Executive Summary

Q4 FY2024 revenue rose to $15.4M (+18.4% YoY) with gross margin at 55.4% (up 200 bps sequentially vs Q3’s 53.4%); diluted EPS was $0.18, supported by lower OpEx ratio and contributions from Honeywell-acquired product lines and military programs .
Backlog surged to $89.2M and new orders were $95.4M in Q4 (includes $74.3M of backlog from the September Honeywell product line license), providing multi‑year visibility; management expects “similar growth in 2025,” with mix shift toward military lowering gross margin but supporting EBITDA dollar growth .
Management outlook: normalized consolidated gross margins to trend in the mid‑50% range near term; $6M facility expansion planned for FY2025 to more than double manufacturing capacity (target completion around June FY2025) .
Potential stock reaction catalysts: material Q4 order intake/backlog, commentary for a Q2 FY2025 revenue “bump” tied to Honeywell catch-up shipments, and AI‑capable UMS2 launch narrative driving medium‑term growth optionality .

What Went Well and What Went Wrong

What Went Well

Strong topline and profitability: Q4 revenue +18.4% YoY to $15.4M, EPS $0.18, Adjusted EBITDA $5.6M (+16.9% YoY); OpEx ratio fell to 27.1% from 34.3% YoY on higher operating leverage .
Order momentum and visibility: Q4 new orders $95.4M and backlog $89.2M (excludes long-term OEM programs), underpinned by Honeywell product lines and military demand .
Strategic positioning and product roadmap: CEO reiterated focus on advanced avionics and announced UMS2, an AI‑capable, certifiable monitoring and control system expected to enhance cockpit automation; flight testing of the new‑generation UMS on PC‑24 begins early 2025 .

What Went Wrong

Gross margin vs. prior year: Q4 gross margin was 55.4%, down vs. Q4 2023 due to higher D&A from acquisitions and product mix (military generally lower margin), though sequentially improved from Q3’s 53.4% .
One‑time items and mix: Q4 revenue included a $1.7M true‑up payment in customer service; mix shift toward military expected to pressure gross margin, though management emphasizes EBITDA growth from scale .
Leverage up on acquisitions: Net debt increased to $27.5M and net leverage to 2.0x at fiscal year‑end (vs. 0.8x at Q3), reflecting the September Honeywell license; liquidity remains supported by an expanded $35M facility .

Financial Results

Sequential performance (Q2 → Q3 → Q4 FY2024)

Metric	Q2 2024	Q3 2024	Q4 2024
Revenue ($)	$10,739,516	$11,765,635	$15,384,806
Gross Profit ($)	$5,582,362	$6,279,821	$8,528,245
Gross Margin (%)	52.0%	53.4%	55.4%
Operating Income ($)	$1,643,050	$2,037,120	$4,366,168
Net Income ($)	$1,208,316	$1,552,520	$3,180,194
Diluted EPS ($)	$0.07	$0.09	$0.18

YoY (Q4 FY2023 vs Q4 FY2024)

Metric	Q4 2023	Q4 2024
Revenue ($)	$12,992,596	$15,384,806
Gross Profit ($)	$8,112,471	$8,528,245
Operating Income ($)	$3,652,599	$4,366,168
Net Income ($)	$2,634,622	$3,180,194
Diluted EPS ($)	$0.15	$0.18

Non‑GAAP snapshot

Metric	Q3 2024	Q4 2024
Adjusted EBITDA ($)	$3,075,926	$5,630,676

Segment mix (Product vs. Services)

Revenue Mix ($)	Q2 2024	Q3 2024	Q4 2024
Product	$4,895,589	$5,127,056	$9,833,165
Services/Customer Support	$5,098,222	$6,408,961	$5,551,641

KPIs and balance sheet/l liquidity

KPI	Q2 2024	Q3 2024	Q4 2024
New Orders ($)	$6.6M	$10.6M	$95.4M
Backlog ($)	$10.4M	$9.3M	$89.2M
Net Debt ($)	—	$9.34M	$27.49M
Net Leverage	—	0.8x	2.0x
Cash + Availability	—	$20.7M	~$7.5M
FY2024 Cash from Ops ($)	—	—	$5.80M
FY2024 Capex ($)	—	—	$0.66M
FY2024 Free Cash Flow ($)	—	—	$5.14M

Notes: Q4 new orders and backlog include ~$74.3M of backlog acquired with the September 27, 2024 Honeywell military display generator/flight control computer license .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance/Outlook	Change
Gross Margin (consolidated)	Intermediate term	Not provided	“Trend closer toward mid‑50% on a normalized basis” as mix shifts to military and D&A rises; focus on EBITDA margin expansion	New qualitative outlook
Revenue cadence	FY2025 intra‑year	Not provided	Expect a “big bump” in Q2 FY2025 tied to Honeywell catch‑up shipments; potential transition dip in Q3 then recovery by Q4	New qualitative outlook
Growth	FY2025	Not provided	Expect “similar growth in 2025,” excluding any future acquisitions	New qualitative outlook
Capex (facility expansion)	FY2025	Not provided	~$6M to more than double manufacturing capacity; bulk in FY2025; aiming to complete expansion around June FY2025	New
Credit facility	Current	$20–$21M availability at Q3	Capacity increased to $35M in September to support operations and expansion	Increased capacity

Management did not provide formal revenue/EPS guidance; commentary is qualitative and focused on mix, capacity, and cadence .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 FY2024, Q3 FY2024)	Current Period (Q4 FY2024)	Trend
AI/technology (UMS/UMS2)	Q2: Advancing second‑gen UMS with Pilatus; cockpit automation as long‑term driver . Q3: Continued progress; plan to leverage AI for automation .	UMS2 launch in 2025; AI‑capable, neural network processing; PC‑24 flight testing early 2025 .	Increasing emphasis and near‑term milestones
Supply chain/integration	Q2: Delays in inventory/test equipment impacted margins/revenue; synergies to improve post‑integration . Q3: Majority of test equipment delivered; efficiencies expected as in‑sourcing ramps .	Gross margin headwinds from higher D&A; continued integration; mid‑50% normalized GM outlook .	Improving execution, but structural mix/D&A headwinds
Product/cross‑sell	Q2: Cross‑selling Honeywell radios into platforms; international wins . Q3: Cross‑sell progressing; European radio sales .	Honeywell acquisitions drove revenue synergies; unit growth and in‑sourcing to lift EBITDA .	Positive trajectory
Military demand	Q2: Increased interest; foreign military opportunities . Q3: Foreign military multifunction display/mission computer contract; military strategy validated .	U.S. Army C‑12 autothrottle; F‑16 display generator/flight control computer license; backlog includes multi‑year military orders .	Material step‑up; larger mix share
Macro/retrofit (Boeing)	Q3: Cargo stabilization; sequential growth .	Boeing issues create retrofit tailwinds as aging airframes require maintenance and spares .	Supportive aftermarket backdrop
R&D execution	Q2: R&D rising to support roadmap; mix effects on margins . Q3: R&D +; train technicians; second shift plans .	R&D $1.1M in Q4; UMS2 launch; internal manufacturing ramp in FY2025 .	Sustained investment

Management Commentary

“This was a transformative year... significant year‑over‑year growth in revenue, net income, and EBITDA… IS&S is well‑positioned for another consecutive year of profitable growth in FY 2025.” – CEO .
“UMS2 will be an AI‑capable system with integrated neural network capabilities… enhance crew efficiency by enabling additional cockpit automation.” – CEO .
“We expect consolidated gross margins will likely trend closer toward mid‑50%… However… we anticipate… increased adjusted EBITDA margin realization and profitability over time.” – CFO .
“We intend to increase our manufacturing capacity by more than 100% through a $6 million facility expansion… 40,000 square foot addition.” – CEO .
“We invested nearly $20 million in the 2 additional [Honeywell] acquisitions during the year… open the door to significant cross‑selling synergies entering 2025.” – CEO .

Q&A Highlights

Honeywell license (#3) and backlog cadence: ~$74M backlog acquired; expectation of a Q2 FY2025 revenue “bump,” possible Q3 transition dip during test equipment transfer, then recovery; backlog bleed‑off over 3–4 years .
One‑time items and mix: Q4 revenue included a $1.7M services true‑up payment; military mix carries lower gross margin but supports comparable EBITDA margins due to limited incremental SG&A/engineering .
Capex and timing: ~$6M facility expansion, largely in FY2025; targeted completion around June (subject to construction timing) .
Margin framework: Gross margins to normalize mid‑50%; in‑sourcing subassemblies and increasing internal MRO expected to support margins and EBITDA over time .
Retrofit tailwinds: Boeing delivery constraints viewed as supportive for retrofit/aftermarket demand (aging airframes) .

Estimates Context

Wall Street consensus for Q4 FY2024 (S&P Global/Capital IQ) was not retrievable at the time of query due to source rate limits; as a result, we cannot classify beat/miss versus consensus for revenue or EPS. We anchor to S&P Global for estimate comparisons when available; here, consensus data was unavailable at query time.

Key Takeaways for Investors

Momentum intact: Q4 delivered solid YoY and sequential acceleration with operating leverage; non‑GAAP EBITDA also scaled notably, aided by acquisition synergies .
Backlog/visibility: $89.2M backlog (plus long‑term OEM programs off‑backlog) and $95.4M Q4 orders underpin multi‑year revenue visibility; watch Q2 FY2025 for a shipment “bump” .
Mix and margin: Expect consolidated GM in mid‑50% as military mix rises and acquisition D&A persists; focus shifts to EBITDA dollar growth and margin expansion through scale and in‑sourcing .
Capacity expansion: ~$6M facility build in FY2025 (target completion around June) to more than double capacity—key to supporting higher throughput and in‑sourcing plans .
Liquidity and leverage: Facility expanded to $35M; net leverage at 2.0x post‑deal is manageable against growing EBITDA and free cash flow generation .
Product/AI road map: UMS2 AI‑capable platform and cockpit automation upgrades deepen differentiation and open cross‑segment opportunities (business aviation/military) .
Tactical setup: Near‑term catalysts include Q2 FY2025 revenue bump and UMS2 milestones; risks center on mix headwinds to gross margin, integration execution, and timing of Honeywell transition shipments .

Citations:
Press release and financials: .
8‑K and exhibits (confirming Item 2.02 and details): .
Q4 FY2024 earnings call transcript (prepared remarks and Q&A): .
Q3 FY2024 press/call for sequential context: .
Q2 FY2024 8‑K/call for sequential context: .
Other relevant Q4‑period press releases: .

INNOVATIVE SOLUTIONS & SUPPORT INC (ISSC)·Q4 2024 Earnings Summary