Innovative Aerosystems (ISSC) Q2 2026 earnings summary

Executive summary

• Net sales for Q2 FY2026 were $22.4 million, up 2% year-over-year, driven by strong commercial and business aviation growth offsetting lower F-16 and military product revenues due to production transitions.

• Net income was $3.4 million ($0.19 per diluted share), down from $5.3 million last year; adjusted net income was $4.8 million ($0.26 per diluted share).

• Three acquisitions were completed (Honeywell Autopilot, Honeywell Generators, S-TEC® Model 3100/Moog autopilot), totaling $33.5 million in cash, expected to add $10 million in annual revenue at ~50% gross margin.

• Backlog grew to $87 million at March 31, 2026, up $7.4 million year-over-year and $9.6 million during the quarter.

• Integration of new autopilot product lines and cockpit solutions positions the company as a leading supplier across a broad spectrum of aircraft.

Financial highlights

• Gross profit for Q2 was $11.4 million (gross margin 51.1%), slightly down from 51.4% last year.

• Operating expenses increased to $6.5 million from $4.3 million, reflecting higher R&D and acquisition costs.

• Adjusted EBITDA was $6.8 million, down from $7.7 million YoY due to growth investments and expense timing; EBITDA margin was 26%.

• Operating cash flow for Q2 was $2.3 million, up 78% YoY; free cash flow for the first half was $7.7 million.

• Total debt as of March 31, 2026, was $55.1 million; net debt was $48.3 million; net leverage was 1.7x.

Outlook and guidance

• Organic revenue growth expected to be flat year-over-year due to prior F-16 revenue pull-forward; Q3 revenue guidance is $24M–$26M.

• Approximately 67% of backlog is expected to convert to revenue over the next 12 months.

• Continued increase in R&D spending and targeted investments anticipated to support growth initiatives.

• F-16 manufacturing levels expected to normalize in Q3 2026 after transition-related disruptions.