IA 10-Q
Innovative Solutions & Support Inc (IA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction | (I.R.S. Employer | |
(Address of Principal Executive Offices) | (Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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☐ Large accelerated filer | ☐ Accelerated filer |
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As of July 31, 2026, there were
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
FORM 10-Q June 30, 2026
INDEX
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Condensed Consolidated Balance Sheets - June 30, 2026 and September 30, 2025 (unaudited) | 1 | |
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Notes to Condensed Consolidated Financial Statements (unaudited) | 6 - 33 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 - 43 | |
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PART I—FINANCIAL INFORMATION
Item 1- Financial Statements
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30, | | September 30, | |||
2026 | 2025 | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable |
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Contract assets |
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Inventories | |
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Prepaid inventory | — | | ||||
Prepaid expenses and other current assets |
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Total current assets | | | ||||
Goodwill | | | ||||
Intangible assets, net | | | ||||
Property and equipment, net |
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Deferred income taxes | | | ||||
Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Current portion of long-term debt, net | $ | | $ | | ||
Accounts payable | | | ||||
Accrued expenses |
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Contract liabilities | | | ||||
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Total current liabilities | | | ||||
Long-term debt, net | | | ||||
Other liabilities | | | ||||
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Total liabilities | | | ||||
Commitments and contingencies (See Note 7) | ||||||
Shareholders’ equity | ||||||
Preferred stock, |
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Common stock, $ | | | ||||
Additional paid-in capital |
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Retained earnings |
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Treasury stock, at cost, |
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Total shareholders’ equity | | | ||||
Total liabilities and shareholders’ equity | $ | | $ | | ||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||
| 2026 | | 2025 | | 2026 | | 2025 | | |||||
Net sales: | |||||||||||||
Product | $ | | $ | | $ | | $ | | |||||
Services | | | | | |||||||||
Total net sales |
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Cost of sales: | |||||||||||||
Product |
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Services | | | | | |||||||||
Total cost of sales |
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Gross profit |
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Operating expenses: | |||||||||||||
Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Operating income |
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Interest expense |
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Interest income |
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Other income |
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Income before income taxes |
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Income tax expense |
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Net income | $ | | $ | | $ | | $ | | |||||
Net income per common share: | |||||||||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
Weighted average shares outstanding: | |||||||||||||
Basic |
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Diluted |
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See accompanying notes to the unaudited condensed consolidated financial statements.
2
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Additional | Total | ||||||||||||||
Common | Paid-In | Retained | Treasury | shareholders’ | |||||||||||
| Stock | | Capital | | Earnings | | Stock | | equity | ||||||
Balance, September 30, 2025 | $ | | $ | $ | | $ | ( | $ | | ||||||
Share-based compensation | — | | — | — | | ||||||||||
Issuance of common stock, net of shares withheld for taxes | | ( | — | — | ( | ||||||||||
Net income | — | — | | — | | ||||||||||
Balance, December 31, 2025 | $ | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation | — | | — | — | | ||||||||||
Issuance of common stock, net of shares withheld for taxes | | ( | — | — | ( | ||||||||||
Net income | — | — | | — | | ||||||||||
Balance, March 31, 2026 | $ | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation | — | | — | — | | ||||||||||
Issuance of common stock, net of shares withheld for taxes | | ( | — | — | ( | ||||||||||
Net income | — | — | | — | | ||||||||||
Balance, June 30, 2026 | $ | | $ | | $ | | $ | ( | $ | | |||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
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Additional | |||||||||||||||
Common | Paid-In | Retained | Treasury | ||||||||||||
| Stock |
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| Earnings |
| Stock |
| Total | ||||||
Balance, September 30, 2024 | $ | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation | | | — | — | | ||||||||||
Net income |
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Balance, December 31, 2024 | $ | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation | | | — | — | | ||||||||||
Net income | — | — | | — | | ||||||||||
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Balance, March 31, 2025 | $ | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation | | | — | — | | ||||||||||
Net income | — | — | | — | | ||||||||||
Balance, June 30, 2025 | $ | | $ | | $ | | $ | ( | $ | | |||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended June 30, | |||||||
| 2026 | | 2025 | | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | $ | | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization |
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Share-based compensation |
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Amortization of loan fees | | — | |||||
Deferred income taxes |
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(Increase) decrease in: | |||||||
Accounts receivable |
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Contract assets |
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Inventories |
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Prepaid expenses and other current assets |
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Other non-current assets |
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Increase (decrease) in: | |||||||
Accounts payable |
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Accrued expenses |
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Income taxes payable |
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Contract liabilities |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment |
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Acquisition of businesses | ( | — | |||||
Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Delayed Draw Term Loan proceeds | | — | |||||
Repayments of line of credit note | — | ( | |||||
Term Loan principal payments | ( | — | |||||
Taxes paid related to net share settlement of equity awards |
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Net cash provided by (used in) financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of year |
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Cash and cash equivalents, end of year | $ | | $ | | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||
Cash paid for income taxes | $ | | $ | | |||
Cash paid for interest | | | |||||
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION | |||||||
Transfer from prepaid inventory to inventory | $ | | $ | | |||
Transfer from prepaid expenses and other current assets to PP&E | $ | — | $ | | |||
Transfer from other assets to PP&E | $ | — | $ | | |||
Transfer from intangible assets to goodwill | $ | — | $ | | |||
Transfer from prepaid expenses to intangible assets | $ | — | $ | | |||
See accompanying notes to the unaudited condensed consolidated financial statements.
5
INNOVATIVE SOLUTIONS AND SUPPORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Certain of Innovative Solutions and Support, Inc.’s (the “Company,” “IA,” “we,” or “us”) dba Innovative Aerosystems and its subsidiaries significant accounting policies are described below. All of the Company’s significant accounting policies are disclosed in the notes to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Description of the Company
Incorporated in Pennsylvania in 1988, IA is a vertically integrated provider of flight solutions and equipment to commercial air transport, general aviation markets, the United States Department of Defense (“DoD”) and allied foreign militaries.
We operate in
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) in accordance with the disclosure requirements for the quarterly report on Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete annual financial statements. In the opinion of Company management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the results for the interim periods presented. The condensed consolidated balance sheet as of September 30, 2025 is derived from the audited financial statements of the Company. Operating results for the three and nine months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2026 which cannot be determined at this time. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Principles of Consolidation
The Company’s condensed consolidated financial statements include the accounts of its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, valuation of tangible and intangible assets acquired, evaluation of allowances for credit loss accounts, inventory obsolescence, product warranty cost liabilities, income taxes, engineering development contracts (“EDC”) revenue recognition, the useful lives of long-lived assets for depreciation and amortization, the recoverability of long-lived assets, evaluation of goodwill and indefinite-lived intangible assets impairment and contingencies. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the consolidated statements of operations in the period they are determined.
Business Combinations
The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screening test to determine whether substantially all of the fair value of the gross assets
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acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired asset is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquired asset includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquired asset is a business.
The Company accounts for business acquisitions using the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but these assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.
During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations.
We allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, with any excess recorded as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. Determining the fair value of assets we acquire and liabilities we assume requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. Fair value adjustments to the assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the acquisition.
Intangible Assets
The Company’s identifiable intangible assets primarily consist of license agreements, customer relationships and backlog. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired and are reported separately from any goodwill recognized.
Intangible assets with a finite life are amortized over their estimated useful life and are reported net of accumulated amortization. They are assessed for impairment in accordance with the Company’s policy on assessing long-lived assets for impairment described below.
Indefinite-lived intangible assets are not amortized, but are subject to an annual impairment test, or when events or circumstances dictate, more frequently. The impairment review for indefinite-lived intangible assets can be performed using a qualitative or quantitative impairment assessment. The quantitative assessment consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. The Company initially does a qualitative assessment for impairment of intangible assets and will utilize quantitative testing based on results from the qualitative assessment, if deemed necessary. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying amount, the indefinite-lived intangible asset is not considered impaired.
Goodwill
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The recorded amounts of goodwill from business combinations are based on management’s best estimates of the fair values of assets acquired, and liabilities assumed at the date of acquisition. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of the business combination that generated the goodwill. The Company’s goodwill impairment test is performed at the reporting unit level. Reporting units are determined based on an evaluation of the Company’s operating segments and the components making up those operating segments.
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Goodwill is tested for impairment annually, or in an interim period, if certain changes in circumstances indicate a possibility that an impairment may exist. Factors to consider that may indicate an impairment may exist are: the macroeconomic conditions, industry and market considerations such as a significant adverse change in the business climate, cost factors, overall financial performance such as current-period operating results or cash flow declines combined with a history of operating results or cash flow declines or a projection/forecast that demonstrates continuing declines in the cash flow or the inability to improve the operations to forecasted levels, and any entity-specific events.
If the Company determines that it is more likely than not that the fair value of the reporting unit is below the carrying amount as part of its qualitative assessment, a quantitative assessment of goodwill is required. In the quantitative evaluation, the fair value of the reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the goodwill is deemed not to be impaired, and no further action is required. If the fair value is less than the carrying value, goodwill is considered impaired and a charge is reported as impairment of goodwill in the consolidated statements of operations.
Cash and Cash Equivalents
Highly liquid investments, purchased with an original maturity of three months or less, are classified as cash equivalents. Cash equivalents at June 30, 2026 and September 30, 2025 consist of cash on deposit and cash invested in money market funds with financial institutions. Due to the short maturity of these instruments, the carrying values on our consolidated balance sheets approximate fair value.
Accounts Receivable
We record receivables derived from contracts with customers at net realizable value and they generally do not bear interest. An allowance for estimated uncollectible accounts is established if uncollectability is considered probable. This value may include an allowance for estimated uncollectible accounts to reflect any losses anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. When determining uncollectability, we consider historical write-offs by customer, level of past due accounts and economic status of the customers. Write-offs are recorded at the time a customer receivable is deemed uncollectible. The Company had
Property and Equipment
Property, plant and equipment is recorded at cost. Depreciation and amortization is generally provided on the straight-line method over the estimated useful lives of the various assets. Major additions and improvements are capitalized, while maintenance and repairs that do not improve or extend the life of assets are charged to expense as incurred.
The Company’s property, plant and equipment is generally depreciated over the following estimated useful lives:
●Buildings and improvements are depreciated over estimated lives of to
●Furniture and office equipment is depreciated over estimated lives of to
●Computer equipment is depreciated over an estimated life of
●Corporate R&D airplane is depreciated over an estimated life of
●Equipment other is depreciated over estimated lives of to
Long-Lived Assets
The Company assesses the impairment of long-lived assets in accordance with FASB ASC Topic 360-10, “Property, Plant and Equipment.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of should be reported at the lower of the carrying amount or fair value less cost to sell. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to estimated future cash flows expected to result from use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows.
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Financial Instruments
The Company utilizes derivative financial instruments to reduce its exposure to market risks from changes in interest rates. By entering into receive-variable, pay-fixed interest rate swaps, the Company limits its exposure to changes in variable interest rates. The Company is exposed to credit-related losses in the event of non-performance by the counterparty to the interest rate swaps. However, the currently existing swap was initiated after the quarter ending June 30, 2026, therefore no credit risk associated with the swap existed as of or prior to that date. Interest rate differentials paid or received on the swaps are recognized as adjustments to interest expense in the period earned or incurred. The Company formally documents all hedging relationships, if applicable, and assesses hedge effectiveness both at inception and on an ongoing basis. Interest rate swaps that qualify for hedge accounting are recorded at fair value in the accompanying consolidated balance sheets as a component of “other liabilities”. Changes in the fair value of interest rate swaps are recorded in “accumulated other comprehensive income (loss)”, net of tax, in the accompanying condensed consolidated financial statements.
Fair Value of Financial Instruments
The net carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value as the interest rate is variable and approximates current market levels. For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1 — Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.
Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:
| ● | Quoted prices for similar assets or liabilities in active markets; |
| ● | Quoted prices for identical or similar assets in non-active markets; |
| ● | Inputs other than quoted prices that are observable for the asset or liability; and |
| ● | Inputs that are derived principally from or corroborated by other observable market data. |
Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
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The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2026 and September 30, 2025, according to the valuation techniques the Company used to determine their fair values.
Fair Value Measurement on June 30, 2026 | |||||||||
| Quoted Price in | | Significant Other | | Significant | ||||
Active Markets for | Observable | Unobservable | |||||||
Identical Assets | Inputs | Inputs | |||||||
(Level 1) | (Level 2) | (Level 3) | |||||||
Assets | |||||||||
Cash and cash equivalents: | |||||||||
Money market funds | $ | | $ | — | $ | — | |||
Fair Value Measurement on September 30, 2025 | |||||||||
| Quoted Price in | | Significant Other | | Significant | ||||
Active Markets for | Observable | Unobservable | |||||||
Identical Assets | Inputs | Inputs | |||||||
(Level 1) | (Level 2) | (Level 3) | |||||||
Assets | |||||||||
Cash and cash equivalents: | |||||||||
Money market funds | $ | | $ | — | $ | — | |||
Interest Rate Swaps
The Company utilizes interest rate swaps designated as cash flow hedges to manage exposure to variability in interest payments on its variable-rate debt. The fair value of these instruments represents the amount at which the swaps could be settled in an orderly transaction. This value is based on estimates derived from a quantitative regression analysis using Level 2 inputs, and is validated through comparisons with estimates provided by counterparties. Fair value measurements incorporate credit valuation adjustments to reflect the potential nonperformance or credit risk of both the Company and its counterparties.
Derivative Financial Instruments
On June 30, 2026, we entered into a $
Revenue Recognition
The Company enters into sales arrangements with customers that, in general, provide for the Company to design, develop, manufacture and deliver large flat panel display systems, flight information computers, autothrottles and advanced monitoring systems that measure and display critical flight information, including data relative to aircraft separation, airspeed, altitude and engine and fuel data measurements.
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services.
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To achieve this core principle, the Company applies the following five steps:
1) | Identify the contract with a customer |
The Company’s contract with its customers typically is in the form of a purchase order issued to the Company by its customers and, to a lesser degree, in the form of a purchase order issued in connection with a formal contract executed with a customer. In addition, the Company enters into fixed-price contracts, in which the Company agrees to perform the specified work for a pre-determined price. The contractual terms of the fixed price contracts are usually long-term, however they often contain a termination for convenience clause that results in us treating these contracts as day-to-day under ASC 606. To the extent our actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss. For the purpose of accounting for revenue under ASC 606, a contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) | Identify the performance obligations in the contract |
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. Most of our revenue is derived from purchases under which we provide a specific product or service and, as a result, there is only one performance obligation. In the event that a contract includes multiple promised goods or services, such as an EDC contract which includes both engineering services and a resulting product shipment, the Company must apply judgment to determine whether promised goods or services are capable of being distinct in the context of the contract. In these cases, the Company considers whether the customer could, on its own, or together with other resources that are readily available from third parties, produce the physical product using only the output resulting from the Company’s completion of engineering services. If the customer cannot produce the physical product, then the promised goods or services are accounted for as a combined performance obligation.
3)Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
4) | Allocate the transaction price to performance obligations in the contract |
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions as well as the cost of the goods or services and the Company’s normal margins for similar performance obligations.
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| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Product sales revenue is recognized point-in-time when the product is sold and shipped to the customer. Services revenues are recognized over time upon the completion of the identified performance obligations. Historically, the Company has also recognized revenue from EDC contracts over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include material, components and third-party avionics purchased from suppliers, direct labor and overhead costs.
Bill-and-hold Arrangements
In certain situations, the Company recognizes revenue under bill-and-hold arrangements with its customers. Revenue for bill-and-hold arrangements is recognized when product control transfers to the customer, even though the customer does not have physical possession of the product. Control transfers when the bill-and-hold arrangement has been determined to have substantive reason, the product is identified as belonging to the customer, the product is ready for physical transfer to the customer, and the product cannot be used or directed to another customer.
Contract Estimates
Accounting for performance obligations in long-term contracts that are satisfied over time involves the use of various techniques to estimate progress towards satisfaction of the performance obligation. The Company typically measures progress based on costs incurred compared to estimated total contract costs. Contract cost estimates are based on various assumptions to project the outcome of future events that often span more than a single year. These assumptions include the amount of labor and labor costs; the quantity and cost of raw materials used in the completion of the performance obligation and the complexity of the work to be performed.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter in which it is identified.
The impact of adjustments in contract estimates on our operating earnings is typically reflected in consolidated revenues. There were no material contract estimate adjustments to our condensed consolidated financial statements for the three and nine months ended June 30, 2026 and June 30, 2025, respectively.
Contract Balances
Contract assets consist of the right to consideration in exchange for product offerings that we have transferred to a customer under the contract. Contract liabilities primarily relate to consideration received in advance of performance under the contract. The following table reflects the Company’s contract assets and contract liabilities:
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| | |||||
Contract | Contract | |||||
Assets | Liabilities | |||||
September 30, 2025 | $ | | $ | | ||
Amount transferred to receivables from contract assets | ( | — | ||||
Contract asset additions | | — | ||||
Performance obligations satisfied during the period that were included in the contract liabilities balance at the beginning of the period | — | ( | ||||
Increases due to invoicing prior to satisfaction of performance obligations | — | | ||||
June 30, 2026 | $ | | $ | | ||
Contract | Contract | |||||
Assets | Liabilities | |||||
September 30, 2024 | $ | | $ | | ||
Amount transferred to receivables from contract assets |
| ( | — | |||
Contract asset additions |
| | — | |||
Performance obligations satisfied during the period that were included in the contract liabilities balance at the beginning of the period |
| — | ( | |||
Increases due to invoicing prior to satisfaction of performance obligations |
| — | | |||
June 30, 2025 | $ | | $ | | ||
Due to the fact that our fixed price contracts are treated as day-to-day contracts due to the inclusion of termination for convenience clauses, there are no remaining unsatisfied performance obligations at period end to disclose under ASC 606. The balances for Accounts receivable were $
Lease Recognition
The Company accounts for leases in accordance with ASU 2016-02, Leases (Topic 842). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have any financing leases that are material.
Income Taxes
Income taxes are recorded in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740”), which utilizes a balance sheet approach to provide for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets, liabilities and expected benefits of utilizing net operating losses (“NOL”) and tax credit carry-forwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. At the end of each interim reporting period, the Company prepares an estimate of the annual effective income tax rate and applies that annual effective income tax rate to ordinary year-to-date pre-tax income for the interim period. Specific tax items discrete to a particular quarter are recorded in income tax expense for that quarter. The estimated annual effective tax rate used in providing for income taxes on a year-to-date basis may change in subsequent periods.
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Deferred tax assets are reduced by a valuation allowance if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if a valuation allowance is required by considering available evidence. Deferred tax assets are recognized when expected future taxable income is sufficient to allow the related tax benefits to reduce taxes that would otherwise be payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and credit carryforwards, taxable income in carry-back years and tax planning strategies which are both prudent and feasible.
The accounting for uncertainty in income taxes requires a more likely than not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the (i) benefit recognized and measured for financial statement purposes and (ii) the tax position taken or expected to be taken on the Company’s tax return. To the extent that the Company’s assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company has elected to record any interest or penalties associated with uncertain tax positions as income tax expense.
The Company files a consolidated U.S. federal income tax return. The Company prepares and files tax returns based on the interpretation of tax laws and regulations and records estimates based on these judgments and interpretations. In the normal course of business, the tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and the Company records a liability when it is probable that there will be an assessment. The Company adjusts the estimates periodically as a result of ongoing examinations by and settlements with the various taxing authorities, and changes in tax laws, regulations and precedent. The consolidated tax provision of any given year includes adjustments to prior years’ income tax accruals that are considered appropriate and any related estimated interest. Management believes that it has made adequate accruals for income taxes. Differences between estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material effect on the Company’s consolidated financial position but could possibly be material to its consolidated results of operations or cash flow of any one period.
Research and Development
Total research and development expense comprises both internally funded research and development (“R&D”), which is expensed in research and development in the consolidated statements of operations, and product development and design charges related to specific customer contracts. Engineering development expense consists primarily of payroll-related expenses of employees engaged in EDC projects, engineering related product materials and equipment, and subcontracting costs. R&D charges incurred for product design, product enhancements and future product development are expensed as incurred. Product development and design charges related to specific customer contracts are charged to cost of sales - Services based on the method of contract accounting (either percentage-of-completion or completed contract) applicable to such contracts.
Share-Based Compensation
The Company accounts for share-based compensation under ASC Topic 718, which requires the Company to measure the cost of employee or non-employee director services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. The Company recognizes such cost over the period during which an employee or non-employee director is required to provide service in exchange for the award.
Accordingly, adoption of ASC Topic 718’s fair value method results in recording compensation costs under the Company’s stock-based compensation plans. Time-vested RSU’s are valued as of the closing price of the Company’s stock on date of grant. The Company determines the fair value of its stock option awards at the date of grant using the Black-Scholes option pricing model. The Company determines the fair value of its Market Stock Unit Awards (“MSU”) and Market Stock Option Awards (“MSO”) using Monte Carlo Simulation Option pricing models and generally accepted valuation techniques, which require management to make assumptions and to apply judgment to determine the fair value of its awards. These assumptions and judgments include estimating future volatility of the Company’s stock price, expected dividend yield, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can materially affect fair value estimates. The Company does not believe that a reasonable likelihood exists that there will be a material change in future estimates or assumptions used to determine share-based compensation expense. However, if actual results are not consistent with the Company’s estimates or assumptions, the Company would adjust its estimates. Such adjustments could have a material impact on the Company’s financial position.
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Debt Issuance Costs
Debt issuance costs are capitalized as contra-liabilities and amortized as interest expense on a basis that approximates the effective interest method over the term for Initial Term Loan debt. Contra-liabilities are netted against and presented as a direct deduction from the carrying amount of the Initial Term Loan debt.
Revolving Facility and the Delayed Draw Term Loan debt issuance costs are capitalized as assets and amortized using straight-line amortization to interest expense over the terms of the respective debt. The capitalized assets related to the Revolving Facility and the Delayed Draw Term Loan are presented as Current Other Assets and Non-Current Other Assets on the Consolidated Balance Sheet.
Warranty Reserves
The Company offers warranties on some products of various lengths. However, the standard warranty period is
Self-Insurance Reserves
Since January 1, 2014, the Company has self-insured a significant portion of its employee medical insurance. The Company maintains a stop-loss insurance policy that limits its losses both on a per employee basis and an aggregate basis. Liabilities associated with the risks that are retained by the Company are estimated based upon actuarial assumptions such as historical claims experience and demographic factors. The Company estimated the total medical claims incurred but not reported, and the Company believes that it has adequate reserves for these claims at September 30, 2025 and 2024. However, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions. At June 30, 2026 and September 30, 2025, the estimated liability for medical claims incurred but not reported was $
Treasury Stock
We account for treasury stock purchased under the cost method and include treasury stock as a component of shareholders’ equity. Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to common stock.
Concentrations
Major Customers and Products
In the three months ended June 30, 2026,
In the nine months ended June 30, 2026,
In the three months ended June 30, 2025,
In the nine months ended June 30, 2025,
Major Suppliers
The Company buys several of its components from sole source suppliers. Although there are a limited number of suppliers of particular components, management believes other suppliers could provide similar components on comparable terms.
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For the three months ended June 30, 2026, the Company had
For the nine months ended June 30, 2026, the Company had
For the three and nine months ended June 30, 2025, the Company had
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances and accounts receivable. The Company invests its excess cash where preservation of principal is the major consideration. Cash balances are maintained with
New Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB"). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements.
In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses. The guidance primarily will require enhanced disclosures about certain types of expenses. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and may be applied either on a prospective or retrospective basis. We are evaluating the impact of the standard on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impacts of this guidance on the Company’s Consolidated Financial Statements but does not anticipate it having a major impact.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (CODM), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis. For all public business entities, ASU 2023-07 was effective for annual periods beginning after December 31, 2023 and interim periods with fiscal years beginning after December 15, 2024, early adoption is permitted. The Company evaluated and adopted this guidance in the fiscal year ended September 30, 2025. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
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2. Supplemental Balance Sheet Disclosures
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, net of write-downs for excess and obsolete inventory and consist of the following:
| June 30, | | September 30, | |||
2026 | 2025 | |||||
Raw materials | $ | | $ | | ||
Work-in-process |
| |
| | ||
Finished goods |
| |
| | ||
$ | | $ | | |||
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
| June 30, | | September 30, | |||
2026 | 2025 | |||||
Supplier deposits | | | ||||
Prepaid insurance and services | | | ||||
Prepaid income tax | | — | ||||
Deferred engineering | | — | ||||
Other receivable | | — | ||||
Unamortized debt issuance costs | | | ||||
Other |
| |
| | ||
$ | | $ | | |||
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Intangible assets and Goodwill
The Company’s intangible assets other than goodwill are as follows:
As of June 30, 2026 | ||||||||||||
Gross Carrying | | Accumulated | | Accumulated | | Net Carrying | ||||||
Value |
| Impairment |
| Amortization |
| Value | ||||||
License agreements (a) | $ | | $ | — | $ | — | $ | | ||||
Customer relationships (a) |
| |
| — |
| ( |
| | ||||
Backlog (b) | | — | ( | | ||||||||
Trade name (c) | | — | ( | | ||||||||
Licensing and certification rights (d) |
| |
| ( |
| ( |
| | ||||
Total | $ | | $ | ( | $ | ( | $ | | ||||
As of September 30, 2025 | ||||||||||||
| Gross Carrying | | Accumulated | | Accumulated | | Net Carrying | |||||
| Value |
| Impairment |
| Amortization |
| Value | |||||
License agreements (a) | $ | | $ | — | $ | — | $ | | ||||
Customer relationships (a) |
| |
| — |
| ( |
| | ||||
Backlog (b) | | — | ( | | ||||||||
Licensing and certification rights (d) |
| |
| ( |
| ( |
| | ||||
Total | $ | | $ | ( | $ | ( | $ | | ||||
| (a) | The license agreements have an indefinite life and are not subject to amortization; the customer relationships have an estimated weighted average life of |
| (b) | Backlog assets are amortized according to the timing of order fulfillment. |
| (c) | The trade name is amortized over |
| (d) | The licensing and certification rights are amortized over a defined number of units. |
Intangible asset amortization expense is amortized as a component of selling, general and administrative expense and was $
Intangible asset amortization expense was $
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The timing of future amortization expense is not determinable for the licensing and certification rights because they are amortized over a defined number of units. The expected future amortization expense related to the customer relationships, backlog and trade name as of June 30, 2026 is as follows:
Amortization Expense | ||
2026 (three months remaining) | $ | |
2027 | | |
2028 | | |
2029 | | |
2030 | | |
Thereafter | | |
Total | $ | |
Goodwill activity
Goodwill | ||
Balance at September 30, 2025 | $ | |
Fiscal 2026 Activity: | ||
Business Combination - Honeywell Autopilot Agreement | | |
Business Combination - Honeywell Generators Agreement | | |
Business Combination - Other | | |
Balance at June 30, 2026 | $ | |
Property and equipment
Property and equipment, net consists of the following:
| June 30, | | September 30, | |||
2026 | 2025 | |||||
Computer equipment | $ | | $ | | ||
Corporate R&D airplane |
| |
| - | ||
Furniture and office equipment |
| |
| | ||
Buildings and improvements |
| |
| | ||
Equipment other |
| |
| | ||
Land |
| |
| | ||
| |
| | |||
Less accumulated depreciation and amortization |
| ( |
| ( | ||
$ | | $ | | |||
Depreciation and amortization related to property and equipment was $
Depreciation and amortization related to property and equipment was $
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Other assets
Other assets consist of the following:
| June 30, | | September 30, | |||
2026 | 2025 | |||||
Unamortized debt issuance costs | $ | | $ | | ||
Other non-current assets |
| |
| | ||
$ | | $ | | |||
Other non-current assets as of June 30, 2026 and September 30, 2025 consists primarily of deposits for medical claims required under the Company’s medical plan.
Accrued expenses
Accrued expenses consist of the following:
June 30, | September 30, | |||||
2026 | 2025 | |||||
Warranty | $ | | $ | | ||
Salary, benefits and payroll taxes |
| | | |||
Inventory in transit |
| — | | |||
Income tax payable | — | | ||||
ERC related expenses | — | | ||||
Bonus accruals | | | ||||
Other | | | ||||
$ | | $ | | |||
Warranty cost and accrual information for the three and nine months ended June 30, 2026 is highlighted below:
| Three Months Ending | Nine Months Ending | | ||||
June 30, 2026 | June 30, 2026 | ||||||
Warranty accrual, beginning of period | $ | $ | | ||||
Accrued expense (adjustment) |
| |
| | |||
Warranty cost |
| ( |
| ( | |||
Warranty accrual, end of period | $ | | $ | |
3. Acquisitions
Honeywell Autopilot Agreement
On March 27, 2026, the Company entered into the Honeywell Autopilot Agreement with Honeywell, pursuant to which 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 $
The Company determined that the transaction met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting. The Company financed the Honeywell Autopilot Agreement with borrowings against the Company’s delayed draw term loan. Please see Note 9, “Loan Agreement” for more details.
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The allocation of the purchase price was based upon certain preliminary valuations and other analyses. The allocation of the purchase price has not been finalized as of the date of this filing due to the fact that while legal control has occurred, the Company has not yet received physical possession of the prepaid inventory, equipment and intellectual property, and thus these assets will be subject to settlement adjustments upon transfer, which is expected to occur during the transition period, as outlined in the Honeywell Autopilot Agreement. During the measurement period, there may be value ascribed to the fair market value of any inventory and equipment expected to be received which will reduce goodwill. As a result, the purchase price amount for the transaction and the allocation of the preliminary purchase consideration are preliminary estimates, which may be subject to change within the measurement period.
The allocation of the preliminary purchase consideration as of the acquisition date is as follows:
Preliminary | ||
Purchase Price | ||
Allocation | ||
Total consideration | $ | |
Intangible assets (a) | | |
Goodwill (b) | | |
Net assets acquired | $ | |
| (a) | Intangible assets consists of backlog ($ |
| (b) | Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired. During the measurement period, there may be value ascribed to the fair market value of any inventory and equipment expected to be received which will reduce goodwill. The goodwill recognized is primarily attributable to the expected synergies from the Honeywell Autopilot Agreement. Goodwill resulting from the Honeywell Autopilot Agreement has been assigned to the Company’s |
Transition services agreement
Concurrent with the Honeywell Autopilot Agreement, the Company entered into a transition services agreement with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period.
Honeywell Generators Agreement
On March 28, 2026, the Company entered into the Honeywell Generators Agreement with Honeywell, pursuant to which 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 $
The Company determined that the transaction met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting. The Company financed the Honeywell Generators Agreement with borrowings against the Company’s delayed draw term loan. Please see Note 9, “Loan Agreement” for more details.
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The allocation of the purchase price was based upon certain preliminary valuations and other analyses. The allocation of the purchase price has not been finalized as of the date of this filing due to the fact that while legal control has occurred, the Company has not yet received physical possession of the prepaid inventory, equipment and intellectual property, and thus these assets will be subject to settlement adjustments upon transfer, which is expected to occur during the transition period, as outlined in the Honeywell Generators Agreement. During the measurement period, there may be value ascribed to the fair market value of any inventory and equipment expected to be received which will reduce goodwill. As a result, the purchase price amount for the transaction and the allocation of the preliminary purchase consideration are preliminary estimates, which may be subject to change within the measurement period.
The allocation of the preliminary purchase consideration as of the acquisition date is as follows:
Preliminary | ||
Purchase Price | ||
Allocation | ||
Total consideration | $ | |
Intangible assets (a) | | |
Goodwill (b) | | |
Net assets acquired | $ | |
| (a) | Intangible assets consists of backlog ($ |
| (b) | Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired. During the measurement period, there may be value ascribed to the fair market value of any inventory and equipment expected to be received which will reduce goodwill. The goodwill recognized is primarily attributable to the expected synergies from the Honeywell Generators Agreement. Goodwill resulting from the Honeywell Generators Agreement has been assigned to the Company’s |
Transition services agreement
Concurrent with the Honeywell Generators Agreement, the Company entered into a transition services agreement with Honeywell, at no additional cost, to receive certain transitional services and technical support during the transition service period.
Other
In February 2026, the Company acquired the S-TEC® Model 3100 general aviation fixed wing autopilot product line from Moog (NYSE: MOG.A) for a total purchase consideration of $
The Company determined that the transaction met the definition of a business under ASC 805; therefore, the Company accounted for the transaction as a business combination and applied the acquisition method of accounting.
The allocation of the purchase price was based upon certain preliminary valuations and other analyses. The allocation of the purchase price has not been finalized as of the date of this filing due to the fact that while transfer of legal control has occurred, the Company has not yet received physical possession of the intellectual property, and thus these assets will be subject to settlement adjustments upon transfer, which is expected to occur later this year. As a result, the allocation of the preliminary purchase consideration are preliminary estimates, which may be subject to change within the measurement period.
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The allocation of the preliminary purchase consideration as of the acquisition date is as follows:
Preliminary | ||
Purchase Price | ||
Allocation | ||
Total consideration | $ | |
Intangible assets (a) | | |
Goodwill (b) | | |
Net assets acquired | $ | |
| (a) | Intangible assets consists of backlog ($ |
| (b) | Goodwill represents the excess of the purchase consideration over the preliminary fair value of the net assets acquired. During the measurement period, there may be value ascribed to the fair market value of any equipment expected to be received which will reduce goodwill. The goodwill recognized is primarily attributable to the expected synergies from the Moog S-TEC® Agreement. Goodwill resulting from the Moog S-TEC® Agreement has been assigned to the Company’s |
Transition services agreement
Concurrent with the Moog S-TEC® Agreement, the Company entered into a transition services agreement with Moog, at no additional cost, to receive certain transitional services and technical support during the transition service period.
Acquisition and related costs
For the three and nine months ended June 30, 2026, the Company incurred acquisition costs of approximately $
Unaudited actual and pro forma information
For the nine months ended June 30, 2026, there were $
The following unaudited pro forma summary presents consolidated information of the Company, including the acquisitions, as if the transaction had occurred on October 1, 2024:
Nine Months Ended June 30, | Nine Months Ended June 30, | |||||
| 2026 | 2025 | ||||
Net sales | $ | | $ | | ||
Net income | $ | | $ | | ||
These pro forma results are for illustrative purposes and are not indicative of the actual results of operations that would have been achieved, nor are they indicative of future results of operations. The unaudited pro forma information for all periods presented was adjusted to give effect to pro forma events that are directly attributable to the transaction and are factually supportable. The adjustments are based on information available to the Company currently. Accordingly, the adjustments are subject to change, and the
23
impact of such changes may be material. The unaudited pro forma results do not include any incremental cost savings that may result from the integration.
4. Income Taxes
The Company will continue to assess all available evidence during future periods to evaluate any changes to the realization of its deferred tax assets. If the Company were to determine that it would be able to realize additional state deferred tax assets in the future, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
On July 4, 2025, the One Big Beautiful Bill Act (OBBB) was signed into law, which includes a broad range of tax reform provisions that may affect the Company's financial results. The OBBB allows an elective deduction for domestic research and development, and a reinstatement of elective 100% first-year bonus depreciation, among other provisions. The Company has evaluated the impact of these provisions on the Company’s effective tax rate in fiscal year 2025 and forward and has determined that it does not have a material impact.
As a result of the 2017 Tax Cuts and Jobs Act, the Company must amortize amounts paid or incurred for specified research and development expenditures, including software development expenses, ratably over 60 months, beginning at the mid-point of the tax year in which the expenditures are paid or incurred.
The effective tax rate for the three months ended June 30, 2026 was
The effective tax rate for the nine months ended June 30, 2026 was
The effective tax rate for the three months ended June 30, 2025 was
The effective tax rate for the nine months ended June 30, 2025 was
5. Shareholders’ Equity and Share-Based Payments
At June 30, 2026, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue
Share-Based Compensation
The Company accounts for share-based compensation under the provisions of ASC Topic 718, “Compensation – Stock Compensation,” by using the fair value method for expensing stock options, performance-based equity awards and stock awards.
Total share-based compensation expense was approximately $
24
The following tables show share-based compensation expense by line item within our Consolidated Statement of Operations:
Three Months Ended June 30, | ||||||
| 2026 | 2025 | ||||
Cost of sales | $ | | $ | | ||
Research and development | | | ||||
Selling, general and administrative | | | ||||
Total | $ | | $ | | ||
Nine Months Ended June 30, | ||||||
| 2026 | 2025 | ||||
Cost of sales | $ | | $ | | ||
Research and development | | | ||||
Selling, general and administrative | | | ||||
Total | $ | | $ | | ||
As of June 30, 2026, unrecognized compensation expense of approximately $
As of June 30, 2026, there were
Amended and Restated 2019 Stock-Based Incentive Compensation Plan
The Company’s 2019 Stock-Based Incentive Compensation Plan (as amended, the “2019 Plan”) was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019. The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options, performance-based equity awards, and other equity-based awards. Options granted under the 2019 Plan may be either “incentive stock options” as defined in Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options, as determined by the Compensation Committee.
Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2019 Plan is
If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related shares of common stock subject to such award will again be available for future grant. Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from any such award) will not be available for future grant under the 2019 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award. In addition, the Compensation Committee may make adjustments in the terms and conditions of any awards, including any performance goals, in recognition of unusual or non-recurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. New shares are typically issued upon option exercise, MSO exercise, MSU vesting or RSU vesting.
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The 2019 Plan will terminate on April 2, 2029, unless earlier terminated by the Company’s Board of Directors (the “Board”). Termination will not affect awards outstanding at the time of termination. The Board may amend, alter, suspend, discontinue, or terminate the 2019 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number of shares subject to the 2019 Plan; (ii) would decrease the price at which awards may be granted; or (iii) would require shareholder approval by law, regulation, or the rules of any stock exchange or automated quotation system.
Restricted Stock Units and Stock Options
On February 17, 2026, the Board authorized grants of
On February 18, 2025, the Board authorized grants of
During the fiscal years ended September 30, 2026 and September 30, 2025, the Board approved grants of RSUs to the non-employee directors on the Board as compensation for their services. Under the terms of the awards, the RSUs will vest on the first anniversary of the grant date. At the time of vesting, the RSUs will be settled in shares of the Company’s common stock at a rate of
During the fiscal year ended September 30, 2026, and September 30, 2025, the Board approved grants of RSUs to both the Chief Executive Officer and the Chief Financial Officer that vest
During the fiscal year ended September 30, 2026, the Board approved grants of non-qualified stock options to both the Chief Executive Officer and the Chief Financial Officer that vest
The compensation expense related to stock options, and restricted stock awards issued to employees under the 2019 Plan was $
The compensation expense under the 2019 Plan related to restricted stock awards issued to non-employee members of the Board was $
As of June 30, 2026, unrecognized compensation expense of approximately $
As of June 30, 2026, unrecognized compensation expense of approximately $
Market-Based Restricted Stock Units
On February 18, 2026, in a continuing effort to more closely correlate executive compensation with the Company’s Total Shareholder Return, the Board approved a grant of
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for vesting prior to the first anniversary of the date of grant of the award, with the exception of accelerated vesting permitted under certain conditions subject to the plan provisions. Subject to the terms of the 2019 Plan, under the terms of the grant, 1/3rd of the MSUs will vest on each of the first, second and third anniversaries of the date of grant (each, a “Time Vesting Date”), provided that no MSUs will vest until and unless the shares of the Company’s common stock have traded at a price equal to or greater than twenty five dollars ($
Any MSUs that have not vested on or before the third anniversary of the grant date are immediately forfeited. Compensation expense for MSUs is recognized on a straight-line basis over the requisite service. Forfeitures are recognized when incurred.
With respect to each MSU that becomes vested in accordance with the terms of the award agreement, the Grantee will be entitled to receive
The Company estimated both the grant-date fair value of the MSUs and the derived vesting periods using a Monte Carlo simulation with the following input assumptions:
Grant Date | 2/18/2026 |
Grant Date Stock Price | $ |
Expected Dividend Rate | |
Expected Volatility | |
Weighted average risk-free interest rate | |
Contractual Term |
Utilizing Monte Carlo simulation, the MSUs grant date fair value was estimated to be $
During the quarter ended December 31, 2024, to better align executive compensation with the Company’s Total Shareholder Return, the Board approved a special one-time grant of
| 1) | an initial -third (1/3rd) of the MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than ten dollars ($ |
| 2) | an additional -third (1/3rd) of the MSUs shall vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than twelve dollars ($ |
| 3) | the remaining MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than fourteen dollars ($ |
Additionally, if the tranche of MSUs subject to vesting pursuant to (1) above does not vest on or before November 20, 2027, then, with respect to such MSUs, the target trading price for the Company’s common stock will be increased to twelve dollars ($
Any MSUs that have not vested on or before the fourth anniversary of the grant date are immediately forfeited. Compensation expense for MSUs is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards using the graded vesting attribution method. Forfeitures are recognized when incurred.
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With respect to each MSU that becomes vested in accordance with the terms of the award agreement, the Grantee will be entitled to receive
The Company estimated both the grant-date fair value of the MSUs and the derived vesting periods using a Monte Carlo simulation with the following input assumptions:
Number of MSUs Granted | |
Grant Date | 11/20/24 |
Grant Date Stock Price | $ |
Expected Dividend Rate | |
Expected Volatility | |
Weighted average risk-free interest rate | |
Contractual Term |
Utilizing Monte Carlo simulation, the MSUs grant date fair value was estimated to be $
On each of February 13, 2025, July 10, 2025 and August 8, 2025, the market performance condition for the first, second and third tranches of
On November 20, 2025, the service condition for all
For the three months ended June 30, 2026 and 2025, the Company recognized $
For the nine months ended June 30, 2026 and 2025, the Company recognized $
As of June 30, 2026, unrecognized compensation expense of approximately $
Time Based Stock Options with market-based exercisability conditions
During the three months ended March 31, 2025, in a continuing effort to more closely correlate executive compensation with the Company’s Total Shareholder Return, the Board approved a grant of
The MSOs are similar to traditional time vested stock options and vest over
On June 16, 2025, the Company’s closing share price exceeded the $
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No MSOs are eligible for vesting or exercise prior to the first anniversary of the date of grant of the award, with the exception of accelerated vesting permitted under certain conditions subject to the plan provisions.
With respect to each MSO that becomes exercised in accordance with the terms of the award agreement, the Grantee will be entitled to receive
Compensation expense for MSOs is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards using the graded vesting attribution method. Forfeitures are recognized when incurred.
The Company estimated the grant-date fair value of the MSOs awards using a Monte Carlo simulation with the following input assumptions:
Number of MSOs granted | |
Grant Date | 02/18/25 |
Grant Date Stock Price | $ |
Expected Dividend Rate | |
Expected Volatility | |
Weighted average risk-free interest rate | |
Exercise price | $ |
Contractual Term |
Utilizing Monte Carlo simulation, the aggregate MSOs grant date fair value was estimated to be $
For the three months ended June 30, 2026 and 2025, the Company recognized $
For the nine months ended June 30, 2026 and 2025, the Company recognized $
As of June 30, 2026, unrecognized compensation expense of $
6. Earnings Per Share
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||
| 2026 | | 2025 | | 2026 | | 2025 | | |||||
Numerator: | |||||||||||||
Net income | $ | | $ | | $ | | $ | | |||||
Denominator: | |||||||||||||
Basic weighted average shares |
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Dilutive effect of share-based awards |
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Diluted weighted average shares |
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Net income per common share: | |||||||||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
Net income per share is calculated pursuant to ASC Topic 260, “Earnings per Share.” Basic EPS excludes potentially dilutive securities and is computed by dividing net income by the weighted average number of common shares outstanding for the period.
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Diluted EPS is computed assuming the conversion, or exercise of all dilutive securities such as employee stock options, MSUs and RSUs.
The number of incremental shares from the assumed exercise of time vested stock options, MSOs, and RSUs is calculated by using the treasury stock method. The number of incremental shares from the assumed vesting of MSUs is calculated using the “if-converted” method.
As of June 30, 2026 and 2025,
As of June 30, 2026 and 2025, there were
As of June 30, 2026 and 2025, there were
The weighted average outstanding diluted shares calculation excludes time vested options and MSOs with an exercise price that exceeds the average market price of shares during the period. Additionally, the weighted-average diluted shares calculation excludes RSUs that are deemed anti-dilutive when applying the treasury stock method.
For the three months ended June 30, 2026 and 2025, respectively,
For the nine months ended June 30, 2026 and 2025, respectively,
7. Commitments and Contingencies
Product Liability
The Company has product liability insurance of $
Legal Proceedings
In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. The Company does not believe any such matters that are currently pending will, individually or in aggregate, have a material effect on the results of operations or financial position.
8. Related Party Transactions
On October 18, 2024, the Company entered into a consulting agreement with Peduzzi Associates, ltd. (“PAL”), an entity in which board member Maj. General Dean serves as President. PAL provides consulting services in support of the Company’s business development growth into the DoD. The initial term of the agreement was for
For the three months ended June 30, 2026 and 2025, the Company paid PAL $
For the nine months ended June 30, 2026 and 2025, the Company paid PAL $
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9. Loan Agreement
On September 30, 2024, in connection with the July 2024 Honeywell Asset Acquisition and the September 2024 Honeywell Agreement, the Company entered into the Loan 2024 Amendment with PNC, which amended certain terms of the Loan Agreement to increase the line of credit with PNC. Concurrently with the Loan 2024 Amendment, the Company entered into (i) the “A&R Revolving Line of Credit Note and (ii) the A&R Rider.
The A&R Revolving Line of Credit Note provided for a senior secured revolving line of credit in an aggregate principal amount of $
On July 18th, 2025, the outstanding balance drawn on the A&R Revolving Line of Credit of $
On July 18, 2025, Innovative Solutions and Support, Inc. (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 $
1)a USD $
2)a USD $
3)a USD $
The New Credit Facilities replaced the Company’s existing $
Loans under the New Credit Facilities bear interest at the Borrower's option at either:
(i)the Alternate Base Rate plus an applicable margin, or
(ii)the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin.
The Alternate Base Rate is defined as the highest of (a) the Prime Rate, (b) the Federal Reserve Bank of New York rate for overnight funds plus
The Adjusted Term SOFR Rate is the Term SOFR Rate plus
An applicable margin is determined based on the Company's Total Net Leverage Ratio and ranges from
The New Credit Facilities mature five years following the date of the initial advance, or July 18, 2030 (the “Maturity Date”). All outstanding balances are due on the Maturity Date.
Under the New Term Loan and Revolving Facility, $
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On August 18, 2025, the balance of $
Initial Term Loan
The Initial Term Loan requires quarterly principal payments of $
The effective interest rate for the Initial Term Loan was
Revolving Facility Loan
The Revolving Facility matures
The Revolving Facility principal is due on the Maturity Date. All amounts outstanding under the Credit Facilities will be due and payable upon the earlier of the Maturity Date, or the acceleration of the Credit Facilities upon an event of default.
There were
Delayed Draw Term Loan
The Delayed Draw Term Loan requires quarterly principal payments equal to
In March 2026, the Company borrowed $
The effective interest rate for the Delayed Draw Term Loan was
Debt Issuance Costs
For the Initial Term Loan, debt issuance costs of $
For the Revolving Facility and the Delayed Draw Term Loan, debt issuance costs of $
Future borrowings under the Initial Term Loan and Revolving Facility may be used for working capital and general corporate purposes, including permitted acquisitions. The Delayed Draw Term Loan may only be used for permitted acquisitions.
Debt Collateral and Covenants
The Company’s obligations under the 2025 Credit Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries, including a first priority lien on the Company's Exton facility.
The Company’s Initial Term Loan Facility, Revolving Facility and Delayed Term Loan facility contain affirmative and negative covenants that, among other things, may limit or restrict the Company’s ability to: create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or transfer assets; change the nature of our business;
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engage in certain transactions with affiliates; and enter into hedging transactions, in each case, subject to certain qualifications and exceptions. In addition, we are required to maintain a maximum net leverage ratio and a minimum fixed charge coverage ratio.
The Company was in compliance with all debt covenants as of June 30, 2026.
Commitment Fees
The 2025 Credit Agreement terms include Revolving Facility and Delayed Draw Term Loan Facility commitment fees.
For the three months ended June 30, 2026, unused line of credit fees of $
For the nine months ended June 30, 2026, unused line of credit fees of $
Long-term debt, excluding contra-liabilities, consisted of the following:
June 30, | September 30, | ||||
2026 | 2025 | ||||
Total Debt | $ | | $ | | |
Less current maturities (b) | | | |||
Total Long Term Debt (a) | $ | $ | |||
| (a) | As of June 30, 2026, Total Long Term Debt comprised $ |
| (b) | As of June 30, 2026, Current Maturities of Debt comprised $ |
As of June 30, 2026, scheduled annual payments based on the maturities of debt are expected to be as follows:
Fiscal year | Annual payments* |
2026 (Three months remaining) | $ |
2027 | |
2028 | |
2029 | |
2030 | |
Total | $ |
* Excludes interest payments payable at each debt reset date
Loan Facilities Availability
As of June 30, 2026, the Company had availability of $
The Company has the right to request up to $
10. Subsequent Events
On July 21, 2026, the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sparton Corporation, a Delaware corporation (“Seller”), pursuant to which the Company acquired all of the issued and outstanding membership interests (the “Membership Interests”) of Sparton Aydin, LLC, a Delaware limited liability company doing business as Aydin Displays (“Aydin”). Founded over 50 years ago, Aydin designs and builds ruggedized displays for demanding defense and commercial applications across ground, sea, and air environments. Aydin serves the defense, homeland security, law enforcement, aviation and medical markets.
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The aggregate purchase price for the Membership Interests was $
The Purchase Agreement includes representations, warranties and covenants of the parties customary for a transaction of this nature. The Seller has agreed to certain restrictive covenants, including a covenant not to compete with the Business (as defined in the Purchase Agreement) within the United States and Canada for a period of
In connection with the closing of the acquisition, the parties entered into certain ancillary agreements, including a Transition Services Agreement pursuant to which Seller will provide certain transitional services to the Company, and a Supply Agreement between Aydin and Seller.
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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, Vmca 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 Company 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s exposure to market risk for changes in interest rates relates to its cash equivalents. The Company’s cash equivalents consist of funds invested in money market funds, which bear interest at a variable rate. A change in interest rates earned on the Company’s cash equivalents would impact interest income and cash flows but would not impact the fair market value of the underlying instruments. Assuming that the balances during the three and nine months ended June 30, 2026 were to remain constant and that the Company did not act to alter the existing interest rate sensitivity, a hypothetical +/-1% change in interest rates would not have a material impact on our results of operations, financial position or cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of June 30, 2026 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of such controls that occurred during the three and nine months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II–OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company is at times subject to various legal proceedings and claims. There can be no assurance that we will prevail in any such litigation. The Company does not believe any such matters that are currently pending will, individually or in aggregate, have a material effect on the results of operations or financial position.
Item 1A. Risk Factors
For information regarding the Company’s risk factors, refer to the “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2025, filed with the SEC on December 22, 2025. There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the three and nine months ended June 30, 2026.
Use of Proceeds
Not applicable.
Purchase of Equity Securities
We did not repurchase shares of our common stock during the three and nine months ended June 30, 2026.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three and nine months ended June 30, 2026, no executive officer or director of the Company
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Item 6. Exhibits
(a) Exhibits
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith. |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith. |
32.1* | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* This certification is not deemed filed with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, irrespective of any general incorporation language contained in such filing.
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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 13, 2026 | By: | /s/ Jeffrey DiGiovanni |
Jeffrey DiGiovanni | ||
Chief Financial Officer (on behalf of Registrant and as Principal Financial Officer and Principal Accounting Officer) | ||
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