Firan Technology Group Corporation

Good morning, everyone. My name is Joelle and I will be your conference operator today. I would like to welcome everyone to the FTGQ1 2025 analyst call. All lines have been placed on mute. There will be a question and answer session following the call. If you would like to ask a question during this time, simply press star followed by the one on your telephone keypad. If you would like to withdraw your question, please press star 2. Please note that this call is being recorded. I would now like to turn the call over to Mr. Brad Byrne, President and Chief Executive Officer of FDG. Mr. Byrne, you may proceed.

Thank you. Good morning. I'm Brad Byrne, President and CEO of FDG, or FRAND Technology Group Corporation. 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 uncertainties, 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 companies. The listeners caution 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 as a result of new information, future events, or otherwise. We are off to a great start in 2025. These are by far our best Q1 results ever. And to start the year, we closed the acquisition of Flight, adding another growth lever to FTG overall. I'd like to welcome the people from Flight to FTG and thank everyone at FTG for their hard work and their contributions to our continued success. In the first quarter of 2025, FTG accomplished many financial goals, including... Total bookings reached $51.5 million in the quarter, marking a 37% increase over Q1 2024. The quarter-end backlog stood at $142.5 million, a 43% rise from the previous year. Revenue was $42.9 million in the quarter, a 22.6% increase over Q1 2024. Adjusted EBITDA was $8.4 million, up from $4.6 million in Q1 last year. Adjusted net earnings rose by over 200% to $3.3 million. And we maintained a strong balance sheet with net debt of $8.3 million after the acquisition of Flight, where we paid $4.3 million in cash and assumed $9.4 million in debt. In the quarter, we also paid out the earn-out from our Circus Minnetonka acquisition of $1.5 million. We invested in CapEx and Deferred Development. We paid off our DSU plan. We paid out 2024 bonuses on profit sharing and PSUs earned. We generated operating cash flow less lease payments of $9.3 million in Q1 2025. Other accomplishments in our quarter included the closing of our acquisition of Flight based in Calgary. Flight is an important addition to FTG, increasing our penetration of the aftermarket, which typically has higher margins, and increasing our penetration of Airbus. who is clearly outperforming Boeing in the air transport market. We also see production insourcing opportunities that could benefit other FTG sites, as flights historically outsourced all their manufacturing. We also announced in the quarter a new contract from De Havilland Canada, where we will provide updated cockpit control assemblies for the new De Havilland Canadair 515 aerial firefighting aircraft. This is also strategic as there's a contract that will increase our activity outside of the U.S. and therefore not be impacted by any potential U.S. tariffs. FTG announced plans to open an aerospace facility in Hyderabad, India to support strategic growth and expand our market presence there. FTG completed a new three-year banking agreement with BMO Corporate Finance providing improved flexibility, reduced costs to support growth and corporate development objectives. And we strengthened our leadership team with the addition of Bill Sizzotti as Executive Vice President, FTG Circuits. Bill comes to FTG with extensive experience in all aspects of the circuit board industry, including experience in senior management roles at St. Mina Summit and Hughes Circuits. Bill will be responsible for all six of FTG Circus businesses or sites. In addition, Marco Sizzotti, Vinika is joining FTG in a newly created role as Executive Vice President FTG Aerospace. Marco comes to FTG with extensive experience in all aspects of the aerospace industry, and most recently Marco was responsible for new aircraft development at the Havilland Aircraft of Canada. Marco will be responsible for FTG's four aerospace sites, as well as the site under construction in India. Jamie will provide more details on our Q1 results shortly. Let me turn to some external items. Our end market demand remains strong. Airbus delivered 766 aircraft last year, but more importantly, they're looking to ramp to over 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. For 2025, they're projecting growth of 7% over last year. In the first quarter this year, shipments were, however, down, down 7%, due to supply chain issues primarily related to engines. At Boeing, they shipped just under 350 planes last year, 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 later last 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, so also over a decade worth of orders at their current production rates. In Q1 this year, Boeing shipped 130 aircraft, which is up significantly from last year. Boeing 2 is constrained by supply chain issues on some models, including seat delays for their Boeing 787s. While 2024 might have been a low point for Boeing, it has also become clear that Airbus is outperforming Boeing in the air transport market with a 2-to-1 advantage in aircraft shipped last year and a 60% market share based on order backlog. This has implications for FTG's plans going forward. In the business jet market, Bombardier reported a mid-single-digit shipment increase last year, even in light of a short work stoppage they had during the year. They are not providing guidance for 2025 due to the uncertainty around U.S. tariffs, which are okay for them for now, but are still somewhat fluid. In the helicopter market, Bell Helicopter reported flat for deliveries in 2024 compared to 2023, but with an overall 5% revenue growth for the year. But Bell also has some key military helicopter wins in the past few years that will drive significant growth going forward. All of this bodes well for us as we look to future demand in the coming years. I've also looked at the results from some key defense contractors. For instance, Lockheed Martin reported a 5% revenue growth last year compared to the prior year and gave guidance of 4% to 5% growth this year. Also related to defense, Boeing was recently selected to develop and produce the next generation Air Dominics fighter in the U.S. This is good news for them. Based on the supply chain approach on the previous air superiority fighter in the U.S., the F-22, I would expect the sourcing for this program will be for U.S.-only suppliers. We did have content on the F-22 when it was in production through our Chatsworth facility. We are better positioned now to increase our content on U.S.-only procurements with five U.S.-based sites. 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, as has been the case in the recent forecast. The business jet market is already seeing traffic recover. A recent business jet 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 always remind everyone about this market, it is lumpy, so we see large year-to-year variations. So, as we have said for many years, FTG's goal is to participate in all segments of the aerospace and defense markets as each moves through their independent business cycles. It is not often that all segments are growing, as seems to be the case now. Beyond all this, let me give you a quick update on some key metrics for FTG for our first quarter of 2025. First, as already noted, the leading indicator of business is our bookings or new orders. Our bookings were $51.5 million in the quarter, and we added backlog due to the flight acquisition. This resulted in a record backlog of $142 million at the end of Q1. Our first quarter sales were 42.9 million, which is 7.9 million, or 23% above Q1 last year. The growth is approximately 50% from organic activity and 50% from the acquisition of flight. In our aerospace business, sales were up 5.2 million, or 53% from Q1 last year. The strike at the Aerospace Toronto facility last year negatively impacted those results, and the acquisition of flight this year boosted Q1 2025. On the circuit side of our business, our sales in the first quarter were up 2.8 million, or 11%, over Q1 last year. All of this is organic growth. Of note, growth at Circuits Minnetonka was about 10% in the quarter, and at Circuits Haverhill, it was about 50%. Overall at FTG, our top five customers accounted for 52.1% of the total revenue in our first quarter. This compares to 66.5% last year. It is great to see the dropping customer concentration as we add sites and expand our customer base. Also interesting to note, of our top 10 customers, seven are customers shared between circuits and aerospace. We like to see the shared customers as it means we're maximizing our penetration of these customers by selling both cockpit products and circuit boards. Given the actions of the new U.S. administration in the U.S. of implementing tariffs, it's also good to see that one of our top 10 customers is outside the U.S. and is in fact in China. And another seven of our top 10 have some operations outside the U.S. While on this topic, 72.2% of FTG sales are to US-based customers. This includes sales by US sites, as well as sales from FTG sites in Canada or China. This compares to 82% in Q1 last year. While sales grew by 8% into the US in Q1, sales grew by 49% in Canada, 83% in Asia, and 130% into Europe. As we benefit from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring flight with sales globally. In 2025, first quarter, 34.6% of total revenues came from our aerospace business compared to 27.7% last year. The aerospace business share increased due to strong growth at Aerospace Toronto and the acquisition of flight. I'd now like to turn the call over to Jamie, who will summarize some of our financial results for Q1 2025, and afterwards I will talk about some key priorities we are working on. Jamie?

Thanks, Brad. Good morning, everyone. I would like to provide some additional detail on our financial performance for Q1. FTG achieved a gross margin of $13.3 million, or 31%, in Q1 2025 compared to $8.9 million, or 25.5% in Q1 2024. The gross margin rate is up 5.6 percentage points as a result of the following. Organic sales growth and improved operating performance in the circuit segment, resulting in higher leverage over fixed costs. Increased sales in the aerospace segment from the flight acquisition and the fact that Q124 had a negative 3 million impact from the six-week strike at the Aerotoronto site, both of which boosted our gross margin rate. Foreign exchange rates were also favorable, with the Canadian dollar trading at $1.43 versus $1.35 to the U.S. dollar, which is favorable by approximately 6%. Lastly, during Q1-25, FGG settled its portfolio of gold forward contracts, which resulted in a reduction of cost of sales of approximately $600K. This was done in connection with our change in banks. In terms of productivity... Annualized revenue per employee was $234K in Q1 2025, approximately 9% better than Q1 2024. SG&A expense was $6.7 million in Q1 2025, up from $4.8 million in Q1 2024. And as a percentage of sales, it increased to 15.7% from 13.7%. This increase includes $1 million from the flight acquisition, acquisition-related professional fees of $100K, higher bad startup costs of just under $100K, and higher performance compensation. There are increases in some of the other operating expense line items, which in the case of R&D expense, amortization of intangibles, notional interest expense, and accretion on lease liabilities that are principally the result of the flight acquisitions. The corporation also had a foreign exchange gains of 900K in Q125 as compared to FX losses of 200K in Q124. These gains and losses are primarily related to the revaluation of U.S. dollar denominated assets and liabilities at the balance sheet date. Adjusted EBITDA was 8.4 million or 19.5% of sales for Q125. as compared to 4.6 million in Q124. Adjustments for the current quarter included acquisition and the Hyderabad startup costs and stock-based comp expense adjusted for both the current year and prior year. On a trailing 12 months basis, revenue was 170 million and adjusted EBITDA was 29.6 million or 17.4% of sales. Our net debt position as of Q125 was 8.3 million as compared to 0.7 million as of Q4 2024, which equates to 0.28 times adjusted EBITDA. During Q125, cash from operations, less lease liability payments, was $9.3 million. Items included in the change in net debt for the quarter included 4.3 million of cash used for the flight acquisition, as well as assumption of debt at flight of 9.4 million, capital expenditures and deferred development costs of 1.1 million, final settlement of the holiday circuit's earn-out of 1.5 million, net repayment of debt, bank debt, of 8.7 million, payment of year-end performance comp of 1.8 million, settlement of the DSU liability for $0.8 million, and the purchase of FGG shares on the market for $600K to settle the PSU obligation. During Q1-25, FGG completed a new bank deal with BMO Corporate Finance, which provides $20 million of committed financing lines and an uncommitted $15 million accordion facility for acquisitions. There are also facilities for FX forwards, precious metal forwards, and credit cards. As of the close of Q1 2025, FGG's use of the credit facility was 3.5 million US. FGG has a total backlog of 142 million as of Q1 2025, with 89% of that backlog scheduled for the next four quarters. Our focus will be delivering quality products to our customers on time and improving the efficiency of our operations. Our complete set of filings are now available on CDERplus.com. Back to Brad.

Thanks, Jamie. Let me delve into some important items for future FTEG, starting with a negative item. Tariffs or threat of tariffs are the new normal, and uncertainty surrounds tariffs each and every day. This makes it challenging to plan and react, but we're focused on this all day every day as it evolves. We have two sites in... which are now subject to high U.S. tariffs. For Aerospace Tianjin, this should have minimal impact as the site ships completed product to Canadian and Chinese customers. They ship some components and sub-assemblies to our Toronto site, who then makes the final product for shipment to U.S. customers. None of the work from Aerospace Tianjin should attract U.S. tariffs. For our circuit board joint venture, a small amount of work ships directly to the U.S. and will be subject to the high tariff. But over the past five years, they've already been subject to a 25% tariff on their exports to the U.S. But they also have work from Canada and Europe that will not be subject to any U.S. tariffs. Our growth plans for this business is to focus on customers in China, Europe, and Canada, and we're making good progress on all of these plans. As of yesterday, our U.S. sites... ship almost exclusively to US customers. So it will not be any tariffs on shipments to customers. As of yesterday, they would have seen tariffs on input costs or raw materials they buy. But as of this morning, those tariffs have been paused for 90 days. And so the US site at this moment looks like they are not subject to input cost tariffs or tariffs in shipping to customers. And in Canada, it's the same situation. The FTG sites are well-positioned. They are not subject to any tariffs on input costs, and at this moment, they're not subject to any tariffs on shipments to U.S. customers. As all of FTG products are U.S. MCA compliant. But every day is a new day, so all this could change at any point in time. As a reminder, we estimate that about 55 million of sales to customers located in the U.S. originate at FTG sites in Canada or China. While we are not exposed to tariffs between Canada and the U.S. at this moment, if they did happen, we do not believe the impact would be immediate. It will take time for the aerospace and defense supply chain to react to tariffs and find alternate sources of supply. But we are concerned and we are taking actions to mitigate any impact to FTG. First, our recent acquisitions in the U.S. have reduced our exposure as they are inside the wall and would not be subject to tariffs on sales. Going along with this, our long-term strategy to be a global player has resulted in sales outside of North America of over 26 million last year and was almost 12 million in Q1 this year. We are taking additional steps. In 2024, we made a conscious decision to find ways to increase our exposure to Airbus, not because of tariffs, but because they are the stronger performer in the air transport market. But whatever we do in this regard can also help mitigate U.S. tariffs. And more recently, we have made a conscious decision to pivot away from the U.S. market for our sites based in Canada and China. Obviously, the focus on Airbus is part of this. Subsequent to year-end, in our first quarter, we announced a significant new contract with De Havilland on their Canadair 515 water bomber aircraft. This is a Canadian program that we will support from our Toronto facility. We are also looking to become more locally focused by aligning U.S. customers with U.S. manufacturing sites and non-U.S. customers with non-U.S. manufacturing sites. We have identified $4 to $5 million of revenue for non-U.S. customers being manufactured in the U.S. We have begun the process of moving this work out of our U.S. sites and thereby potentially freeing up some capacity to move work in the other direction. The acquisition of flight will also help mitigate our exposure to tariffs. Flight's largest customers in Canada, and they sell globally. As we look to insource the manufacturing of flight products, we will do so in a manner to minimize our exposure to tariffs. On the topic of flight, we acquired it for a couple of key strategic reasons. First, we have expressed our desire to increase our activity in the high-margin aftermarket segment of our business for a number of years, and the acquisition of flight does this. Also, as noted, We are looking for ways to increase our activity with Airbus, and Flight has a SATCOM radio that is installed as an option on new Airbus aircraft. They are sold by a licensing agreement with the average annual volume being 200 to 300 units. Finally, we think the timing on this acquisition could be superb. Flight has spent significant time and money investing in updating products and developing new products, and the bulk of these investments are done. We think we can leverage these investments to generate strong results for the company going forward. Now that we own Flight, we have three key actions. First, we need to reduce costs. Flight took out significant costs in September of last year, and another million dollars dropped out due to the elimination of their public company costs when we closed our deal. We will manage their costs going forward. Second, we need to sell the new products. This is really the key action now, so let me delve a little deeper into this. There are three products that matter. There's a SATCOM radio that is sold into the aftermarket and licensed for delivery to Airbus as a factory option. For the aftermarket, the product is established and sales are well established and ongoing. This product can be used as a safety backup voice system or it can be used to transmit data useful for the airline over the Iridium satellite system. When it is used for airline data over Iridium, flight gets a recurring revenue stream reselling Iridium data services. The licensing agreement for Airbus has been in a hiatus for a few years due to a multi-year delivery in 2022, but this is expected to kick back in starting in 2026 and result in a multi-million dollar uptick in revenues when it does. The second product is a water vapor sensing system or WVSS2. Its purpose is to collect humidity outside of the aircraft as it flies and provide this data to weather agencies such as NOAA in the U.S. and UKMET in England and find it useful in weather forecasting. This product was modernized and updated last year. It was in qualification testing when we acquired Flight. We've had a challenge with the accuracy of the unit in tests and have been working with Boeing at their lab and at Flight to resolve this anomaly. And the good news is that as of March, it has been resolved. This has delayed sales in Q1 this year, but there are firm orders from both NOAA and UKMET. These can ship now as we complete STCs for the relevant aircraft expected to be ERJs and Boeing 737s. Once in service, there's also a data revenue stream associated with this product. And the third product is brand new. It's a 5G Wireless Quick Access Recorder, or WQAR. This product collects data from the aircraft in flight and downloads it to the airline's operations while at the gate using a wireless or cell phone connection. The flight product is the first 5G WQAR on the market. This product is qualified. The key now is to get approvals to install it on various aircraft types. The aircraft testing required for a Boeing 737 in Canada has been completed, and we expect the Canadian STC in Q2. This will then be expanded to Europe and China, which are expected to be the largest markets for this product. Aircraft testing for the A320 family of aircraft is expected to be done in April in Europe. Once complete in Europe, the priority will be to expand this approval to include China. And to go along with this, we have the flight sales team focused on aggressively selling these products as they become available. And finally, our third priority of flight is to insource the manufacturing to capture this margin within FTG. We are quoting the SATCOM radio product from both our Chatsworth and Toronto sites as we speak. These actions should enable flight to become a positive addition to FTG and further mitigate the risk from U.S. tariffs. In Q1, flight did generate a small positive EBITDA in our results. Also, as announced after our year-end, we're implementing plans to open an aerospace facility in Hyderabad, India. What is just recently announced, we've been working on these plans throughout 2024. First, our decision to expand geographically was partly us looking for an insurance policy against anything negative happening to our China operations, but it was also partly to expand into a new region with growth potential. As we analyzed options, we concluded India is a very cost-effective place for manufacturing. And with Prime Minister Modi's Make in India policy, coupled with significant defense spending, it would be an ideal place to operate. We selected Hyderabad, and it is an aerospace hub primarily focused on manufacturing, unlike Bangalore, which is more engineering and software focused. Our legal entity in India is established. Bank accounts are set up. Our first employees are hired. We have selected to have a facility built to suit due to the favorable location and the option to expand if or when necessary. This decision does mean we'll have to wait for most of 2025 to get our facility completed. In the meantime, we will be sourcing the necessary equipment to be ready to go. Our estimated total investment is approximately $2 million. While not the original intent, we believe this initiative will also help mitigate any negative impact from U.S. tariffs. And finally, we are developing plans to add sales resources in Canada, Europe, and even Asia to support our pivot away from the US market. This would be for both legacy FTG sites as well as flight. The integration of the sites we acquired in 2023 is substantially complete. We will continue to drive growth and operating performance, but we do this at all our sites. As noted earlier, the sites are growing on a year-over-year basis. We see opportunities to continue to grow going forward with our constraint being more how fast we can ramp production rather than finding growth opportunities. As we enter Q2 2025, we see continued strong demand across most sites. Of our $142 billion backlog, over 60 million is due in Q2. We are expecting to grow in 2025. The easiest aspect of our growth will be having the flight acquisition as part of FTG for over 11 months in the year. But there will be organic growth, too. We still expect to see further benefit from the high-value assembly orders first booked in 2023 and more booked in 2024 for our aerospace business. These assemblies go on both Boeing and Airbus aircraft. And we will see the benefit of the C919 program in China moving into production. We shipped aircraft. Our first production orders last year and production will increase through 2025. The geopolitical situation in China remains complex. But in 2024, both our operations in China had another record year. We repatriated cash back to Canada during 2022, 23 and 24. And in total, we've now brought back 3.6 million in cash. By doing this, we don't have surplus cash stranded in China and it reduces our exposure if things ever deteriorated between China and the West. On a more positive note in China, the C919 program is now in production and this will benefit our Tianjin operations going forward and make us less susceptible to geopolitical uncertainties. We continue to assess possible corporate development opportunities that could fit with either of our businesses. But our near-term priority is to integrate our recent acquisition. With a focus on operational excellence in all parts of FTG, our strong financial performance last year and in Q1 this year, our recent acquisitions and our key sales wins, we are confident we are on a strong long-term growth trajectory. One final note. Many people have noticed that we are recruiting for a new CFO recently. This might be Jamie's last analyst call. It is his decision to retire. We are disappointed to see it. But after just over five years of service at FTG, he's done amazing things for the company. He's helped us get through a cyber attack. He helped us get through the COVID pandemic. He's helped us with financing, both with banks and with government agencies. He's helped us complete three acquisitions. He's really been a key player in transforming FTG into what it is today. For sure, I thank him so much for his service. We will miss him, but he's not allowed to go anywhere until we do announce a new CFO. This concludes our presentation. I thank you all for your attention. I'd now like to open the phones for your questions. Joel?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Steve Hansen with Raymond James. Your line is now open.

Yeah, good morning, guys. Thanks for the time. Brad, question for you on the U.S. I understand the tariff shifting that you're undertaking. Are there also opportunities that the tariffs present for your U.S. facilities if other sites might be importing product into the U.S.? That might be a challenge now. Is there opportunities you can go after there domestically?

Yeah, again, every day is a new day. But depending on where the competitors are, what country they're in outside the U.S., tariff rates are different. Um, for sure it can create opportunities for the U S sites. Um, but you know, as of, as of this morning, tariffs are paused. So that benefit has gone away for the moment, but if it comes back, I would say generally, um, the U S sites would benefit against competitors in any area or country with one of the higher tariff rates.

Understood. And the opportunity that you described with the Haviland, the more recent one, is interesting. It sounds like they've also had a new avionics suite that they're looking to upgrade in the Dash 8. Is that something that could also be an opportunity? I'm just thinking about other opportunities domestically here in Canada.

Yes, definitely. And, you know, the Haviland's an evolving company. I think they have some pretty aggressive growth objectives. We've been doing business with them or... Parts that have rolled into the Havilland over the last number of years, I think we have a pretty good relationship with them. I think any time they are looking at new programs, new upgrades, it creates an opportunity for us. It's not a guarantee, but it creates an opportunity.

Sure. And then just on the aerospace side specifically, not to get too much into the weeds, but you described you had an incremental tailwind from the strike comp last year. and you also had some new incremental business from flight. But was there something that also got missed out or something that slipped away? It looks like organic growth there might have been lower if I just take the additions of $3 million on the straight comp. I'm just trying to understand if there's something underneath there that also slipped away.

Yeah, it can be a man that slipped away, but I would say there's definitely some... I can say never-ending timing challenges within that business, primarily around our supply chain components and that. We're also in the midst of... We have a significant program where we're doing eight different box assemblies for cockpits that go on Boeing and Airbus aircraft. It's been a challenging program due to our customer or their customer. Of the eight assemblies... One of them has moved to production. The other seven have been delayed. And so for sure, those things have also impacted the aerospace business on a short-term basis. But one day we will get through that, and you'll see the benefits.

Understood. That's helpful. I'll jump back in the queue. Thanks.

Thanks, Steve.

Your next question comes from Russell Stanley with Beacon. Your line is now open.

oh good morning and uh congrats on the uh on the quarter um maybe first i could ask around china and the c919 program um sounds like comac wants to uh really accelerate the ramp here i'm just wondering if you can talk to how the ramp up of production and sales compares to your expectations are you you know is it tracking ahead or online any any color on that would be helpful um yeah i mean the the ramp

from the customer from Colmac is strong, is really strong. You know, last year we shipped, I don't know, 15 or so shipsets. They want us to ship 70 to 80 shipsets this year. It's a big number. It's a huge ramp. It's a challenge for us. And, you know, in the midst of that, we're trying to move our production from Toronto to Tianjin, which is where it will stay long-term. But yeah, the demand from the customer has been huge. The ramp is fast. And they want to go beyond that. Our struggle is going to be how to keep up with their demand.

Thanks on that. And maybe understanding the near-term priority is still integration of flight and looking ahead and the resumption of M&A. Just wondering your latest thoughts around Europe, seeing some Some really encouraging news there as far as potential for defense spending and more aggressive activity. I'm wondering what your latest thoughts are on that market as potentially being a target.

Yeah, it's Definitely a target for M&A at some point. It's on the list. And for either business, either on the circuit side of things or on the cockpit product side of things, then it's twofold. Again, one reason we're interested in Europe and a footprint in Europe is to, again, increase our activity with Airbus, so it's on the commercial aerospace side. The other reason is what you just said. If you look at Europe as an entity... European defense market is definitely the second largest defense market in the world, and they are definitely looking to ramp their spending. So it's an opportunity. It's attractive to us. We would love to find the right deal to pull the trigger and go. Nothing's on the table at this point, but it's definitely something we are trying to find a way to move forward with.

Great. And maybe one last question for me. Just around margins, be it gross or even with an excellent quarter, I think we're well ahead of what we had. And I'm just wondering, is there anything in the quarter you would call out as being unsustainable, you know, looking ahead to the rest of 2025? We're not even using tax?

Yeah. Really, I mean, Jamie talked about one item, which was, you know, we had in our transition of banks, we had to basically cancel out or close the gold hedges we had, and that gave us about a half a million dollar pickup in the quarter. Other than that, I think it was pretty clean. But, I don't know, Jamie, do you have other items?

Russ, I guess I'd also point to the, you know, FX gain. You know, those FX gains and losses come and go based on exchange rates. Nothing has happened yet in terms of a, you know, a real change in rates, but... A repeat of that, you know, would not be likely.

Got it. That's helpful, Connor. Congrats again. I'll get back to you.

Thanks, Russ.

Your next question comes from Nick Corcoran with Acumen. Your line is now open.

Good morning, guys. Congrats on the great quarter. Thank you. Just a couple questions for you. The first is the backlog saw a pretty strong uptick in the quarter. Any details on what drove that, and maybe more specifically, how much was it to have on contract?

Yeah. I guess what drove the growth in the backlog, two things come to mind. First one is the acquisition of the flight. The flight did come with a backlog, and so I'd say that was something on the order of $8 million or in that range. So that got added in the backlog. Definitely the Hamlin contract also was significant, got added in the backlog. It was on the order of about $6 million. And other than that, it's just strong demand in all our markets was still just everywhere. And so that also just drives the backlog up.

Great, and then I think you mentioned that $60 million is deliverable in the second quarter. Any indication of what constraints might be to achieving that full number?

Yeah, I don't know. Lots of constraints we deal with every day. That's what we do. Some of the stuff I talked about a moment ago, so for sure we still need to get through some customer approvals on some of the cockpit box assemblies we're trying to get out the door. So, you know, there's customer approvals needed on that. Supply chain challenges, you know, we have our challenges that other people in the industry have. You need 100% of all your components to be able to ship products. So even if you get to 99%, it doesn't matter. So there's supply chain challenges. And that's just ramping. And generally, you know, to ramp, we need to add people. Adding people is doable, right? But adding people and getting them to the point where they are contributing and adding to the throughput does not happen instantaneously. The day someone new walks in the door is not the day they start to contribute. There is a multi-month process to bring people up to speed, get them trained and adding value. So that is also a constraint in our ability to ramp to support the backlog.

That's helpful. And maybe one last question for me, just on tariffs. Right now, it looks like 10% tariffs across the board is kind of the status quo in the U.S. How much of that key pass through?

Stand by. I don't know. It depends on how it works, right? When we're shipping, the customer is paying the tariff directly. And so those are automatic tariffs. If the tariff is on input costs, we are definitely absorbing that cost. And then how much of that we can pass through, I don't know yet because we haven't had to pass any on as of this moment. But our goal is definitely to pass those costs on dollar for dollar wherever we can.

That's great, Kelly. Thanks for taking my questions. Thanks, Nick.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Steve Hansen with Raymond James. Your line is now open.

Oh, yeah, thanks. Just to follow up on cadence of deliveries for your customers, Boeing had some really strong deliveries last month, I believe, just 40 aircraft or so. How much of an inventory would they carry in advance? In other words, if they announced a production rate increase, you know, next month, is that something they would have already accounted for and pulled forward? Or would that sort of step change your orders in tandem? Like, how much of a lead lag is there around those deliveries versus your own production?

There is a lag, and it's a relatively significant lag, between them, you know, shipping more aircraft and when it hit the supply chain. The supply chain, you know, typically is going to see that increase a lot sooner than Boeing's. in terms of their deliveries. But there's two things going on there as well. It's a really weird situation at Boeing right now that they have a number of aircraft in inventory, and in some cases they're missing a component or two. They have the same challenges we have. So there are scenarios where, you know, you can see an uptick in their month-to-month deliveries and not really, you know, impacting positively or negatively on the supply chain like us. But generally speaking, I would say we'd be at least, we would see an increase at least six months before Boeing would report an increase in deliveries to their end customer, at least six months. That makes sense.

Appreciate the call. Thanks.

Thanks, Steve.

There are no further questions at this time. I will now turn the call over to Brad for closing remarks.

Thank you. A replay of the call will be available until Saturday, May 10, 2025 at the numbers listed on our press release. The replay will also be available on our website in a few days. I thank you all for your interest and participation. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.