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spk03: Good day and welcome to the iAccess Alpha BuySide Best Ideas Spring Conference 2024. The next presenting company is Flight Aerospace Solutions Ltd. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question. I'd now like to turn the floor over to today's host, Mr. Kent Jacobs, President and Interim CEO of Flight Aerospace Solutions Ltd. Sir, the floor is yours.
spk02: Thank you very much. Good morning, everybody. I would like to thank you for taking the time to join us for this presentation. My name is Ken Jacobs. I'm the President and Interim CEO at Flight. I've been with the company for a little over 22 years, and I'll be walking you through our presentation today. There are some forward-looking statements in this presentation. Flight has a 25-year history in the aviation industry and in the weather community. We are an established organization in these industries, and that is not an easy thing to get to. So flight is at a position where we've got that history, we've got that pedigree that we can rely on as we bring our new product to market and we move into this opportunity to become an actionable intelligence and a staff-generating organization. We were primarily a SATCOM provider for many years. We're moving into those new opportunities with the SAS offerings, enabling the aviation hardware, software, and weather offerings. On the right-hand side, you can see some SAS on flight, just really quickly to give a bit of a background. We have more than 100 SPCs received, and SPC is simply a certification for us to put a product onto an aircraft. Barrier to entry, and we'll talk about that in a few minutes. We have more than 4,300 avionic installations around the world, more than 115 global airline customers. We measure our flight hours and our flights, 5.2 million flight hours and 2.5 million flights, and we have key relationships with various agencies around the world, including NOAA and UK MET. Flight's vision is to be a global force with integrated data solutions for aviation and weather, and we are well on our way to achieving that. There are some macro trends that are serving as major opportunities for flight, so I'll talk about these just briefly. There's a technology obsolescence that is going to affect the industry in the coming years. It's actually already started, and flight is very well positioned to take advantage of this. QG and 3G and even LTE networks around the world are being shut down by various cellular operators, and this is just progress. This is advancement in technology. It is going to happen. 5G is the latest generation of technology to move data over cellular networks, and Flight has built the first 5G wireless, or 5G capability avionics to transmit data over those networks. The beauty of this is that airlines have no influence in delaying this. They cannot object to it. It is something that's going to happen around the world. Flight is very well positioned to take advantage of this opportunity. There's a real-time intelligence component that Flight has been dealing with in the last 20 years, and we have no plans to move away from that. The airlines and the industries need for real-time analysis, something that Flight will continue to provide, even as we move towards our new technologies in the 5G space. This is something that at the heart of our staff operations we want to be based on. And there's a weather, climate, and environment component that is going to be affecting the industry. It's already affecting there. But as airlines have to meet their net zero commitments, flight is there to provide them with the information and to provide the industry with the information that they need to meet those commitments. It's not an easy thing for the airlines to do, and flight is very well positioned to help with. As we look at the addressable markets in aviation, it's really quite staggering the opportunity the flight is looking at. We are looking at our largest opportunity in our history of our organization. On the hardware side, the avionics side, there's an opportunity for 25,000 aircraft at roughly $30,000 per aircraft for the hardware installation. This represents $750 million addressable market. if we were to hit all of it. And while we don't expect to hit all of it, we do expect to hit a significant component of it. These are the products, these are the aircraft that either don't have a solution in them right now, or if they do have a solution, they are of a 2G, 3G LTE variant, and we know that those are going to be not operational within a few years. On the actionable intelligence, on the software side, the opportunities and a $500 per month fast recurring opportunity on it. I'm going to look at over 20 years. We're talking about a $3 billion adjustable market. Flight, you know, we have been operational for 25 years now, and we do have aircraft that are operating with our product on them for some 16, 17 years now. That 20-year lifetime is very reasonable when you consider the avionics go onto an aircraft and they typically stay on the aircraft either for the life of that airplane or until something like the 2G, 3G sunset occurs, and they have to be removed. On the weather side of our business, we see a $600 million adjustable market, and this is, if we consider the sensor, the Flight WVSS2 sensor, and the fact that we can sell up to 200 of those with the recurring revenues, that's a $100 million opportunity. But what Flight is really focusing on is the OEM, And FLIGHT does have experience with OEM lines here. We are listed on the A320 line at Airbus, A320, 330, and the A220 aircraft. Getting to a line to position of our weather sensors is something that is driving FLIGHT continuously.
spk00: I think I jumped a slide.
spk02: If we look at some of the key products that Flight is operating, we are just in the phase of releasing the AFERS Edge. The AFERS Edge is a 5G-capable product that can transmit loads of data, very large volumes of data post-flight. But we also have what's called the AFERS 228, and the 228 is an established dot-com product that has been around for about 12 years. It is our line-fit option on the Airbus fleet. The Edge does not replace the 228. The two products, the AFERS Edge and the AFERS 228, work in tandem, and there is still significant growth in the AFERS 228 environment in that market, including a recent STC on the 727 MAX 8 aircraft. The AFERS Edge. is the new product. It's the 5G-enabled product. It's the one that's going to allow us to replace the existing 2G, 3G LTE products on many aircraft. We have our first certification to install this product on an Airbus A320 aircraft here in Canada. But there's a significant opportunity here that needs to be explained, and that is that the AFERS Edge Plus, there are two variants of the AFERS Edge. There's the flange mount and the AFERS Edge Plus. And this gives us coverage from small turboprops to the large commercial airliners. But the AFERS Edge Plus is a plug-and-play replacement product for the existing 2G, 3G systems out there. So when an airline decides to go with our AFERS Edge for MCU product, the Plus, there is no engineering effort or maintenance effort to install anything on the aircraft. It is simply a pull of the existing old technology and a push of the new AFERS Edge product into the existing tray on the aircraft and the airplane is operational. Compare that to the installation that is required for like any Avionics product, which can take 100, 150 hours. So the plug and play opportunity for the A4Z Plus is a significant opportunity for flight.
spk00: I talked a little bit about the weather components and the opportunities of flight.
spk02: Flight has always been gathering weather information off of aircraft and transmitting it to the ground for different agencies and for airlines. But until recently, the most important bit of information was not able to be captured on board the aircraft, and that is relative humidity. An aircraft natively generates a lot of information that weather agencies are interested in incorporating into their weather models. Think wind speed, wind direction, temperature, pressure. That's all information that most aircraft can gather and many aircraft can send to the ground. But relative humidity has nothing to do with the normal operation of an aircraft. And to capture relative humidity of the air mass that an aircraft is flying through, you need to put a sensor on board the aircraft. Flight owns the two sensors that are capable of capturing relative humidity on a commercial airliner. Either the Tamdar probe, That's the picture on the right, and then more importantly, the FLIGHT WVSS2 water vapor sensor. That is our latest technology to capture the relative humidity information, and this information can then be used by the weather agencies around the world, I think NOAA, UK, MET, Environment Canada, to add to their weather models and provide better forecasting. In addition to providing that better forecasting, the relative humidity gives software solutions on the ground the capability to determine whether contrails are being created, contrails being the aircraft-induced cloudiness that follows behind an aircraft and flies through a certain type of air mass. Those contrails are going to, they are identified as being detrimental to global warming, to and some of the gases that are produced by the burning of the jet fuel itself. So contrail mitigation and contrail understanding whether an aircraft is producing a contrail is going to be a very, very important part of airlines' move towards net zero. Flight has a recently signed deal with UK Met and Logan Air, UK Met being the users of the data, Logan Air being the operators of the aircraft, and Flight being the company to provide the solution. We want to replicate that model. We've replicated it already with NOAA, where the three parties get together, the airline, the weather agency, and flight providing the solutions. This is a very large opportunity for flight as we move forward. And it took us a while to figure out where the right or how to formulate the right agreement between the three groups was. We finally got that figured out, and we're really making progress. We'll be installed on our first aircraft in this year with the water vapor sensors. About two years ago, Flight purchased a company in Frankfurt in Germany called Cross Consents. Flight wanted to do a couple of things. We wanted to look at expanding our SaaS capabilities in a quick way, and Cross Consents is a great company to do that with. I'll talk about their products in a moment. But we also wanted to have a larger European presence. We didn't have a large European presence, and Cross Consents brings with them a great set of airlines and a strong a strong reputation in the industry that they work in. They are primarily focused on migrating data into AMOS and then providing services around that data. AMOS is simply the software that many, many airlines use to manage the maintenance operations of their airline. So you can imagine an airline has to keep track of all the parts, all the times, all the information that is around the maintenance of the aircraft. That's where Croc Consent is an expert. So they provide the means to get the data into AMOS, but then more importantly, they provide the means to use that information and to present it back to the airline in a way that is very, very beneficial to the airline. The most important product that they have is called FleetView, Aircraft FleetView, and it's a way of displaying that information back to the airline in different ways that are not natively available through AMOS. They have more than 3,000 users of this product, so we're involved at several airlines, more than are just displayed here on the screen, but companies like EasyJet, Aer Lingus, Convert, Lufthansa, all use the product. We're constantly adding new features to it, but we only add features when an airline works directly with us to gather those requirements. So adding cross-contents into flight was a great move. A couple years ago, expanded our footprint in Europe, which is staff opportunities that we want to expand into. There are some significant barriers to entry for other companies as they try to bring a product in like our 5G capable box avionics product. I just want to talk about one of them here because this is a really important one to understand. Not only would any competing company have to build, design, build, test, certify, qualify a 5G product, they would also then have to demonstrate to the authorities like the FAA or Transport Canada that the product should be added to an aircraft. And that's through what's called an FTC, Supplemental Test Certificate. And this is where Flight has a really, really good, strong head start over any competition. We don't know of anybody who is building a 5G product right now other than us. But the engineering effort to get these certifications has increased in time post-COVID, and Flight is already at the point where we have our first STC certification with Transport Canada on the A320. So anybody else coming into this market is going to have to – to go through this process and develop those FDCs.
spk00: The flight has a very high retention rate.
spk02: As we look around the world and we see where our customers are, this is where the airlines will be based, we have a very high retention rate. Our contracts typically five years automatically renewed, and we have a great presence around the world. We're really excited, actually, about where we stand in Europe, especially with cross-pandems. So if we just look really quickly at the next, if we were to capture roughly 10% of the market, this is an adjustable market that I talked about earlier. We got to 2,450 cumulus of info, representing that 10%, and we had a fast revenue between $6,000 and $8,000 per year. We'd be talking $30 to $43 million by the time we look at that time range. Remember, we're first to market in this 5G capability. Those 2G, 3G LTE products are going to be going dark, and this falls very much in line with how we want to move forward with hardware supporting our SaaS opportunities. If we look at our long-term track record at growing those SaaS revenues, we see a So you can see in the years from 2018 to 2020, it was making really good progress. As we were increasing our SAS revenues, we were coming to market with new products, and we had made an effort to move towards being a SAS-generating organization. Then COVID hit, and it was, well, I think everybody knows, for the airline industry, it was a real disaster. And those years, those two years in between there, were a difficult time for flights. Worth mentioning that Flight during that time decided to advance the development of our AFERS Edge program. So while our competition specifically stopped their development of new product, those light blue lines where COVID hit represent where Flight invested very heavily in research and development. So that as COVID came out, Flight would be ready with the products that we are bringing to market now. And in the last two years, we could see our recovery following the trajectory that we would expect. We don't expect that to change. We're moving forward that way, and we think we're in a very good position to continue that. If we look at the roadmap for our growth, we could see, if we look out three years, roughly, and we start with the $23.7 million in revenue that we had for the last 12 months to the end of quarter three in 23, We can see the in-process opportunities that we're advancing right now. And this is a bit about what I've talked about. We're expanding our customer base. We're bringing the A-for-Z products to market, and we're introducing new weather solutions and opportunities to the industry. Everything in those first three bars, the in-process opportunities, is well underway, and flight is making great progress. Our R&D, our development has been maybe a little bit slower than we had hoped. But we are advancing that 5G AFERS Edge product very quickly at this point. We've really found our cadence with it. We have the Edge product, the Edge flange, already certified on the A320, the Airbus A320 aircraft in Canada. And the 4MCU product, which is that plug-and-play replacement, right, no modification to the wiring of the aircraft, that product is under review. Test right now. We've done our initial check in an aircraft with the existing wiring was already there and as expected in in five minutes, we were able to Get the AFER ZUNA installed and powered. It's it's great. So the in-process opportunities Are very important and we are making very good progress on that path if we look at the additional acceleration opportunities, we want to continue to develop our actionable intelligence solution and and we want to work towards those line fit OEM opportunities, and we recognize that our hardware sales will drive our software, our SaaS opportunities, but we are set up in a way such that as our hardware needs to produce the product grow, we're well positioned to do that.
spk00: If we look at some of the investment highlights,
spk02: we talked about the macro trends that are creating those tailwinds uh we're we're well served we're well positioned to be in that 5g uh pardon me that 5g weather opportunity uh space we have no competition uh as of this point in either of those fields we are uh we have established customer relationships which are going to help us with our new product as we move forward uh We maintain, we have a 95% customer retention rate, and with the contracts that roll after five years, we have assessments that have been with us for over 15 years. There are significant barriers to entry, including, not the least of which, are the supplemental type certificates that any avionics manufacturer will have to generate with the FAA and Transport Canada and the AFT around the world. Flight is very well positioned because we have already started that process in those different jurisdictions. We're focusing on growing our SAS revenues. We know that the hardware will enable those SAS opportunities. We have a robust recurring revenue, gross margins of roughly 60%, and it was in a previous slide that I didn't mention, roughly 50% of our revenues in 2023 were from SAS opportunities already. We have robust opportunity pipeline. We have a great sales force moving forward, helping us grow into these larger airlines and tier one airlines that flight maybe in the first 20 years of our existence didn't have access to. We have a $39 million Canadian dollar contract backlog, $209 million US dollar sales pipeline, and we're actively pursuing and checking and working on the pipeline opportunities. I'm moving very quickly through, maybe just a quick note, a really quick note on the Board of Directors. As flight, extremely experienced Board of Directors, led by our Executive Chairman, Captain Mary McMillan, experienced at Inversat, and as a captain at United Airlines, flight is represented in the financial and the accounting and the software and the legal side. And with recent additions of Pete Large and Nancy Young, we just become that much stronger with expertise and experience with companies like Boeing, Elder Fuels, and Airlines for America. I think we have two minutes left, and I'm just going to quickly have a look at some of the questions. One question I see very quickly, how long to have the market to fully adopt the 5G platform? Is there a mandate to the timeframe? There's not a mandate. There is a timeframe. 2G, 3G, LTE networks, not LTE, but 2G, 3G are being shut down around the world. And the airlines that are looking to put an avionics product on their aircraft that's going to work for the next 10, 15, 20 years, they're the ones that are primarily considering or they are very much considering the 5G opportunities. So those 5G opportunities are coming forward very quickly, and many airlines are at the point where they have to make a decision because their 2G, 3G products are going away. When do you expect to receive the Edge STC for Boeing? We are actively working the initial STC for the Boeing aircraft, for the 737MG and for the MAX. It's a challenge because we're trying to put the avionics, the afer's edge, on the aircraft that are actually in service. I can't say that the partners that we're working with, and partners is plural on the 737s right now, it's an absolute priority for flight. I'm just skipping through the questions very quickly. Regarding your SaaS revenue, the growth rate is impressive. Can you talk about how many customers you have, what the pipeline looks like, and will the SaaS revenue be driven more by utilization or by new customer addition? Well, if you just focus on the last part, I think that the SaaS revenues will be driven by both utilization and new customer addition. But, you know, it's primarily new customer addition. Remember the hardware. We see many, many opportunities for the AFERS Edge hardware, and with each installation comes that opportunity for the SAP revenue to be developed. Pardon me. And so probably more along the lines of new customer additions, but utilization will always be going up as we bring new products to the market.
spk00: I don't know if I have time for one more question.
spk02: I haven't heard anything from the audience, so I'm going to just pick one. In what years do you expect to be able to sell the edge? How fast will airlines add such a product? That's a great question. So we're selling the edge now. So the edge flange version, the smaller version, is complete. It's gone through all the qualification, all the environmental qualification testing. We have our first STC for it, and we have our first cost solution. We'll be completing that installation very, very soon for that first customer. How fast will airlines add such a product? Well, the perfect way to end the presentation is a reminder that that 4MCU product, the product that is the replacement for the existing systems that are out there right now, which can simply be updated or can be installed in the aircraft in between 5 and 10 minutes, How fast will airlines add such a product? I hope and I am expecting airlines to add these quickly. So if an airline were to come along and say they want to have the 4MCU product on their fleet of aircraft and they have the existing trays or existing product that needs to be pulled out, that update to the fleet can be handled very quickly in a matter of a few weeks or maybe let's say a couple of months because aircraft have to be down for just a few hours. to complete that installation. When I talk about the five or 10 minutes swap, it's simply five or 10 minutes to pull the box. You still have to then make sure the lights turn green and that the system is operational. But I expect airlines to start doing that very quickly. I expect to be selling that for MCU product quickly, and then I expect the uptake to happen much quicker than any of our previous AFERS products. I'm sorry just refreshing this question about I know they're lumpy but can you provide updates on the pipeline of the licensing deal yeah the license deals with our OEM opportunity and is something that we they are lumpy and it's difficult for us. We don't get great projection information from our partner there on that Airbus side. Possibly they don't have it as well. What we do know is that the licensing deals are expected to continue. We see no reason that the licensing is going to go away. That IFRS 228 product that we sell and have installed on the Airbus fleet is going to continue to be there. Iridium is the FATCOM choice. provider of choice for many, many airlines, it's not going to disappear. We just don't know when the next deal is going to be there. I'm waiting to be told that my time is up, but I'll just do one more question. And maybe quickly a comment, and that is that our revenue, I'm just trying to find, sorry. Okay, there's a comment about under the impression that the 2G, 3G networks were sunset in 2022 and LTE won't be sunset until 2030. Can you describe what's happened to your pipeline as the industry moves towards 5G? Yeah, our pipeline is growing and we're converting that pipeline into sales, into expected sales as we move forward. 2G, 3G networks around the world, because we're a company that supplies products around the world, pardon me, those 2G, 3G LTE networks are retiring at different rates around the world. And what we've seen is that some of them are already being shut down and others are going to be operational for another few years. LTE, I would expect those first ones to start being shut down in a couple of years. So as the industry moves towards 5G, or is forced to move towards 5G, we expect our pipeline opportunities to convert into backlog for us. And I'm now... I apologize, but I feel like I've gone well beyond my time, and I don't have a note from the moderator.
spk03: Sir, you have reached your 30-minute time, sir.
spk02: Okay, so thank you. Maybe I have to say thank you very much for your interest and your attention this morning. It's a lot of information to get through. I hope to meet some of you tomorrow in the one-on-one meeting.
spk03: Thank you so much, sir. That concludes Flight Aerospace Solutions' presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.
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