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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 9, 2024

  

 

 

INNOVATIVE SOLUTIONS AND SUPPORT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania 001-41503 23-2507402
(State or other jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)

 

 

  

720 Pennsylvania Drive

Exton, Pennsylvania 19341

(Address of principal executive offices) (Zip Code)

 

(610) 646-9800

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share ISSC Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

 

On August 9, 2024, Innovative Solutions and Support, Inc. issued a press release announcing its financial results for its fiscal third quarter and nine months ended June 30, 2024. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly provided by specific reference in such filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit Number   Description

 

99.1 Press Release, dated August 9, 2024, announcing financial results for the fiscal third quarter ended June 30, 2024.
104 Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the inline XBRL document.

  

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  INNOVATIVE SOLUTIONS AND SUPPORT, INC.
   
Date: August 12, 2024 By: /s/ Jeffrey DiGiovanni
    Jeffrey DiGiovanni
    Chief Financial Officer

 

 

 

 

 

Exhibit 99.1 

 

 

 

INNOVATIVE SOLUTIONS & SUPPORT 

REPORTS THIRD QUARTER 2024 RESULTS

 

Exton, PA, August 9, 2024 – 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.

 

IR CONTACT

 

Paul Bartolai or Noel Ryan 

ISSC@val-adv.com

 

 

 

 

 

 

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

 

 

 

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Entity Registrant Name INNOVATIVE SOLUTIONS AND SUPPORT, INC.
Entity Central Index Key 0000836690
Entity Tax Identification Number 23-2507402
Entity Incorporation, State or Country Code PA
Entity Address, Address Line One 720 Pennsylvania Drive
Entity Address, City or Town Exton
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Title of 12(b) Security Common Stock, par value $0.001 per share
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