Transcript: Innovative Solns Q3 2026 Earnings Conference Call

Innovative Solns (NASDAQ: ISSC ) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

View the webcast at Summary Full Transcript OPERATOR Greetings and welcome to Innovative Solns third quarter 2026 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad.

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Bartoli. Thank you. You may begin.

Paul Bartoli, Investor Relations Thank you. Good morning, everyone, and welcome to Innovative Solns third quarter fiscal 2026 results conference call. Leading the call today are our CEO, Sharon Mash Kapoor, and CFO, Jeff DiGiovanni. This morning we issued a press release detailing our fiscal 2026 third quarter operational and financial results.

This release is publicly available in the Investors Relations section of our corporate website at I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. Our management believes that these forward-looking statements are reasonable. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of today's date.

We do not undertake any obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in the reports which we file with the SEC.

For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest reports filed with the SEC. During the call we will reference certain non-GAAP financial measures. A reconciliation of these measurements to the most directly comparable measures calculated in accordance with GAAP is provided in the press release, which is also available on our website. Today's call will begin with prepared remarks from Sharon, who will provide a review of our recent business performance and an update on our strategic framework, followed by a financial update from Jeff.

At the conclusion of these prepared remarks, we will open the line for your questions, and with that I'll turn the call over to Sharon. Sharon Mash Kapoor, CEO Thank you, Paul, and good morning to everyone joining us on the call today. During the third quarter, the Innovative Solns team delivered another strong operational and financial performance driven by continued organic growth, improved margin realization, and free cash flow conversion. Importantly, beyond our strong financial performance, we made meaningful progress advancing the key strategic priorities that we believe will drive sustainable long-term value creation.

These progress points include some recent developments such as the acquisition of Aiden Displays and a new OEM contract with the leading developer of electric vertical takeoff and landing aircraft, which represents the first major award based on our Liberty Flight Deck. I will discuss each of these important items later in my remarks. We are excited by the strong momentum in our business and we are confident we are well positioned for a solid finish to fiscal 2026 while building momentum into fiscal 2027. I will now discuss third quarter results in greater detail.

Despite a difficult prior-year comparison, I am pleased to state that we were able to generate approximately 11% revenue growth in the third quarter, highlighting what remains a period of increased demand across our commercial, aftermarket, and business aviation markets. 14 a year ago, gross margin of nearly 52% compared to 36% last year, and adjusted EBITDA growth of approximately 75% from a year ago, highlighting the strength and scalability of our business model.

These results reflect our disciplined execution of IA Next, our long-term value creation strategy focused on organic growth through innovation and integrated solutions, operational excellence, and disciplined, returns-focused capital allocation. I'll now provide additional details on our recent progress and the strategic priorities that will drive our performance going forward. In July, we announced the acquisition of Aiden Displays, a leading developer and manufacturer of rugged display technologies serving defense, industrial, and other mission-critical aerospace applications.

Aiden is located right up the road from Exton in Birdsboro, Pennsylvania, and currently supports over 20 military platforms across more than 80 countries. Aiden brings with it a leased, vertically integrated manufacturing facility. Together with our Exton facility, we will be able to serve our customers more efficiently and further grow our business. With the expanded footprint, Aiden enhances our display technology capabilities, bringing us additional engineering talent, proven display technologies, and a respected product portfolio that aligns closely with our integrated avionics solutions.

Aiden further strengthens our position in our traditional military avionics markets through exposure to new defense platforms. Additionally, the acquisition expands our military business into naval and ground programs and also diversifies our business into industrial applications, including the medical instrument market. This is our first acquisition of an operating business and demonstrates the broadening scope of our M&A strategy beyond the product line acquisitions we've historically pursued.

Looking ahead, we will continue to target aerospace and defense component product lines and businesses with significant aftermarket potential, proprietary content, above-market growth, strong cash generation, and profitability. Our acquisition pipeline remains very active as we build the business through accretive acquisitions. We also remain highly focused on continuing to drive organic growth through new product introductions, cross-selling initiatives, and contract wins. To that end, in August we announced an exciting new contract win with a leading Japanese developer of electric vertical takeoff and landing aircraft.

Under the agreement, Innovative Solns will develop the main display and avionics architecture for an eVTOL aircraft program. This is the first OEM program based on our Liberty Flight Deck, highlighting the growing commercial validation of our technology. We expect early engineering work to begin in Q4 2026, with initial production targeted for late 2027. We currently expect to progress towards full production during 2028 to support the customer's targeted 2028 full-scale commercial launch.

The program currently holds a total of over 400 eVTOL orders from partners in Japan and overseas. The Advanced Air Mobility market represents one of the most exciting frontiers in aviation, and our flexible integrated avionics platforms are ideally suited for this market. This program reflects our continued focus on developing next-generation systems that enable safer, farther, and more capable flight across both traditional and emerging aviation platforms. As previously discussed, we completed the development and certification of the UMS version 2.

Production began in June of this year, and Q3 revenues benefited from this product line. The Radio Management Unit contract with L3 is at its final certification phase, and production deliveries will commence in Q1 of our fiscal 2027. The KC767 contract with Boeing is progressing per plan, and production deliveries will commence in Q2 of our fiscal 2027. In addition to progress on our strategic initiatives, we recently made meaningful strides in our corporate rebranding and efforts to expand market visibility.

Last October we announced our rebranding to Innovative Solns, a pivotal step in our broader strategic evolution. Building on that momentum, we are pleased to announce our planned NASDAQ ticker symbol change to IA, better aligning our public market identity with our corporate name, brand, and long-term strategy. S. market open on August 18th.

To mark this milestone, members of our leadership team will be in New York to ring the NASDAQ closing bell on August 18th. S. Small Cap Russell 2000 Index as part of the 2026 Russell Indexes reconstitution. This is an important milestone in our company's evolution and is a direct reflection of the important progress we have made against our strategic priorities and the long-term investments we have been making to scale our business.

In summary, we are excited by our strong third quarter results as well as the important progress towards our strategic plan. Based on our strong business momentum and successful execution, we are confident we remain well on track to achieve our long-term $250 million revenue target. As before, we remain focused on our strategy, energized by the opportunities ahead, and committed to creating long-term value for our shareholders in the years ahead. With that, I'll turn the call over to Jeff for his prepared remarks.

Jeffrey DiGiovanni, Chief Financial Officer Thank you, Sharam, and good morning to all those joining us today. I will provide a high-level overview of our third quarter performance, including a discussion of our balance sheet and our liquidity profile at quarter end, and conclude with comments on our outlook for the business, which remains positive given current demand conditions. 7 million in the third quarter, up approximately 11% from the third quarter last year, driven by another quarter of strong organic growth in our commercial aviation and business jet markets, partially offset by an elevated prior-year comparison within our F-16 business.

7 million in the current quarter. Excluding the F-16 revenue from both periods and the new acquisitions, our business grew by over 40% during the third quarter. 6 million during the same period last year, driven by strong sales into our commercial and business aviation markets. 5 million in the same period last year due to growth in service volumes related to the IRU and Autopilot product lines.

6 million in the same period last year. The improvement was driven by revenue growth and a favorable sales mix given the strong commercial aftermarket growth. As we've discussed previously, we experienced some lumpiness in the timing of expense recognition during the manufacturing transition from Honeywell that impacted our quarterly results. Last year's third quarter results were impacted by elevated costs on the F-16 product line as Honeywell incurred extra expenses in order to expedite the building of safety stock ahead of fully transitioning production to us.

6% last year. This is our fourth consecutive quarter with gross margins of at least 50%. 1 million during the same period last year. R&D expense increased by approximately $1,000,000 as compared to the prior year.

As previously discussed, the company is accelerating investments in R&D to drive long-term growth for the next-gen capabilities that support multiple platforms and end markets. As such, we continue to expect elevated R&D spending to support our growth initiatives. 14 per share, in the third quarter of last year. 9 million last year.

16 last year. 4 million in the third quarter of last year due to the solid revenue growth and more favorable revenue mix, partially offset by the continued investments in R&D to drive long-term growth for the next-gen capabilities that support multiple platforms and end markets. 5 million over the comparable prior-year period. Backlog represents the value of contracts and purchase orders, less revenue recognized to date on those contracts and purchase orders.

The backlog includes committed purchases and excludes potential future sole-source production or both under the Company's engineering development contract programs. Next, turning to cash. 3 million in the year-ago comparable period, driven by our solid operating results and financial discipline. 5 million in the year-ago period.

8 million in the previous year. Our strong free cash flow reflects the capital-light nature of our business model, translating into consistently strong conversion rates. 8 million. Net debt increased $21 million from the year-ago period, despite more than $35 million deployed towards acquisitions and capital expenditures in support of growth initiatives.

7 million. 4 times. Despite the recent acquisitions, our modest leverage combined with our availability under our expanded credit facility gives us significant financial flexibility to continue executing on our strategic initiatives. Before we move into our Q&A session, I'd like to provide briefly our current thoughts around the outlook for the remainder of fiscal 2026.

As we look ahead, we expect to close out fiscal 2026 on a positive note. We expect to generate fourth quarter revenue around $28 to $30 million, including continued expected organic growth and the contribution from recent acquisitions. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of the call.

OPERATOR Thank you. At this time we'll be conducting a question-and-answer session. If you'd like to ask a question, please press Star-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press Star-2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Bobby Brooks with Northland Capital Markets.

Your line is now live. Bobby Brooks, Analyst at Northland Capital Markets Hey, good morning team, and thank you for taking my questions. I wanted to unpack the Eve eVTOL program win yesterday. Very exciting news, but wanted to hear more about how this one came about.

How long was the sales process attached to it? Then the last piece, you cite like $50 million total contract value. Is that assuming all 400 plus units are produced, or just how should we be thinking about $50 million? Sharon Mash Kapoor, CEO So...

for the—yeah, we're having a little bit of a phone issue here. For your first question of how long was the sales process, it's been about a year now that we've been working with this company to finalize agreements and put them in place. In terms of your question about what the value of the contract is, we really can't comment on that right now. It's early on.

We know they have about 400 airplanes in the backlog, but that's not the extent of this program. We believe that there is a significant number of aircraft that are going to be produced by this manufacturer. Bobby Brooks, Analyst at Northland Capital Markets That contract value is assuming all 400 plus, you know, get shipped out. Got it.

That's helpful. Maybe just to—if you could touch on what led, like the factors that you think led you guys to get this win. Obviously, Liberty Flight Deck, very customizable. I'm guessing that was a piece.