ISSC Innovative Solutions and Support Inc

Innovative Solutions & Support, Inc. (Nasdaq: ISSC) ("IS&S" or the "Company"), a company specializing in the engineering, manufacturing, and supply of advanced avionic solutions, today reported financial results for the three and nine months ended June 30, 2024. Investors are encouraged to read the Company’s quarterly report on Form 10-Q when it is filed with the Securities and Exchange Commission (the “SEC”), which will contain additional details, and will be posted at www.innovative-ss.com.

THIRD QUARTER 2024 HIGHLIGHTS (all comparisons versus the prior year period unless otherwise noted)

• Net revenue of $11.8 million, +47.8%
• Gross profit of $6.3 million, +32.6%; gross margin of 53.4%
• Net Income of $1.6 million, or $0.09 per diluted share; Adjusted Net Income(1) of $1.9 million, or $0.11 per diluted share
• Adjusted EBITDA(2) of $3.1 million, +61%
• Year-to-date free cash flow(3) of $4.8 million, up from $0.8 million
• Net leverage of 0.8x as of June 30, 2024

(1)

Adjusted net income and adjusted diluted EPS are non-GAAP measures. Reconciliations of adjusted net income to net income and of adjusted diluted EPS to diluted earnings per share, the most directly comparable GAAP financial measures, are set forth in the reconciliation table accompanying this release.

(2)

Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures. Reconciliation of adjusted EBITDA and adjusted EBITDA margin to net income, the most directly comparable GAAP financial measure, is set forth in the reconciliation table accompanying this release.

(3)

Free cash flow is a non-GAAP measure. Reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, is set forth in the reconciliation table accompanying this release.

MANAGEMENT COMMENTARY

“Our positive business momentum continued during the third quarter, as program execution on both new and existing platforms contributed to a 48% increase in total revenue from the third quarter last year,” stated Shahram Askarpour, Chief Executive Officer of IS&S. “Specifically, we continue to benefit from strong execution under our previously acquired Honeywell product lines, and we are also looking forward to additional opportunities in fiscal 2025 resulting from our recently announced transaction with Honeywell.”

“We’ve demonstrated our ability to deliver growth in free cash flow over time while maintaining strict financial discipline,” stated Jeffrey DiGiovanni, Chief Financial Officer of IS&S. “Since the completion of our Honeywell product line acquisition announced in July 2023, we’ve reduced net leverage from 2.9x to 0.8x at the end of the third quarter, while our total cash and availability under our credit line has increased to $21 million as of June 30, 2024, affording us significant optionality with which to invest in our growth initiatives.”

"We continue to execute at a high level and are well positioned as we look toward fiscal 2025,” noted Askarpour. “Our experienced management team, track record of execution, and favorable demand outlook across our general aviation, commercial air transport, and military verticals position IS&S for significant value creation, over time.”

THIRD QUARTER 2024 PERFORMANCE

Third quarter revenue was $11.8 million, an increase of 47.8% compared to the same period last year, driven by contributions from the acquired Honeywell product lines, as well as incremental product extensions to the acquired platforms.

Gross profit was $6.3 million during the third quarter of 2024, an increase of 32.6% compared to the third quarter of last year. Third quarter gross margin was 53.4%, up sequentially from 52.0% in the second quarter of 2024, as the Company continues to gain efficiencies from the Honeywell product lines. IS&S expects to gain additional efficiencies from the Honeywell product lines and increase gross margin as the Company brings more repair work in-house, insources additional sub-assemblies and gains leverage through revenue synergies.

Third quarter 2024 operating expenses were $4.2 million, compared to $3.2 million in the third quarter of last year owing to incremental costs related to the acquired product lines and investments in growth initiatives. However, operating expenses represented only 36.1% of revenue during the third quarter, down from 40.8% in the third quarter of last year owing to the operating leverage resulting from increased revenues. Operating margin decreased to 17.3% during the third quarter, from 18.7% in the third quarter of last year.

Adjusted EBITDA was $3.1 million during the third quarter, up from $1.9 million in the third quarter of last year due to the contribution from the Honeywell products and operating expense leverage. Adjusted EBITDA margin was 26.1% during the third quarter of 2024, up from 24.0% in the same period last year owing to the operating expense leverage, partially offset by the lower gross margins.

New orders in the third quarter of fiscal 2024 were $10.6 million, and backlog as of June 30, 2024, was $9.3 million. The backlog includes only purchase orders in hand and excludes orders from the Company’s OEM customers under long-term programs, such as Pilatus PC-24, Textron King Air, Boeing T-7 Red Hawk and the Boeing KC-46A. IS&S expects these programs to remain in production for several years and anticipates they will continue to generate future sales. Further, due to their nature, the products licensed from Honeywell do not typically enter backlog.

BALANCE SHEET, LIQUIDITY AND FREE CASH FLOW

As of June 30, 2024, total debt was $9.9 million. Cash and cash equivalents as of June 30, 2024, were $0.5 million, resulting in net debt of $9.3 million. Net leverage was 0.8x at the end of the third quarter 2024, down from 2.1x at the end of fourth quarter 2023, highlighting the strong cash flow generation of the business. As of June 30, 2024, IS&S had total cash and availability under its credit line of approximately $20.7 million.

Cash flow from operations was $5.2 million during the first nine months of 2024 compared to $0.9 million in the same period last year. Year-to-date capital expenditures were $0.4 versus $0.2 million in the same period last year. Free cash flow increased to $4.8 million during the first nine months of 2024, up from $0.8 million in the same period last year.

THIRD QUARTER 2024 RESULTS CONFERENCE CALL

IS&S will host a conference call at 9:00 AM ET on Friday August 9, 2024, to discuss the Company’s third quarter 2024 results.

A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of the IS&S website at https://innovative-ss.com/iss-investor-relations/events-presentations/, and a replay of the webcast will be available at the same time shortly after the webcast is complete.

To participate in the live teleconference:

Domestic Live:

(877) 300-8521

International Live:

(412) 317-6026

To listen to a replay of the teleconference, which will be available through August 23, 2024:

Domestic Replay:

(844) 512-2921

International Replay:

(412) 317-6671

Passcode:

10191208

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted diluted earnings per share (“EPS”) and adjusted net cash provided by operating activities (“free cash flow”) are not measures of financial performance under GAAP and should not be considered substitutes for GAAP measures, net income (for adjusted EBITDA and adjusted EBITDA margin), diluted earnings per share (for adjusted diluted EPS) or net cash provided by operating activities (for free cash flow), which the Company considers to be the most directly comparable GAAP measures. These non-GAAP financial measures have limitations as analytical tools, and when assessing the Company’s operating performance, readers should not consider these non-GAAP financial measures in isolation or as substitutes for net income, diluted earnings per share, net cash provided by operating activities or other consolidated income statement data prepared in accordance with GAAP. Other companies in the Company’s industry may define or calculate these non-GAAP financial measures differently than the Company does, and accordingly, these measures may not be comparable to similarly titled measures used by other companies.

The Company defines adjusted EBITDA as net income before interest, taxes, depreciation, amortization, and certain items of income and expense, transaction-related acquisition and integration expenses, severance, and certain non-recurring items. The Company believes that adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to ongoing business performance, and that the presentation of this measure enhances an investor’s understanding of its financial performance.

Adjusted EBITDA margin is adjusted EBITDA divided by total revenue. Adjusted EBITDA margin is a key metric used by management to assess the Company’s financial performance. The Company believes that adjusted EBITDA margin is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to ongoing business performance, and that the presentation of this measure enhances an investor’s understanding of the Company’s financial performance. The Company believes that adjusted EBITDA margin is helpful in measuring profitability of operations on a consolidated level.

Adjusted EBITDA and adjusted EBITDA margin have important limitations as analytical tools. For example, adjusted EBITDA and adjusted EBITDA margin:

• do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
• do not reflect changes in, or cash requirements for, the Company’s working capital needs;
• exclude the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations;
• do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on the Company’s debt; and
• exclude certain tax payments that may represent a reduction in available cash.

Adjusted diluted EPS measures the Company’s per share earnings excluding certain expenses as discussed above for adjusted net income. Adjusted diluted EPS is calculated as adjusted net income divided by adjusted diluted weighted-average shares outstanding. The Company believes adjusted diluted EPS is useful to investors because it enables them to better evaluate per share operating performance across reporting periods.

Free cash flow is calculated as net cash provided by operating activities less capital expenditures. The Company believes that free cash flow is an important financial measure for use in evaluating financial performance because it measures the Company’s ability to generate additional cash from its business operations.

A reconciliation of each non-GAAP measure to the most directly comparable GAAP measure is set forth below.

ABOUT INNOVATIVE SOLUTIONS & SUPPORT

Headquartered in Exton, Pa., Innovative Solutions & Support, Inc. (www.innovative-ss.com) is a U.S.-based company specializing in the engineering, manufacturing, and supply of advanced avionic solutions. Its extensive global product reach and customer base span commercial and military markets, catering to both airframe manufacturers and aftermarket services for fixed-wing and rotorcraft applications. IS&S offers cutting-edge, cost-effective solutions while maintaining legacy product lines. The company is poised to leverage its experience to create growth opportunities in next-generation navigation systems, advanced flight deck and special mission displays, precise air data instrumentation, autothrottles, flight control computers, mission computers and software based situational awareness targeting autonomous flight. Supported by a robust portfolio of patents and the highest aircraft certification standards, IS&S is at the forefront of meeting the aerospace industry's demand for more sophisticated and technologically advanced products.

FORWARD-LOOKING STATEMENTS

In addition to the historical information contained herein, this press release contains “forward-looking statements” within the meaning of, and intended to be covered by, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In this press release, the words “anticipates,” “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “forecasts,” “expects,” “plans,” “could,” “should,” “would,” “is likely”, “projected”, “might”, “potential”, “preliminary”, “provisionally”, references to “fiscal 2025”, 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. All forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, statements about: future revenue; financial performance and profitability; future business opportunities; the integration of the Honeywell product lines, including statements regarding the ongoing integration; plans to grow organically through new product development and related market expansion, as well as via acquisitions; and the timing of long-term programs remaining in production and continuing to generate future sales. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the Company’s ability to efficiently integrate acquired and licensed product lines, including the Honeywell product lines, into its operations; a reduction in anticipated orders; an economic downturn; changes in the competitive marketplace and/or customer requirements; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the economic and business environments in which the Company operates. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023, and subsequent reports filed with the Securities and Exchange Commission. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

INNOVATIVE SOLUTIONS AND SUPPORT, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

June 30,

 

September 30,

2024

2023

ASSETS

 

 

 

 

 

 

Current assets

Cash and cash equivalents

 

$

521,041

 

$

3,097,193

Accounts receivable

 

7,329,662

 

9,743,714

Contract assets

 

 

1,098,301

 

 

487,139

Inventories

14,540,172

 

6,139,713

Prepaid inventory

 

 

1,899,013

 

 

12,069,114

Prepaid expenses and other current assets

 

984,684

 

1,073,012

Assets held for sale

 

 

—

 

 

2,063,818

 

Total current assets

 

 

26,372,873

 

 

34,673,703

 

Goodwill

 

 

4,074,466

 

 

3,557,886

Intangible assets, net

16,089,821

16,185,321

Property and equipment, net

 

 

11,590,207

 

 

7,892,427

Deferred income taxes

1,109,598

456,392

Other assets

 

 

545,980

 

 

191,722

 

Total assets

 

$

59,782,945

 

$

62,957,451

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current portion of long-term debt

$

9,859,074

$

2,000,000

Accounts payable

 

 

3,343,876

 

 

1,337,275

Accrued expenses

 

2,818,405

 

2,918,325

Contract liability

 

 

131,534

 

 

143,359

 

 

 

 

Total current liabilities

 

 

16,152,889

 

 

6,398,959

 

Long-term debt

 

 

—

 

 

17,500,000

Other liabilities

 

448,931

 

421,508

 

 

 

 

 

 

 

Total liabilities

 

16,601,820

 

24,320,467

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized, $.001 par value, of which 200,000 shares are

authorized as Class A Convertible stock. No shares issued and outstanding at June 30, 2024 and

September 30, 2023

 

—

 

—

Common stock, $.001 par value: 75,000,000 shares authorized, 19,590,156 and 19,543,441 issued at

June 30, 2024 and September 30, 2023, respectively

 

 

19,589

 

 

19,543

Additional paid-in capital

 

55,043,174

 

54,317,265

Retained earnings

 

 

9,486,899

 

 

5,668,713

Treasury stock, at cost, 2,096,451 shares at June 30, 2024 and at September 30, 2023

 

(21,368,537)

 

(21,368,537)

Total shareholders’ equity

 

 

43,181,125

 

 

38,636,984

Total liabilities and shareholders’ equity

$

59,782,945

$

62,957,451

INNOVATIVE SOLUTIONS AND SUPPORT, INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

Three Months Ended June 30,

Nine Months Ended June 30,

 

2024

 

2023

 

2024

 

2023

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

Product

$

5,127,056

$

6,575,411

$

14,446,753

$

17,608,769

Customer service

 

 

6,408,961

 

 

1,318,214

 

 

15,734,430

 

 

3,774,666

Engineering development contracts

 

229,618

 

65,583

 

1,632,031

 

432,482

Total net sales

 

 

11,765,635

 

 

7,959,208

 

 

31,813,214

 

 

21,815,917

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

2,106,629

 

2,831,511

 

6,235,668

 

7,450,205

Customer service

 

 

3,101,875

 

 

371,359

 

 

7,291,096

 

 

1,088,014

Engineering development contracts

 

277,310

 

21,692

 

901,104

 

79,098

Total cost of sales

 

 

5,485,814

 

 

3,224,562

 

 

14,427,868

 

 

8,617,317

 

Gross profit

 

 

6,279,821

 

 

4,734,646

 

 

17,385,346

 

 

13,198,600

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,099,367

 

851,296

 

3,031,630

 

2,387,939

Selling, general and administrative

 

 

3,143,334

 

 

2,395,714

 

 

9,058,347

 

 

7,104,212

Total operating expenses

 

4,242,701

 

3,247,010

 

12,089,977

 

9,492,151

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

2,037,120

 

1,487,636

 

5,295,369

 

3,706,449

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(172,784)

 

—

 

(704,267)

 

—

Interest income

 

 

5,826

 

 

185,652

 

 

121,505

 

 

432,495

Other income

 

12,869

 

90,049

 

57,040

 

131,504

Income before income taxes

 

 

1,883,031

 

 

1,763,337

 

 

4,769,647

 

 

4,270,448

 

Income tax expense

 

 

330,511

 

 

339,958

 

 

951,461

 

 

877,315

 

 

 

 

Net income

 

$

1,552,520

 

$

1,423,379

 

$

3,818,186

 

$

3,393,133

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.09

$

0.08

$

0.22

$

0.19

Diluted

 

$

0.09

 

$

0.08

 

$

0.22

 

$

0.19

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

17,461,652

 

7,576,969

 

17,455,903

 

17,415,358

Diluted

 

 

17,467,259

 

 

17,577,588

 

 

17,476,089

 

 

17,419,265

Reconciliation of Net Income to Adjusted EBITDA

 

 

 

Three Months Ended June

Nine Months Ended June

2023

 

2024

 

2023

 

2024

 

Net Income

$1,423,379

 

$1,552,520

 

$3,393,133

 

$3,818,186

Income tax expense

339,958

330,511

877,315

951,461

Interest expense

(185,652)

 

172,784

 

(432,495)

 

588,588

Depreciation and amortization

87,503

611,155

258,892

1,437,232

EBITDA

$1,665,188

 

$2,666,970

 

$4,096,845

 

$6,795,467

 

Acquisition related costs

246,199

175,278

246,199

517,352

CFO transition, ATM Costs and other strategic initiatives

-

233,678

-

 

612,907

Adjusted EBITDA

$1,911,387

 

$3,075,926

 

$4,343,044

 

$7,925,726

 

Adjusted EBITDA margin

24.0%

26.1%

19.9%

24.9%

Reconciliation of Net Income to Adjusted Net Income

Three Months Ended June

Nine Months Ended June

2023

 

2024

 

2023

 

2024

 

Net Income

 

$1,423,379

 

$1,552,520

 

$3,393,133

 

$3,818,186

Acquisition related costs

246,199

175,278

246,199

517,352

CFO transition, ATM Costs and other strategic initiatives

-

 

233,678

 

-

 

612,907

Tax impact

51,702

85,881

51,702

237,354

Adjusted Net Income

$1,617,876

 

$1,875,595

 

$3,587,630

 

$4,711,091

 

Diluted shares outstanding

17,577,588

 

17,467,259

 

17,419,265

 

17,476,089

 

Diluted earnings per share as reported

$0.08

 

$0.09

 

$0.19

 

$0.22

Total EPS effect

$0.01

$0.02

$0.01

$0.05

Adjusted diluted earnings per share

$0.09

 

$0.11

 

$0.21

 

$0.27

Free Cash Flow

Three Months Ended June

Nine Months Ended June

2023

2024

2023

2024

 

Operating Cashflow

 

 

$(1,274,180)

 

$934,052

 

$937,925

 

$5,350,891

Capital Expenditures

84,933

203,279

165,084

511,927

Free Cash Flow

 

 

$(1,359,113)

 

$730,773

 

$772,841

 

$4,838,964

Net Debt and Net Debt Leverage Ratio

Three Months Ended June

 

2023

 

 

2024

 

Total Debt

 

 

$

20,000,000

 

$

9,859,074

Cash

$

2,572,233

$

521,041

Net Debt

 

 

$

17,427,767

 

$

9,338,033

 

Net Leverage Ratio

2.6x

0.8x

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240809270913/en/

IR CONTACT Paul Bartolai or Noel Ryan ISSC@val-adv.com