Firan Technology Group Corporation

Good afternoon, ladies and gentlemen, and welcome to the FTG Fourth Quarter 2024 Analyst Call Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 19th of 2025. I would now like to turn the conference over to Mr. Bradbourne. Please go ahead.

Thank you. Good afternoon. I'm Bradbourne, President and CEO of Foreign Technology Group Corporation, or FTG. Also on the call today is Jamie Crichton, our Chief Financial Officer. Before we go any further, I must caution you that this call may contain forward-looking statements. Such statements are based on the current expectations and management of the company and inherently involve numerous risks and uncertainty, known and unknown, including economic factors and the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the company. The listener is cautioned to consider these and other factors carefully when making decisions with respect to the company and not place undue reliance on forward-looking statements. The company does not undertake and has no specific intention to update any forward-looking statements, written or oral, that may be made from time to time by or on its behalf, whether a result of new information, future events, or otherwise. 2024 was another record year for FTG, and our fourth quarter was another record quarter. Revenues increased each quarter throughout the year, with Q4 revenues totaling $45 million and full-year sales exceeding $162 million. It was a great year for FTG, and it was achieved by the great team of people at our company. I'd like to thank everyone at FTG for their hard work and their contributions to our success. Through 2024, FTG accomplished many financial goals, including total bookings reached 184.5 million, marking a 25% increase over 2023. The year-end backlog stood at $122.4 million, a 26% rise from the previous year. Full-year revenues increased by 20% to $162.1 million. Adjusted EBITDA was $25.8 million, up from $19.4 million in 2023. Adjusted net earnings increased by 47% to $10.3 million. And we maintained a strong balance sheet ending the year with net debt of just $0.7 million, after investing over $14.7 million during the year. Other accomplishments in 2024 included the continued successful integration of our 2023 acquisitions with improvements in throughput pricing and cost savings at Circuits Minnetonka and Circuits Haverhill. We secured a $17 million contract to supply cockpit interface assemblies for COMAX C919 aircraft, with production spanning from late 2024 through 2026. And we had a number of announcements subsequent to our year end that I will discuss later. Amy will provide more details on the full year as well as our Q4 results. Let me turn to some external items. Our end market demand remains strong. Airbus delivered 766 aircraft in 2024. More importantly, they're looking to ramp their production to almost 1,000 aircraft annually in the next few years. Airbus has a backlog of over 8,000 orders, which is over a decade worth of production at current production rates. At Boeing, they shipped just under 350 planes in 2024, down from about 500 in 2023. The drop was due in part to the safety incident on the Alaska Air 737, as well as the machinist strike they had later in the year. But looking forward, Boeing has plans to ramp their production to almost 700 planes annually in the next few years. Boeing's backlog is almost 6,000 planes, though also over a decade's worth of orders at current production rates. While 2024 might be a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the air transport market with a two-to-one advantage in aircraft ships in the last year and a 60% market share based on the order backlog. This has implications for FTG's plans going forward. In the business jet market, Bombardier reported a mid-single-digit shipment increase for 2024, even in light of a short work stoppage they had during the year. In the helicopter market, Bell Helicopter reported flat deliveries in 2024 compared to 2023, but with a 5% overall revenue growth through the year. Bell also had some key military helicopter wins in the past two years that will drive significant growth for them going forward. All of this bodes well for us as we look to future demand in the coming years. I've also looked at results from some key defense contractors. For instance, Lockheed Martin reported a 5% revenue growth in 2024 compared to 2023 and gave guidance for 4% to 5% growth in 2025. Looking at the longer term, Boeing's most recent 20-year forecast shows long-term industry growth, and it continued to show 20% of all new aircraft deliveries going to China and close to 40% to Asia. This has been the case in their recent forecasts. The business jet market also has seen traffic recover. A recent business jet market forecast from Honeywell similarly predicts growth in this market in the coming years with near-term double-digit growth rates for the sector. The simulator market mirrors the end market application, but as we remind everyone about this market, it is lumpy for us, so large year-to-year variations do occur. So as we have said for many years, FTG's goal is is to participate in all segments of the aerospace and fence markets as each moves through their independent business cycles. It is not often all segments are growing at the same time. That seems to be the case right now. Beyond this, let me give you a quick update on some key metrics for FDG for 2024. First, as already noted, the leading indicator of business is our bookings or new orders. Our bookings were $184.5 million in the year. This resulted in a backlog of $122 million at year end. In 2024, sales were $162 million, which is $27 million above 2023 sales. The growth is partly due to owning the two acquisitions from 2023 for the full 12 months, as compared to only seven months in 2023, and partly due to organic growth. The growth was also achieved even though our aerospace funnel facility, had a six-week work stoppage early in the year. Late in the year, the Aerospace Toronto facility obtained TSO approval for new cockpit assemblies and began shipping to a Tier 1 avionics supplier that will ultimately ship on and be installed on Airbus aircraft. They also started shipping high-value cockpit assemblies for the C919 aircraft in China. For the acquisitions, revenue growth was approximately 16% for Circuits Minnetonka in 2024 compared to last year, and was about 4% for Circuits Haverhill. In particular, at Circuits Minnetonka, the run rate in Q4 was over $30 million, U.S. dollars. This is getting close to where they were in 2019 when they were at their peak. We continue to make progress towards getting them to revenue levels where they will materially contribute to FPG sales and profitability. In our aerospace business, sales were up 3% or $1.6 million in 2024 compared to last year. Again, the strike at the Aerospace Toronto Facility early in the year negatively impacted results, but this was offset by strong performance later in the year. On the circuit side of our business, sales were up 26 million or 28% on a year-over-year basis. Some of the growth came from the two acquisitions and the balance from organic growth. Overall at FTG, our top five customers accounted for 58.4% of total revenue in 2024. This compares to 56.1% last year. Also interesting to note, the top 10 customers, seven are customers shared between circuits and aerospace. We particularly like to see the shared customers as it means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. Given the anticipated actions of the new administration in the U.S. of implementing tariffs, it's also good to see that three of our top 10 customers are primarily outside of the U.S., and another four have some operations outside the U.S. Well, on this topic, 78.3% of FTG sales are to U.S.-based customers. This includes sales by U.S. sites, as well as sales from FTG sites in Canada or China. In 2024, 30% of our total revenue came from our aerospace business, compared to 34.5% last year. The aerospace business share decreased due to the impact from the 2023 acquisitions. I would now like to turn the call over to Jamie, who will summarize our financial results for last year, and afterwards, I will talk about some key priorities we are working on. Jamie?

Thanks, Brad, and good afternoon, everyone. I'd like to provide some additional detail on our financial performance for 2024 and Q4. On sales of 162.1 million, FGG achieved a gross margin of 44.2 million or 27.3% in 2024 compared to 39.3 million or 29.1% of sales of 135.2 million in 2023. Excluding 3.2 million in government subsidies in the U.S. operations in 2023, Gross margin in 2024 was up 60 basis points. The increase in gross margin dollars and the gross margin rate is a result of higher sales volumes, operational improvements, and favorable foreign exchange rates. Revenue per employee was $240K in 2024 as compared to $225K in 2023, which is a 7% increase. In Q4 2024 on sales of 45.2 million, FTG achieved a gross margin of 12.8 million or 28.3% compared to 10.7 million or 26.9% on sales of 40 million in Q4 2023. The increase in gross margin dollars for 2024 as compared to Q4 2023 is the result of increased sales volumes in both the circuits and aerospace segments operational improvements, and favorable foreign exchange rates. From a geographical standpoint, FGG sales growth was concentrated in the U.S. and Asia market segments. Growth in the U.S. market was driven by the full-year impact of the acquisitions completed in 2023, and growth in Asia was driven by robust markets for commercial aerospace. 78% of sales were derived from customers in the U.S., which is in 2024, which is the same as 2023. SG&A expense was 20.4 million or 12.6% of sales in 2024 as compared to 17 million or 12.5% of sales in the prior period. The increase of 3.4 million during fiscal 2024 includes the acquisition timing impact of 1.2 million as Minnetonka and Averill were included for the full 12 months. and increased headcount targeted at operational leadership. Corporate development-related expenses were $0.4 million for 2024 and $0.6 million in 2023. In Q4 2024, SG&A was 12.7% of sales, which is up from 11.9% in Q4 2023, with all of the 2024 corporate development expenses being incurred in Q4 2024. R&D costs for 2024 were $7 million, or 4.3% of sales, as compared to $6.6 million, or 4.9% of sales for 2023. R&D efforts include product and process developments at the circuit segment and efforts to develop and qualify products for future aerospace programs. FGG is exposed to currency risk through transactions, assets, and liabilities in foreign currencies, primarily U.S. dollars. The average exchange rate experienced in 2024 was $1.36 as compared to $1.35 in 2023, which equates to a weakening of the Canadian dollar less than 1%. We estimate that for each 1% of weakening of the Canadian dollar, FGG would experience an increase in pre-tax earnings of $0.5 million. Adjusted EBITDA, as detailed in the press release, was 25.8 million for 2024, or 15.9% of sales, compared to 19.4 million, or 14.3% of sales for 2023. Adjusted EBITDA is up 33% over 2023 as a result of growing the top line organically and through acquisitions, operational improvements, and managing expenses. Adjusted EBITDA 2024 excludes expenses incurred for the flight acquisition of 300K and startup costs in India of 100K. We also adjusted EBITDA with a 0.8 million reduction in contingent consideration related to the Minnetonka acquisition, which was booked as a profit adjustment in Q4, 2024. The Minnetonka acquisition had an earn-out provision as part of the purchase price and 1 million US was paid to the former shareholders in December, 2024. Adjusted EBITDA for Q4, 2024 was 7.6 million or 16.7% of sales as compared to 6 million or 15.0% of sales in Q4, 2023. For 2024, FGG recorded net earnings of 10.8 million as compared to 11.6 million in 2023. Adjusted net earnings for 2024 was $10.3 million, or $0.43 per diluted share, as compared to $7.0 million, or $0.29 per diluted share in 2023, which is an increase of 47%. In 2023, adjusted earnings excluded $3.8 million in government subsidies for our U.S. sites and a deferred tax recovery of $1.5 million related to the two acquisitions completed by FGG in 2023 in the U.S. The 2024 effective tax rate was approximately 27% as compared to 16% in 2023 with 23 benefiting from that deferred tax recovery. I'd like to remind everyone that FGG continues to have substantial U.S. tax losses available to offset future income and the accounting benefit of those losses has not been recognized in our statements. Our net debt possession as of Q4 2024 was 0.7 million as compared to a net debt of 3.6 million as of Q4 2023. Cash flow from operating activities in 2024 was 14.1 million as compared to 11.3 million in 2023. Excluding that 3.8 million of government subsidies received in 2023, the full year cash flow from operating activities increased by 6.6 million this year. Cash used for lease liability payments was $3.7 million in 2024 as compared to $2.9 million in 2023. Capital expenditures were $7.2 million as compared to $6.5 million in 2023. Capital expenditures in Q4 included approximately $1 million for infrastructure upgrades at the Circuits Toronto facility. Going forward, I expect CapEx to be closer to FGG's long-term target of 3% to 4% of revenue. As at the 2024 year end, the corporation's primary sources of liquidity totaled $80 million, consisting of cash, AR, contract assets, and inventory. In December 2024, we completed a new three-year credit facility with BMO Corporate Finance, which includes committed facilities for operating loans of $10 million U.S., and term credits of 10 million U.S. The agreement also includes an accordion facility of 15 million U.S. in support of acquisitions. Working capital at November 30, 2024 was 49.9 million. Accounts receivable days were 68, up from 64 in the prior year. Inventory days were 96 at the 2024 year end, down from 113 in 2023. And accounts payable days outstanding were 68 at the 2024 year end compared to 78 in 2023. We enter Q1 2025 with a record level backlog of 122.4 million, of which approximately 89% is expected to be converted to revenue in 2025. Our focus will be to complete the integration of the flight acquisition managing cash flow, and improving operational efficiency. A complete set of filings are on cdrbus.com. And with that, I will turn the call back to Brad.