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.