Innovative Solutions and Support, Inc. Q2 FY2026 earnings call

Strategic Growth & Acquisitions

• The company executed 3 acquisitions during the quarter, projected to add $10 million in annual revenue with a blended 50% gross margin, moving the firm closer to its $250 million annual revenue target
• The STEC autopilot line acquisition from Moog added a trusted, established product that fills a key gap in the company’s integrated cockpit avionics platform
• The Honeywell product line acquisition adds navigation radios, multifunction displays, transponder, power generation, and additional autopilot solutions, establishing Innovative Aerosystems as a major autopilot supplier serving platforms from small general aviation to large Part 25 aircraft and helicopters across military and commercial markets
• The acquisitions complete a comprehensive avionics ecosystem that bridges legacy platform sustainment and next-generation autonomous flight capability, expanding access to new customers and platforms
• The acquisition pipeline remains robust, and management remains disciplined in targeting strategic, value-add transactions

F-16 Program Update

• All required recertifications for F-16 digital flight control computers and improved programmable display generators (IPDG) are complete, and full-scale production is now operational at the Exton facility
• The F-16 program is now at a normalized quarterly run rate of $3 million to $5 million, down from the elevated $10 million quarterly run rate in 2025 during the pre-transition delivery pull-forward

New Product Development

• Development of the next-generation UMS aircraft systems management platform and Liberty autonomous flight deck continues to progress, with deliveries expected to ramp up through the remainder of fiscal 26
• The full avionics product portfolio now includes advanced flight decks, mission systems, flight/navigation computers, autothrottle, communication/navigation tools, power systems, and proprietary autonomous flight software

Defense Market Outlook

• The company has seen a significant increase in inquiries for cockpit upgrades and new aircraft platforms, positioned to benefit from strong global defense spending growth
• Successful execution of the F-16 integration has opened new doors for additional defense contracts with Lockheed Martin and other prime contractors, including new F-16 upgrade programs and unrelated platform opportunities

Financial & Operational Performance

• The quarter delivered strong organic growth in commercial aerospace and business aviation, solid booking levels, strong margin realization, and efficient free cash flow conversion
• New orders totaled $24.7 million, and total backlog grew $7 million year-over-year to $87 million as of March 31
• Cash flow from operations was $10.5 million, up from $3.1 million year-over-year; free cash flow for the first half was $7.7 million, up from $1.3 million in the prior year first half
• Net leverage is 1.7x, and total available liquidity (cash plus credit line capacity) is $49.8 million, providing significant flexibility for growth initiatives

In Q2 FY26, total net revenues were $22.4 million, a 2% year-over-year increase. Product sales reached $14.3 million (63.8% of total revenue), up from $13.2 million in the prior year period, as stronger commercial aftermarket, upgrade, and business aviation volumes offset the F-16 revenue decline. Service revenues were $8.1 million (36.2% of total revenue), down from $8.8 million year-over-year, due to a $3 million decline in F-16 service revenues partially offset by growth in IRU and radio product line service volumes. The F-16 segment saw a $7 million year-over-year revenue decline, as 2025 Q2 revenues were elevated by accelerated pre-transition deliveries to Lockheed. Commercial and business aviation organic revenue grew approximately 50% year-over-year, offsetting the F-16 headwind. Gross profit was $11.4 million, up 1.5% year-over-year, with a gross margin of 51.1% (down slightly from 51.4% last year due to unfavorable comparison to prior year F-16 expense timing). Operating expenses were $6.5 million, up 4% year-over-year, driven by higher R&D investments and one-time acquisition costs. Net income was $3.4 million ($0.19 per diluted share), down from $5.3 million ($0.30 per diluted share) last year. Adjusted EBITDA was $6.8 million, down from $7.7 million year-over-year.

• Organic full year fiscal 26 revenue is expected to be essentially flat year-over-year, due to the 2025 pull-forward of F-16 production and service revenue that would have otherwise occurred in 2026
• Third quarter fiscal 26 revenues are guided to a range of $24 million to $26 million
• Long-term gross margins are expected to normalize to the mid-40% range, with quarterly fluctuations driven by revenue mix; as lower-margin military business ramps back up, overall gross margins will move toward this long-term target
• R&D spending is expected to continue increasing through the remainder of fiscal 26 to support growth and new product development initiatives
• Long-term F-16 revenue is expected to stabilize at a normalized quarterly run rate of $3 million to $5 million

• Forward-looking statements are inherently uncertain, and actual results may differ materially from current expectations due to factors outlined in the company’s SEC risk factor disclosures
• Quarterly results can be impacted by lumpiness in expense recognition related to manufacturing transitions, leading to fluctuations in gross margin and profitability relative to prior year periods
• F-16 delivery volumes are constrained by the extensive 80+ hour testing requirement per unit, which limits near-term quarterly output despite existing backlog

Q: Robert Brooks of Northland Capital asked for clarification on the company's comment that it shifted its operational mix away from F-16 toward commercial markets. He asked if this was a capacity constraint or a timing-related shift. / A: Shahram Askarpour explained that IPDG regulatory approval was only received in the final weeks of the quarter, which left insufficient time to complete the required 80 hours of per-unit testing before quarter-end. It was not a capacity constraint— the company has enough capacity to serve both F-16 and commercial opportunities. The quarterly shift was purely timing-related, with F-16 revenue now set to stabilize at the long-run $3M-$5M quarterly run rate.

Q: Brooks asked for color on customer reception of the three recent autopilot and avionics acquisitions, and whether the expanded product portfolio has attracted new customers. / A: Askarpour reported very strong inbound inquiry and positive reception across all new product lines. Moog had shifted its strategic focus away from the STEC product line, so customers have quickly turned to Innovative Aerosystems for supply. The Honeywell acquisition includes OEM supply relationships with Pilatus and Boeing, and has gained momentum as customers were dissatisfied with prior Honeywell support. The combined portfolio now covers the full range of aircraft sizes, making the company one of the largest autopilot suppliers in the market, with significant recurring aftermarket revenue from thousands of already installed units.

Q: Greg Palm of Craig-Hallum asked for additional detail on emerging defense market opportunities amid the current strong defense spending backdrop. / A: Askarpour noted that there is large unmet demand for cockpit upgrades for the DOD's extensive fleet of aging aircraft, including programs like the KC-135, with high levels of inbound inquiry. Successful integration of the F-16 program has built strong credibility with Lockheed Martin, opening the door to new contract opportunities for unrelated programs and future F-16 upgrades.

Q: Sergey Glinyanov of Freedom Brokers asked whether reported F-16 redesign issues will impact revenue over the next few quarters. / A: Jeffrey DiGiovanni responded that the program is fully operational and running at the planned normalized rate, with no impact from external redesign issues. There is substantial existing backlog to support steady $3M-$5M quarterly production for the next several years, with output constrained only by the required testing timeline per unit.