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.