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 & Support Second Quarter 2025 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 zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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
Head of Investor Relations at Innovative Solutions & Support

Thank you. Good morning, everyone, and welcome to Innovative Solutions & Support Second Quarter 2025 Results Conference Call. Leading the call today are CEO Shahram Askarpour and CFO Jeff DiGiovanni. Yesterday, we issued a press detailing second quarter 2025 operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at www.innovative-ss.com. 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 factor section of our latest reports filed with the SEC.

Paul Bartolai
Head of Investor Relations at Innovative Solutions & Support

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 Shahram, who will provide a review of our recent business performance and strategic outlook, followed by a financial update from Jeff. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Shahram.

Shahram Askarpour
CEO 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-16 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. 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.

Shahram Askarpour
CEO at Innovative Solutions & Support

Our business momentum remains strong, with a backlog of approximately $80 million as of March 31, 2025. We were pleased with our strong second quarter results. The trends in our core business remain strong. 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 IS&S 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
CEO 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 requirements 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 strengthened our security and accounting services to make us compliant with Defense Federal Acquisition Regulation Supplement, 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 2025, and we are excited by our progress and the opportunities that lie ahead of our military business. 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-2025.

Shahram Askarpour
CEO at Innovative Solutions & Support

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 end of May. As a reminder, we manufacture 100% of our products in our Exton 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. 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. The integration is also resulting in some duplicative costs as we transition the manufacturing of products into our Exton facility.

Shahram Askarpour
CEO at Innovative Solutions & Support

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. 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-16 product line. Even though it has been a couple of quarters since we have announced the transaction, deploying capital for strategic acquisitions remains 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.

Shahram Askarpour
CEO at Innovative Solutions & Support

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. Over this period, we have grown our revenue and net income from $22 million and $3.3 million, respectively, during fiscal 2020, to well over $60 million in revenue and $9 million in net income during fiscal 2025, based on our stated forecast for 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 our position in the company for continued growth going forward.

Shahram Askarpour
CEO at Innovative Solutions & Support

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. Our vertically integrated U.S.-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 2024.

Shahram Askarpour
CEO at Innovative Solutions & Support

We are excited by everything we have accomplished and are confident we are strategically positioned to continue generating profitable growth. With that, I'll turn the call over to Jeff for his prepared remarks.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Thank you, Shahram, 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 $21.9 million 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 $10.8 million in growth in our air transport market. Our results during the quarter benefited from some pull forward of revenues under our F-16 program. 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 facilities.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Product sales were $13.2 million during the second quarter, up significantly from product sales of $4.9 million from last year, driven primarily by the recently acquired military product line. Service revenue was $8.8 million, owing largely to customer service sales from the product lines acquired from Honeywell, including $3 million associated with the F-16 program and an increase of $700,000 in NRE programs, partially offset by lower legacy customer service revenue. Gross profit was $11.3 million during the second quarter, up from $5.6 million 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.

Jeff DiGiovanni
CFO 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, so the incremental EBITDA margins are strong.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

We saw an example of this during the second quarter as the incremental military revenues came through with little to no incremental SG&A expenses, resulting in meaningful operating leverage. Operating expense during the second quarter of 2025 was $4.3 million, a modest increase from $3.9 million 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 in employee costs primarily due to increased headcount, partially offset by a $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. Net income for the quarter was $5.3 million as compared to $1.2 million.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

GAAP earnings per share of $0.30 increased by over 300% from $0.07, with benefits from higher volume and increased operating leverage. EBITDA was $7.6 million during the second quarter, up from $2.1 million last year 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 2025 were $20.8 million, and backlog as of March 31 was $80 million. 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-24, Textron King Air, Boeing T-7 Red Hawk, the Boeing KC-46A, and the F-16 with Lockheed Martin. We expect these programs to remain in production for several years and anticipate they will continue to generate future sales. Further, due to their nature, the customer service lines do not typically enter backlog.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Now, turning to cash flow. During the second quarter of 2025, cash flow from operations was $1.3 million 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 $1.6 million during the second quarter of fiscal 2025 versus $100,000 in the same period last year. The increase in capital expenditures is primarily related to the facility expansion. As a result of the building expansion, free cash flow during the second quarter was -$300,000 versus essentially flat free cash flow last year. Total net debt as of March 31 was $26.2 million. Our net leverage at the end of the quarter was 1.4x. Our cash and availability under our credit line was $8.8 million at the end of the second quarter, which provides us financial flexibility to support our ongoing operations and facility expansion.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

That completes our prepared marks. 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, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Gowshi Sri with Singular Research. Please go ahead.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Good morning. Can you hear me?

Shahram Askarpour
CEO at Innovative Solutions & Support

Yes.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Hello. Congratulations on a 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 the FY 2025 guidance of over 30% growth guidance that you guys alluded to in the last call? Are you seeing any signs of order delays post-transition?

Shahram Askarpour
CEO at Innovative Solutions & Support

We don't anticipate further delays post-transition. 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. In terms of our guidance that we gave for this year, I think we're well into over 30% growth as we see it. And so that's kind of where we are.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Okay. Okay. The air transport revenue seems to have improved in Q2. Is this driven by new orders or deferred demand? 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
CEO 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 upgrades of these airplanes. We're seeing benefits of that. In the foreseeable future, we'll see. We hope that that trend is going to continue.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Okay. On the gross margin level, sequentially, the rebound, 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 forces a headwind towards the rest of FY 2025?

Shahram Askarpour
CEO 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. The reason for that is that prior to acquisitions, the things that we build 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 margins. Some of them are very good. Some of them are low. What we get is that in a quarter, depending on the mix, we would end up with some blended gross margin. It really is difficult to predict because we don't know where we have backlog of orders. We know that.

Shahram Askarpour
CEO at Innovative Solutions & Support

With the new orders coming in, it's difficult to predict what kind of a margin we're going to get from that product mix. 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 Lenox Financial Services. Please go ahead.

Doug Ruth
President at Lenox Financial Services

Good morning, Shahram 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 percentage of the sales in the quarter were to the Department of Defense, or can you give us that?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Right now, $21.9 million in sales, 10.3 was associated with the F-16 piece. That would be with the military side.

Shahram Askarpour
CEO at Innovative Solutions & Support

We had our own.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

We had our own—I do not have that breakdown in front of me, but legacy was a little bit north of $11 million for the quarter, which includes air transport and business aviation along with military. There is some military in the services as well because of our NRE projects and customer service repairs.

Doug Ruth
President at Lenox Financial Services

It sounds like it's approximately at least half, which is of.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

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

Doug Ruth
President at Lenox Financial Services

You had thought that 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?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Yes.

Doug Ruth
President at Lenox Financial Services

Okay. What about hiring? Were additional people hired during the quarter?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Very, very little.

Doug Ruth
President at Lenox Financial Services

Okay.

Shahram Askarpour
CEO at Innovative Solutions & Support

We just hired another military salesperson as well.

Doug Ruth
President at Lenox Financial Services

Okay.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Post-quarter.

Shahram Askarpour
CEO at Innovative Solutions & Support

Post-quarter, yes.

Doug Ruth
President at Lenox Financial Services

Okay. 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
CEO 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 a growing business, and you can't hire people after you've got the contracts because then it will be too late. We continue looking for talent. In terms of the hiring we were doing to support the F-16 platform, we are completed doing that. There are other acquisitions that we're looking at. Also, we're looking at some significant growth from our base business. We are constantly in hiring mode.

Doug Ruth
President at Lenox Financial Services

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

Shahram Askarpour
CEO at Innovative Solutions & Support

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

Doug 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, Shahram.

Shahram Askarpour
CEO at Innovative Solutions & Support

No. 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, they build the structure and paint it and all of that. We said, "Almost done." We go in there, and we got to put anti-static flooring down and put some partition walls, some soundproofing walls for some areas, and those kind of things, which we do routinely.

Doug Ruth
President at Lenox Financial Services

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

Shahram Askarpour
CEO at Innovative Solutions & Support

Yes.

Doug Ruth
President at Lenox Financial Services

What 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
CEO at Innovative Solutions & Support

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

Doug Ruth
President at Lenox Financial Services

Okay. 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. 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?

Shahram Askarpour
CEO at Innovative Solutions & Support

We are always evaluating.

Doug Ruth
President at Lenox Financial Services

Specifically with that strategy?

Shahram Askarpour
CEO at Innovative Solutions & Support

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

Doug Ruth
President at Lenox Financial Services

Okay. 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?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

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

Doug Ruth
President at Lenox Financial Services

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

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Thank you very much.

Shahram Askarpour
CEO at Innovative Solutions & Support

Thank you very much.

Operator

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

Andrew Rem
Portfolio Manager at Odinson Partners

Hey, gentlemen. I just want to—since you guys want to say it, I'll say it, which is in regard to Doug's comment, manufacturing in the U.S., you're smarter than Trump. So there we got that on the table. My question on revenue, Jeff, you had said in the quarter, $10.8 million came from acquisitions. And then later, you said about $3 million on the F-16 for customer service. If I parse those two between product and customer service, am I right that from the acquisition, $7.8 million for product and then $3 million for customer service is set? Am I getting that right?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

No. So it's $10.8 million in total, of which $3 million was customer service that had dealt with $7.8 million's product.

Andrew Rem
Portfolio Manager at Odinson Partners

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

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Yes.

Andrew Rem
Portfolio Manager at Odinson Partners

Sequentially, DNA was down because I think it went from $1.3 million down to, I want to say, about $700,000. What's kind of a normalized level?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

For G&A?

Andrew Rem
Portfolio Manager at Odinson Partners

DNA, sorry. Depreciation and amortization.

Jeff DiGiovanni
CFO 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. We will be closing that valuation period next quarter, and that should settle.

Andrew Rem
Portfolio Manager at Odinson Partners

For the third quarter kind of pulled forward in revenue, would you expect that to be kind of similar magnitude or much smaller?

Shahram Askarpour
CEO at Innovative Solutions & Support

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

Jeff DiGiovanni
CFO at Innovative Solutions & Support

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

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Just roughly right now.

Shahram Askarpour
CEO at Innovative Solutions & Support

It's really hard to predict.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. So then we should at least sequentially in the fourth quarter expect a fairly meaningful decline.

Shahram Askarpour
CEO at Innovative Solutions & Support

I don't expect a meaningful decline. Barring something goes completely wrong with the supply chain, I don't see—I mean, we have $80 million in backlog as of end of March. 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 their supply chain on time, there really shouldn't be much variations. There was a lot of ifs there.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. Can you just comment on, in terms of making the transition? I think previously you guys had said kind of in the summer. About the time that the facility expansion is completed, it sounds like construction is nearly complete and then you have 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
CEO at Innovative Solutions & Support

That is our plan.

Andrew Rem
Portfolio Manager at Odinson Partners

Okay. All right. Great quarter, you guys. You guys are doing a fantastic job with the team. So appreciate it. Thank you.

Shahram Askarpour
CEO at Innovative Solutions & Support

Thank you.

Operator

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

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Thank you. My follow-up is on these ERP systems. As that goes on live, will that improve productivity gains on inventory management, labor costs? Is that SG&A looking to go below 50% in FY 2026?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

Any ERP implementation, you still have some tweaks. You got to do it on a go-forward basis. Our goal is to really utilize the data to create actionable data to make business decisions. Previously, the data was we had to really work to get the data and the answers. I think you'll see improvements from a production—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&L? It's too soon to know what those impacts will be.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

On a quarterly basis, that SG&A level is going to still look around $3 million-$4 million?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

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

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Gotcha. On the Exton's capacity, which is going to hit triple by mid-2025, what kind of utilization rate is needed to kind of achieve that mid-30 or 30% growth on top line and is that at the EBITDA level? How does the current backlog support this?

Jeff DiGiovanni
CFO at Innovative Solutions & Support

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

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Gotcha. Thank you.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

With the new building and the facility, we could do about $250 million, we project.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

No for that.

Jeff DiGiovanni
CFO at Innovative Solutions & Support

In revenue of this building.

Gowshi Sri
Gowshi Sri
Equity Research Analyst at Singular Research

Gotcha. Excellent. Congratulations.

Operator

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

Shahram Askarpour
CEO at Innovative Solutions & Support

Thank you, Operator. Thank you all for your time and interest in IS&S. Have a good day.

Operator

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

Analysts
    • Doug Ruth
      President at Lenox Financial Services
    • Shahram Askarpour
      CEO at Innovative Solutions & Support
    • Andrew Rem
      Portfolio Manager at Odinson Partners
    • Paul Bartolai
      Head of Investor Relations at Innovative Solutions & Support
    • Jeff DiGiovanni
      CFO at Innovative Solutions & Support
    • Gowshi Sri
      Equity Research Analyst at Singular Research
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