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Innovative Solutions & Support, Inc. Announces Third Quarter Fiscal 2023 Financial Results

08/09/2023

Innovative Solutions & Support, Inc. (“IS&S” or the “Company”) (NASDAQ: ISSC) today announced its financial results for the third quarter of fiscal year 2023, which ended June 30, 2023.

For the third quarter of fiscal 2023, net sales increased 14.8% to $8.0 million compared to $6.9 million in the third quarter a year ago. Gross profit in the third quarter of 2023 was $4.7 million, or 59.5% of sales, compared to $4.1 million, or 58.5% of sales in the third quarter of 2022. The Company reported net income of $1.4 million, or $0.08 per share in the third quarter, which was flat to prior year third quarter. The net income reflects an increase in sales at a relatively consistent gross profit, with increases in general and administrative and research and development expenses reflecting the Company’s strategy to invest in and strengthen the organization to support future growth.  The Company completed an exclusive license and asset acquisition of several Honeywell product lines on June 30, 2023.  The Company did not recognize any revenues and net income related to the product lines in the third quarter of 2023.

Shahram Askarpour, Chief Executive Officer of IS&S, said, “In the third quarter we successfully executed on both our short- and long-term strategies while delivering attractive returns for our shareholders.  Most significantly, we licensed several product lines from Honeywell Aerospace, enhancing our current offering with product lines that can be found on literally thousands of aircraft in our target air transport and business aviation markets, with potential to expand that market to the military platform. We expect this license and asset acquisition, together with continued strong organic revenue such as achieved in this quarter, to represent an important inflection point in our revenue growth rate, which we anticipate will have a one-time annual impact of 40%, with an even more significant impact on earnings, where we expect EBITDA to increase by approximately 75%, once operations have been fully integrated in 2024. In addition, it enables us to achieve our objective to better leverage our existing infrastructure, sustain our attractive margins, and be accretive to our earnings in 2024.”

Askarpour continued, “Core operations were also strong in the quarter, with 15% organic top line growth and a significant increase in gross profits. This profitability supports our long- term vision that the industry is headed toward more autonomous flight, which requires technology to reduce pilot workload while improving safety. We have undertaken a meaningful increase in our research and development budget to develop new technologies that will be responsive to the evolving market, and we are doing so while still delivering attractive returns for our shareholders. We are excited by the successes we’ve achieved so far this year – growing organically, completing an accretive licenses and asset acquisition, investing for the future – while continuing to generate strong earnings and cash flow.”

The Company had $2.6 million of cash on hand as of June 30, 2023, after utilizing the majority of its existing cash for the exclusive license and asset acquisition of the Honeywell product lines.  Over the first nine months of the year, the company generated $6.4 million of cash flow from operations. In the fiscal third quarter, to further strengthen its financial position and provide additional liquidity, the Company secured a $20 million term loan. IS&S was able to maintain a strong financial condition with sufficient cash on hand to run the operations of the business with ample liquidity, with access to an increased borrowing capacity.

New orders in the third quarter of fiscal 2023 were approximately $6.9 million, and backlog as of June 30, 2023 was $13.8 million, compared to backlog of $12.6 million as of June 30, 2022. Only purchase orders in hand are included in our sales backlog, which primarily consist of orders from our OEM customers that have long-term programs-- Pilatus PC-24, Textron King Air, Boeing T-7 Red Hawk and the Boeing KC-46A. IS&S expects these programs to remain in production for approximately a decade and anticipates that they will continue to add to the total backlog.

Conference Call

The Company will be hosting a conference call on Thursday, August 10, 2023 at 10:00 AM ET to discuss these results and the Company’s business outlook and product development. Please use the following dial- in number to register your name and company affiliation for the conference call: 877-451-6152 and ask to join the Innovative Solutions & Support call. The call will also be carried live on the Investor Relations page of the Company web site at www.innovative-ss.com.

About Innovative Solutions & Support, Inc.

Headquartered in Exton, Pa., Innovative Solutions & Support, Inc. (www.innovative-ss.com) is a systems integrator that designs and manufactures flight guidance and cockpit display systems for Original Equipment Manufacturers (OEMs) and retrofit applications. The company supplies integrated Flight Management Systems (FMS), Auto-Throttle Systems and advanced GPS receivers for precision low carbon footprint navigation.

In addition to the historical information contained herein, this press release contains “forward-looking statements” within the meaning of, and intended to be covered by, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, statements about future revenue, financial performance and profitability, future business opportunities, and the impact of licenses, including the Honeywell license. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the Company’s ability to efficiently integrate licensed product lines, including the Honeywell asset licensed products, into its operations; a reduction in anticipated orders; an economic downturn; changes in the competitive marketplace and/or customer requirements; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the economic and business environments in which the Company operates. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and subsequent reports filed with the Securities and Exchange Commission. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

 

Innovative Solutions & Support, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 
Three Months Ended June 30, Nine Months Ended June 30,

2023

2022

2023

2022

Net Sales:
Product

 $

       7,893,624

 $

       6,935,976

 $

    21,383,435

 $

    20,279,371

Engineering development contracts

 

               65,583

 

             432,482

 

             198,203

Returns and allowances

 

                          -

 

                          -

 

                          -

 

                          -

Total net sales

 

          7,959,208

 

          6,935,976

 

        21,815,917

 

        20,477,574

 
Cost of sales:
Product

 

          3,202,870

 

          2,879,462

 

          8,538,219

 

          8,253,982

Engineering development contracts

 

               21,692

 

               79,098

 

               16,748

 Total cost of sales

 

          3,224,562

 

          2,879,462

 

          8,617,317

 

          8,270,729

 
Gross profit

 

          4,734,645

 

          4,056,514

 

        13,198,600

 

        12,206,845

 
Operating expenses:
Research and development

 

             851,296

 

             676,381

 

          2,387,939

 

          2,062,937

Selling, general and administrative

 

          2,395,714

 

          1,694,233

 

          7,104,212

 

          5,226,015

Total operating expenses

 

          3,247,010

 

          2,370,614

 

          9,492,151

 

          7,288,952

 
Operating income

 

          1,487,635

 

          1,685,900

 

          3,706,449

 

          4,917,893

 
Interest income

 

             185,651

 

               10,429

 

             432,495

 

               10,871

Interest (expense)
Other income

 

               90,050

 

               21,608

 

             131,504

 

               49,401

Income before income taxes

 

          1,763,337

 

          1,717,937

 

          4,270,448

 

          4,978,165

 
Income tax expense

 

             339,958

 

             358,763

 

             877,315

 

          1,056,363

       
Net income

 $

       1,423,379

 $

       1,359,174

 $

       3,393,133

 $

       3,921,802

       
Net income per common share:
Basic

 $

                 0.08

 $

                 0.08

 $

                 0.20

 $

                 0.23

Diluted

 $

                 0.08

 $

                 0.08

 $

                 0.20

 $

                 0.23

 
Cash dividends per share:

 $

                     -  

 $

                     -  

 $

                     -  

 $

                     -  

 
Weighted average shares outstanding:
Basic

 

        17,383,815

 

        17,261,349

 

        17,383,815

 

        17,261,349

Diluted

 

        17,383,815

 

        17,261,349

 

        17,383,815

 

        17,261,349

 
Innovative Solutions & Support, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 
For the Three Months Ended March 31 ,

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income

 $

                      1,423,379

 

 $

                      1,359,174

 

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization

 

                               87,503

 

 

                               90,028

 

Share-based compensation expense
Stock options

 

                             110,029

 

 

                               45,089

 

Stock awards

 

                             104,054

 

 

                               13,331

 

Loss on disposal of property and equipment

 

                                     357

 

Impairment of long-lived aassets

 

                               44,400

 

Deferred income taxes

 

                             (50,851

)

 

                             258,596

 

(Increase) decrease in:
Accounts receivable

 

                        (1,977,368

)

 

                          1,052,330

 

Unbilled Receivables

 

                             (89,420

)

Inventories

 

                             157,223

 

 

                           (120,920

)

Prepaid expenses and other current assets

 

                                 5,513

 

 

                             114,298

 

Other non-current assets

 

                                 2,601

 

Income taxes receivable

 

                                        -

 

 

                                        -

 

Increase (decrease) in:
Accounts payable

 

                           (732,085

)

 

                                 7,788

 

Accrued expenses

 

                           (118,189

)

 

                             290,153

 

Income taxes payable

 

                           (152,191

)

 

                           (179,833

)

Contract liability

 

                             (88,778

)

 

                               52,388

 

Net cash provided by operating activities

 

                        (1,274,181

)

 

                          2,982,779

 

 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment

 

                             (84,933

)

 

                             (76,872

)

Proceeds from the sale of property and equipment

 

                                        -

 

Acquisition of a business

 

                     (35,860,000

)

Net cash used in investing activities

 

                     (35,944,933

)

 

                             (76,872

)

 
CASH FLOWS FROM FINANCING ACTIVITIES:

 

                                        -

 

 

                               17,154

 

Proceeds from exercise of stock options

 

                                        -

 

Debt proceeds

 

                       20,000,000

 

Net cash provided by financing activities

 

                       20,000,000

 

 

                               17,154

 

 
Net increase in cash and cash equivalents

 

                     (17,219,114

)

 

                          2,923,061

 

Cash and cash equivalents, beginning of quarter

 

                       19,791,346

 

 

                       11,618,840

 

 
Cash and cash equivalents, end of quarter

 $

                      2,572,233

 

 $

                    14,541,901

 

Michael Linacre
610-646-0350
mlinacre@innovative-ss.com

Source: Innovative Solutions & Support, Inc.

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