INC Q3 FY2025 earnings call

• Revenue growth of 105% compared to Q3 2024 driven by military programs like F-16, with a backlog of $72 million.
• Adjusted EBITDA increased by 43%, but impacted by lower gross margins from F-16 due to safety stock costs.
• Progress on Exton facility expansion with construction wrapped up in Q3, fit-out to be completed in early fall, tripling manufacturing capacity.
• Continued integration of Honeywell acquisition, expected to be completed in first half of fiscal 2026.
• New $100 million credit facility provides flexibility for growth strategy.
• Evaluating acquisitions of smaller avionics manufacturers and adjacent market opportunities.

During the third quarter, net revenues were $24.1 million, more than double the $11.7 million in Q3 2024. Product sales were $16.6 million in Q3 2025, up from $5.1 million in Q3 2024. Service revenue was $7.5 million. Gross profit was $8.6 million, with a gross margin of 35.6% compared to 53.4% in Q3 2024. Adjusted EBITDA was $4.3 million, up from $2.7 million. Backlog as of June 30, 2025, was approximately $72 million.

• Expect normalized gross margin in the mid-40s depending on product mix.
• Net leverage target around 3 depending on acquisition size.
• Anticipated improved margins in latter quarters of fiscal 2026 once integration and cost efficiencies are realized.

• Impact from foreign customers reducing production forecasts due to tariff implications, but not a meaningful impact on results.
• Near-term margin volatility due to integration of Honeywell products, including duplicate costs and stock-building for transition.

Q: Touch on gross margin outlook, normalized gross margin rate, targeted net leverage ratio, and acquisition strategy.

A: Jeff DiGiovanni mentioned normalized gross margin in mid-40s depending on product mix, net leverage around 3. Shahram Askarpour discussed acquisition pipeline including potential Honeywell auctions and smaller avionics companies.

Q: Speak on F-16 safety stock deliveries, gross margin trajectory, defense budgets, backlog breakdown, and credit facility with acquisitions.

A: Jeff DiGiovanni said F-16 revenues will dip in next quarters due to safety stock pull forward, gross margin target mid-40s. Shahram Askarpour noted positive feedback from defense contractors, backlog includes F-16 and some multiyear programs, and organic growth is part of strategy with $100 million credit facility