Innovative Solutions and Support Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2025

Key Takeaways

  • The company delivered 100% revenue growth to $21.9 million in Q2, with EBITDA up 200%, profit up 300% year-over-year, and backlog reaching $80 million.
  • Management remains on track to achieve over 30% revenue and EBITDA growth in fiscal 2025, driven by a target of at least 40% of sales from military programs and strong operating leverage.
  • Key infrastructure investments include completing ERP integration, obtaining DFARS compliance, and expanding the Exton, PA facility to triple production capacity by mid-2025.
  • Integration of Honeywell product lines led to some duplicative costs and lumpy gross margins, although military contracts delivered high incremental EBITDA margins with minimal SG&A impact.
  • Capital expenditures of $1.6 million in Q2 for the facility expansion resulted in negative free cash flow, while net debt stands at $26.2 million with leverage at 1.4×.
AI Generated. May Contain Errors.
Earnings Conference Call
Innovative Solutions and Support Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Innovative Solutions and Support second quarter twenty twenty five results conference call and webcast. All participants will be in the listen only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press then 1 on your telephone keypad.

Operator

To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Paul Bartolai, Head of Investor Relations. Please go ahead.

Paul Bartolai
Investor Relations at Innovative Solutions & Support

Thank you. Good morning, everyone, and welcome to Innovative Solutions and Support's second quarter twenty twenty five results conference call. Leading the call today are CEO, Sherem Asghapur and CFO, Jeff DiGiovanni. Yesterday, we issued a press release detailing our second quarter twenty twenty five operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at www.innovativess.com.

Paul Bartolai
Investor Relations at Innovative Solutions & Support

I would like to remind you that management's commentary and responses to questions on today's conference call may include forward looking statements, which by their nature are uncertain and outside of the company's control. Although these forward looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest reports filed with the SEC. Additionally, please note that you can find reconciliations of all historical non GAAP financial measures mentioned on this call in the press release issued yesterday. Today's call will begin with prepared remarks from Sheram, who will provide a review of our recent business performance and strategic outlook, followed by a financial update from Jeff.

Paul Bartolai
Investor Relations at Innovative Solutions & Support

At the conclusion of these prepared remarks, we will open the line for your questions. And with that, I'll turn the call over to Sheram.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Thank you, Paul, and good morning, everyone joining us on the call today. Let's begin with a high level overview of our second quarter financial performance. During the second quarter, we delivered growth in revenue of just over 100%, driven by momentum from our new military programs, including significant growth from our F-sixteen program and contributions from our legacy platform. As we discussed last quarter, we have been seeing improved trends in our commercial business. As expected, this translated to improved results this quarter with notable strength in our air transport business.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Our EBITDA increased by over 200% and profit by over 300% from last year, highlighting the significant operating leverage in our business as we continue to grow. We are building a platform of scale with meaningful opportunity for EBITDA margin expansion as we grow the business. Our business momentum remains strong with a backlog of approximately $80,000,000 as of 03/31/2025. We were pleased with our strong second quarter results. The trends in our core business remain strong.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

We are successfully executing our strategy to build a significant growth business. To that end, I would like to shift the discussion to an update on our progress on the ISNS Next, our long term value creation strategy. As a quick refresher, our strategy centers on a combination of targeted commercial growth within high value markets, improving operating leverage, and a disciplined returns driven approach to capital allocation. We continue to execute against our initiatives during the quarter, and I would like to take a moment to highlight just a few of the key achievements. As we have discussed, we have placed a priority on expanding our military business.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

In support of this objective, we've continued to make investments in both infrastructure and systems capabilities to support the high performance requirement of our defense customers. During the second quarter, we completed the integration of our ERP system. We further expanded our more robust IT infrastructure and strengthen our security and accounting services to make us compliant with Defense Federal Acquisition Regulation supplements or DFARS requirements. These are necessary investments as we continue to bid on larger DoD programs. We continue to expect at least 40% of our revenue to come from military customers during fiscal twenty twenty five, and we are excited by our progress and the opportunities that lie ahead of our military business.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

We also have made further progress on the expansion of our Exton, Pennsylvania facility and remain on track for completion of the project by mid-twenty twenty five. When complete, we will have doubled our footprint and increased our production capabilities by more than threefold. The building construction is near completion, and the preparation for clean room production environment will commence by the May. As a reminder, we manufacture 100% of our products in our Eckstom facility. With the ongoing trade uncertainty and priorities of the current administration, we should be in an enviable position, given the likely significant push for reshoring of manufacturing and an America First mentality.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

During the second quarter, we continued with the integration of our most recent acquisition from Honeywell. As we discussed last quarter, much of the spending and the integration activities are being done ahead of the expected growth from these platforms. Integration is also resulting in some duplicative costs as we transition the manufacturing of products into our excellent facility. Importantly, the integration is progressing, and we are excited by the opportunities from this acquisition. While we have spent a lot of effort on our military opportunities, we remain encouraged by the growth opportunities across our commercial air transport and business aviation markets.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Our goal to achieve a larger percentage of our new production aircraft or OEM business is also being satisfied through organic product growth, as well as our strategic acquisitions, such as the F-sixteen product line. Even though it has been a couple of quarters since we have announced the transaction, deploying capital for strategic acquisitions remain a key priority. Although our most recent acquisitions have been focused on complementary product lines from larger avionics suppliers, we continue to evaluate opportunities to acquire small avionics manufacturers where we anticipate synergies will be realized by incorporating their outsourced production in our facility. We have demonstrated a track record of successfully scaling our business through a combination of organic growth and capital deployed for acquisitions. Since 2020, we have completed four acquisitions to complement our organic growth strategy.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Over this period, we have grown our revenue and net income from 22,000,000 and 3,300,000.0, respectively, during fiscal twenty twenty, to well over 60,000,000 in revenue, and 9,000,000 in net income during fiscal twenty twenty five, based on our stated forecast of greater than 30% growth. Given our capital light model and strong free cash flow generation, We have been able to generate this growth while maintaining modest leverage. We are proud of what we have accomplished and are positioning the company for continued growth going forward. Despite recent margin pressure due to acquisition related costs and inventory adjustments, as well as inherent lower gross margins in defense products, we expect EBITDA and profit margins to grow steadily. We are further establishing our company as a premier systems integrator in flight navigation and precision instrumentation with cutting edge technology.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

A vertically integrated US based production provides a competitive advantage, fostering relationships with key aircraft manufacturers, operators, and defense organizations. In summary, we are encouraged by the progress we have made on our strategic priorities and remain committed to continuing to execute on our plan. During the quarter, we doubled our revenue, tripled our EBITDA, and quadrupled our profit from a year ago. As a result of our success, we remain on track to deliver on our goal to generate both revenue and EBITDA growth of greater than 30% when compared to fiscal year twenty twenty four. We are excited by everything we have accomplished and are confident we are strategically positioned to continue generating profitable growth.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

With that, I'll turn the call over to Jeff for his prepared remarks.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Thank you, Sharon, and good morning to all those joining us. Today, I will provide a high level overview of our second quarter performance, including a discussion of our working capital, balance sheet and liquidity profile at quarter end. We generated net revenues of $21,900,000 in the second quarter, more than double our revenues during the second quarter last year. The increase was driven primarily by contribution from the recently acquired Honeywell military product line, which contributed 10,800,000.0 and growth in our air transport market. Our results during the quarter benefited from some pull forward of revenues under our F-sixteen program.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

We expect this dynamic could repeat again during our third fiscal quarter in anticipation of Honeywell ceasing production at its own facilities and transitioning that production to the company's facility. Product sales were 13,200,000.0 during the second quarter, up significantly from product sales of $4,900,000 from last year, driven primarily by the recent acquired military product line. Service revenue was $8,800,000 owing largely to customer service sales from the product lines acquired from Honeywell, including $3,000,000 associated with the F-sixteen program and an increase of $700,000 in NRE programs, partially offset by lower legacy customer service revenue. Gross profit was $11,300,000 during the second quarter, up from $5,600,000 in the same period last year, driven by strong revenue growth and product mix, partially offset by higher depreciation expense resulting from the Honeywell acquisitions and continued investment. Our second quarter gross margin was 51.4, down modestly from 52% in the same period last year, but up meaningfully on a sequential basis from the 41.4% gross margin reported in the first quarter.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

We generated more normalized gross margins under our Honeywell contracts, which was the main driver of improved gross margin relative to the prior quarter. We expect our gross margins to continue to be lumpy in the near term as we continue to integrate the Honeywell product lines into our facilities. As we have discussed in prior quarters, there can be some duplicate costs as we prepare to integrate these products and the hiring and training of engineers and other staff to support these products. Additionally, as we have discussed previously as it relates to the product mix, generally military sales carry a lower average gross margin versus commercial contracts. However, importantly, there is a minimal operating expense associated with these contracts.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

So the incremental EBITDA margins are strong. We saw an example of this during the second quarter, as the incremental military revenues came through with little to no incremental SG and A expenses, resulting in meaningful operating leverage. Operating expense during the second quarter of twenty twenty five was $4,300,000 a modest increase from $3,900,000 last year, despite the significant growth in revenue. The increase in operating expense was driven by approximately $300,000 from growth in our product development efforts in support of our long term growth initiatives, and $200,000 employee costs primarily to increased headcount, partially offset by $100,000 decrease in third party and professional fees. Operating expenses represented 19.6% of revenue during the second quarter, a significant decline from 36.7 in the second quarter of last year, highlighting the opportunity for improved operating leverage as the business scales.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Net income for the quarter was $5,300,000 as compared to 1,200,000.0 GAAP earnings per share of $0.30 increased by over 300 from $07 with benefits from higher volume and increased operating leverage. EBITDA was $7,600,000 during the second quarter, up from $2,100,000 last year on an or an increase of 260%, largely due to our revenue growth and operating expense leverage. Moving on to backlog. New orders in the second quarter of fiscal twenty twenty five were $20,800,000 and backlog as of March 31 was $80,000,000 The backlog includes only purchase orders in hand and excludes additional orders from the company's OEM customers under long term programs, including Pilatus PC-twenty four, Textron King Air, Boeing P7 Red Hawk, the Boeing KC-46A, and the F-sixteen with Lockheed Martin. We expect these programs to remain in production for several years and anticipate they will continue to generate future sales.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Further, due to their nature, the customer service lines do not typically enter backlog. Now turning to cash flow. During the second quarter twenty twenty five, cash flow from operations was $1,300,000 compared to $200,000 in the year ago comparable period. This increase was due to higher net income and changes in working capital accounts. Capital expenditures were $1,600,000 during the second quarter of fiscal twenty twenty five versus $100,000 in the same period last year.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

The increase in capital expenditures are primarily related to the facility expansion. As a result of the building expansion, free cash flow during the second quarter was negative $300,000 versus essentially flat free cash flow last year. Total net debt as of March 31 was $26,200,000 Our net leverage at the end of the quarter was 1.4 times. Our cash and availability under our credit line was $8,800,000 at the end of the second quarter, which provides us financial flexibility to support our ongoing operations and facility expansion. That completes our prepared remarks.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Operator, we are now ready for the question and answer portion of the call.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, The first question comes from Gavshi Sri with Singular Research. Please go ahead.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

Good morning. Can you hear me?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Yes.

Operator

Congratulations

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

on strong quarter. My question is, you mentioned that the Honeywell product lines were pulled forward and you're expecting that to carry on into Q3. Any color on the magnitude of these pull forwards and any and the FY 2025 guidance of over 30% growth guidance that you guys alluded to in the last call. Is that are you seeing any signs of order delays post transition?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

We don't anticipate further delays post transition. It is it is there's a lot of moving parts with the transition of the Honeywell. They have supply chain issues obviously with delivering sufficient quantities to Lockheed before they can close the line and transfer it to us. We are working very closely with them. Our supply chain is engaged daily with their supply chain as well as Lockheed to make this a successful transition for Lockheed because that's our customer and we will support them.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

In terms our guidance that we gave for this year, I think we're well into over 30% growth as as we see it. And and and so that's kind of where we are.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

Okay. Okay. The air transport revenue seems to have improved in q two. Is this driven by new orders or deferred demand? What is what is the pipeline for commercial retrofits looking even amid this high interest if the interest rates stay kind of steady at this level?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

To be quite honest, I really don't think the interest rates bear much on what we do. Obviously, delays in production of new airplanes, both from Airbus and Boeing due to their supply chain issues is creating high demand for aftermarket upgrade of these airplanes. We're seeing benefits of that. And in the foreseeable future, see we hope that that's going to that trend is going to continue.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

Okay. And so on the gross margin level sequentially, the rebound, so as the Honeywell production transitions fully to external, should we expect the margins to stabilize near these levels or does the mix shift towards the military they're showing you with the 40% of sales, does that act as a headwind as we move towards still poses a headwind towards the rest of FY '20 '5?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

I mean, I think we've talked about this a number of times before with regards to gross margins. Gross margins are very volatile and kind of lumpy as Jeff put it. And the reason for that is that prior to acquisitions, the things that we built in here, we would sell them to target a certain gross margin. When we do acquisitions, the products that come in, the mix of the products have a large variability in gross margin. Some of them are very good, some of them are low.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Then what we get is that in a quarter depending on the mix, we would end up with some blended gross margin. And it really is difficult to predict because we don't know you know, where we have backlog of orders, we know that, but with the new orders coming in, it's difficult to predict what kind of the margin we're going to get from that product mix. So this is why we've been trying to steer everybody away from gross margins and put a focus on EBITDA margins and profit margins. I mean, quite frankly, I care about profit more than anything else.

Operator

Our next question comes from Doug Ruth with Lennox Financial Services. Please go ahead.

Douglas Ruth
President at Lenox Financial Services

Good morning, Sharm and Jeff. Thank you very much for the comments. Congratulations on the fabulous report. I specifically think that you clarified some of the questions that were out there, and I appreciate you taking the time to offer some clarity. Did you specifically say what percent of the sales in the quarter were to the Department of Defense? Or can you give us that?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

So right now, dollars 21,900,000.0 in sales, dollars 10,300,000.0 was associated with the F-sixteen piece. So that would be with the military side.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

But then we had our own.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

We had our own, I don't have that breakdown in front of me, but legacy was a little bit north of $11,000,000 for the quarter, which includes air transport and business aviation along with military. And there's some military in the services as well because of our NRE projects and customer service repairs.

Douglas Ruth
President at Lenox Financial Services

Well, it sounds like it's approximate or at least half, which is of

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Yeah, would say at least 40%. At least 40% is military, as we're experiencing.

Douglas Ruth
President at Lenox Financial Services

And you had thought that, like sort of as a run rate, that it would be around 40%. Do you think that that is going to hold true for the year? Yes. Okay. And then what about hiring? Were additional people hired during the quarter?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Very, very little.

Douglas Ruth
President at Lenox Financial Services

Okay.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Just we just hired another military salesperson as well.

Douglas Ruth
President at Lenox Financial Services

Okay.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Post quarter. Post quarter.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Yes.

Douglas Ruth
President at Lenox Financial Services

Okay. Are you you Are you thinking that you're done hiring for the year, or will there be additional people hired still this year? Or has that not been decided?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

I think that we continue to look for talented engineers. We continue to look for talented individuals that contribute to our organization. We are growing business and you know you can't hire people after you've got the contracts because then it will be too late. So we continue looking for talent in terms of the hiring we were doing to support the F-sixteen platform that we are completed doing that. But, but there are other acquisitions that we're looking at.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Also, we're looking at some significant growth from our, from our base business. And so we're constantly in hiring mode.

Douglas Ruth
President at Lenox Financial Services

Okay. And are you working through search firms? Are you advertising open positions on your own website or LinkedIn?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Everywhere, yes. So I think every job posting is on our website as well as depending on the position. We do work with some recruiters. Have an inside recruiter as well that works for our HR department. So we do all.

Douglas Ruth
President at Lenox Financial Services

Okay. Now I know that clean rooms can be very complicated. Is there any concern about you completing your clean room? You specifically mentioned that during your comments, Sharm.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

No, it's just, I mean, obviously our production floor here is a clean room facility. We're just expanding it. It's not part of the original building. The contractors that are building the building for us. You know, they build a structure and painted and all of that.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

We're almost done. And then we go in there and we gotta we gotta put anti static flooring down and put some partition walls, some soundproofing walls for some areas. And, and, you know, those kinds of things, which, which we do routinely.

Douglas Ruth
President at Lenox Financial Services

Okay. So you feel like you've got it under control?

Paul Bartolai
Investor Relations at Innovative Solutions & Support

Yes.

Douglas Ruth
President at Lenox Financial Services

About the did you mention the status of the next generation utility management system? That was something that you had generally been talking about.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Yeah, I guess I didn't put anything in there. It is going on track. They're planning on doing some flight testing on it over the next month. And the project is finishing some qualification testing and getting it ready for flight test.

Douglas Ruth
President at Lenox Financial Services

Okay. You know, I really like your strategy, the acquisition strategy of using reverse engineering because over and over when we hear about one company buying another company, part of it is, instead of having the products made in America, let's see if we can get them made somewhere else at a lower cost. So the fact that you are, let's bring the stuff here to Pennsylvania and let's take cost out of it, I think that that really plays to the company's competitive advantages. Are you close to any additional acquisitions at this point specifically with that strategy?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Yes, we're always evaluating some. And we also looking at some potentially foreign companies that we may buy and bring bring their production into United States. You know, the the the theory of outsourcing somewhere cheap is is like you ship your problem somewhere else where it's outside your control. And and and it's your customers that end up suffering. So we've kind of always the the philosophy of the company has always been to steer away from that.

Douglas Ruth
President at Lenox Financial Services

Okay. And then, Jeff, as far as financial covenants, do you feel that you have those set up properly, that you're comfortable, that you're maintaining the covenants?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Yes. The covenants, I mean, we have a lot of headway in the covenants, so feel very confident where we are with our covenants.

Douglas Ruth
President at Lenox Financial Services

You folks deserve a lot of credit. You really performed exceptionally well, and I'm grateful for what you're doing for the shareholders. And congratulations to both of you and to your teams. Thank you for answering my question.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Very Thank you very much.

Operator

Our next question comes from Andrew Rim with Odinson Partners. Please go ahead.

Andrew Rem
Portfolio Manager at Odinson Partners

Hey, gentlemen. I I just wanna since you guys won't say it, I'll say it, which is in regard to Doug's comment manufacturing in The US, you're smarter than Trump. So there there, we got that on the table. My question on revenue, Jeff, you had said in the quarter, 10,800,000.0 came from acquisitions. And then later, you said about 3,000,000 on the f 16 for customer service.

Andrew Rem
Portfolio Manager at Odinson Partners

So if I parse those two between product and customer service, am I right that from the acquisition, 7,800,000.0 for product and then 3,000,000 for customer service. Is that am I getting that right?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

No. So it's 10.8 in total, three of which 3,000,000 was customer service. So the Delta 7.8 is product.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. Got it. And then $6.08 6,000,000 CapEx, that's still a good number for the full year?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Yes.

Andrew Rem
Portfolio Manager at Odinson Partners

And then sequentially, D and A was down because I think it went from, like, 1.3 down to, I want to say, about 700,000. What's kind of a normalized level?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

For G and A?

Andrew Rem
Portfolio Manager at Odinson Partners

D and A, sorry, depreciation and amortization.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Oh, I would say when you add those two together, looking at that, and then that would be our normalized level for six months. Look at the six month period. Depreciation went down a little bit because we had amortization changes on our last acquisition during that period where you have to reassess and look at the items to make sure it was correct with the valuations. So we'll be closing that valuation period next quarter, and that should settle.

Andrew Rem
Portfolio Manager at Odinson Partners

And then for the March kind of pull forward in revenue, would you expect that to be kind of similar magnitude or much smaller?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

I think given that a good chunk of this is tied into Honeywell supply chain, it's really difficult for us to predict that. But I don't anticipate a huge swing.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

Right, we don't expect a huge swing between Q2 right now and Q3.

Andrew Rem
Portfolio Manager at Odinson Partners

So, it's Okay. So then we should, at least sequentially in the fourth quarter, expect a fairly meaningful decline?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

I don't expect a meaningful decline. You know, barring something goes completely wrong with the supply chain. I don't see there's we have 80,000,000 in backlog as of end of end of March. So, and, you know, as long as as long as we can execute and even for the transition, if it goes per plan that Honeywell has put in place and they get the material from the supply chain on time, there really shouldn't be much variations But there was a lot of ifs there.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. And then can you just comment on in terms of making the transition? I think previously you guys had said kind of in the summer. So about the time that the facility expansion is completed, so it sounds like construction is nearly complete, then you've got some move in and that kind of stuff. Should we be thinking that the integration Honeywell will be largely complete sometime later in the summer? Is that the rough timeline?

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

That that is a that that is our plan.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. Alright. Well, great quarter, you guys. You guys doing a fantastic job with the team. So appreciate it. Thank you.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Thank you.

Operator

We have a follow-up question from Gaushi Sri with Singular Research. Please go ahead.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

Thank you. My follow-up is on this ERP system. Does that as that goes on live, will that improve productivity gains on inventory management labor costs? Is that SG and A looking to go below 50% in FY '20 '20 '6?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

So any European implementation, you still have some tweaks you got to do on a go forward basis. Our goal is to really utilize data to create actual data to make business decisions. And previously the data was we had to really work to get the data and the answers. So I think you'll see improvements from a production when I would say production in terms of getting the data and making the right business decisions on a go forward basis. Now how does that translate into the P and L?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

It's too soon to know what those impact will be.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

So on a quarterly basis that SG and A level is going to be look look around 3,000,000 to $4,000,000

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

That's correct. I mean, keep in mind, we're still the company is growing, the organization is growing, so you're always going to have some additional costs.

Gowshihan Sriharan
Gowshihan Sriharan
Analyst at Singular Research

Got you. And on the Exon capacity, which is going to hit triple by mid-twenty twenty five, what kind of utilization rate is needed to kind of achieve that mid-thirty percent growth on top line and is that the EBITDA level given that how does the current backlog support this?

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

So right now, the 30% growth is based on everything that we have here today. And it really excludes a lot that the new building could produce.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. Alright.

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

But the new building and the facility, we could do about $250,000,000, we project

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

North of that. In

Jeffrey DiGiovanni
Chief Financial Officer at Innovative Solutions & Support

revenue of this building.

Andrew Rem
Portfolio Manager at Odinson Partners

Gotcha. Thanks for that, and congratulations.

Operator

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Sheram Asghapur for any closing remarks.

Shahram Askarpour
Chief Executive Officer at Innovative Solutions & Support

Thank you, operator, and thank you all for your time and interest in ISNS. Have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Analysts
    • Paul Bartolai
      Investor Relations at Innovative Solutions & Support
    • Shahram Askarpour
      Chief Executive Officer at Innovative Solutions & Support
    • Jeffrey DiGiovanni
      Chief Financial Officer at Innovative Solutions & Support
    • Gowshihan Sriharan
      Analyst at Singular Research
    • Douglas Ruth
      President at Lenox Financial Services
    • Andrew Rem
      Portfolio Manager at Odinson Partners
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