ISSC

• Overall Financial Performance

  • Delivered 11% total revenue growth YoY despite a difficult year-ago comparison from the F-16 manufacturing transition
  • Achieved net income of $4.5 million ($0.25 per diluted share), up from $2.4 million ($0.14 per share) YoY
  • Gross margin reached 51.7%, up from 35.6% YoY, marking the fourth consecutive quarter with gross margins of at least 50%
  • Adjusted EBITDA grew 75% YoY to $7.7 million, reflecting strong operational leverage and scalable business model
  • Total backlog as of June 30, 2026 was $83 million, an increase of ~$5.5 million YoY
  • Generated $12.3 million in free cash flow through the first three quarters of 2026, up from $4.8 million YoY, with strong cash conversion from a capital-light business model
  • Ended the quarter with net debt of $43.8 million and a net leverage ratio of 1.4x, with $53.7 million in total cash and available credit, providing significant financial flexibility

• Strategic Acquisition Progress

  • Completed the acquisition of Aydin Displays, a leading manufacturer of rugged display technologies for defense, industrial, and mission-critical aerospace applications
  • Aydin Displays adds over 20 supported military platforms across 80+ countries, a vertically integrated manufacturing facility, expanded engineering talent, and new market exposure
  • Strengthens the company's position in traditional military avionics, expands military business into naval and ground programs, and diversifies into industrial applications including medical instruments
  • This is the company's first acquisition of an operating business, expanding its M&A strategy beyond historical product-line acquisitions; the acquisition pipeline remains active, targeting businesses with aftermarket potential, proprietary content, above-market growth, and strong cash generation

• New Contract Wins and Product Development

  • Secured a new OEM contract with a leading Japanese eVTOL aircraft developer to develop the main display and avionics architecture for the program, the first major OEM award for the company's Liberty flight deck
  • Early engineering work is scheduled to begin in Q4 2026, with initial production targeted for late 2027 and full production ramping in 2028 to support the customer's 2028 commercial launch; the customer currently holds over 400 orders for the aircraft
  • Completed development and certification of UMS version two, with production starting in June 2026 and Q3 2026 revenue already benefiting from the new product line
  • The L3 radio management unit contract is in final certification, with production deliveries scheduled to begin in Q1 fiscal 2027
  • The Boeing KC-767 contract is progressing as planned, with production deliveries scheduled to begin in Q2 fiscal 2027

• Corporate Milestones

  • Changed the NASDAQ ticker symbol from ISSC to IA, effective August 18, 2026, aligning public market identity with the company's new corporate brand
  • Added to the Russell 2000 U.S. Small Cap Index as part of the 2026 index reconstitution, reflecting the company's strategic progress and growth
  • Reaffirmed the company's long-term target of $250 million in total annual revenue

• Fourth quarter fiscal 2026 revenue is expected to be in the range of $28 million to $30 million, including expected organic growth and contributions from recent acquisitions
• Long-term target gross margin range is 45% to 50%, with the company targeting sustained gross margins around 50% as its long-term goal, after four consecutive quarters of 50%+ gross margins in Q3 2026
• Long-term target adjusted EBITDA margin range is 25% to 30%
• Elevated R&D spending is expected to continue as the company invests in next-generation capabilities for multiple end markets and platforms
• Management maintained the existing long-term $250 million total revenue target, and reaffirmed confidence in hitting this target on the back of current strong business momentum

Total net revenues for Q3 2026 were $26.7 million, an 11% increase year-over-year (YoY). The product segment generated $17.5 million in revenue (65.5% of total revenue), up 5.4% YoY, driven by strong sales in commercial and business aviation markets. The service segment generated $9.2 million in revenue (34.5% of total revenue), up 22.7% YoY, driven by growing service volumes for IRUs and autopilot product lines. Excluding F-16 revenue (which fell from $12.6 million YoY to $5.7 million in Q3 2026) and new acquisition contributions, organic core business grew over 40% YoY.

• Forward-looking statements are inherently uncertain, and actual results could differ materially from expectations due to general market and economic risks, regulatory changes, and other risk factors disclosed in the company's SEC filings
• Global political environment shifts have created supply chain challenges for companies that outsource core manufacturing and intellectual property to international suppliers; the company mitigates this via in-house circuit card production and multiple qualified suppliers for key components, but supply chain volatility remains a potential industry-wide risk
• The emerging eVTOL/advanced air mobility market depends on customer order execution and regulatory approval, and actual volume growth may differ from current expectations
• Gross margins can vary quarter-to-quarter based on product and end market mix, creating potential volatility in quarterly profitability results

Q: How long was the sales process for the new eVTOL contract, and does the stated $50 million contract value assume all 400 current customer orders are produced? What factors led to this contract win? / A: The sales process took roughly one year to complete. The $50 million value assumes production of the 400 ordered aircraft. The company's flexible, low-cost customizable display and avionics architecture was the key factor that attracted the customer. Management notes additional eVTOL manufacturers have expressed interest in the Liberty flight deck, so this win is not an isolated opportunity. / Q: Honeywell recently cited electronic supply chain challenges; is Innovative Aerosystems facing similar issues? / A: The company does not face the same supply chain pressures because it manufactures its own circuit cards in-house, rather than outsourcing this core component. It also proactively qualifies multiple suppliers for key components such as LCDs to avoid single-source bottlenecks, a strategy designed to mitigate risks from shifting global political and supply chain dynamics. / Q: What is the outlook for sustaining the current 50%+ gross margin run rate? Is the medical instrument market opportunity organic or from the Aydin Displays acquisition? / A: Management's long-term target range is 45-50% gross margin, with quarterly variation based on product mix. As insourcing of production for acquired product lines completes, margins are expected to converge to the 50% target. Medical instrument revenue currently makes up a small portion of Aydin Displays' business from the acquisition, but the entry to this market creates new opportunities to develop additional IA products for higher-volume medical applications, a new adjacent market for the company. / Q: What are the core drivers of the 40% organic core revenue growth achieved in Q3 2026? / A: Growth is broad-based across end markets: aging commercial fleets are driving higher replacement and repair service demand, business aviation growth has rebounded with the launch of the new UMS version two product, and military growth is solid outside the transitory F-16 comps. / Q: Is the company sole source on the eVTOL contract, and how large is the overall Liberty flight deck opportunity in the emerging eVTOL market? / A: The company will be the certified supplier for the baseline aircraft program, which typically results in a sole-source position long-term. The $50 million is based on current 400 orders, and volume could grow significantly if the customer secures additional orders, similar to past experience where program volumes outgrew initial projections. The overall eVTOL advanced air mobility opportunity is very large, and the company's flexible, nimble platform is well-positioned to compete for multiple programs in this fast-growing new market.