Innovative Solutions Revenue Doubles

Innovative Solutions and Support (NASDAQ:ISSC) reported third quarter fiscal 2025 results on Aug. 14, 2025, with revenue more than doubling year over year to $24.1 million and non-GAAP EBITDA up 62.7% to $4.3 million. Gross margin contracted 17.8 percentage points to 35.6% due to integration costs and military mix, while management completed a major facility expansion and secured a $100 million credit facility. The company raised guidance for revenue and EBITDA growth of over 30% versus fiscal 2024, setting the stage for further strategic updates below.

Backlog reaches $72 million as ISSC leverages military programs

As of June 30, 2025, the company’s backlog stood at $72 million, supported by strong order activity from multiyear military and commercial programs, including the F-16 and original equipment manufacturer (OEM) contracts with Boeing. The backlog figure excludes forecasted orders on certain long-term agreements, highlighting the underlying demand from defense and government customers.

"Our business momentum remains strong with a backlog of approximately $72 million as of 06/30/2025. Our adjusted EBITDA increased only by 43% from last year as our strong revenue growth was impacted by lower than anticipated gross margins received from Honeywell on the F-16 product line due to additional costs associated with building safety stock prior to transition."
— Shahram Askarpour, CEO

The robust backlog, driven by recent acquisitions and military demand, provides multi-year revenue visibility and underscores the strategic value of the F-16 integration.

ISSC drives operating leverage as revenue scales

Operating expenses increased by $0.9 million year over year to $5.1 million, but declined sharply as a percentage of revenue, falling to 21% from 36.1% in the prior year. This improvement reflects significant fixed cost leverage as revenue more than doubled, supporting margin scalability despite near-term gross margin volatility.

"Operating expenses represented 21% of revenue during the third quarter, a significant decline from 36.1% in the third quarter of last year, highlighting the opportunity for improved operating leverage as the business scales."
— Jeff DiGiovanni, CFO

Enhanced fixed cost absorption positions the company for future EBITDA margin expansion as newly acquired production ramps up and one-time integration costs subside.

ISSC secures $100 million credit facility to fund growth

On July 18, 2025, the company finalized a five-year, $100 million committed credit agreement led by JPMorgan Chase, replacing its previous $35 million line of credit and more than doubling available liquidity. The facility includes an accordion feature for an additional $25 million, supporting both acquisition and facility ramp-up initiatives, with net leverage closing at a conservative 1.1 times.

"On 07/18/2025, Innovative Solutions and Support entered into a new five-year $100 million committed credit agreement with a lending syndicate led and arranged by JPMorgan Chase. The credit agreement replaces our existing $35 million line of credit. The new facility provides an additional $65 million in expanded liquidity and an option, subject to certain conditions, to request up to $25 million in additional loan commitments under an accordion feature in the credit agreement. This improved flexibility better enables us to execute on our long-term growth strategy."
— Jeff DiGiovanni, CFO

This expanded debt capacity enables the company to pursue synergistic acquisitions and ramp up U.S.-based manufacturing, supporting both near-term integration and the long-term revenue target of exceeding $250 million.

Looking Ahead

Management reaffirmed its fiscal 2025 outlook for both revenue and EBITDA growth of over 30% versus fiscal 2024, despite temporary margin compression from military product line integration and F-16 pull-forward revenue. The completed Exton facility expansion increases manufacturing capacity by more than threefold, enabling management to target annual revenue surpassing $250 million within the next few years. Gross margin guidance targets normalization in the mid-40% range (approximately 45%) as military integration matures and product mix stabilizes.

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