Firan Technology Group Corporation

I would like to welcome everyone to the FPG Q1 2026 Analyst Call. All lines have been placed on mute. There will be question and answer session following the call. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Please note that this call is being recorded. I would now like to turn the call over to Mr. Brad Bourne President and Chief Executive Office of FTG. Mr. Boren, you may proceed.

Thank you. Good morning. I'm Brad Boren, President and CEO of Rand Technology Group Corporation, or FTG. Also on the call today is Drew Knight, our Chief Financial Officer. Before we go any further, I must caution you that this call may contain forward-looking statements. Such statements are based on the current expectations and management of the company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the 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 did not undertake and has no specific intention to update any forward-looking statements, written or oral, that may be made from time to time by or on its behalf, whether as a result of new information, future events, or otherwise. We were also a great start in 2026. We had record first quarter revenues, earnings, and backlog, with some strong end-market demand tailwinds offset by a big swing in the Canadian to U.S. exchange rate. That was a bit of a headwind. or $60 million, marking a 17% increase over Q1 2025 and a book-to-bill ratio of 1.27 to 1. Our quarter-end backlog stood at $157.9 million, an 11% rise from the previous year end. Our revenue was $47.3 million, a 10.3% increase over Q1 2025. Our adjusted EBITDA was $7.3 million, down from $8.4 million in Q1 last year. Our adjusted net earnings were $3.5 million, up from $3.3 million in Q1 last year. We generated a strong free cash flow of $4.9 million in the quarter. We maintained a strong balance sheet with net debt of $4 million, or only 0.1 times tailing 12-month EBITDA, including $9.9 million in government loans. Other accomplishments in our first quarter included, after FDG Circus qualified for two significant classified defense programs last year, initial and beyond. FTG Aerospace Calgary, formerly Flight, achieved record profitability in Q1 2026. The newest site of FTG continues the benefit from last year's efforts to obtain certifications, sell its existing product portfolio, and the rebuilding of licensing revenues related to their SATCOM radio for Airbus. Q1 2026, delivery to China C919 program continued. In addition, deliveries to the new De Havilland Canadair 515 aerial firefighting aircraft started to ramp up. More deliveries on both programs are expected for the remainder of 2026 and beyond. FTG is proud to support the Artemis mission around the moon by supplying switch interface panels to the Orion spacecraft. Although space represents a small portion of FTG's business, space is a growing sector and FTG has activities with other customers in this area. and we continue to strengthen our team and improve our bench strength with new site leadership in our Chatsworth facilities. Drew will provide more details on Q1 2026 results shortly. Let me turn to some external items. Our end market remains strong. Airbus is targeting 870 aircraft deliveries in 2026, up about 10% from 2025. But more importantly, they're looking to ramp to over 1,000 aircraft annually backlog of over 1,000 aircraft on order. At Boeing, they shipped 600 planes last year, up from 348 the year before. Looking forward, Boeing has plans to ramp their production to over 800 planes annually in the next few years. Boeing's backlog is about 6,000 planes, so over a decade's worth of orders at their current production rates. It has become clear that Airbus ship, and they hold a 60% market share based on order backlog. This does have implications for FTG's plans going forward. In the business jet market, Bombardier reported high single-digit shipment increase for last year. They are also pushing hard to add defense component to their business and have had some success to date in selling their business jets for defense applications, including to the Canadian military. In the helicopter market, Bell Helicopter reported a 20% All of this bodes well for us as we look to future demand in the coming years. U.S. defense spending, including supplemental funding requests, is expected to increase going forward. The budget request in the U.S. for next year is for a 50% increase in spending to about $1.5 trillion. There are new commitments from all NATO members, including Canada, to ramp up defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. Canada increased their defense spending last year to 2% of GDP. All of this indicates significant increases in defense budgets for all European countries and Canada. The recent creation of the Defense Investment Agency in Canada to accelerate and streamline future defense procurement activity is positive for the industry here. Looking at the longer term, Boeing's most recent 20-year market forecast for commercial aerospace shows significant and continue to show 20% of all new aircraft deliveries going to China and close to 40% to Asia, as has been the case in the recent forecast. The business jet market has seen traffic recover, and a recent business jet forecast from Honeywell similarly predicts growth in this market of 5% this year and 3% annually over the next decade. So, as we have said for many years, FDG's goal is to participate in all segments of the aerospace and defense markets as each moves through their independent business cycles. It is not often all segments are growing. That seems to be the case now. Beyond this, let me give you a quick update on some key metrics for FDG for our first quarter of 2026. First, as already noted, the leading indicator of our business is our bookings or new orders. This resulted in a backlog of 158 million at the end of the quarter, even after record Q1 shipments. The Q1 sales were 47.3 million, up 10% over Q1 last year. In our aerospace business, sales were up 12% in Q1 to 17.1 million compared to Q1 last year. Sales in Toronto and Calgary were up, Tianjin was flat, while activity in Chatsworth was down in the quarter due to timing of some orders. There were continuing ramp-up in C919 shipments in the quarter, as well as assemblies for both Boeing and Airbus. The C919 shipments benefited both Toronto and Tianjin, while the other shipments benefited Toronto. Calgary saw a pretty even split in revenues between hardware sales, which were mostly SATCOM radios, data sales, and licensing revenues. On the circuit side of our business, sales in the quarter were $31.1 million, up 8.3% over last year, our strongest Growth in the quarter was our site in Fredericksburg, Virginia, which was up over 80%, followed by our Chatsworth site, which was up over 25%. Then Atomka had strong demand and was up 11%, while our Toronto facility was 5% in the quarter. Overall at FPG, our top five customers accounted for 52%. Airlines were three of our top 20 customers in the quarter due to the flight acquisition. Also interesting to note that the top 10 customers are six of our customers shared between circuits and aerospace. We like to see the shared customers, as it means we are maximizing our penetration of these customers by selling both cockpit products and service 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 is outside of the U.S., and this was in China, Another seven have some operations inside the US. While on this topic, 72.1% of FTG sales are to US-based customers. This includes sales by US sites as well as sales from FTG sites in Canada or China. This compares to 72.2% last year. While sales grew by 10% in the US, they also grew by 10%. and acquiring flight with sales globally. Sales decreased in Europe by about 5% in the quarter. The increase in sales outside the U.S. are helpful in the event of tariffs the U.S. might impose on our non-U.S.-based sites. Our goal is to continue to grow our non-U.S. revenue for our non-U.S. sites. In Q1 2026, 36% of our total revenues came from our aerospace business, compared to 35% last year. I'd now like to turn the call over to Drew, who will summarize our financial results for our first quarter of 2026. And afterwards, we'll talk about some key priorities we're working on.

Drew. Thanks, Brad. Good morning, everyone. I would like to provide some additional detail on our financial performance for Q1. Starting with revenue gross margin, on sales of $47.3 million, FTG achieved a gross margin of $14.6 million, or $30.5 As such, gross margin rates in 2026 were consistent with prior year. The increase in gross margin dollars is based on top line growth, while the gross margin rate remained flat despite a 1.5 million negative variance in FX and a $400,000 of gold variance. Offsetting these two anomalies was significant and due to operational improvements at several sites in the USA and at Aero Calgary. Moving on to SG&A. SG&A expense was $6.9 million or 14.5% of sales in Q1 2026 as compared to $6.7 million or 15.7% of sales in the prior year. The increase of $200,000 during Q1 2026 was primarily due to the acquisition impact of having Harrow Calgary for a full quarter in the year, and the remaining increase included Hyderabad India startup expenses and some corporate admin costs of the new leadership team. R&D costs for Q1 2026 were $2.3 million or 4.9% of sales as compared to 1.6 million or 3.8% of revenue for 2025. R&D efforts include product and process improvements at the circuit segment as well as aerospace segment process improvements and product development. Regarding foreign exchange, FTG is exposed to currency risk through transactions assets and liabilities in foreign currencies, primarily in U.S. dollars. The average exchange rate experienced in Q1 2026 was 1.375 as compared to 1.431 in Q1 2025, which equates to a weakening of the U.S. dollar by 4%, and this hurts results for FTG, as noted. Adjusted EBITDA, as detailed in the MD&A, was 7.3%. compared to 8.4 million, or 19.5% of sales for Q1 2025. As noted with gross margins, the year-over-year comparison of adjusted EBITDA is distorted by 1.9 million due to a 1.5 million impact from FX and a $400,000 impact from the one-time gold contract. of growing the top line organically, operational improvements, and managing expenses. For Q1, 2026, FTG recorded net earnings of 3.5 million or 14 cents per diluted share as compared to 3.2 million or 13 cents per diluted share in Q1, 2025. The earnings comparison to prior year was impacted by the same FX rate issue and the one-time gold contract realization. However, this was partly offset by favorable income taxes. The effective tax rate for Q2026 was approximately 5.2% as compared to 32.9% in Q1 2025. The low rate in 2026 relates to tax-free profit of business units with historical tax losses and also prior year tax adjustments. Also, Q1 2025 was taxed has not been recognized in our financial statements. These tax loss carry forwards are located in both the USA and Canada, and the Canadian losses were recently acquired with the acquisition of Flight in December, 2024. Speaking to our financial position, FTG maintains a strong balance sheet and our net debt position as of Q1, 2026 was $4 million as compared to net debt of 8.3 million as of Q4, 2025. This leverage ratio represents 0.1 times trailing 12 months even up. Free cash flow in Q1 2026 was 4.9 million as compared to 8.2 million in Q1 2025. Capital expenditures were 0.7 million as compared to 0.9 million in Q1 2025. Going forward, we expect CapEx to be closer to FTG's long-term target of 3% of revenue, notwithstanding any significant capacity increases. As at the end of Q1 2026, the corporation's primary sources of liquidity totaled $80.5 million, consisting of working capital of $60.4 million and $20.1 million of unused credit facilities. FTG has plans to improve cash efficiency and minimize stranded cash in various business units. Accounts receivable days outstanding were 68 at the end of Q1 2026. due to timing of a couple of customer payments. Inventory days were 111 at the end of Q1 2026 quarter end, up from 105 at 2025 year end to address order fulfillment in upcoming months. And accounts payable days outstanding were 59 as of the Q1 2026 quarter end as compared to 58 at the 2025 year end. Turning to our outlook, FDGs booked a bill Approximately 80% is expected to be converted to revenue in 2026. The new business activities in both the aerospace and defense industries are strong and continue to accelerate. Both the circuits business and aerospace business are increasing throughput and winning their share of new customer RFPs. Last quarter, we noted the program awards for two substantial classified defense programs. We have since received the opening POs for delivery in 2026, though these orders are only a fraction of the annualized volume. I should note that FTG's reported backlog only includes POs received and does not include program awards with estimated volumes. As we approach the midpoint of Q2, we are focused on managing cash flow and improving operational efficiency and continuing with the Aero Calgary integration, which is already bearing fruit. I should note that our complete set of quarterly filings is available on CDARplus.com or on the FTG website. With that, I would like to turn things back over to Brad. Thanks, Ruth.