Firan Technology Group Corporation

Good morning. I would like to welcome everyone to the FTG third quarter 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 1 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 try to call over to Mr. Brad Bourne, President and Chief Executive Officer of FTG. Mr. Bourne, you may proceed.

Thank you. Good morning. I'm Brad Bourne, President and CEO of Fran Technology Group Corporation, or FTG. Also on the call today is Jamie Crichton, our Chief Financial Officer. Before we go any further, I must caution you that this call may contain forward-looking statements. Such statements are based on the current expectations and management of the company and inherently involve numerous risks and uncertainty, known and unknown, including economic factors and the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guaranteed the future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the company. The listener is cautioned to consider these and other factors carefully when making decisions with respect to the company and not place undue reliance on forward-looking statements. The company does not undertake and has no specific intention to update any forward-looking statements, written or oral, that may be made from time to time by or on its behalf, whether a result of new information, future events, or otherwise. Our third quarter was another solid quarter for FTG. Our financial results were in line with our expectations, particularly given it included the summer months of June, July, and August, where we lose about a week of production due to summer holidays. In the third quarter of 2025, FTG accomplished many financial goals, including our bookings were $51.5 million, resulting in a book-to-bill ratio of 1.08 in the quarter. Our quarter end backlog stood at $137 million, a 12% increase from the previous year end. Our revenue in Q3 was $47.7 million, an 11% increase over Q3 last year. Our adjusted EBITDA was $7.6 million in the quarter, up from $7.2 million in Q3 last year. Our adjusted net earnings rose by 5.9% to $2.9 million. Our net debt was reduced by $4 million to $9.5 million, including $11.6 million of government loans. And our net debt EBITDA was 0.3 times on a trillion 12-month EBITDA basis. And finally, we generated operating cash flow less for lease payments of $5.5 million in the quarter. Other accomplishments in our third quarter included a recent acquisition of flight was profitable for our second straight quarter. A supplemental type certificate, or STC, was completed with the European Aviation Safety Agency for the Afer's Edge Plus product on the Airbus A320 family of aircraft. We now have STCs for both the Airbus A320 and Boeing 737 aircraft in at least... one jurisdiction and working to expand these approvals to other key jurisdictions. And we booked our first Edge Plus order from an Asian customer. We initiated qualification activity for some further U.S. defense programs. But maybe most importantly, we made a series of organizational changes to continue to position FDG for future growth and success. First, we have had some succession activities underway at FTG, and we have two new hires to continue our progress in this area. As part of this, we hired Steve Eldefonso to lead our corporate quality function, taken over from Brian Clark, who retired at the end of Q3. Steve comes with strong experience in both printed circuit boards and assembly operations. And subsequent to quarter end, we hired Drew Knight as our new chief financial officer, replacing Jamie Crichton, who is retiring. Drew has significant public company experience as a CFO, and equally importantly, has strong manufacturing experience, including time at Magna and other companies significantly larger than FTG. Drew will start at FTG at the end of October. Also, as we scale up and we report strong results, we have found more people interested in joining FTG and being part of our future success. As a result, we have leveraged our attractiveness to upgrade our leadership at the next level to make FTG even stronger going forward. To this end, we have replaced our general manager in our Circus Fredericksburg facility with Trey Adams, who comes with strong industry experience and a can-do approach to business. Trey will also be responsible for our Haverhill facility as Peter Bigelow retired from FTG earlier this year. We have replaced our general manager in our Arrow Toronto facility. And subsequent to Fort Warren, we replaced our general manager in our Circus Minnetonka facility with Curtis Olson, who also comes with strong industry experience, where he has had operational leadership roles at sites larger than our Minnetonka facility. All of these changes did have some financial impact in the quarter, but I am convinced the long-term benefit will far outweigh the cost. Jamie will provide more results on our Q3 results shortly. Let me turn to some external items. Our end market demand remains strong. Airbus delivered 766 aircraft last year, but more importantly, are they 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 are projecting growth of 7% over last year. And they just reported September deliveries at 73 aircraft, their best September ever, and up 46% from last September. 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 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 current production rates. In the first nine months of 2025, Boeing has shipped 385 aircraft, which is higher than their total shipments for all of last year. They are on track for shipments of over 500 aircraft this year. But 2024 might have been a low point for Boeing. It has been clear that Airbus is outperforming Boeing in the air transport market with a two-to-one advantage in aircraft shipped 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 a mid-single-digit shipment increase for 2024. In Q3 this year, Bombardier announced a new order for 50 aircraft with options for 70 more, which represents almost another year of backlog for them. They were pushing hard to add a defense component to their business, and they had some success in selling their business jets for these defense applications. In the helicopter market, Dell Helicopter reported a 28% revenue increase in their latest quarter, driven by increased defense programs. All of this bodes well for us as we look to future demand in the coming years. I've also looked at results from some key defense contractors. For instance, Lockheed reported a 1% revenue growth in Q3 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. Based on the supply chain approach for the previous U.S. air superiority fighter, the F-22, I would expect sourcing 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. But we are now better positioned to increase our content on U.S.-only procurements with our five U.S.-based sites. In addition, there are new commitments from all NATO members, including Canada, to rent defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. And Canada has said they will increase defense spending this year to 2% of GDP. All of this indicates significant increases in defense budgets for all European countries and Canada. The recent creation of a defense investment agency in Canada to accelerate and streamline future defense procurement activities is positive for the industry here. And the U.S. is also looking to increase defense spending this year. Looking at the longer term, Boeing's most recent 20-year forecast for commercial aircraft shows significant 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 their recent forecast. The business jet market has seen traffic recover, and 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. We are starting to see more quote activity in this segment. As we have said for many years, FTG's goal is to participate in all segments of the aerospace and defense markets as each of these move through their independent business cycles. It is not often all segments are growing. That seems to be the case now. Beyond all All of this. Let me give you a quick update on some key metrics for FTG for our third quarter this year. First, as already noted, the leading indicator of our business is our bookings for new orders. Our bookings were $51.5 million in the quarter. This resulted in a backlog of $137 million. The high volume of qualifying activity on new programs is also a leading and positive indicator for FTG. In our third quarter, sales were $47.7 million, which is up 11% over Q3 last year. The growth is driven by the acquisition of flight earlier this year. In our aerospace business, sales were up 25% in Q3 compared to Q3 last year. The increase is primarily due to the acquisition of flight that occurred in Q1 this year. During the quarter, we had a lot of intercompany activity between the various aerospace sites, assisting each other in production, and much of this activity did end up not shipping to customer by quarter end, and this dampened our revenue a little bit in the quarter. This included the transition of the C919 assembly product from our Toronto facility to our Tangent facility, which slowed planned Q3 deliveries and could do so again in Q4, but the C919 demand remains strong and is even increasing. On the circuit side of our business, sales in the third quarter this year were up 4% over Q3 last year. All of this growth is organic. We saw double-digit growth in our Chatsworth, Fredericksburg, and Joint Venture facility in China, offset by lower growth in Toronto and Minnetonka. Overall at FTG, our top five customers accounted for 52.7% of total revenue in our third quarter. This compares to 59.3% in Q3 last year. It's great to see the dropping customer concentration as we add sites and expand our customer base, partly through the acquisition of flight. Airlines were three of our top 20 customers in Q3 due to the flight acquisitions. Also interesting to note of the top 10 customers, six are customers shared between circuits and aerospace. We like to see the shared customers, but it means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. Given the actions of the new administration in the U.S. of implementing tariffs, it's also good to see that one of our top 10 customers, they're primarily outside of the U.S., and this is in China. Another seven have operations both inside and outside the U.S., On this topic, 71.9% of sales are to U.S.-based customers. This includes sales by U.S. sites as well as sales from FTG sites in Canada or China. This compares to 76.6% in Q3 last year. While sales grew by 4% in the U.S., they grew by 12% in Asia and 140% into Europe while they were flat in Canada. 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. This increase in sales outside U.S. are helpful in the event 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 wherever possible. In Q3 this year, 35% of our total revenues came from our aerospace business compared to 31% last year. The aerospace business share increased due to the acquisition of flight. But now I'd like to turn the call over to Jamie, who will summarize some financial results for Q3, 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 Q3. On sales of 47.7 million, FGG achieved a gross margin of 14.5 million, or 30.3%, compared to 11.6 million, or 27%, on sales of 43.1 million in Q3 2024. Regarding the increase in gross margin dollars, approximately $2 million is from the flight acquisition, and approximately $0.9 million is from organic growth and operational improvements. The average exchange rate experienced in Q3 2025 was $1.37, essentially unchanged from Q3 2024. The Q3 2025 year-to-date gross margin rate of 32.2% is up from 26.8% for the comparable period in 2024. The year-to-date number includes a reclassification of $1.5 million of R&D costs incurred at the flight operation, which were previously included in cost of sales in our financial statements for the first and second quarters of 2025. We continue our focus on operational efficiency to financial performance for our shareholders and operating performance for our customers. For Q3 2025, annualized revenue per employee is approximately $247,000. which is down 1.5% from the comparable quarter of 2024. We have ramped up headcount at certain sites to support the backlog, and the impact will appear in the upcoming quarters. SGN expense was 6.3 million, or 5.1% of sales in Q3 2024, as compared to 5.1 million, or 11.8% of sales in the prior period. The increased expense level includes the impact of the flight acquisition, severance costs of 212K, and India startup costs of 44. R&D costs for Q3 2025 were 2.6 million, or 5.4% of net sales, compared to 1.7 million, or 4.4% of sales for Q3 2024. R&D efforts include product and process improvements at the circuit segment and efforts to develop and qualify products for future aerospace programs, including the flight product. The exchange rate at the Q3 2025 close was $1.37 as compared to $1.38 at Q2 2025, which means a slightly stronger Canadian dollar. FGG's balance sheet includes assets and liabilities denominated in U.S. currency, with a net asset balance of approximately 28.2 million U.S. dollars. The translation of our U.S. dollar net assets and liabilities into Canadian currency at the end of Q3 2025 and other FX items resulted in a foreign exchange loss with a quarter of 0.6 million compared to a foreign exchange gain of 0.2 million in the prior year quarter. the Q3 2025 FX loss disproportionately impacted the aerospace segment operating results. Earnings before interest tax depreciation amortization was $7.3 million for Q3 2025, as compared to $6.9 million in Q3 2024. Adjusted EBITDA was $7.7 million for Q3 2025, or 16.1% of sales. and $7.2 million for Q3 2024, or 16.7% of sales. Adjustments to EBITDA for Q3 2025 included severance costs, India startup costs, as well as stock-based comp, which is a recurring item. Adjusted EBITDA for the trailing 12-month period ended Q3 2025, which is $32.1 million, which equates... to an adjusted EBITDA margin of 17.4% on sales. For Q3 2025, FGG recorded earnings before income taxes of 4.1 million or 8.5% of sales as compared to earnings before EBIT for Q3 2024 of 4.3 million or 9.9% of sales. The Q3 2025 tax provision was 1.2 million or 30% of pre-tax earnings as compared to 34% in Q3 2024. Cash flow from operating activities less lease liability payments was 5.5 million in Q3 2025 as compared to 4.3 million in Q3 2024, primarily due to favorable change in non-cash working capital. Year-to-date cash flow from operating activities less lease liability payments was $11.2 million in 2025 as compared to $7.2 million in the same period in 2024, primarily due to higher net earnings. Our net debt possession as of Q3 2025 is $9.5 million, which equates to 0.3 times 12 months adjusted EBITDA. As at quarter end, the company's primary sources of liquidity exceeded $88 million, consisting of cash, accounts receivable, contract assets, and inventory. Working capital at Q3 quarter end was $53.3 million as compared to $49.5 million at the 2024 year end. Accounts receivable days outstanding were $55 at the Q3 quarter end compared to $59 at 2024 year end. Inventory days were $114 at the Q3 quarter end as compared to $104. and accounts payable days outstanding were 62 at the Q3 quarter end as compared to 63 in the 2024 year end. We completed Q3 25 with a backlog of $137 million, with approximately 80% of this expected to be converted to revenue in the next 12 months. We'll continue to focus on profitable growth, cash management, and operating efficiencies. Finally, the past six years have been truly rewarding to me, and I'd like to thank Brad for providing the opportunity. I'd also like to wish all of our FTGs, nearly 800 employees, great success in the future. Our complete set of filings are now on CDAR. With that, I'll turn things back to Brad.