EXTON, PA — Innovative Solutions & Support (IS&S) (NASDAQ: ISSC) has received a multi-million-dollar production order contract to supply its 19” Multifunction Display (MFD) with an Integrated Mission Computer. This system will be used on a Commercial Derivative platform currently employed by several foreign militaries. Deliveries for this contract will commence immediately.
The IS&S 19” Multifunction Display is a versatile flat-panel display equipped with a multi-touchscreen interface designed for both commercial and military aircraft. This advanced display integrates data, provides primary flight and navigation information, and assists in mission planning and execution. The latest generation integrated processors power the Mission Computer, combining the Display Unit (DU) and the Mission Computer into a single unit, reducing wiring needs and simplifying installation.
“IS&S continues to develop new generations of increasingly sophisticated and technically advanced products delivering improved mission capability and performance to military operators,” said IS&S CEO Shahram Askarpour. “We are pleased to begin deliveries on this contract and look forward to continuing our development of state-of-the-art products that increase automation, enhance the efficiency and safety of commercial and military operations.”
This contract adds to IS&S’s portfolio of Original Equipment Manufacturer (OEM) programs, which include partnerships with Pilatus Aircraft for the PC-24, Textron Aviation for the King Air 260/360, and The Boeing Company for the KC-46A, KC-767A, and the T-7A.
In addition to this contract announcement, IS&S also reported its financial results for the three and nine months ending June 30, 2024. Investors are encouraged to review the Company’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission (SEC), available on IS&S’s website.
Financial Highlights for Q3 2024
- Net Revenue: $11.8 million, a 47.8% increase compared to the same period last year.
- Gross Profit: $6.3 million, up by 32.6%, with a gross margin of 53.4%.
- Net Income: $1.6 million or $0.09 per diluted share; Adjusted Net Income of $1.9 million or $0.11 per diluted share.
- Adjusted EBITDA: $3.1 million, an increase of 61%.
- Year-to-Date Free Cash Flow: $4.8 million, up from $0.8 million.
- Net Leverage: Reduced to 0.8x as of June 30, 2024.
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,” said 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.”
Performance Overview
During the third quarter, IS&S reported revenue of $11.8 million, marking a 47.8% increase compared to the same period last year. This growth was driven by contributions from the acquired Honeywell product lines and incremental extensions to these platforms.
Gross profit for the third quarter was $6.3 million, showing a 32.6% increase from the previous year. The gross margin also improved to 53.4%, up from 52.0% in the second quarter of 2024, as IS&S continues to realize efficiencies from the Honeywell product lines. The company anticipates further margin improvements as it insources more repair work and sub-assemblies.
Operating expenses for the third quarter were $4.2 million, compared to $3.2 million in the same period last year. These costs were related to the acquired product lines and investments in growth initiatives. However, operating expenses accounted for only 36.1% of revenue, down from 40.8% last year due to increased revenues. Despite this, the operating margin decreased slightly to 17.3%, from 18.7% last year.
Adjusted EBITDA rose to $3.1 million, up from $1.9 million in the third quarter of last year, driven by contributions from the Honeywell products and operating expense leverage. The Adjusted EBITDA margin was 26.1%, up from 24.0% last year.
New orders for the third quarter totaled $10.6 million, with a backlog of $9.3 million as of June 30, 2024. The backlog includes only purchase orders in hand and excludes long-term orders from OEM customers.
Balance Sheet and Liquidity
As of June 30, 2024, IS&S had total debt of $9.9 million and cash and cash equivalents of $0.5 million, resulting in net debt of $9.3 million. The company reduced its net leverage to 0.8x, down from 2.1x at the end of Q4 2023. IS&S had total cash and availability under its credit line of approximately $20.7 million.
Cash flow from operations was $5.2 million for 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 million, versus $0.2 million last year. Free cash flow improved to $4.8 million, up from $0.8 million.
IS&S’s continued strong performance, combined with new contracts and existing program execution, positions it well for future growth and value creation. The company stated that it remains committed to innovation and efficiency, ensuring it meets the needs of both commercial and military sectors.
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