Innovative Solutions And Support (IOE) Q3 2026 Earnings Report

The call emphasized strong operational and financial momentum: revenue growth (+11% overall, >40% organic excluding F-16/acquisitions), significant margin expansion (gross margin ~51.7%, gross profit +61%), materially higher adjusted EBITDA (+~75%), improving free cash flow, and strategic progress (Aiden Displays acquisition and Liberty flight-deck OEM win). Offsetting items include higher operating and R&D expenses, increased net debt driven by acquisitions, program timing/lumpiness driven by F-16 transition, and remaining uncertainty around the scale and timing of the eVTOL opportunity. On balance, the company demonstrated improving profitability, cash generation, and strategic momentum while acknowledging manageable near-term risks.

Guidance highlights: management expects Q4 FY26 revenue of $28–30M; Q3 revenue was $20.7M (≈11% YoY; >40% organic growth excluding F‑16 and acquisitions), gross margin 51.7% (fourth consecutive quarter ≥50%; target ~45–50% long term), adjusted EBITDA $7.7M, GAAP net income $4.5M ($0.25 diluted), adjusted net income $6.0M (adjusted EPS $0.33), backlog ≈$83M with $22.7M of new orders in Q3, YTD operating cash flow $15.5M, YTD capex $3.2M, YTD free cash flow $12.3M, total debt $54.5M, cash $10.7M (cash + credit availability ≈$53.7M), net debt $43.8M and net leverage 1.4x; long‑term targets include $250M revenue and a 25–30% EBITDA margin. Program timing: eVTOL engineering work begins Q4 FY26 with initial production targeted late 2027 and progression to full production in 2028, while L3 radio unit and KC‑767 production deliveries are expected to start in Q1 and Q2 FY27, respectively.