Innovative Aerosystems (ISSC) Q3 FY26 earnings call: guidance and Q&A

Could management provide more details on the eVTOL program win, including the sales process duration and clarification on the $50 million total contract value mentioned by the analyst?

The sales process for the eVTOL program took about a year. Management clarified that the analyst's $50 million contract value figure assumes all 400+ units are produced, but noted it's an early, nominal number and they expect significant growth beyond initial volumes.

“That contract value is assuming all 400-plus get shipped out.”

asked by Robert Brooks · answered by Jeffrey DiGiovanni

What specific factors, beyond the customizable Liberty Flight Deck, were crucial in securing the eVTOL contract win?

The key factors were the flexibility of their system and the ability to customize graphics and cockpit displays at a very reasonable cost, which made it attractive to the customer. They are observing similar interest from other aircraft manufacturers in the advanced air mobility market.

“Our system is very flexible, and we can customize it at a very reasonable cost, and that's essentially what made it attractive to this particular company.”

asked by Robert Brooks · answered by Shahram Askarpour

Are Innovative Aerosystems experiencing similar supply chain challenges, particularly with electronic suppliers, as recently reported by Honeywell Aerospace?

Innovative Aerosystems' supply chain differs from Honeywell's; they build circuit cards in-house and ensure multiple sources for key components like LCDs, which helps them avoid the supply chain issues faced by companies that outsourced their intellectual property.

“So our supply chain is a little bit different than Honeywell's supply chain as we don't outsource our circuit cards. We build them in-house. We don't have those kind of issues that they have.”

asked by Robert Brooks · answered by Shahram Askarpour

How should investors view the company's 50% gross margin run rate over the past four quarters, especially considering recent acquisitions and future outlook?

Management expects gross margins to remain in the 45% to 50% range, with some quarterly variation based on product mix. Ongoing in-sourcing of circuit cards for acquired product lines is expected to help maintain margins around 50%, with an ultimate goal of 25% to 30% EBITDA margin.

“But around 50% is -- seems to be where we're heading as we -- on some of these product lines that we acquired as well, the in-sourcing of the circuit cards is ongoing right now.”

asked by Joshua Sullivan · answered by Shahram Askarpour

Is the medical instrument market, mentioned in relation to the Aydin acquisition, an area for future strategic focus or merely an incidental part of the acquired business?

Aydin brought a small portion of revenue from the medical instrument market. While IA has not historically focused on this area, gaining customers there could lead to developing additional products for this market, which offers significantly higher volumes compared to aviation and aerospace.

“Gaining customers in the medical instrument area would allow us to take a look to see whether there is additional products we can develop that's used by that market.”

asked by Joshua Sullivan · answered by Shahram Askarpour

What were the primary drivers behind the greater than 40% organic growth, distinguishing between end-market trends and new program ramps?

Organic growth was primarily driven by increased services and replacements for the aging commercial fleet, and a pickup in business aviation, largely due to shipments of the UMS2 product. There was also some growth in military markets, excluding the F-16 program.

“I would say the business aviation was a little down last year, and you're seeing that pick up mainly with the UMS2 for that product line.”

asked by Greg Palm · answered by Jeffrey DiGiovanni

Was the F-16 revenue ramp faster than anticipated, or were there any one-time factors contributing to its performance in the quarter?

Q3 FY26 was the first full quarter of production for the F-16 mission display generator after its manufacturing transition, leading to a return to a sustainable $5 million per quarter range, following a lower Q2. There were no one-time factors beyond this normalization.

“So this quarter was the first quarter that we did -- the Q3 was the first quarter that we have full production for the whole period of 3 months. And so we're hitting that kind of $5 million range per quarter that we think is sustainable long term.”

asked by Greg Palm · answered by Shahram Askarpour