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.

Thanks, Jamie. And I would like to truly thank you for your efforts at FTGs. You have helped transform FTG into a high-performing company with a great future. Thank you. Now, let me delve into some other important items for the future of FTG, starting with a potentially negative item. Terrorists or the threat of terrorists in the U.S. are the new normal. And uncertainty surrounds terrorists. This makes it challenging to plan and react, but we are focused on this every day as it evolves. We have two sites in China which are now subject to U.S. terrorists, but a relatively small portion of their work ships to the U.S., For Aerospace Tianjin, they should have minimal impact as the site ships completed products to our 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. For Circuit Board Joint Venture, the small amount of their work ships to the U.S. and will be subject to the new tariff. Over the past five years, they've had a 25% tariff on their exports to the U.S., so this is not new. But they also have work from Canada and Europe that will not be subject to U.S. tariffs. The growth plans for this business is to focus on customers in China, Europe, and Canada, and we're making progress on all of these plans. Our U.S. sites are almost exclusively shipped to U.S. customers, so there will not be any tariffs on shipments to customers, but they are starting to see tariffs on input costs for raw materials they buy, some of which come from Europe or Asia. We have implemented plans to pass these tariffs on to our customers. And then, surprisingly, at this moment, the FTG site's In the best situation are our 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 U.S. MTA compliant. But every day is a new day, so all 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 at FTG sites outside of the U.S. While we are not exposed to tariffs between Canada and the U.S. at this moment, if this did happen, we do not believe the impact would be immediate. It will take time for the aerospace and defense industry 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 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 in 2024 and is already over $40 million so far in 2025. 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. Obviously, a focus on Airbus is part of this. Also, in Q1 this year, 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. 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. right now. We have begun the process of moving this work out of our U.S. sites and thereby potentially bringing up some capacity to move work in the other directions. 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 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 are looking for ways to increase our activity with Airbus and flight as a SATCOM radio that is installed as a factory 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 had spent significant time and money investing and updating and developing new products. 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 don't fight, we have three key actions. First, we need to reduce costs. And this action is essentially complete. Second, 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 the 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 airline operations over the Iridium satellite system. When it is used for airline data over Iridium, the flight gets a recurring revenue stream, reselling the Iridium data services. The licensing agreement to Airbus has been in a hiatus mode for a few years due to a multi-year delivery in 2022. But this kicked back in during 2020, our third quarter this year, and is expected to result in a multimillion-dollar annual revenue uptick when fully reestablished. There's also a water vapor sensing system, or WVSS2. Its purpose is to collect humidity data 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, who find this data useful in weather forecasting. This product design was modernized and updated last year. The quality testing is complete. There are firm orders from both NOAA and UKMAP for the products. These can ship as we complete STCs for the relevant aircraft in the near term. Once in service, there's also a data revenue stream associated with this product. Also related to this product, there's potentially additional commercial and military applications for it to monitor aircraft contrails, and we are exploring these. And the third product is branding. It is a 5G wireless quick access recorder, or WQAR. This product collects data from the aircraft in flight and downloads it to the airline 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 Boeing 737 approval has been received in Canada. The European STC for the A320 family of aircraft is also now complete. The priority is to expand these approvals into China. We have the flight sales team focused on aggressively selling these products as they become available. And we received our first ever Edge Plus order in the third quarter. And our third priority for flight is to insert the manufacturing to capture this margin within FTG. We're looking at options for both the SATCOM radio and the WQAR products from our facilities in U.S., Canada, and China. These additions should enable flight to become a positive addition to FTG and further mitigate the risks from U.S. tariffs. Also, as announced in Q1, we are implementing plans to open an aerospace facility in Hyderabad, India. Our first First, our decision to expand geographically was partly to look for an insurance policy against anything negative happening to our China operations, but it was also partly to expand into new regions with growth potential. As we analyzed options, we concluded India was a very cost-effective place for manufacturing. With Prime Minister Modi's Make in India policy, coupled with significant defense spending, it would be an ideal place to operate. We have selected Hyderabad, and as it has an aerospace hub, primarily focused on manufacturing. A legal entity in India is established. We have selected to have the facility built to suit due to the favorable location and the option to expand if or when necessary. The facility construction is now our pacing item, and it now looks like Q2 2026 before it will be ready. In the meantime, we've been sourcing the necessary equipment to be ready to go. We have funded this entity with about $2.5 million as of Q3 this year. While not the original intent, we believe this initiative has also helped 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 pivotal wave from the U.S. market. This would be for both legacy FTG sites as well as flight. As we enter Q4 2025, we see continued strong demand across most sites. Our $137 million in backlog. Of our $137 million in backlog, over $60 million is due in Q4. We still expect to see further benefit from the higher value assembly orders first booked in 2023 with more in 2024 for our aerospace business. These assemblies go on Boeing and Airbus aircraft. And we will see the benefit of the C919 program in China as it ramps its production. We shipped our first production orders last year Production rate increases are planned in 2025 and beyond. The geopolitical situation in China does remain complex. In 2024, both our operations had another record year. We repatriated cash to Canada every year since 2022. We repatriated more this year, including further increments in our third quarter, with our first amount being repatriated as a dividend rather than a return of capital. By doing this, we don't have surplus cash stranded in China, and it reduces our exposure if things ever did deteriorate between China and the West. We continue to assess possible corporate development opportunities that could fit with either of our businesses, but our near-term priority is to continue to integrate flight. With a focus on operational excellence in all parts of FTG, our strong financial performance last year and the first nine months of this year, Our recent acquisitions are key sales wins. We are confident we are 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. Jenny.

Yes, thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchdown phone. Should you wish to cancel your request, please press the star followed by the two. If you're using a speaker phone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. And your first question is from Steve Hansen from Raymond James. Your line is now open.

Yeah, good morning, guys. Thanks for the time. Brad, how should we think about the organic growth piece here for aerospace for the back half? I think you described a few of the headwinds you might have seen, but if we just strip out the contribution from flight, it does look like the underlying business retraced a bit. It sounds like there might have been a few moving parts in there that contributed to that. How should we expect that to recover through the back half this year and into next year?

Yeah, I guess first point, for sure, I do think it will recover and grow going forward. A couple of things that I did talk about, the C919 production, so that was in Toronto. We're in the process of moving it to China to our Tianjin facility. There's just a bunch of hoops to go through to get that done, and that's making shipments a little bit more challenging right now. But as I said, the demand is strong, and it's probably growing – not probably, it is growing – So if we can get through that transition – and transitions in aerospace are always difficult. There's just an infinite amount of paperwork. So we're working through it with our customers. So that will come back. We've had some high-volume production opportunities in our aerospace business, also at the assembly level, more for both our Toronto and Chatsworth facilities. They have – You know, same thing. We've been working with the customer, and, you know, there's an intermediary. There's us, then our customer, then either Boeing or Airbus. Again, a million hoops to get through to get into production. Good news is, you know, on most – no, that's not fair. On some of the assemblies, we actually managed to ship some product at the end of Q3 this year, which was great. We expect to ship more in Q4. and then primarily related to our Chatsworth facility, we're going to see, you know, some of the balance kick in at some point next year. So, you know, that's a big growth opportunity. On the defense side, we have got through some qualification activity, I'm going to say primarily for our Chatsworth facility, and, you know, we're waiting for program awards on that. No idea what it's going to be, but it's going to be more than zero, so that represents growth opportunities. So, you know, So stuff happens day to day, as you can see in the quarter. But long term, I am still very optimistic. There's some great growth opportunities for our aerospace business. And this is not opportunities we're dreaming about. This is opportunities that we have that we just need to convert to production revenues.

That's very helpful. I think you referenced in your prepared remarks that some of those transfer challenges would linger into Q4. So is it fair to say the growth will still be fairly modest in Q4 and it's more of a 26-story?

Yeah, I don't know, I guess, is my honest answer. I'm hoping we get more in Q4. In my prepared remarks, I was talking specifically around the C919. We're building units, but in terms In September, we shipped zero as we're trying to get through the transition. So, you know, will they kick in and ship out in Q4? Don't know yet. But, you know, so we'll see. I mean, it's not a great answer, but I don't control my customers. And in that case, I don't control Colmac in China. So, you know, we're a little bit at the mercy of all these guys and how fast they approve transitions.

Understood. That's fair. And just on the margin side then again as well, I presume it's interrelated, but the aerospace margins have been subdued for two quarters now. I presume that's related to some of the revenue items just discussed. But is there anything else in there that we should think about or is it just sort of a volume revenue sort of flow through?

I'm sorry, Steve.

Can you say that again?

I lost it. Yeah. Yeah, just the aerospace margin. So just looking at that, the last two quarters, it's been in the low teens. I'm referring to the down margin. Historically, it's been in the high teens or even in the 20s. And so I'm just asking, is there more than just the revenue pause that you've described impacting that, or is it just that flow through from the revenue challenges that we've seen?

Yeah, it's more of the latter. Just, you know, the The revenue pause, there's terms in market demand, in market growth rates, that is not changing. It might even be increasing in some ways. As I said, Airbus had a world record in September, which was great to see. That ultimately creates pull-through demand. So, yeah, I... And market demand is stronger or stronger. Just transition and ramp back issues are what happened in Q3.

Okay, very helpful. Just one last one. I'll jump back in the queue. I'm just really curious about the AFERS opportunity set. You've had it under your belt now for a couple quarters. A couple of key SDCs have come through. Are you optimistic about bookings in that product set or any of the three that you've described here? Do you have visibility on that? How should we think about that starting to contribute through 26?

Yeah, I am actually very optimistic on that. This is The brand new product of flight, the Acres Edge Plus, I think has huge potential. I think it was a brilliant idea for a product. And I've been really happy with the way everyone at flight has worked in terms of, you know, getting the product qualified and getting the STCs approved for different aircraft types and, you know, in different jurisdictions. You know, they've been doing a really good job. And, you know, we are seeing... significant quote opportunities on that. And so, yeah, I really expect that's going to be, you know, a home run product for flight in 26 and beyond.

Okay. Very good. I'll go back to the queue. Thanks. Okay. Thanks.

Thank you. Once again, that is star one. Should you wish to ask a question? And your next question is from Russell Stanley from Beacon. Your line is now open.

Good morning, and thanks for the questions. Just coming back to your comments around pull-through demand, Brad, I'm wondering on Boeing in particular, I've seen media reports they may see an increase in their production cap, I think on the 737 from 38 units a month to 42 a month. I'm just wondering how your production profile changes, how quickly that filters through our, you know, have your direct customers already been buying in anticipation of that? Or does this lift translate into actual incremental demand from your perspective?

Yeah. I can say it's a bit of both, to be fair, that, you know, some customers have been ramping demand to us. So that's in advance of any production rate increase at Boeing because they don't officially have it yet. And so, you know, some are, are, trying to ramp ahead of it, and some have not. So, you know, maybe that's an arbitrary number. I'm going to say, you know, half have already, you know, increased their demand and half are still to come.

Well, thanks on that. And maybe looking at bookings in the quarter, wondering if you can provide any granularity, I guess, how much of that number was flight and maybe even a rough estimate how much of that number is new programs. as opposed to existing programs?

That's a really good question that I really don't have an answer to at this moment. I'd have to go dig it up and get back to you on that, unless, Jamie, you have anything on that, but I don't at this moment. Not right here. No, no, Brad.

Let's get also something after.

Yeah. But great question. Just no answer.

I understood there. And then, um, maybe just one last one for me, the, um, I guess your Reuters ran a report, um, talking to Navy, um, or should see a decision soon around the next, their next stealth fighter. I think the FA double X, uh, I think it's called there anyway. So, uh, I think it's Boeing and Northrop Grumman competing there. How should we think about the winner there? Do you have a, a view as to whom you'd like to see win assuming the program goes ahead, and what's your level of optimism for participation there?

I'm going to say generally I don't have preference for who wins these programs. My goal generally is just to find a way in with whoever wins. To be fair, our product generally gets awarded or suppliers get selected a year or two after the initial award, but some period of time. So we're generally not involved at this moment, so we wait to see who wins, and then we try to engage with them. And we have decent relationships with, in that case, both those customers. So we're going to wait and see and then jump on it at the right moment.

That's great. Thanks for the questions. I'll get back to you. Thanks, Russ.

Thank you. Once again, that is star one. Should you wish to ask a question? And your next question is from Steve Hansen from Raymond James. Your line is now open.

Oh, thanks, Ed. Thanks a lot. Brad, on the booking side, the order flow looked quite good. Is there been any notable shift in the bookings as they've come in relative to past months? I'm just trying to get a sense where there's any composition shift in the backlog at all that's taking place that's relevant, or is it more of the same?

Um, and not, not wild shifts for sure. You know, occasionally we have big lumps that show up, but there was no significant lumps in Q3 this year. Um, I'd say maybe we're seeing a little bit more orders on the defense side at this moment, as compared to the commercial aerospace side, just, um, and in particular for our circuits, Minnetonka site, they've, They just continue to have crazy good bookings, almost all related to some U.S. defense programs. But, you know, it's not a huge shift, but maybe a little bit more on the defense side.

Okay, helpful. And I think you referenced a slight uptick in the simulator. I don't know if it was the RFPs or the bookings, but just maybe give us a sense for how long we should expect that to be over the next year or so. Is that going to ebb and flow consistently, or how should we think about it?

Yeah, it definitely is. You know, there's ups and downs, and there's no good way to predict it. I'd say, generally speaking, on the simulator business for us, it's more on the defense side of our business as opposed to the commercial side. It's just, for some reason, the nature of the way they do simulator construction. But... what I had said is we're seeing more quote activities. I haven't seen more booking activity of any significance, but we are seeing some good quote opportunities on programs where we are the incumbent. So in that case, I put our probability of success as high. But over the last, I don't know, maybe decade now, our simulator revenues range from maybe a low few million in a year to north of 10 million. I would, you know, I guess I would expect next year we're going to be somewhere in the middle of that. We're not going to be at the bottom end. We're not going to be at the top end.

Okay, helpful. And then just last for me is just the balance sheet and capital allocation. I think you referenced, you know, you continue to look at opportunities, but you're focused on integration. You know, what does the opportunity set look like today in the M&A market out there? Is there opportunities that you're have seen that you're pursuing? How do we think about that given the liquidity you've got?

Yeah, I guess a number of comments on that. The first one, early this year, I hired two key guys for me, Bill Sazadi and Marco Vinica, and each one of them runs half of FTG. One runs the circus business, one runs aerospace. The good news for me is that frees up some of my time, which has been great, so I appreciate it. them letting me do that. Uh, but it also gives me time to, you know, spend more of my time looking at, you know, what's next. Um, I can say there's nothing active at this moment. And if there was, I'm not trying to be able to tell you anyways, but there isn't. Um, but you know, I'm exploring a few things. Uh, I've talked over the last few years and I talked today about, I'm interested in doing more work with Airbus. I think the European defense spend is going to ramp significantly. Like, you know, I talk about trying to do more work outside the U S for my non U S sites. So, you know, Europe's on my list right now. And I've been doing, I can say basic research to understand the market, understand opportunities, um, where that leads. I don't know yet, but you know, for sure that's on my list of things of interest. Um, and stay tuned, um, as to what happens going forward. But, um, That's probably my number one interest right now.

Okay, very good. Appreciate the time. Thanks, Steve.

Thank you. Your next question is from Russell Stanley from Beacon. Your line is now open.

Hey, thanks for the follow-up. I hate to nitpick, Brad, but just coming back to one of your comments around demand. I think at one point later in your prepared remarks, you said that demand is strong across most sites. I guess I'm curious, any sort of soft spots that you could call out for us there or any color that would be helpful?

Yeah, you know, for sure it's kind of our demand across all the sites is never 100% uniform. I would say the, finding it through, so The sites, Minnetonka, crazy strong demand, as I said. California, Chatsworth, both sites, pretty strong demand. A little bit of, you know, delay or challenge in Q3 in Arrow, Chatsworth, but not demand-related, just getting product at the door, primarily due to component issues and that, getting them in the door so we could complete the assemblies, but strong demand there. Our Redworksburg and Haverhill sites, We're probably at the lower end in terms of demand, but I'm actually working really hard, and it's really painful because it's another transition, of pushing work from Minnetonka to Fredericksburg. And we finally had some good success on that in Q3, and we pushed about a million dollars of work out of Minnetonka into Fredericksburg. So because they were a little bit lighter, we're trying to just help them balance the load. So we're going to solve that one. The same with Averill. It was a little bit light in the quarter, you know, still up from last year, but we want to do more. And we are working with a customer on a program that, you know, a multimillion-dollar program that, you know, we need to succeed with, we need to get through qualification with, but it's started. And so I see a path to, you know, get them ramped significantly going forward. Demand in the Canadian sites has been strong. Demand in China, surprisingly strong. So, I don't know, hopefully that helps.

It does, and I guess maybe just to put words in your mouth around Fredericksburg and April, it's not, you know, the relative softness there, it's fair to say it's not about the programs they serve, but maybe a difference in what they're qualified to do by customers, and that's part of why you can reallocate some work out of Minnetonka into those sites.

Yeah, I mean, that's exactly true. Minnetonka has a lot more capability than Fredericksburg, so I want to put the higher-end product or keep the higher-end product in Minnetonka But, you know, there's a fair amount of work in Minnetonka that is not super high-end. And so it's that sort of stuff I'd like to push to Fredericksburg. And, you know, it helps Fredericksburg ramp, but it also frees up capacity in Minnetonka to do more higher-end products. So it's kind of a win-win for me. But, you know, definitely the capabilities at various FTG sites are different than we need them. take advantage of that and factor that in as we try to push work around between different sites.

Got it. One last question for me. I appreciate all the color. Just on SG&A, apologies if I missed it, but I guess it ticked down over half a million, quarter of a quarter. Any color you can provide on that? How sustainable should we think of this quarterly number at around 6.2, 6.3 million? Yeah.

I don't know.

Jamie, can you help me with that? I didn't see it as a material change, but I didn't really dig in to understand that change. But Jamie, do you have anything?

No, nothing really sticks out, Brad. Just timing of certain types of expenses. Okay. Thank you again for all the color. Actually, Russell, I could probably answer you on the flight bookings. Oh, great. First of all, flight has a pretty short-term bookings time horizon. Things tend to come in and go out pretty quick. But having said that, it had a book-to-bill of 1.12, 1.12. So a little bit better than FTG overall in terms of book to bill for Q3.

That's helpful. Thank you for that.

And Jamie, I wish you all the best. Oh, thank you. I'm sure we'll cross paths soon.

Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Okay, thank you. A replay of the call will be available until Friday, November 14th at the numbers on our press release. A 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. The conference has now ended. Thank you all for joining you. We always connect your lines.