Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based largely on current expectations and projections about future events and trends affecting the business, are not guarantees of future performance, and involve a number of risks, uncertainties and assumptions that are difficult to predict. In this report, the words “anticipates,” “believes,” “may,” “will,” “estimates,” “continues,” “intends,” “forecasts,” “expects,” “plans,” “could,” “should,” “would,” “is likely”,” “ projected,” “might,” “potential,” “preliminary,” “provisionally,” 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. Unless the context otherwise requires, all references herein to “IA,” the “Registrant,” the “Company,” “we,” “us” or “our” are to Innovative Solutions and Support, Inc. and its consolidated subsidiaries. ThrustSense® and COCKPIT/IP®, among others, are trademarks of the Company. All other trademarks appearing herein are held by their respective owners. Subsequent use of the Company’s trademarks in this report may occur without the applicable superscript symbol (® or TM) in order to facilitate the readability of this report and are not a waiver of rights that may be associated with the relevant trademarks.
All forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025, as well as the following factors:
● market acceptance of the Company’s ThrustSense® Autothrottle, Vmc a Mitigation, flight panel display systems, NextGen Flight Deck and COCKPIT/IP® or other planned products or product enhancements;
● continued market acceptance of the Company’s air data systems and products;
● the competitive environment and new product offerings from competitors;
● difficulties in developing, producing or improving the Company’s planned products or product enhancements;
● the deferral or termination of programs or contracts for convenience by customers;
● the ability to service the international market;
● the availability of government funding;
● the impact of general economic trends, including tariffs and other trade restrictions, on the Company’s business;
● disruptions in the Company’s supply chain, customer base and workforce;
● the ability to gain, drive and sustain regulatory approval, including domestic and international certifications, of products in a timely manner;
● delays in receiving components from third-party suppliers;
● the bankruptcy or insolvency of one or more key customers;
● protection of intellectual property rights, including via securing patents;
● the ability to respond to technological change;
● failure to recruit and retain key personnel;
● risks related to succession planning;
● a cybersecurity incident;
● risks related to our self-insurance program;
● potential future acquisitions and integration of prior and potential future acquisitions;
● the costs of compliance with present and future laws and regulations;
● changes in law, including changes to corporate tax laws in the United States and the availability of certain tax credits; and
● other factors disclosed from time to time in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”).
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Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, or to reflect the occurrence of unanticipated events. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”) and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Investors should also be aware that while the Company, from time to time, communicates with securities analysts, it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
Objective
The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management’s perspective and should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
Company Overview
The Company was incorporated in Pennsylvania on February 12, 1988. The Company operates in one business segment as a systems integrator that designs, develops, manufactures, sells and services, air data equipment, engine display systems, standby equipment, primary flight guidance, autothrottles and cockpit display systems for retrofit applications and OEMs. The Company supplies integrated flight management systems, flat panel display systems, flat panel display systems with autothrottle, air data equipment, integrated standby units, integrated standby units with autothrottle and advanced GPS receivers that enable reduced carbon footprint navigation, communication and navigation products and inertial reference units.
The Company has continued to position itself as a system integrator, which provides the Company with the capability and potential to generate more substantive orders over a broader product base. This strategy, as both a manufacturer and integrator, has positioned the Company to deliver cost-effective solutions for the general aviation, commercial air transport, and the DoD and governmental and foreign military markets. This approach, combined with the Company’s deep industry experience across OEMs and platforms, is designed to enable the Company to develop high-quality products and systems, to reduce product time to market and to achieve cost advantages over products offered by its competitors.
The Company sells to both the OEM and the retrofit markets. Customers include various OEMs, commercial air transport carriers and corporate/general aviation companies, the DoD and its commercial contractors, aircraft operators, aircraft modification centers, government agencies and foreign militaries. Occasionally, the Company sells its products directly to the DoD; however, the Company sells its products primarily to commercial customers for end use in DoD programs. Sales to defense contractors are generally made on commercial terms, although some of the termination and other provisions of government contracts are applicable to these contracts. The Company’s retrofit projects are generally pursuant to either a direct contract with a customer or a subcontract with a general contractor to a customer (including government agencies).
In June 2023, the Company entered into an agreement with Honeywell (the “June 2023 Honeywell Agreement”) pursuant to which Honeywell sold, assigned or licensed certain assets related to its inertial, communication and navigation product lines, including a sale of certain inventory, equipment and customer-related documents, an assignment of certain contracts and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its inertial, communication and navigation product lines to repair, overhaul, manufacture, sell, import, export and distribute certain products to the Company for cash consideration of $35.9 million.
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In July 2024, the Company entered into an exclusive license agreement and acquired additional key assets for certain communication and navigation product lines from Honeywell (the “July 2024 Honeywell Asset Acquisition”). Total consideration was $4.2 million in cash.
On September 27, 2024, the Company entered into a further agreement with Honeywell (the “September 2024 Honeywell Agreement”), pursuant to which Honeywell sold, assigned or licensed certain assets related to its various generations of military display generators and flight control computers, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its various generations of military display generators and flight control computers to repair, overhaul, manufacture, sell, import, export and distribute certain products to the Company for consideration of $14.2 million in cash.
On March 27, 2026, the Compan y entered into and closed the transactions contemplated by that certain Asset Purchase and License Agreement (the “Honeywell Autopilot Agreement”) with Honeywell. Pursuant to the Autopilot Agreement, Honeywell sold, assigned or licensed certain assets related to its general aviation autopilots and nav/com, multifunction display and transponder radios, granted exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its general aviation autopilots and nav/com, multifunction display and transponder radios to repair, overhaul, manufacture, sell, import, export and distribute certain products and granted certain other intellectual property rights to the Company for consideration of $22.0 million in cash.
On March 28, 2026, the Company entered into and closed the transactions contemplated by that certain Asset Purchase and License Agreement (the “Honeywell Generators Agreement”) with Honeywell. Pursuant to the Generators Agreement, Honeywell sold, assigned or licensed certain assets related to its electronic generator and generator control unit for the F-15 and 767 tanker/freight platforms, including a sale of certain inventory, equipment and customer-related documents; an assignment of certain contracts; and a grant of exclusive and non-exclusive licenses to use certain Honeywell intellectual property related to its electronic generator and generator control unit for the F-15 and 767 tanker/freight platforms to repair, overhaul, manufacture, sell, import, export and distribute certain products to the Company for consideration of $8.0 million in cash.
The Company anticipates revenues related to the above Honeywell transactions will continue to fluctuate significantly over the next few quarters. The transition of the business from Honeywell to the Company’s facilities will involve certain risks that may adversely impact operational performance and reported results.
Cost of sales related to product and service sales comprise materials, components and third-party avionics purchased from suppliers, direct labor and overhead costs. Many of the components are standard, although certain parts are manufactured to meet the Company’s specifications. The overhead portion of cost of sales are primarily comprise salaries and benefits, building occupancy costs, supplies and outside service costs related to production, purchasing, material control and quality control. Cost of sales also includes warranty costs.
Cost of sales related to EDC sales comprises engineering labor, consulting services and other costs associated with specific design and development projects. These costs are incurred pursuant to contractual arrangements and are accounted for typically as contract costs within cost of sales, with reimbursement accounted for as a sale in accordance with the percentage-of-completion method or completed contract method of accounting. Company funded R&D expenditures relate to internally funded efforts for the development of new products and the improvement of existing products. These costs are expensed as incurred and reported as R&D expenses. The Company intends to continue investing in the development of new products that complement current product offerings and to expense associated R&D costs as they are incurred.
Selling, general and administrative (“SG&A”) expenses consist of sales, marketing, business development, professional services, salaries and benefits for executive and administrative personnel, facility costs, recruiting, legal, accounting and other general corporate expenses.
Environmental, Social and Governance Considerations
In recent years, environmental, social and governance (“ESG”) issues have become an increasing area of focus for some of our shareholders, customers and suppliers. Management and the Company’s Board are committed to identifying, assessing and understanding the potential impact of ESG issues and related risks on the Company’s business model, as well as potential areas of improvement.
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We are committed to recruiting, motivating and developing a diversity of talent. We are an equal opportunity employer and a Vietnam Era Veterans’ Readjustment Assistance Act federal contractor. All qualified applicants receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability status, protected veteran status, or any other characteristic protected by law.
The nature of our business also supports long-term sustainability. Historically, a majority of the Company’s sales have come from the retrofit market, in which the Company, by making upgrades to improve the functionality and safety of existing machinery, facilitates the re-use and recycling of aircraft and equipment that might otherwise be scrapped as obsolete. The Company’s GPS receivers also facilitate reduced carbon footprint navigation. The Company also plans to enhance its focus on the environmental impact of its operations.
Derivative Financial Instruments
On June 30, 2026, we entered into a $53.7 million interest rate swap agreement. This interest rate swap is used to manage the risk associated with interest rate fluctuations on our $53.7 million variable rate term loans. Under this agreement, we pay interest to financial institutions at a fixed rate of 4.057 percent. In exchange, the financial institutions pay us at a variable rate, which approximates the variable rate on the debt, excluding the credit spread. These swaps qualify for hedge accounting treatment pursuant to ASC 815, Derivatives and Hedging. This swap expires in July 2030. While this interest rate swap is intended to mitigate the impact of rising interest rates on our variable rate indebtedness, it does not fully eliminate interest rate risk. Additionally, the fair value of the swap is subject to fluctuation based on changes in interest rates and market conditions, and any changes to interest rates and market conditions may adversely impact our results of operations, financial condition, and cash flows.
Critical Accounting Policies and Estimates
The discussion and analysis of financial condition and consolidated results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. Management has determined that the most critical accounting policies and estimates are those related to revenue recognition, inventory valuation and valuation of tangible and intangible assets acquired. On an ongoing basis, the Company’s management evaluates its estimates based upon historical experience and various other assumptions that it believes to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes that its critical accounting policies affect its more significant estimates and judgments used in the preparation of its condensed consolidated financial statements. The Annual Report on Form 10-K for the fiscal year ended September 30, 2025 contains a discussion of these critical accounting policies. See also Note 1 to the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2026 included in this Quarterly Report on Form 10-Q.
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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
JUNE 30 2026 AND 2025
The following table sets forth the statements of operations data expressed as a percentage of total net sales for the periods indicated (some items may not add due to rounding):
Three Months Ended June 30,
Nine Months Ended June 30,
2026
2025
2026
2025
Net sales:
Product
65.5
%
68.8
%
64.0
%
64.1
%
Services
34.5
%
31.2
%
36.0
%
35.9
%
Total net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales:
Product
32.1
%
47.8
%
31.6
%
37.2
%
Services
16.2
%
16.6
%
16.0
%
20.1
%
Total cost of sales
48.3
%
64.4
%
47.6
%
57.3
%
Gross profit
51.7
%
35.6
%
52.4
%
42.7
%
Operating expenses:
Research and development
7.0
%
3.8
%
7.0
%
4.8
%
Selling, general and administrative
22.1
%
17.2
%
21.0
%
18.9
%
Total operating expenses
29.1
%
21.1
%
28.0
%
23.6
%
Operating income
22.6
%
14.6
%
24.4
%
19.1
%
Interest expense
(3.8)
%
(1.7)
%
(2.8)
%
(2.0)
%
Interest income
0.0
%
0.0
%
0.0
%
0.0
%
Other income
—
%
—
%
0.1
%
0.0
%
Income before income taxes
18.8
%
12.9
%
21.7
%
17.1
%
Income tax expense
2.0
%
2.7
%
4.7
%
3.4
%
Net income
16.8
%
10.2
%
17.0
%
13.7
%
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Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025
Net sales . Net sales for the three months ended June 30, 2026 increased by 10.7% to $26.7 million, up from net sales of $24.1 million for the three months ended June 30, 2025. The increase in net sales principally reflects an increase of $4.0 million in commercial aftermarket product sales, an increase of $2.1 million in business aviation and the contribution from recent acquisitions, partially offset by a decrease of $4.9 million in military product sales primarily as a result of a decline in F-16 revenues from elevated levels in the prior period. Services sales for the three months ended June 30, 2026 increased $1.3 million, or 17.2%, compared to Services sales for the three months ended June 30, 2025, of $8.8 million. The increase in Services sales primarily reflects an increase in service volumes related to the IRUs, radio, and autopilot product lines acquired in 2023, 2024, and 2026 of $1.3 million, an increase in engineering project revenue of $0.8 million, and a $0.2 million increase in legacy customer service revenue, partially offset by a $1.0 million decrease in F-16 service revenue.
Cost of sales . Cost of sales was $12.9 million, or 48.3% of net sales, for the three months ended June 30, 2026 compared to $15.6 million, or 64.4% of net sales, for the three months ended June 30, 2025. The change in cost of sales for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 principally reflects product mix, with net sales growth of $4.0 million in commercial aftermarket sales, $2.1 million in business aviation sales, and $1.3 million in net service sales, while military net sales decreased by $4.9 million. Gross profit was $13.8 million, or 51.7% of net sales, for the three months ended June 30, 2026 compared to $8.6 million, or 35.5% of net sales, for the three months ended June 30, 2025. The increase in gross margin principally reflects the increase in commercial and business aviation sales, which have higher margins than military sales.
Research and development . R&D expense increased $1.0 million, or 104.8%, to $1.9 million for three months ended June 30, 2026 from $0.9 million for the three months ended June 30, 2025. As a percentage of net sales, R&D expenses increased to 7.0% of net sales for the three months ended June 30, 2026 from 4.8% of net sales for the three months ended June 30, 2025. The increase in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional headcount to drive long-term growth for the next-gen capabilities that support multiple platforms and end markets. For the three months ended June 30, 2026, $0.7 million of R&D expense was recharacterized as cost of sales related to the EDC sales, which was offset by $0.7 million in additional engineering staffing to support the next generation or products.
SG&A . SG&A expenses increased $1.8 million or 42.2%, to $5.9 million for the three months ended June 30, 2026 from $4.2 million for the three months ended June 30, 2025. The increase in SG&A expense for the three months ended June 30, 2026 was primarily the result of increases in employee-related costs of $0.6 million, and $1.2 million in costs largely related to new business from completed acquisitions that did not exist during the previous quarter. As a percentage of net sales, SG&A expenses were 22.1% for the three months ended June 30, 2026 compared to 17.2% for the three months ended June 30, 2025.
Interest expense. Interest expense was $1.0 million for the three months ended June 30, 2026, an increase of $0.6 million from $0.4 million for the three months ended June 30, 2025. The change was due to interest paid on new borrowings to finance acquisitions.
Interest income. Interest income was negligible for the three months ended June 30, 2026 and 2025, respectively.
Other income. Other income was $0 for the three months ended June 30, 2026 and $0 for the three months ended June 30, 2025.
Income taxes. Income tax expense was $0.5 million for the three months ended June 30, 2026 compared to income tax expense of $0.7 million for the three months ended June 30, 2025. The effective tax rate for the three months ended June 30, 2026 was 10.5% as compared to 21.5% for the three months ended June 30, 2025. The decreases in income tax expense and the effective tax rate were primarily due to the effect of temporary and permanent tax differences related to stock-based compensation and favorable return to provision adjustments.
Net income. As a result of the factors described above, the Company’s net income for the three months ended June 30, 2026 was $4.5 million compared to net income of $2.4 million for the three months ended June 30, 2025. On a fully diluted basis, net income per share was $0.25 for the three months ended June 30, 2026, compared to a net income of $0.14 per share for the three months ended June 30, 2025.
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Nine Months Ended June 30, 2026 Compared to the Nine Months Ended June 30, 2025
Net sales . Net sales for the nine months ended June 30, 2026 increased by 12.5% to $70.9 million, up from net sales of $62.0 million for the nine months ended June 30, 2025. The increase in net sales principally reflects an increase of $14.3 million in commercial aftermarket product sales and an increase of $2.7 million in business aviation, partially offset by a decrease of $10.8 million in military and product sales, primarily as a result by a decline in F-16 revenues from elevated levels in the prior period. Services sales for the nine months ended June 30, 2026, increased $2.8 million, or 12.6% to $25.2 million, compared to Services sales for the nine months ended June 30, 2025, of $22.4 million. The increase in Services sales primarily reflects growth in service volumes related to the IRUs, radio and autopilot product lines acquired in 2023, 2024, and 2026 of $5.5 million, an increase in engineering product revenue of $0.7 million and a $0.3 million increase in legacy customer service revenue, partially offset by a $3.7 million decrease in F-16 service revenue.
Cost of sales . Cost of sales was $33.8 million, or 47.6% of net sales, for the nine months ended June 30, 2026 compared to $35.6 million, or 57.3% of net sales, for the nine months ended June 30, 2025. The change in cost of sales for the nine months ended June 30, 2026 compared to the nine months ended June 30, 2025 principally reflects product mix with net sales growth of $14.3 million in commercial aftermarket sales, $2.8 million in net service sales, and $2.7 million in business aviation sales, while military net sales decreased by $10.8 million. Gross profit was $37.1 million, or 52.4% of net sales, for the nine months ended June 30, 2026 compared to $35.6 million, or 42.6% of net sales, for the nine months ended June 30, 2025. The increase in gross margin principally reflects the previously mentioned net sales growth, a more favorable product mix within our commercial aftermarket product line and a higher proportion of commercial aftermarket revenue, which by nature has higher gross margins as compared to military business.
Research and development . R&D expense increased $2.1 million, or 72.7%, to $5.0 million for the nine months ended June 30, 2026 from $2.9 million for the nine months ended June 30, 2025. As a percentage of net sales, R&D expenses increased to 7.0% of net sales for the nine months ended June 30, 2026 from 4.7% of net sales for the nine months ended June 30, 2025. The increase in R&D expenses as a percentage of revenues in the quarter was primarily the result of additional headcount to drive long-term growth for the next-gen capabilities that support multiple platforms and end markets. For the nine months ended June 30, 2026, $1.6 million of R&D expense was recharacterized as cost of sales related to the EDC sales, which was offset by $1.3 million in additional engineering staffing to support the Company’s the next generation products.
SG&A . SG&A expenses increased $3.1 million, or 27.0%, to $14.9 million for the nine months ended June 30, 2026 from $11.7 million for the nine months ended June 30, 2025. The increase in SG&A expense for the nine months ended June 30, 2026 was primarily the result of increases in employee-related costs of $2.0 million and $1.2 million in costs largely related to new business from completed acquisitions that did not exist during the previous period. As a percentage of net sales, SG&A expenses were 21.0% for the nine months ended June 30, 2026 compared to 18.9% for the nine months ended June 30, 2025.
Interest expense. Interest expense was $2.0 million for the nine months ended June 30, 2026, an increase of $0.8 million from $1.2 million for the nine months ended June 30, 2025. The change was due to interest paid on new borrowings to finance acquisitions.
Interest income. Interest income was negligible for the nine months ended June 30, 2026 and 2025, respectively.
Other income. Other income was negligible for the nine months ended June 30, 2026 and 2025, respectively.
Income taxes. Income tax expense was $3.3 million for the nine months ended June 30, 2026 as compared to income tax expense of $2.1 million for the nine months ended June 30, 2025. The effective tax rate for the nine months ended June 30, 2026 was 21.8% as compared to 19.9% for the nine months ended June 30, 2025. The increases in income tax expense and the effective tax rate were primarily due to an increase in income before income taxes as well as the unfavorable effects of state income taxes, tax credits, temporary and permanent tax differences related to stock-based compensation and certain non-deductible expenses for the nine months ended June 30, 2026, compared to the nine months ended June 30, 2025.
Net income. As a result of the factors described above, the Company’s net income for the nine months ended June 30, 2026 was $12.0 million compared to net income of $8.5 million for the nine months ended June 30, 2025. On a fully diluted basis, net income per share was $0.66 for the nine months ended June 30, 2026, compared to a net income of $0.48 per share for the nine months ended June 30, 2025.
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Liquidity and Capital Resources
The following table highlights key financial measures of the Company:
As of
As of
June 30,
September 30,
2026
2025
Cash and cash equivalents
$
10,694,977
$
2,693,595
Accounts receivable
$
15,984,217
$
12,956,476
Current assets
$
64,430,685
$
50,727,300
Current liabilities
$
21,694,282
$
16,661,109
Contract liabilities
$
1,371,909
$
2,481,929
Other non-current liabilities
$
49,065,604
$
22,096,502
Quick ratio (1)
1.23
0.94
Current ratio (2)
2.97
3.04
Nine Months Ended June 30,
2026
2025
Cash flow activities:
Net cash provided by operating activities
$
15,540,729
$
10,336,200
Net cash used in investing activities
(36,209,906)
(5,504,928)
Net cash provided by (used in) financing activities
28,670,559
(4,768,490)
(1) Calculated as: the sum of cash and cash equivalents plus accounts receivable, net, divided by current liabilities.
(2) Calculated as: current assets divided by current liabilities.
The Company’s principal source of liquidity has been cash flows from current period operations and cash accumulated from prior periods’ operations, supplemented with our revolving credit facility. Cash is used principally to finance inventory, accounts receivable, contract assets, payroll, debt service and acquisitions, as well as the Company’s known contractual and other commitments. The Company’s existing cash balances and anticipated cash flows from operations, together with borrowings under our revolving credit facility, are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months. Apart from what has been disclosed in this Management’s Discussion and Analysis and in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.
2025 Credit Agreement
On July 18, 2025, the Company, its wholly-owned subsidiary Innovative Solutions and Support, LLC (“Borrower”) and certain domestic subsidiaries entered into a Credit Agreement (the “2025 Credit Agreement”) with J.P. Morgan Chase Bank, N.A. (the “Bank”) and the other lender parties thereto, which Credit Agreement provides for the Bank to extend to the Borrower credit facilities in an aggregate principal amount of up to $100.0 million (the “JPM Facility”), consisting of the following:
1) a $25,000,000 initial term loan facility (the “Initial Term Loan”);
2) a $30,000,000 revolving credit facility (the “Revolving Facility”); and
3) a $45,000,000 delayed draw term loan facility (the “Delayed Draw Term Loan”).
See footnote 9. Loan Agreement to the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2026 included in this Quarterly Report on Form 10-Q for additional disclosures related to the 2025 Credit Agreement.
Stifel Sales Agreement
On September 22, 2023, the Company entered into an at-the-market equity offering Sales Agreement (the “ATM Sales Agreement”) with Stifel, Nicolaus & Company, Incorporated (the “Sales Agent”), pursuant to which the Company may offer and sell from time to time through the Sales Agent up to $40 million of shares of its common stock. Subject to the terms and conditions of the ATM Sales
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Agreement, the Sales Agent is required to use commercially reasonable efforts to sell shares of the Company’s common stock from time to time, based upon the Company’s instructions. The Company is not obligated to sell any shares under the ATM Sales Agreement, and the Company or the Sales Agent may at any time suspend solicitation and offers under the ATM Sales Agreement or terminate the ATM Sales Agreement. The Company has provided the Sales Agent with customary indemnification rights, and the Sales Agent will be entitled to compensation for its services of up to 3.0% of the gross sales price per share of the shares of the Company’s common stock sold through the Sales Agent. Sales of the shares of the Company’s common stock, if any, under the ATM Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on or through Nasdaq or any other existing trading market for the Company’s common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law.
During the fiscal years ended September 30, 2024 and September 30, 2025, and during the three and nine months ended June 30, 2026, we did not sell any shares of common stock under the ATM Sales Agreement.
Future Funding Requirements
The Company’s existing cash balances, anticipated cash flows from operations and current banking facility are expected to be adequate to satisfy the Company’s liquidity needs for at least the next 12 months.
Apart from what has been disclosed above, management is not aware of any trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.
The Company did not pay cash dividends in fiscal years 2024 or 2025, or in the three and nine months ended June 30, 2026. The Company currently intends to retain future earnings, if any, to finance the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividend in the future will be at the discretion of the Company’s Board of Directors and will depend on then-existing conditions, including our operating results, financial condition, business prospects and other factors the Board may deem relevant.
Operating activities
Net cash provided by operating activities was $15.55 million for the nine months ended June 30, 2026 and consisted primarily of funding from net income of $12.0 million and changes in working capital.
Net cash provided by operating activities was $10.3 million for the nine months ended June 30, 2025 and consisted primarily of funding from net income of $8.5 million and changes in working capital.
Investing activities
Net cash used in investing activities was $36.2 million for the nine months ended June 30, 2026 and was primarily due to the $22.0 million acquisition for the Honeywell Autopilot Agreement, $8.0 million for the Honeywell Generators Agreement and $3.5 for the S-TEC ® acquisition. In addition, the Company spent $1.3 million for the purchase of an Eclipse business jet for research and development and $1.9 million for additions and improvements in the Company’s facilities and the purchases of equipment.
Net cash used in investing activities was $5.5 million for the nine months ended June 30, 2025 and consisted of expenditures related to additions and improvements in the Company’s facilities, purchases of equipment and computer software investment related to the Company’s ERP (“Enterprise Resource Planning”) implementation.
Financing activities
Net cash provided by financing activities was $28.7 million for the nine months ended June 30, 2026 and consisted of proceeds of $32.0 million from the delayed draw term loan to fund acquisitions offset by payments against the Company’s term loan of $1.9 million and $1.5 million for the tax payments of vested equity award shares withheld for taxes.
Net cash used in financing activities was $4.8 million for the nine months ended June 30, 2025 and consisted of payments against the Company’s line of credit.
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Summary
Future capital requirements depend upon numerous factors, including market acceptance of the Company’s products, the timing and rate of expansion of business, acquisitions, joint ventures and other factors. IA has experienced increases in expenditures since its inception and anticipates that expenditures will continue to increase in the foreseeable future. The Company believes that its cash and cash equivalents will provide sufficient capital to fund operations for at least the next twelve months. However, the Company may need to develop and introduce new or enhanced products, respond to competitive pressures, invest in or acquire businesses or technologies, or respond to unanticipated requirements or developments.
Backlog
Three Months Ended
Nine Months Ended
June 30, 2026
Backlog, beginning of period
$
86,976,114
$
77,428,498
Plus: bookings during period, net
13,277,315
66,997,043
Plus: acquired through acquisition
9,386,136
9,386,136
Less: sales recognized during period
(26,731,981)
(70,904,093)
Backlog, end of period
$
82,907,584
$
82,907,584
Backlog represents the value of contracts and purchase orders, less the revenue recognized to date on those contracts and purchase orders. The backlog includes committed purchases and excludes potential future sole-source production orders under our current OEM contracts, including the Pilatus PC-24, the Boeing KC-46A and the Textron King Air 360 and King Air 260 ThrustSense® Autothrottle programs.
At June 30, 2026, our backlog was $82.9 million compared with $77.4 million at September 30, 2025. Backlog is converted into sales in future periods as work is performed or deliveries are made. We expect to recognize approximately 78% of our backlog over the next 12 months and approximately 95% over the next 24 months as revenue, with the remainder recognized thereafter.
Off-Balance Sheet Arrangements
The Company has no relationships with unconsolidated entities or financial partnerships, such as Special Purpose Entities or Variable Interest Entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.