Firan Technology Group Corporation

Good morning, everyone. My name is Ludi, and I will be your conference operator today. I would like to welcome everyone to the FPG Q2 2025 analyst call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session following the presentation. If you would like to ask a question during this time, seem to press the star followed by the number one on your telephone keypad. And if you would like to rewire your question, seem to press the star followed by the number two. Please note that this call is being recorded. I would now like to turn the call over to Mr. Brad Born, President and Chief Executive Officer of Ferrant Technology Group. Mr. Born, you may proceed.

Thank you. Good morning. I'm Brad Born, President and CEO of Ferrant 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 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 guaranteed as a 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 as a result of new information, future events, or otherwise. Well, they set another sales record for FTG in our second quarter of 2025. We also had record EBITDA and adjusted EBITDA in the quarter. I'd like to thank everyone at FTG for their hard work and their contributions to our continued success. In the second quarter of 2025, FTG accomplished many financial goals, including our total bookings in the quarter reached $45.8 million. Our quarter end back odds stood at $133.5 million, a 9% rise from the previous year end. We achieved record revenue of $48.7 million, a 25.6% increase over Q2 last year. We achieved record adjusted EBITDA of $8.7 million in the quarter, up from $6.5 million in Q2 last year. Our net earnings rose by 36% to $3.5 million. And we maintained a strong balance sheet with net debt of $13.5 million, including $12.8 million of government loans, or approximately 0.4 times trailing 12-month EBITDA. Our operating cash flow last week's payments was $5.8 million for the first half of 2025. Other accomplishments in our second quarter included our recent acquisition, Flight, that achieved profitability in Q2. There's certainly lots more work to do there, but it's great to see some early results and positive results for them. Also related to flight, they achieved their first Supplemental Type Certificate, or STC, from Transport Canada for its April's Edge product on the Boeing 737. More STCs for this product are underway for additional aircraft types and additional geographic regions. We finalized the facility design and signed the lease for our planned aerospace facility in Hyderabad, India, with a target completion date of late 2025. Initial startup capital has also been invested in the new operation, officially now called FTG Aerospace Hydrobat. We completed qualification orders for some high-volume U.S. defense programs in the quarter and received new qualification orders on further U.S. defense programs. And partly in Q1, partly in Q2, we have strengthened our leadership team with the addition of Bill Sassati as Executive Vice President of FTG Circuits. Bill comes with extensive experience in all aspects of the circuit board industry, and he will be responsible for all six of FTG Circuits' businesses. In addition, Marco Vinica joined FTG in a newly created role as Executive Vice President, FTG Aerospace. Marco comes with extensive experience in all aspects of the aerospace industry. Marco will be responsible for the four FTG Aerospace sites, as well as the site under construction in India. And finally, yesterday, we added Russell Davis to our Board of Directors. Russell has unique experience as a board member of privately held companies, including Baby Shipbuilding Canada, and as a senior executive in public and private corporations, and as a senior partner in financial services firm DeLoy and corporate finance and M&A advisory services. Jamie will provide more details on our Q2 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. They have a backlog of over 8,000 orders, which is over a decade's worth of production at current production rates. For 2025, they're predicting growth of 7% over last year. At Boeing, they shipped just under 350 planes last year, down from about 520 in 2023. the incident on the Alaska Air 737, as well as the machinist strike they had last year. But looking forward, Boeing has plans to ramp their production to almost 700 planes annually in the next two years. Boeing's backlog is almost 6,000 planes, so also over a decade's worth of orders at current production rates. In the first half of this year, Boeing shipped over 250 aircraft, but they have recovered from last year's challenges under background and growth plans. While 2024 might have been a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the air transport market with a 2-to-1 advantage on aircraft ships in the last year and a 60% market share on order backlog. This has implications for FTG's plans going forward. In the business jet market, Bombardier reported mid-single-digit shipment increases last year. They're not providing guidance for this year due to the uncertainty around U.S. tariffs, which are okay for them for now, but are still somewhat fluid. Recently, however, Bombardier announced a new order for 50 aircraft with options for 70 more, which represents almost another year of backlog for them. They're also pushing hard to add a defense component to their business and have had some success in selling their business jets for defense applications. In the helicopter market, Bell Helicopter reported 5% overall revenue growth last year, but they also had some key U.S. military helicopter winds in the last few years that will drive significant growth going forward. Airbus helicopters had a backlog of 942 aircraft at the end of Q1 this year, which represents about five years of production. All of this flows 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's reporting 4% revenue growth this year. Also related to defense, Boeing was selected to develop and produce the next generation air dominance fighter. This is good news for them. And based on the supply chain approach of the previous air superiority fighter, the F-22, I would expect sourcing for this new program will be for U.S.-only suppliers. We did have small content on the F-22 when it was in production through our Chatsworth facility. We are in a much better position now to increase our content on U.S.-only procurements with five U.S.-based sites. Also, there are new commitments from all NATO members, including Canada, to ramp defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. And Canada said they will increase defense spending this year to 2% of GDP. Again, all this indicates significant increases in defense budgets for all European countries and for Canada. And the U.S. is looking to increase defense spending next year as well. Looking at the longer term, Boeing's most recent 20-year forecast for commercial aerospace shows significant long-term industry growth, and it continued to show 20% of all new aircraft deliveries going to China and close to 40% going to Asia, as has been the case in their recent forecasts. Business jet market is already seeing 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 in-market applications, but as we always remind everyone about this market, it is lumpy, so large year-to-year variations do occur. 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 market moves through their independent business cycle. It is not often all segments are growing. That seems to be the case now. Beyond all this, let me give you a quick update on some key metrics for FTG for our second quarter. First, as already noted, the leading indicator of business is our bookings or new orders. Our bookings were $45.8 million a quarter. resulted in the backlog of $133 million. Our second quarter sales were $48.7 million, up $9.9 million, or 26% above Q2 last year. The growth was approximately 45% from organic growth and 55% resulting from the acquisition of flight. And our aerospace business sales were up $5.7 million, or 56% in Q2 this year compared to Q2 last year. The increase is primarily due to the acquisition of flight in Q1 this year. Our aerospace task force site had a tough quarter, upset by strong growth in Toronto. Our tangent facility had modest growth in the quarter. On the circuit side of the business, sales in our second quarter this year were up 4 million, or 14%, over Q2 last year. All of this growth is organic. Of note, our strongest percentage growth was from our joint venture by Air Circuit's Minnetonka facilities. Overall at FPG, our top five customers accounted for 52.8% of total revenue in our second quarter. This compares to 56% last year. It's always good to see the dropping customer concentration as we add sites and expand our customer base, partly through the acquisition of flight. Airlines were two of our top 20 customers in Q2 due to the flight acquisition. 56, sorry. 67.5% of sales are to U.S.-based customers in the quarter. This includes sales by U.S. sites as well as sales from SDG sites in Canada or China. This compares to 80.5% in Q2 last year. While sales grew by 5% into the U.S., sales grew by 58% in Canada, 120% in Asia, and 170% into Europe. as we benefit from previous efforts to expand globally, including things like our content on the C-919 aircraft in China and acquiring flight with sales globally. This increase in sales outside the U.S. are helpful in the event of any tariffs the U.S. might impose. Our goal is to continue to grow our non-U.S. revenue for our non-U.S. sites. In Q2 this year, 32% of our total revenues came from our aerospace business, Aerospace business share increased due to the strong growth at Aerospace Toronto and the acquisition of flight. But now I'd like to turn the call over to Jamie, who will summarize our financial results for Q2 2025. And afterwards, I will talk about some key priorities we are working on. Jamie.

Thanks, Brad, and good morning, everyone. I'd like to provide some additional detail on our financial performance for Q2. On sales of 48.7 million, FGG achieved a gross margin of 15.9 million for 32.6% in Q2-25, compared to 10.8 million for 27.9% on sales of 38.8 million in Q2-24. For Q2-25, the flight acquisition contributed approximately 2.1 million on incremental gross margin. Excluding the acquisition, Gross margin dollars increased by 2.6 million on incremental sales of 4.5 million as a result of operational improvements, particularly within the circuit segment, and favorable foreign exchange rates in Q2 2025. The average X rate in Q25 was 4 cents or 3% above the rate for Q2 2024. Gross margin in Q2 2025 also benefited Gross margin within the aerospace segment was constrained in Q2 by delayed qualification of a new product line, which has delayed the related revenue. On a sequential basis, Q2 25 gross margin increased by 2.5 million or 1.5 margin points relative to Q1 25 on a sales increase of 5.9 million. Annualized revenue per employee in Q2-25 was $259K, which was up 11% from the prior year quarter. SGA expense was $6.8 million, or 14.1% of sales in Q2-25, as compared to $4.8 million, or 12.3% of sales in Q2-24. The increase in SGA includes $1.3 million in expenses from flight. 62K for the Hyderabad startup effort and higher performance compensation expense. R&D costs for Q2 2025 were 2.4 million, or 5% of sales, compared to 1.6 million, or 4.1% of sales for Q2 2024. R&D efforts include process development of the Circus segment and efforts to develop and qualify products for future aerospace programs. FX expense in Q2-25 was $0.4 million greater than Q2-24 and $1.3 million more than Q1-2025. A component of FX expense is the quarter end revaluation of U.S. dollar denominated balance sheet items, primarily cash, receivables, payables, and bank debt. The FX rates for the last three consecutive quarter end dates are $1.40 at Q4-24, up to $1.44 for Q1-25, and then back down to $1.38 at Q2-25. In Q2-2025, translation of U.S. dollar balance units was a 700K drag on earnings, whereas in Q1-2025, this was a lift of earnings of approximately 600K. FGG continues to manage FX and gold risk through placement of forward contracts. Our FX contract portfolio amounts to 52.9 million U.S. with a weighted average contract rate of $1.34 over a duration of 36 months. Gold forwards, we have 1,050 troy ounces at an average price just under 3K U.S. per ounce with a duration of 18 months. Adjusted EBITDA was 8.7 million or 17.9% of sales for Q2 2025 as compared to 6.5 million or 16.7% of sales for Q2 2024. EBITDA adjustments were limited to stock-based comp in both periods and India startup costs of 62K in the current quarter. Adjusted EBITDA for the 12 trillion 12-month period and in Q2-25, is $31.9 million, or 17.7% on sales of $185.7 million, with a net debt equal to 0.4 times adjusted EBITDA for the trailing 12-month period. Investment in CapEx and deferred development in Q2-25 was $1.5 million, or 3% of revenue. in this range for the duration of 2025. Operating cash flow plus receivability payments is $5.8 million for the first half of 2025, broken down as a positive $8.1 million and negative $2.3 million for Q2. We are entering the second half of 2025 with a backlog exceeding 133 million. Our focus will be continuing to deliver quality products to our customers on a timely basis and improving the efficiency of our operations. Our complete set of Q2 filings are now on cedarplus.com. And with that, I will turn the call back to Brad.

Thanks, Jamie. Let me delve into some important items for the future of FDG, starting with a potentially negative item. Tariffs or threat of tariffs from the U.S. are the new normal, and certain uncertainties around these tariffs. This makes it challenging to plan and react to, but we are focused on this every day as it evolves. We have two sites in China which are now subject to U.S. tariffs, but a relatively small portion of their work ships to the U.S., For Aerospace Tianjin, this should have minimal impact as the site ships completed products to Canadian and Chinese customers. They ship some components and sub-assemblies to our final site to then make final products for shipments to U.S. customers. For a circuit board joint venture, a small amount of work ships to the U.S. and will be subject to the new tariff. Over the past five years, they've had a tariff at 25% on their exports to the U.S., but they've also had work from Canada and Europe that will not be subject to U.S. tariffs. Our growth plans for this business is to focus on customers in China, Europe, and Canada, and we are making progress on these plans. Our U.S. sites ship almost exclusively to U.S. customers, so there will not be any tariffs on shipments to their end customers. But they are starting to see some tariffs on input costs or raw materials they buy, some of which come from Europe or Asia. So far, the impact is immaterial, but we will continue to track this in the coming quarters. And then surprisingly, at this moment, the FTG site, are Canadian sites. They are not subject to any tariffs on input costs, and at this moment, we are not subject to any tariffs on shipments to U.S. customers as FTG products are USMCA compliant. But every day is a new day, so all of this could change at any time. As a reminder, we estimated about 55% of sales to customers last year located in the U.S. originated from 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 action to mitigate any impact to FTP. First, our acquisitions in the U.S. over the past years 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 already $27 million in the first half of 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 a stronger performer in the air transport market. But whatever we do in this regard can 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 inside the U.S. Obviously, a focus on Airbus is part of this. In Q1 this year, we announced a significant new contract with the Avalon on their Canadair 515 water bomber aircraft. This is an example of a Canadian program that we will support from our Toronto or Canadian facilities. We are looking to become more locally focused by aligning U.S. customers with our U.S. manufacturing sites and our non-U.S. customers with non-U.S. manufacturing sites. We have identified $4 to $5 million of revenue for non-U.S. customers currently being manufactured in the U.S. We have begun the process of moving this work out of our U.S. sites and thereby potentially cleaning 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 customer is 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 tests. Well, on the topic of flight, we acquired it for a couple of strategic reasons. First, we've 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 earlier, we're looking for ways to increase our activity with Airbus, and Dwight has a SATCOM radio that is installed as a factory option on new Airbus aircraft. They are sold via a licensing agreement with an average annual volume of 200 to 300 units. Finally, we think the timing on this acquisition could be superb. Dwight 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 Dwight, we have three key actions. First, we need to reduce costs. Dwight took significant costs out last September, and another million dropped out due to the elimination of their public company costs when we closed our deal. We will continue to manage their costs going forward. Secondly, we need to sell the new products they developed. 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. The 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, the flight gets a recurring revenue stream reselling Iridium data services. The licensing agreement for Airbus has been in a hiatus mode for the past few years due to a multi-year delivery in 2022, but this is expected to kick in again starting next year, which is expected to result in a multimillion-dollar uptick when it does. Second product, there's the Water Vapor Sensing System, or WDF, inside the aircraft as it flies, and provide this data to weather agencies such as NOAA in the US and UKMAT in England, who find it useful in weather forecasting. This product design was modernized and updated last year. It was in qualification testing when we acquired FLIGHT. Qualitesting is now complete. There are firm orders from both NOAA and UKMAT. These can ship as we complete FTCs for the relevant aircraft types, expected to be ERJs and Boeing 737. Once in service, There is also a data revenue stream associated with this product. Also related to this product are potentially commercial and military applications for it to monitor aircraft contrails, and we are exploring these. 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 airline operations while at the gate using a wireless or cell phone connection. The twice 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 Boeing 737 approval has been received in Canada. This will now 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 also complete in Europe. Once approved in Europe, the priority will be to expand the approval to again include China. We have the flight sales team focused on aggressively selling all of these products as they become available. And finally, our third priority for flight is to insource manufacturing to capture this margin within FTG. We are now looking at options for both the SATCOM radio and the WQAR product from our facilities potentially in the U.S., Canada, or China. These actions should enable flight to become a positive addition to FTG and further mitigate risks from U.S. tariffs. And as mentioned earlier, flight was profitable in Q2 this year. Also, as announced in Q1, we are implementing plans to open our aerospace facility in Hyderabad, India. We have been working on these plans throughout 2024. First, our decision to expand geographically was partly us looking for an insurance policy against anything negative that could happen to our China operations, but it's also partly to expand into new regions 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 as it has become an aerospace hub primarily focused on manufacturing. Our legal entity is established. We have selected to have the facility built to suit due to the favorable location and the option to expand it for when necessary. This decision does mean we will have to wait for most of this year 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 forecast to be approximately $2 million. While not the original intent, we believe this initiative could also help 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 pivotal wave from the U.S. market. This would be for both the legacy FTG sites as well as flight. As we enter Q3 2025, we see continued strong demand across most sites. Of our $133 million backlog, over $60 million is due in Q3 this year. But as we know each year, our Q3 includes the summer months of June, July, and August, and we typically lose about a week of production due to summer vacations. We are expecting to grow in 2025. Easiest aspects of our growth will be having the flight acquisition as part of FDG for over 11 months in the year. We also expect there will be organic growth. The geopolitical situation in China remains complex. In 2024, both our operations in China had another record year, notwithstanding the uncertainty. But we have repatriated cash back to Canada during 2022, 2023, and 2024. And in total, we've now brought back $3.6 million in cash. And we are repatriating more in 2025. By doing this, we don't have surplus cash stranded in China and reduce our exposure if things deteriorate between China and the West. On a more positive note, in China, the C919 program is now in production, and this will benefit our Chinese operations going forward and make us less susceptible to any 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 acquisitions. With a focus on operational excellence in all parts of FTG, a strong financial performance last year and the first half of this year, our recent acquisition and our key sales win. We are confident on a strong long-term growth trajectory. This concludes our presentation. I thank you for your attention. I would now like to open the phones for any questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press a star followed by the number two. With that, our first question comes from the line of Nick Corcoran with Acumen Capital. Please go ahead.

Good morning and congrats on the record quarter. Thanks, Nick. This is my first question on the backlog. It was relatively flat from the last quarter. Is this where we should expect the backlog to settle and what would potentially drive it higher?

Yeah, I'm not sure I expect it to settle, but we do see a little ups and downs each quarter based on significant events. In Q1 this year, You know, we bought, for instance, the Avalon water bomber contract. That was a multimillion-dollar contract, so it spiked Q1 up a little bit. We didn't have any, you know, significant events like that in our Q2, so that's why it remained relatively flat. And I guess the other one for Q2 is, you know, almost all our backlog is in U.S. dollars, and so the exchange rate can cause our backlog to move up and down and, again, Jamie might correct me, but I think we had about a $6 million impact on FX in the quarter in our backlog just due to FX rates. But, you know, having said that, going forward, you know, we have lots of interesting opportunities, and, you know, I'm expecting that we can see some good wins and continued growth in our backlog as we progress through the rest of the year.

maybe switching to flight. I know you talked about enforcing production of their products. Any indication what the timeline for this would be?

Yeah, I'm going to start with I would have thought it would be by now, but it's not. So we are, you know, we're a little bit late in making that happen. It's proving to be a little bit more complex, but it's also, you know, the original plan was simple. I was going to push production of, you know, the first product, the SATCOM radio and the Chatsworth site. But then tariffs and the uncertainty of tariffs has complicated our decision. And so, you know, it's causing us to delay a little bit and consider what is the right site or is it more than one site and where we want to manufacture this stuff. So, you know, that has definitely slowed us down. And it's, you know, proved to be a little bit more complex than anticipated initially to get this production going. So, I don't know, long answer. You know, I'm hoping we are up and running, I can say, this year, but, you know, it's that sort of timeline right now.

Great. If that's all for me, I'll pass on. Thank you. Okay. Thanks, Dan.

And your next question comes from the line of Russell Stanley with Beacon Securities. Please go ahead.

Good morning and congrats on the quarter. Just understanding some sensitivity perhaps here, but you noted you qualified for some new high-volume U.S. defense programs. Wondering if you can elaborate on what you're adding there.

Yes and no. I'll add a little bit. So, for sure, these programs are for our circuit board side of the business, and certainly really in our U.S. side skills, U.S. military programs, it's, you know, we're still working on or negotiating and working through what the upside will be for FGG. So I don't have firm numbers, but I would expect it's in, you know, the multi-million dollar range. So, you know, we're not dealing with hundreds of thousands of dollars here. But I don't have a final number because we don't have it.

Understood. And as always, appreciate the color around what you're seeing from some of the major end customers and everything. As you know, it looks to be strong in the demand front. I'm wondering at the program level, have you seen any softness or any hiccups in any specific programs? Maybe call it the C919, given the tariff or disruption of some exports of components there. But have you seen anything else at the program level, any hiccups in demand that you can call in? Sure.

Well, I think through that, I'll talk about C919. So you're right that when it was a month or so ago, the U.S. decided to block export of engines for the C919. That has been removed, and so those exports have begun again. So that's good news. It could have been a significant impact to that program for this year. It looks like it won't be, but again, every day is a new day, so we'll see what happens. Other than that, No, I'd say we always in aerospace, everyone's schedules prove to be slightly more optimistic than the way they turn out. But it's day-to-day stuff, whether it's new development programs or just getting things ramped up. It always drags out a little bit, but nothing beyond the normal.

Got it. And maybe one last question for me just on the working capital front and specifically payables. I think you used some cash to pay those down. during the quarter, anything chunky or one-off in there that we should, that you'd call out, or should we regard current payable levels relative to sales or COGS as a more normal level going forward? Thank you.

Yeah, I don't know. I was expecting you or someone to ask more on the other side, on receivables or inventory, not on payables, so you tricked me on that one. But I, you know, for sure we use a lot of working capital in Q2 But overall, being specific on any one of them, I would say it is at an elevated level, and I do expect working capital to come down in the coming quarters just due to some day-to-day nuisance things on both inventories and receivables at FTG. So it's a little bit elevated right now, and it will come back down in the coming quarters.

That's great. I appreciate the call. Congrats again. I'll get back in the queue.

Okay. Thanks, Wes.

And your next question comes from the line of Robert Murphy with Raymond James. Please go ahead.

Hi, Kim. Thanks for the time. Yeah, so just first question, just on the aerospace segment. Outside of incremental results from flight to the balance of the year, how do you see organic growth kind of progressing into 3Q and then into 4Q? And then kind of what are some of your factors underpinning this outlook? Thanks.

Yeah. I don't have a firm growth number for the aerospace business, but Q2 was definitely a little bit softer than I would have anticipated. We had some product that we had built, and in the end, we could not ship out in the quarters. That hurt Q2 a little bit. We have really strong backlog across the business in aerospace, and some of the... Defense contracts, I talked about where, you know, we have got through qualification are to the benefit of aerospace chats. So backlog looks strong. As long as, you know, we can work through stuff with our customers and get, you know, get solid delivery dates, solid deliveries from our suppliers on components, you should see some pretty solid organic growth in the coming quarters.

Okay, great. That's super helpful. And just kind of on the margin there for aerospace, I think you mentioned there was some delayed qualification in the product line in there that might have impacted in the quarter. So I was wondering if you could provide a bit more kind of more color here and then kind of how we should see margins in the aerospace segment kind of progressing here.

Yeah. It's a great program. The one that Jamie was referring to is on the commercial aerospace side of things. We're doing some cockpit assemblies. Some of them go into Boeing aircraft. Some of them go into Airbus aircraft. It's a great program. It's definitely worth millions of dollars for FDG. We thought we were through all of our development efforts in the last year, and we actually shipped some units, and then we got into a – Some testing, it was actually at Airbus, and the testing caused everything to stop. In the end, nothing changed, but it caused a delay in the action, and so that's been a little bit frustrating. On the previous question, I was asked about, I built inventories of about a million dollars of product that got built but could not ship in Q2, so I think We're close to getting through that and getting it all sorted out so we can start shipping products, but I thought that in the previous quarters as well. So we'll see how we do this time, but I do think we're getting close that we'll start to convert to regular revenue for the aerospace business going forward. And, you know, even on that, the program is – with our Aerospace Toronto facility, but because of the volume of that, we actually were building product in Toronto and in Chatsworth in Q2 to try to support the demand. Again, it turned out to be inventory as opposed to revenue in the quarter, but, you know, at some point that inventory will become revenue.

That would be great. That's super helpful. And then just finally, just on India quickly, I was just wondering kind of when you expect to have sales visibility there.

Yeah, we're trying to do two things with our Indian facility. One of them is to sell back to the West, and one of them is to penetrate the Indian market. For sure, the timeline to generate revenue from the Indian market is going to be longer than selling back to the West. And so I don't know what to say. I'd be surprised if we had any significant sales to the Indian market through next year even. But coming back to the West, some of that's going to be, you know, we've got to get the site approved and approved by, you know, a handful of customers. Then we can transition existing work into that site. So it's really a capacity management opportunity for us. And so I would expect maybe mid-next year we'll start to see real revenue from that site for Western customers.

Okay, great. Thanks for the time. I'll turn the line back. Thank you.

And your next question comes from the line of Sebastian Tarland with AgriCapital. Please go ahead.

Good morning. Solid quarter. Bravo. I'm trying to compare the revenue margin profile between a commercial and a military aircraft from Tron's perspective. Can you provide a rough ratio or revenue contribution that we could expect from, let's say, one military versus a similar commercial single-aisle aircraft?

No. I got to try. Now, generally, I don't see a significant difference in margin, whether it's commercial aerospace or defense work. Occasionally, we're doing... work directly with the U.S. government, generally on aftermarket parts. So it goes through what's called the Defense Logistics Agency in the U.S., which is the agency set up to buy spares for the U.S. military. When we're dealing direct with the agency, we do get into some government costing rules and regulations, and generally those rules depress margins a little bit because you have to support your price with costs and markups and everything. And we're going through one of those right now. But even with that, it's not a material difference. I really think I see similar margins on my commercial aerospace work as I do on almost all of my defense work.

Okay. And per unit, like the revenue per unit, is it also similar or there could be more equipment on the one or the other?

Yeah, it's It can be either. It could be the same or it could be more or less. It really, the content depends on how successful our sales guys are in winning work. My favorite program, for what it's worth, is the military program. It's the C-130 aircraft that's made by Lockheed. And there's no reason I like that program. It's been around forever. It's been in production for about 50 years. It's not high volume, but it's there every year. But that is one where, you know, we do sell circuit boards. We do sell cockpit products. We sell simulator products. And so I like that one just because we're selling everything we have onto that platform. And, yeah, but each program is 100% dependent on, you know, what we get a shot at and what we're successful in winning. And it can vary widely from aircraft to aircraft.

Okay, that makes sense. So, I guess I would compare, like, C30, 130, the Hercules as the higher revenue, and perhaps the F-22, which I think you alluded earlier to less components approved.

Yeah, well, I mean, right, and the F-22 is now out of production. But, yeah, when it was in production, you know, for sure that was U.S. only. At the time that was in production, the only U.S. site we had was our Chatsworth circuits facility, and so we had one circuit board on that aircraft. So, yeah, that was pretty low content. hopefully going forward on U.S.-only programs, we can get more because we have much more capacity and technology available in the U.S.

Good. Thanks for the color on this. Regarding the Bombardier record challenger in global order that they announced last week, I think it was like over 50 planes. It almost looks like a disguised NATO military order. Would it be reasonable to assume that FHIRON has a fair chance of getting a piece of that?

Yeah, for sure. You know, through two avenues, just about every cockpit panel and every Bombardier aircraft comes from us. And so, you know, we have great content in the cockpit. And so that's one avenue. The other one, generally, every Bombardier aircraft uses Collins avionics, and we supply into Collins on their avionics week that ends up on those aircrafts. So, yeah, I fully expect to have content on everything they manufacture, whether it's for business jet or military or any other application.

Great. Well, Bob, again, that's it for me.

Okay. Thank you.

Next question comes from the line of Ashvin Morjani with Edward Jones. Please go ahead.

Congrats on your continued strong execution. And are you seeing any further opportunities on pricing and or any low-hanging fruit projects that can generate a high ROIC? And if you could speak about the cash-sharing ability of these projects, that would be helpful as well.

Yeah, for sure there is. Pricing opportunities. Our favorite one is expedited deliveries, and we always see some of that. Maybe we're seeing a little bit more right now than we've seen through the last half of last year. But when a customer needs expedited deliveries, generally that is a good pricing opportunity for us. And just overall demand. The demand in the market – is strong, and that creates some pricing leverage as well. So, yeah, for sure on that. And I lost your second question. I'm sorry.

Just in terms of different projects, low-hanging fruit projects that generate a higher OIC, you've been doing quite a bit with flight, of course, and congrats on that, but just any other opportunities to expand with your deployed capital that can generate a high cash return on that?

Yeah, I don't know. I'd probably do that on everything we do here. I can't think of a specific program or something that's going to have a higher margin opportunity than others right now. I'm just trying to make stuff up. I think right now I'm in the process of moving my production of the cockpit assemblies for the C919 from my Toronto facility out to Tianjin. The price doesn't change, but my cost should drop as I move the work to China. So that should increase the margin on that opportunity. We're right in the midst of that. Hopefully, we will start producing that work in Tianjin in Q3 this year. So that's one where we're going to expand margins. It's not a new program, but it's a margin opportunity opportunity. Yeah, other than that, again, a little bit of pricing leverage can help expand margins, but I can't think of any specific program that's going to give us an uptick in margins or return on capital.

Do you see any further pricing on the previous acquisitions you made, or do you feel like the pricing has been fully realized? You mentioned there was a gap in between what they were selling their products for in the past versus what you think you could sell them for.

Sure. That's a good question. I do think there's still some opportunities. Our big acquisition in 23 was the site in Minnetonka. The first year, we did some price increase in the first year, but we were running blind. We've now basically been running with our ERP system for the last year. Definitely, we're getting better cost data on all our products in Minnetonka and knowing your cost is often helpful in pricing product. So, you know, definitely there is still opportunities in Minnetonka to, you know, take advantage of our much-improved data to adjust pricings as appropriate.

Perfect. Thank you.

Thank you.

And once again, if you would like to ask a question, seem to press a star 1 on your telephone keypad. And we have no further questions at this time. I would like to turn it back to Mr. Brad Pomer for closing remarks.

Okay. Thank you. The replay of the call will be available until Saturday, August 9th at the numbers listed on our press release. The replay will also be available on our website in a few days. And thank you all for your interest and participation. Thank you.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining me now. Disconnect.