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Innovative Solutions And Support (ISSC)
NASDAQ:ISSC
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Innovative Solutions And Support
(NASDAQ:ISSC)
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Rating:78Outperform
Price Target:
$33.00
▲(12.28% Upside)
Action:ReiteratedDate:02/28/26
The score is driven primarily by strong financial performance (high margins/ROE and improving leverage) and supportive price momentum. It is tempered by a moderate-to-premium valuation with no dividend support and guidance for essentially flat FY2026 organic revenue with expected margin normalization and transition-related execution risk.
Positive Factors
High Profitability & Return on Equity
Sustained high gross and net margins with a ~31% ROE indicate durable pricing power and efficient capital use in ISSC’s niche aviation software and services. These structural profitability metrics support reinvestment, shareholder returns, and resilience through aerospace demand cycles.
Improving Cash Generation and Free Cash Flow
Material operating cash flow and rapidly growing free cash flow provide structural funding for capex, working capital, and strategic programs without overreliance on external financing. Strong cash generation increases flexibility to support defense contracts and pursue targeted investments or deleveraging.
Backlog and Progress on Strategic Defense & OEM Programs
A sizable $75M backlog plus concrete milestones (UMS deliveries and planned F‑16 subassembly insourcing) create durable revenue visibility and potential margin improvement as production scales and insourcing captures more value over the medium term.
Negative Factors
Guided Flat Organic Revenue for FY2026
Management’s guidance for essentially flat organic revenue implies limited top-line expansion in the near term, which constrains the company’s ability to demonstrate steady progress toward long-term targets and could limit operating leverage and reinvestment capacity absent new wins or M&A.
Margin Normalization and Variability Risk
Management’s expected mid‑40% gross margin run‑rate vs. a 54.5% Q1 spike signals structural mix and transition effects. Persistent quarter‑to‑quarter margin swings complicate forecasting, can reduce cash generation in weaker quarters, and raise execution risk for margin targets.
Execution and Third‑Party Integration Risk
Dependence on third‑party timing (suppliers, primes, certification) has already caused schedule slips and revenue headwinds. Such execution risk can delay benefits from insourcing and new product ramps, making multi‑quarter delivery and margin improvements uncertain.
Innovative Solutions And Support (ISSC) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$522.51M
Dividend YieldN/A
Average Volume (3M)592.26K
Price to Earnings (P/E)20.6
Beta (1Y)1.36
Revenue Growth78.60%
EPS Growth121.71%
CountryUS
Employees133
SectorIndustrials
Sector Strength72
IndustryAerospace & Defense
Share Statistics
EPS (TTM)0.25
Shares Outstanding17,778,343
10 Day Avg. Volume820,238
30 Day Avg. Volume592,263
Financial Highlights & Ratios
PEG Ratio0.11
Price to Book (P/B)3.40
Price to Sales (P/S)2.60
P/FCF Ratio32.32
Enterprise Value/Market Cap1.03
Enterprise Value/Revenue6.00
Enterprise Value/Gross Profit11.81
Enterprise Value/Ebitda17.97
Forecast
1Y Price Target
$29.50Price Target Upside0.37% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering2
EPS Forecast (FY)0.76
Revenue Forecast (FY)$88.16M
Innovative Solutions And Support Business Overview & Revenue Model
Company DescriptionInnovative Aerosystems, Inc., engages in the engineering, manufacturing, and supply of advanced avionic solutions. The company provides autothrottles; LPV Navigators; standby displays; COM/NAV/surveillance radio management systems; air data solutions; inertial reference systems; utilities management systems; and air data, attitude and heading reference systems. It also offers flat panel display systems, inertial reference systems, integrated global navigation systems, global positioning systems, c-130 engine instrument display systems, liberty flight deck, and communications/navigation products. The company serves business aircrafts, commercial airlines, military, virtual cp-pilots, and turbo prop. The company was formerly known as Innovative Solutions and Support, Inc. and changed its name to Innovative Aerosystems, Inc. in October 2025. Innovative Aerosystems, Inc. was incorporated in 1988 and is based in Exton, Pennsylvania.
How the Company Makes MoneyISSC generates revenue through multiple streams, primarily by selling software licenses for its proprietary solutions, which include customizable flight operation and maintenance management software. In addition to software sales, the company offers ongoing technical support and maintenance contracts, providing a steady stream of recurring revenue. ISSC also partners with various aviation organizations and regulatory bodies to deliver tailored solutions, which can lead to additional project-based income. Furthermore, the company participates in government contracts and grants within the aerospace sector, contributing to its overall earnings.
Innovative Solutions And Support Earnings Call Summary
Earnings Call Date:Feb 12, 2026
(Q1-2026)
| % Change Since: |
Next Earnings Date:May 20, 2026
Earnings Call Sentiment Positive
The call highlighted a strong first quarter with robust top-line growth (+36.5%), large improvements in profitability (gross profit +80%, adjusted EBITDA +140.9%) and excellent cash generation, supported by a healthy backlog ($75M) and resumed F-16 production. Progress on strategic initiatives — notably UMS unit production and defense integration plans, low net leverage (~0.5x), and significant liquidity — reinforce a favorable outlook. Offsetting items are temporary headwinds from manufacturing transitions (~$1.2M F-16, ~$1.0M Pilatus), timing-driven guidance calling for essentially flat organic revenue for the full year, and some integration timing risk with third parties. Overall, the positive operational and financial momentum materially outweighs the manageable near-term challenges.Q1-2026 Updates
Positive Updates
Strong Top-Line Growth
Net revenues of $21.8M in Q1 FY2026, up 36.5% year-over-year (management cited 37%); product sales $13.6M (up from $10.0M) and service revenue $8.2M (up from $6.0M).
Significant Profitability Improvement
Gross profit of $11.9M, up 80% from $6.6M a year ago; gross margin expanded to 54.5% from 41.4% (+13.1 percentage points).
Material Adjusted EBITDA and Net Income Gains
Adjusted EBITDA of $7.4M, up 140.9% from $3.1M a year ago; GAAP net income $4.1M (vs. $0.7M prior year) and GAAP diluted EPS $0.22 (vs. $0.04).
Strong Cash Generation and Financial Flexibility
Operating cash flow $8.2M (vs. $1.8M prior year) and free cash flow $7.0M (vs. $1.6M). End-of-quarter net debt $15.5M (total debt $23.8M, cash $8.3M) and net leverage ~0.5x with ~ $83.3M of cash + availability under credit line.
Backlog and New Orders
Backlog of approximately $75.0M and new orders in the quarter of approximately $19.0M, supporting near-term revenue visibility.
Operational and Strategic Milestones on Defense Programs
Completed recertification and resumed full-scale production of the digital flight control computer for the F-16 at Exton; IPDG recertification and resumption planned for current quarter; company expects to begin insourcing F-16 subassemblies in late 2026 to improve margins.
Progress on Autonomous Flight Platform (UMS)
Completed test flights of the UMS on the Pilatus PC-24, begun unit production, and expect deliveries to Pilatus beginning mid-2026—advances the company's next-generation flight deck ambitions.
Improved Operating Leverage
Operating expenses increased modestly to $5.6M (from $5.3M) but fell as a percentage of revenue to 25.6% from 33.0%, reflecting operating leverage amid revenue growth.
Negative Updates
Temporary Manufacturing Transition Headwinds
F-16 revenues were down modestly in Q1 by approximately $1.2M due to the manufacturing transition and integration timing; IPDG recertification remains planned for the current quarter.
Revenue Impact from Product Migration
Pilatus migration to the new UMS 2 platform resulted in roughly $1.0M of revenue decline in the quarter while production transitions proceed.
Expectations for Flat Organic Revenue for FY2026
Management reiterated they expect organic revenue to be essentially flat year-over-year for full-year FY2026 (despite Q1 strength), citing revenue pull-forward into prior year and timing effects.
Schedule/Integration Delays with Third Parties
Exton expansion and F-16 integration took longer than planned due to external parties (e.g., delays in shipping test equipment from suppliers/primes), indicating some reliance on third-party timing.
Pipeline but No Near-Term M&A Close
M&A pipeline described as active, but management has walked away from previously-considered opportunities for strategic/price reasons and no definitive transactions were announced this quarter.
Guidance and Margin Variability Risk
Company expects gross margins to average in the mid-40% range over the year (despite Q1 at 54.5%), indicating potential quarter-to-quarter margin volatility driven by mix as military and OEM businesses grow.
Company Guidance
Management guided that organic revenue for fiscal 2026 is expected to be essentially flat year‑over‑year, with Q2 revenue pegged at $20.0–$22.0 million and a steady sequential build thereafter; they expect gross margins to average in the mid‑40% range over the year (despite Q1’s 54.5%), reiterated a long‑term target of $250.0 million in revenue with adjusted EBITDA margins of 25–30%, and noted operational milestones including UMS deliveries to Pilatus beginning mid‑2026 and insourcing F‑16 subassemblies in late‑2026. For context, Q1 metrics that inform the outlook included net revenue $21.8M (+36.5% YoY), product sales $13.6M, service revenue $8.2M, gross profit $11.9M (+80%), operating expenses $5.6M (25.6% of revenue), net income $4.1M (GAAP EPS $0.22), adjusted net income $4.5M (adjusted EPS $0.25), adjusted EBITDA $7.4M (+140.9%), new orders ~$19M, backlog ~$75M, cash from operations $8.2M, capex $1.1M, free cash flow $7.0M, cash $8.3M, total debt $23.8M (net debt $15.5M), total liquidity including credit availability ~$83.3M, and net leverage of 0.5x; management also noted temporary headwinds of ~$1.2M on F‑16 revenues and ~$1.0M on Pilatus as transitions progressed.Innovative Solutions And Support Financial Statement Overview
Summary
Strong fundamentals: rising TTM revenue ($90.1M, +6.9%), high profitability (TTM gross margin ~50.8%, net margin ~21.0%) and strong ROE (~31.1%) with improving leverage (debt-to-equity ~0.34). Offsets include margin variability over time and free cash flow conversion that trails net income in TTM (FCF ~$12.3M vs. net income).Income Statement
ISSC shows strong profitability and improving scale. Revenue rose to $90.1M in TTM (Trailing-Twelve-Months) with solid growth (+6.9%), and profitability is healthy with ~50.8% gross margin and ~21.0% net margin in TTM. Operating profit is also strong (EBIT margin ~22.6% and EBITDA margin ~32.2%). A key watch-out is margin variability over time (gross margin was higher in earlier years), indicating potential mix or pricing/cost swings even as earnings trend meaningfully upward versus prior annual periods.86
Very Positive
Balance Sheet
The balance sheet looks sound with moderate leverage and strong returns. In TTM (Trailing-Twelve-Months), debt-to-equity is ~0.34 (down from ~0.60 in 2024), suggesting improving balance-sheet flexibility. Profitability on equity is strong (ROE ~31.1% in TTM), consistent with the company’s improved earnings power. The main risk is that total debt is still material in absolute terms (~$23.5M TTM), so maintaining current profitability is important to keep leverage trending favorable.82
Very Positive
Cash Flow
Cash generation is good and improving, but conversion is not perfect. TTM (Trailing-Twelve-Months) operating cash flow is $19.6M and free cash flow is $12.3M, with exceptionally strong free cash flow growth (+80.5%). However, operating cash flow is roughly in line with net income (about 1.0x), and free cash flow covers only ~62% of net income in TTM—suggesting working-capital needs or reinvestment are limiting how much accounting profit turns into residual cash in the latest period.79
Positive
| Breakdown | TTM | Sep 2025 | Sep 2024 | Sep 2023 | Sep 2022 | Sep 2021 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 90.14M | 84.30M | 47.20M | 34.81M | 27.74M | 23.04M |
| Gross Profit | 45.79M | 40.51M | 25.91M | 21.31M | 16.67M | 12.78M |
| EBITDA | 30.08M | 25.41M | 11.89M | 8.73M | 7.71M | 4.33M |
| Net Income | 18.95M | 15.63M | 7.00M | 6.03M | 5.52M | 5.06M |
Balance Sheet | ||||||
| Total Assets | 109.94M | 103.36M | 82.38M | 62.96M | 34.71M | 27.09M |
| Cash, Cash Equivalents and Short-Term Investments | 8.29M | 2.69M | 538.98K | 3.10M | 17.25M | 8.27M |
| Total Debt | 23.53M | 24.14M | 28.03M | 19.51M | 28.68K | 42.98K |
| Total Liabilities | 41.19M | 38.76M | 35.74M | 24.32M | 3.96M | 2.50M |
| Stockholders Equity | 68.74M | 64.60M | 46.64M | 38.64M | 30.75M | 24.59M |
Cash Flow | ||||||
| Free Cash Flow | 12.26M | 6.79M | 5.14M | 1.80M | 5.93M | 4.25M |
| Operating Cash Flow | 19.62M | 13.30M | 5.80M | 2.10M | 6.09M | 4.59M |
| Investing Cash Flow | -7.36M | -6.51M | -16.88M | -36.16M | 2.59M | -340.68K |
| Financing Cash Flow | -4.58M | -4.64M | 8.53M | 19.91M | 301.15K | -19.77M |
Innovative Solutions And Support Technical Analysis
Positive
29.39
Price Trends
23.25
Positive
17.50
Positive
15.40
Positive
Market Momentum
2.00
Positive
61.47
Neutral
75.86
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ISSC, the sentiment is Positive. The current price of 29.39 is above the 20-day moving average (MA) of 27.60, above the 50-day MA of 23.25, and above the 200-day MA of 15.40, indicating a bullish trend. The MACD of 2.00 indicates Positive momentum. The RSI at 61.47 is Neutral, neither overbought nor oversold. The STOCH value of 75.86 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for ISSC.
Innovative Solutions And Support Risk Analysis
Innovative Solutions And Support disclosed 37 risk factors in its most recent earnings report. Innovative Solutions And Support reported the most risks in the "Production" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Innovative Solutions And Support Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
78 Outperform | $522.51M | 20.64 | 31.11% | ― | 78.60% | 121.71% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
60 Neutral | $957.87M | 23.06 | 8.72% | 0.92% | 34.75% | 14.31% | |
59 Neutral | $1.87B | -41.88 | -5.01% | ― | 3.16% | -213.56% | |
55 Neutral | $4.67B | -73.03 | -2.08% | ― | 8.63% | 72.72% | |
46 Neutral | $846.38M | -5.44 | -225.72% | ― | ― | -33.69% | |
45 Neutral | $365.54M | ― | 1730.37% | ― | ― | ― |
* Industrials Sector Average
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.