ISSC Reports Robust Fiscal 2025 Results with 44.6% Q4 Sales Growth, Accelerating Momentum Amid Honeywell Transition

What happened

Innovative Solutions & Support announced its fiscal 2025 fourth quarter and full-year results, with Q4 net sales of $22.2 million, up 44.6% year-over-year, demonstrating strong demand across its avionics markets. This caps a year of significant growth, as full-year sales likely surpassed $80 million, building on the $62.0 million reported for the first nine months and far exceeding the prior year's $47.2 million. The performance reinforces the acceleration highlighted in previous filings, supported by a sizable backlog of $89.2 million, which management expects to convert 65% within 12 months and 98% within 24 months. However, revenue remains sensitive to the ongoing transition of Honeywell-acquired programs, where near-term variability could impact timing and margins, as cautioned in filings. Despite this progress, the cancellable nature of backlog and integration risks temper visibility, requiring careful monitoring of execution against conversion targets.

Implication

ISSC's fiscal 2025 performance, with Q4 sales up 44.6% and full-year growth exceeding expectations, validates the accelerating momentum noted in the DeepValue report, potentially supporting a higher valuation. However, the cancellable $89.2 million backlog and Honeywell program transition introduce revenue timing risks that could lead to volatility, demanding close tracking of conversion rates and margin stability. From a valuation perspective, the DCF anchor of $8.27 versus the current price of $8.51 indicates a modest premium, suggesting limited downside protection if execution falters. Investors should watch for consistent operating cash flow generation and deleveraging, as positive trends here could justify upgrading the thesis to a firmer BUY, while any slippage would warrant a more defensive approach. Overall, the stock remains a execution-dependent play, with the new data reinforcing the need for disciplined risk management amidst aerospace cycle exposures.

Thesis delta

The fiscal 2025 results confirm the accelerated growth trajectory and successful initial integration of Honeywell programs, strengthening the bull case and potentially narrowing the gap to a BUY rating. However, the persistent risks of backlog cancellability and transition variability mean the investment thesis remains largely unchanged, still hinging on execution metrics rather than a fundamental shift. Thus, while confidence in near-term performance is higher, the overall judgment stays as a POSSIBLE BUY, dependent on continued conversion and margin stability.