Earnings call transcript: Firan Technology Q2 2025 misses EPS forecast

Firan Technology Group Corporation (FTG) reported its Q2 2025 earnings, revealing an earnings per share (EPS) of $0.14, slightly below the forecast of $0.15, marking a 6.67% negative surprise. The revenue also fell short, reaching $48.7 million against the expected $49.99 million, a 2.52% miss. Following the earnings announcement, FTG's stock price dropped by 2.25% in after-hours trading, reflecting investor disappointment. According to InvestingPro support this growth trajectory, showing a healthy current ratio of 1.94 and strong return on equity of 18%. Discover 10+ additional exclusive ProTips and comprehensive analysis in the Pro Research Report, available to InvestingPro subscribers.

Executive Commentary

CEO Brad Born expressed confidence in the company's growth trajectory, stating, "We are confident on a strong long term growth trajectory." He also highlighted the company's strategic focus, mentioning, "Our goal is to participate in all segments of the aerospace and defense market." Additionally, Born emphasized the company's global diversification efforts: "We are taking additional steps to pivot away from U.S. Markets."

Risks and Challenges

• Potential impacts from U.S. tariffs could affect profitability.
• Delayed product qualifications may continue to impact aerospace segment performance.
• Exchange rate fluctuations could affect international sales.
• Dependence on top five customers, which account for 52.8% of revenue, poses a concentration risk.
• The integration of the FLYHT acquisition may present operational challenges.

Q&A

During the earnings call, analysts inquired about the relatively flat backlog, which was attributed to exchange rate impacts and a lack of significant contract wins. Concerns were also raised regarding the delayed product qualifications affecting the aerospace segment's performance. The company addressed these issues, noting plans to explore in-sourcing manufacturing for FLYHT products to enhance efficiency.

Full transcript - Firan Technology Group Corporation (FTG) Q2 2025:

Judy, Conference Operator: Good morning, everyone. My name is Judy, and I will be your conference operator today. I would like to welcome everyone to the FTT Q2 twenty twenty five Analyst Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session following the presentation.

Please note that this call is being recorded. I would now like to turn the call over to mister Brad president and chief executive officer of Travant Technology Group. Mister Born, you may proceed.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Thank you. Good morning. I'm Brad Born, President and CEO of Frant Technology Group Corporation, or FTG. Also on the call today is Jamie Criton, our Chief Financial Officer. Before we go any further, I must caution you this call may contain forward looking statements.

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Such statements are based on the current expectations of management of the company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the company's industries 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 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 via or on its behalf, whether as a result of new information, future events or otherwise.

Well, we set another sales record for FTG in our second quarter of twenty twenty five. We also had record EBITDA and adjusted EBITDA in the quarter. I'd like to thank everyone at FTG for their hard work and their contributions to our continued success. In the second quarter of twenty twenty five, FTG accomplished many financial goals, including our total bookings in the quarter reached 45,800,000.0 Our quarter end backlog stood at $133,500,000 a 9% rise from the previous year end. We achieved record revenue of $48,700,000 a 25.6% increase over Q2 last year.

We achieved record adjusted EBITDA of 8,700,000 in the quarter, up from $6,500,000 in Q2 last year. Our net earnings rose by 36% to $3,500,000 and we maintained a strong balance sheet with net debt of $13,500,000 including 12,800,000 of government loans or approximately 0.4x trailing twelve month EBITDA. Our operating cash flow less lease payments was $5,800,000 for the first half of twenty twenty five. Other accomplishments in our second quarter included our recent acquisition, FLYHT, achieved profitability in Q2. There's certainly lots more work to do there, but it's great to see some early results and positive results for us.

Also related to flight, they achieved their first supplemental type certificate or STC from Transport Canada for its Apris Edge product on the Boeing seven thirty seven. More STCs for this product are underway for additional aircraft types and additional geographic regions. We finalized the facility design and signed a lease for our planned aerospace facility in Hyderabad, India with a target completion date of late twenty twenty five. Initial startup capital has also been invested in the new operation, officially now called FPG Aerospace Hyderabad. We completed qualification orders for some high volume U.

S. Defense programs in the quarter and received new qualification orders on further U. S. Defense programs. And partly in Q1, partly in Q2, we have strengthened our leadership team with the addition of Bill Szabadi as Executive Vice President of FTG Circuits.

Bill comes with extensive experience in all aspects of the circuit board industry, and he will be responsible for all fixed FTG Circuits businesses. In addition, Marco Vinica joined FDG in a newly created role as Executive Vice President of FDG Aerospace. Marco comes with extensive experience in all aspects of the aerospace industry. Marco will be responsible for the four FPG aerospace sites as well as the site under construction in India. And finally, yesterday, we added Russell Davis to our Board of Directors.

Russell has unique experience as a Board member of privately held companies, including Davies Ship Canada and as a senior executive of public and private corporations and as a senior partner in financial services firm Deloitte and corporate finance and M and A advisory services. Jamie will provide more details on our Q2 results shortly. Let me turn to some external items. Our end market demand remains strong. Airbus delivered seven sixty six aircraft last year, but more importantly, they're looking to ramp to over a thousand aircraft annually in the next few years.

They have a backlog of over 8,000 orders, which is over a decade worth of production at current production rates. For 2025, they're projecting growth of 7% over last At Boeing, they shipped just under three fifty points last year, down from about 500 in 2023. The drop was due in part to the safety incident on the Alaska Air seven thirty seven as well as the machinist strike they had last year. But looking forward, Boeing has plans to ramp their production to almost 700 planes annually in the next two years. Boeing's backlog is almost 6,000 planes, but also over a decade's worth of orders at current production rates.

In the first half of this year, Boeing shipped over two fifty aircraft, but they have recovered from last year's challenges and are back on a growth plan. While 2024 might have been a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the air transport market with a two to one advantage of aircraft shipped in the last year and a 60% market share on order backlog. This has implications for FDG's plans going forward. In the business jet market, Bombardier reported mid single digit shipment increases last year. They're not providing guidance for this year due to the uncertainty around U.

S. Tariffs, which are okay for them for now, but are still somewhat fluid. Recently, however, Bombardier announced a new order for 50 aircraft with option for 70 more, which represents almost another year of backlog for them. They're also pushing hard to add a defense component to their business and have had some success in selling their business jets for defense applications. In the helicopter market, Bell Helicopter reported 5% overall revenue growth last year, but they also have some key U.

S. Military helicopter wins in the last few years that will drive significant growth going forward. Airbus Helicopters had a backlog of nine forty two aircraft at the end of Q1 this year, which represents about five years of production. All of this bodes well for us as we look to future demands in the coming years. I've also looked at results from some key defense contractors.

For instance, Lockheed Martin's reporting 4% ready growth this year. Also related to defense, Boeing was selected to develop and produce the next generation air dominant fighter. This is good news for them. And based on the supply chain approach of the previous air superiority fighter, the F-twenty two, I would expect sourcing for this new program will be for U. S.

Only suppliers. We did have small content on the F-twenty two when it was in production through our Chatsworth facility. We are much better positioned now to increase our content on U. S.-only procurement with five U. S.

Based sites. Also, there are new commitments from all NATO members, including Canada, to ramp defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. And Canada said they will increase defense spending this year to 2% of GDP. Again, all this indicates significant increases in defense budgets for all European countries and for Canada. And The U.

S. Is looking to increase defense spending next year as well. Looking at the longer term, Boeing's most recent twenty year forecast for commercial aerospace shows significant long term industry growth, and it continues to show 20% of all new aircraft deliveries going to China and close to 40% going to Asia, as has been the case in their recent forecast. The business jet market has already seen traffic recover. A recent business jet market forecast from Honeywell similarly predicts growth in this market in the coming years with near term double digit growth rates for the sector.

The simulator market mirrors the end market applications. But as we always remind everyone that this market is lumpy, so large year to year variations do occur. So as we have said for many years, FPG's goal is to participate in all segments of the aerospace and defense market as these markets move through their independent business cycle. It is not often all segments are growing, that seems to be the case now. Beyond all this, let me give you a quick update on some key metrics for FTG for our second quarter.

First, as already noted, the leading indicator of business is our bookings and orders. Our bookings were 45,800,000 in the quarter. This resulted in the backlog of $133,000,000 Our second quarter sales were $48,700,000 up $9,900,000 or 26% above Q2 last year. The growth is approximately 45 from organic growth and 55% resulting from the acquisition of FLYHT. In our Aerospace business, sales were up $5,700,000 or 56% in Q2 this year compared to Q2 last year.

The increase is primarily due to the acquisition of FLYHT in Q1 this year. Our aerospace transport site had a tough quarter, offset by strong growth in Toronto. Our Tianjin facility had modest growth in the quarter. On the circuit side of the business, sales in our second quarter of this year were up $4,000,000 or 14% over Q2 last year. All of this growth is organic.

Of note, our strongest percentage growth was from our joint venture in China, and the largest dollar growth was from our Circus Donnell, qualifier Circus Minnetonka facility. Overall at FPG, our top five customers accounted for 52.8% of total revenue in our second quarter. This compares to 56% last year. It's always good to see the drop in customer concentration as we add sites and expand our customer base, partly through the acquisition of FLYHT. Airlines were two of our top 20 customers in Q2 due to the FLYHT acquisition.

67.5% of sales are to U. S.-based customers in the quarter. This includes sales by U. S. Sites as well as sales from SDG sites in Canada or China.

This compares to 80.5% in Q2 last year. While sales grew by 5% into The U. S, sales grew by 58% in Canada, 120% in Asia and 170% into Europe as we benefit from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring flight with sales globally. This increase on sales outside The U. S.

Are helpful in the event of any tariffs The U. S. Might impose. Our goal is to continue to grow our non U. S.

Revenue for our non U. S. Sites. In Q2 this year, 32% of our total revenues came from our aerospace business compared to 25.5% in Q2 last year. The aerospace business year increased due to the strong growth at Aerospace Toronto and the acquisition of Flight.

I'd now like to turn the call over to Jamie, who will summarize our financial results for Q2 twenty twenty five, and afterwards, I will talk about some key priorities we are working on. Jamie? Thanks, Brad, and good morning, everyone. I'd like to provide some additional detail on our financial performance for Q2. On sales of $48,700,000 FTG achieved a gross margin of $15,900,000 or 32.6% in Q2 'twenty five compared to $10,800,000 or 27.9% on sales of $38,800,000 in Q2 'twenty four.

For Q2 'twenty five, the FLYHT acquisition contributed approximately $2,100,000 on incremental gross margin. Excluding the acquisition, gross margin dollars increased by $2,600,000 on incremental sales of 4,500,000.0 as a result of operational improvements, particularly within the Circuit segment and favorable foreign exchange rates in Q2 'twenty five. The average FX rate in Q 'twenty five was $04 or 3% above the rate for Q2 twenty twenty four. Gross margin in Q2 twenty twenty five also benefited from a partial forgiveness of loan from the Ontario government of 400 ks. Gross margin within the aerospace segment was constrained in Q2 by delayed qualification of a new product line, which has delayed the related revenue.

On a sequential basis, Q2 'twenty five gross margins increased by $2,500,000 or 1.5 margin points relative to Q1 'twenty five on a sales increase of 5,900,000.0 Annualized revenue per employee in Q2 'twenty five was $259,000 which was up 11% from the prior year quarter. SG and A expense was 6,800,000 or 14.1% of sales in Q2 'twenty five as compared to $4,800,000 or 12.3% of sales in Q2 'twenty four. The increase in SG and A includes 1,300,000.0 expenses from FLYHT, dollars 62,000 for the Hyderabad startup effort and higher performance compensation expense. R and D costs for Q2 'twenty five were $2,400,000 or 5% of sales compared to $1,600,000 or 4.1% of sales for Q2 'twenty four. R and D efforts include process development in the Circuit segment and efforts to develop and qualify products for future aerospace programs.

FX expense in Q2 'twenty five was $400,000 greater than Q2 'twenty four and $1,300,000 more than Q1 twenty twenty five. A component of FX expense is the quarter end revaluation of U. S. Dollar denominated balance sheet items, primarily cash, receivables, payables and bank debt. The FX rates for the last three consecutive quarters end dates are $1.4 at Q4 'twenty four, up to $1.44 for Q1 'twenty five and then back down to $1.38 at Q2 'twenty five.

In Q2 twenty twenty five, translation of U. S. Dollar balance sheet was a 700 ks drag on earnings, whereas in Q1 twenty twenty five, this was a lift of earnings of approximately 600 ks. SGG continues to manage FX and gold risk replacement of forward contracts. Our FX contract portfolio amounts to $52,900,000 with a weighted average contract rate of $1.0.3 over a duration of thirty six months.

Going forward, we have ten fifty Troy ounces at an average price just under USD 3,000 per ounce with a duration of eighteen months. Adjusted EBITDA was $8,700,000 or 17.9% of sales for Q2 'twenty five as compared to $6,500,000 or 16.7% of sales for Q2 twenty twenty four. EBITDA adjustments for limited stock based comp in both periods and India startup costs of $62,000 in the current quarter. Adjusted EBITDA for the twelve trailing twelve month period ending Q2 'twenty five is $31,900,000 or 17.7% on sales of 185,700,000.0 with a net debt equal to 0.4x adjusted EBITDA for the trailing twelve month period. Investments in CapEx and deferred development in Q2 'twenty five was 1,500,000 or 33% of revenue.

FGG expects investment in CapEx and deferred development to run-in this range for the duration of 2025. Operating cash flow plus lease liability payments is $5,800,000 for the first half of twenty twenty five, broken down as a positive $8,100,000 for Q1 and negative $2,300,000 for Cash flow for the first half of twenty twenty five and Q2 reflects a buildup of working capital levels supported sales growth. I would also note that FTG made income tax payments of $2,200,000 due to 'twenty five, which included some cash up for Q1. We are entering the second half of twenty twenty five with a backlog exceeding 133,000,000 Our focus will be continuing to deliver quality products to our customers on a timely basis and improving the efficiency of operations. Our complete set of Q2 filings are now on cedarplus.com.

And with that, I will turn the call back to Brad. Thanks, Jamie. Let me delve into some important items for the future of SDG, starting with potentially negative items. Tariffs or credit tariffs from The U. S.

Are the new normal and certain uncertainties around these tariffs. This makes it challenging to plan and react to, but we are focused on this every day as it evolves. We have two sites in China, which are now subject to U. S. Tariffs, but a relatively small portion of their work shifts to The U.

S. For aerospace Tianjin, this should have minimal impact as the site ships completed products to Canadian and Chinese customers. They ship some components and some assemblies to our final sites to then make final products for shipments to US customers. For our circuit board joint venture, a small amount of work shifts to The U. S.

And will be subject to the new tariff. Over the past five years, they've had a tariff of 25% on their exports to U. S, but they've also had work from Canada and Europe that will not be subject to U. S. Tariffs.

Our growth plans for this business is to focus on customers in China, Europe and Canada, and we are making progress on these plans. Our U. S. Sites ship almost exclusively to U. S.

Customers, so there will not be any tariff on shipments to their end customers. But they are starting to see some tariffs on input costs or raw materials they buy, some of which come from Europe or Asia. So far, the impact is immaterial, but we will continue to track that in the coming quarters. And then surprisingly, at this moment, the FTG sites in the best situation are our Canadian sites. We 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 FDG products are U. S. MTA compliant.

But every day is a new day, so all of 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 from FTG sites in Canada or China. While we are not exposed to tariffs between Canada and U.

S. At this moment, if they did happen, we do not believe the impact would be immediate. It will take time for the aerospace and defense supply chain to react to tariffs and find alternate sources of supply. But we are concerned, and we're taking actions to mitigate any impact to FTG. First, our acquisitions in The U.

S. Over the past year 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 $26,000,000 last year and was already $27,000,000 in the first half of this year. 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 stronger performers in the air transport market.

But whatever we do in this regard can help mitigate U. S. Tariffs. And more recently, we have made a conscious decision to pivot away from U. S.

Market for our sites based inside The U. S. A focus on Airbus is part of this. In Q1 this year, we announced a significant new contract with De Havilland on their Canadair five fifteen water bomber aircraft. This is an example of a Canadian program that we will support from our Toronto or Canadian facility.

We are looking to become more locally focused by aligning U. S. Customers with our U. S. Manufacturing sites and our non U.

S. Customers with non U. S. Manufacturing sites. We have identified 4,000,000 to $5,000,000 of revenue for non U.

S. Customers currently being manufactured in The U. S. We have begun the process of moving this work out of our U. S.

Sites and thereby potentially freeing up some capacity to move work in the other direction. The acquisition of FLYHT will also help mitigate our exposure to tariffs. FLYHT's largest customer is in Canada, and they sell globally. As we look to in source the manufacturing of FLYHT products, we will do so in a manner to minimize our exposure to tariffs. While on the topic of FLYHT, 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 FLYHT does this. Also, as noted earlier, we are looking for ways to increase our activity with Airbus, and FLYHT has a TADCOM radio that is installed as a factory option on new Airbus aircraft. They are sold via a licensing agreement with an average annual volume of 200 to 300 units. Finally, we think the timing on this acquisition could be superb. FLYHT has spent significant time and money investing in updating products and developing new products, and 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 own Twice, we have three key actions. First, we need to reduce costs. Flight took significant costs in last September and another $1,000,000 dropped out due to the elimination of the public company costs when we closed our deal. We will continue to manage their costs going forward.

Secondly, we need to sell the new products they develop. 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 auction.

For the aftermarket, the product is established and sales are well established in Oglon. The product can be used as a safety backup voice system or it can be used to transmit data useful for the airline over the Iridium satellite system. When it is used for airline data over Iridium, flight gets a recurring revenue stream reselling Iridium data services. The licensing agreement for Airbus has been in a hiatus mode for the past few years due to a multiyear delivery 2022, but this is expected to kick in again starting next year, which is expected to result in a multimillion dollar uptick when it does. Second product, there's a water vapor sensing system or WDFS two.

Its purpose is to collect humidity inside the aircraft as it flies and provide this data to weather agencies such as NOAA in The US and UKMet in England, who find it useful in weather forecasting. This product design was modernized and updated last year. It was in qualification testing when we acquired FLYHT. Qual testing is now complete. There are firm orders from both NOAA and UKMAP.

These can ship as we complete FTCs for the relevant aircraft price expected to be ERJs and Boeing $7.37. Once in service, there's also a data revenue stream associated with this product. Also related to this product, there are potentially commercial and military applications for it to monitor aircraft contrails, and we are exploring these. And the third product is brand new. It's a five gs wireless quick access recorder or WQAR.

This product collects data from the aircraft in flight and downloads it to airline operations while at the gate using a wireless or cell phone connection. The flight product is the first five g WQAR on the market. This product is qualified. The key now is to get approvals to install it on various aircraft sites. The Boeing seven thirty seven the Boeing seven thirty seven approval has been received in Canada.

This will now be expanded to Europe and China, which are expected to be the largest markets for this product. Aircraft testing for the a three twenty family of aircraft is also complete in Europe. Once approved in Europe, the priority will be expanding approval to again include China. We have the FGG fitners, the flight sales team focused on aggressively selling all of these products as they become available. And finally, our third priority for FLYHT is to in source manufacturing to capture this margin within FTG.

We are now looking at options for both the SATCOM radio and the WQAR products from our facilities potentially in The U. S, Canada or China. These actions should enable FLYHT to become a positive addition to FTG and further mitigate risks from U. S. Tariffs.

And as mentioned earlier, FLYHT was profitable in Q2 this year. Also, as announced in Q1, we are implementing plans to open our aerospace facility in Hyderabad, India. We have been working on these plans throughout 2024. First, our decision to expand geographically was partly us looking for insurance policy if anything negative that could happen to our China operations, but it's also partly to expand into new regions with growth potential. As we analyze options, we concluded India is a very cost effective place for manufacturing.

And with Prime Minister Modi's make in India policy, coupled with significant defense spending, it would be an ideal place to operate. We selected Hyderabad that is as it has become an aerospace hub, primarily focused on manufacturing. Our legal entity is established. We have selected to have a facility built to suit due to a favorable location and the option to expand if or when necessary. This decision does mean we will have to wait for most of this year to get our facility completed.

In the meantime, we will be sourcing the necessary equipment to be ready to fill. Our estimated total investment is forecast to be approximately $2,000,000 While not the original intent, we believe this initiative could also help 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. Markets. This would be for both the legacy MTG sites as well as sites. As we enter Q3 twenty twenty five, we see continued strong demand across most sites. Of our $133,000,000 backlog, over $60,000,000 is due in Q3 this year.

But as we know each year, our Q3 includes the summer months of June, July and August, and we typically lose about a week of production due to summer vacations. We are expecting to grow in 2025. The easiest aspect of our growth will be having the flight acquisition as part of SDG for over eleven months in the year. We also expect there will be organic growth. The geopolitical situation in China remains complex.

In 2024, both our operations in China had another record year, notwithstanding the uncertainty. But we have repaid created cash back to Canada during 2022, 2023 and 2024. And in total, we've now bought back $3,600,000 in cash. And we are repatriating more in 2025. By doing this, we don't have surplus cash stranded in China and it reduces our exposure if things deteriorate between China and the West.

On a more positive note, in China, the C919 program is now in production, and this will benefit our Chinese operations going forward and make us less susceptible to any geopolitical uncertainties. We continue to assess possible corporate development opportunities that could fit with the size of our businesses, but our near term priority is to integrate our recent acquisition. With a focus on operational excellence in Homebrier's SDG, a strong financial performance last year and the first half of this year, our recent acquisitions and our key sales wins, we are confident 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.

Judy, Conference Operator: With we will now that, our first question comes from the line of Nick Kirkland with Acumen Capital. Congrats

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): on the record quarter. Thanks, Nick. Just my first question on the backlog. It was relatively flat from the last quarter. Is this where we should expect backlog to settle?

And what would potentially drive it higher? Yes. I'm not sure I expect it to settle, but we do see a little ups and downs each quarter based on significant events. So in Q1 this year, we booked, for instance, the Avalon water bomber contract. That was a multimillion dollar contract, so it spiked Q1 up a little bit.

We didn't have any significant events like that in our Q2, so that's why it remained relatively flat. I guess the other one for Q2 is our almost all our backlog is in U. S. Dollars, and so the exchange rate can cause our backlog to move up and down. And Jamie might correct me, but I think and we had about a $6,000,000 impact on FX in the quarter in our backlog just due to FX rates.

But having said that, going forward, we have lots of interesting opportunities. And I'm expecting that we can see some good wins and continued growth in our backlog as we progress through the rest of the year. Good color. And maybe switching to flight. I know you talked about in sourcing production of their products.

Any indication what the time line for this would be? Yeah. I'm gonna start with I would have thought it'd be by now, but it's not. So we are, you know, we're a little bit late in making that happen. It's just proving to be a little bit more complex, but it's also you know, the original plan was simple.

I was gonna push production of, you know, the first product, the Tatcom radio in the Chatford site, but then tariffs and the uncertainty of tariffs has complicated our decision. And so, you know, it's causing us to delay a little bit and consider what is the right size or is it more than one size and where we want to manufacture this stuff. So, you know, that that has definitely slowed us down and it, you know, proved to be a little bit more complex than anticipated initially to to get this production going. So, Darrell, long answer. You know, I'm hoping we are up and running, I can say, this year, but, it's that sort of time line right now.

And

Judy, Conference Operator: your next question comes from the line of Russell Stanley with Beacon Securities.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Good morning, and congrats on the quarter. Just understanding some sensitivity perhaps here, but you noted you qualify for some new high volume U. S. Defense programs. Wondering if you can elaborate on what you're adding there.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yes and no. I I I'll add a little bit. So for sure, these these programs are for our circuit board side of the business and really in our US sites, US military program, it's you know, we're still working on or negotiating and working through what the upside will be for FTG. So I don't have firm numbers, but I would expect it's in, you know, the multimillion dollar range. So, you know, we're not dealing with hundreds of thousands of dollars here.

But I don't I don't have a final number because we don't have it yet. Understood.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): And as always, appreciate the color around what you're seeing from from some of the major end customers and and everything, as you noted, looks to be strong on the demand front. I'm wondering at the program level, have you seen any softness or any hiccups in any specific programs? Maybe call it the C919 given the tariff war disruption of some exports to that of components there. But have you seen anything else at the program level, any hiccups in demand that you can call out?

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Well, I think through that, I'll talk to C919. So you're right that I don't when it was a month or so ago, The US decided to block export of engines for the c nine one nine. That has been removed. And so those exports have begun again. So that's the good news.

It could have been a significant impact to that program for this year. It looks like it won't be, but again, every day is a new day, so we'll see what happens. Other than that, no, I you know, I'd I'd say we always in aerospace, everyone's schedules prove to be slightly more optimistic than the way they turn out. But it's like I said, it's day to day stuff on, you know, whether it's new development programs or, you know, just getting things ramped up. It always drags out a little bit, but nothing beyond the normal.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Got it. And maybe one last question for me, just on the working capital front and and specifically payables. I think you used some cash to pay those down during the quarter. Anything chunky or one off in there that we should that you'd call out? Or or should we regard current payable levels relative to sales or COGS at at a more normal level going forward?

Thank you.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yes. I don't know. I was expecting you or someone to ask more on the other side on receivables or inventory, not on payables. So you you fixed me on that one. But I you know, for sure, we used a lot of working capital in q two.

Overall, with this being specific on any one of them, I would say it is at an elevated level, and I do expect working capital to come down in the coming quarters due to some day to day nuisance things on both inventories and receivables at FPG. So it's a little bit elevated right now, and it will come back down in the coming quarters.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): That's great. I appreciate the color. Congrats again. I'll get back in the queue.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Okay. Thanks a

Judy, Conference Operator: And your next question comes from the line of Robert Murphy with Raymond James. Please go ahead.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Hi, team. Thanks for the time. Yes. So just first question, just on the aerospace segment. Outside of incremental results from from slightly down to the year, how do you see organic growth kind of progressing into 3Q and then into 4Q?

And then kind of what are some of your factors underpinning this this outlook? Thanks.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yes. I don't have a firm growth number for the aerospace business, but Q2 was definitely a little bit softer than I would have anticipated. We had some products that we had built and we cannot ship out in the quarter, so that hurt Q2 a little bit. We have really strong backlog across the business in aerospace and some of the defense contract I talked about where, you know, we have got two qualification or the benefit of aerospace task force. So backlog looks strong.

So I'm just, you know, we can work through stuff with our customers and and get, you know, solid delivery dates, solid deliveries from our suppliers on components, you should see some pretty solid organic growth in the coming quarters.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Okay. Great. That's super helpful. And then just kind of on

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): the margin there for aerospace. I think you mentioned there's some delayed qualification in the new product line in

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): there that might have impacted in the quarter. Just wondering if you could provide a bit more kind of more color here and then kind of how we should see margins in the aerospace segment kind of progressing here.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yes. It's a great program. The one that Jamie was referring to is on the commercial aerospace side of things is we're doing some cockpit assemblies, you know, some of them go into Boeing aircraft, some of them go into Airbus aircraft. It's a great program. It's definitely worth millions of dollars for FPG.

We thought we were through all of our development efforts in the last year, and we actually shipped some units. And then we got into a I don't some testing. It was actually an earbuds, and the testing caused everything to stop. In the end, nothing changed, but it caused a delay in the actions. And so that's been a little bit frustrating.

On the previous question I was asked about, I built inventories of about $1,000,000 of products that got built but could not ship in Q2. So I think we're close to getting through that and getting it all sorted out so we can start shipping products, but I thought that in previous quarters as well. So we'll see how we do this time, but I do think we're getting close from that. We'll start to convert to regular revenue for the aerospace business going forward. And even on that, the program is with our aerospace Toronto facility, but because of the volume of that, we actually were building product in Toronto and in Passport in Q2 to try to support the demand.

Again, it turned out to be inventory as opposed to revenue in the quarter, But at some point, that inventory will become revenue.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Okay. Great. That's really helpful. And then just finally, just on India quickly. I was just wondering kind of when you expect to have sales visibility

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): there. Yeah. So, you know, we're trying to do two things with our India facility. One of them is to sell back to the West, and then one of them is to penetrate the Indian market. For sure, the time line to generate revenue from the Indian market is going to be longer than selling back to the West.

And so, you know, I I don't know what to say. I I'd be surprised if we had any significant sales to the Indian market through next year even. But selling back to the West, some of that's going to be, you know, we got to get the site approved by, you know, handful of customers, then we can transition existing work into that site. So it's really a capacity management opportunity for us. And so I would expect maybe mid next year, we'll start to see real revenue from that site for Western customers.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Okay. Great. Thanks for the time.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): I'll turn the line back. Right. Okay. Thank you.

Judy, Conference Operator: And your next question comes from the line of Sebastian Charman with Agave Capital. Please go ahead.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Good morning. Solid quarter bravo. Good morning. I'm I'm trying to compare the revenue margin profile between a commercial and a military aircraft from Tron's perspective. Can you provide a rough ratio or revenue contribution that we could expect from, let's say, one military versus a similar commercial single idle aircraft?

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): No. I just I I got you. I think you know, generally, I I don't see a significant difference in margin, whether it's commercial aerospace or or defense work. Occasionally, we're doing work directly with the US government generally on aftermarket parts. So those who would call the Defense Logistics Agency in The US, which is the agency set up to buy spares for the US military.

When we're dealing direct with the agency, we do get into some government costing rules and regulations. And generally, those rules depress margins a little bit because you have to support your price with costs and markups and everything, and we're going through one of those right now. But even with that, it's not a material difference. I I really think I see similar margins on my commercial aerospace work as I do on almost all my defense work.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Okay. And and per unit, like, the revenue per unit, is it also similar or there could be more equipment on one or the other?

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yeah. It it it can be either. It could be the same or it could be more or less. It it really the content just depends on how successful our sales guys are and and winning work. You know, we have you know, my my favorite program for what it's worth is the military program.

It's the c one thirty aircraft that's made by Lockheed. And there's no reason I like that program. It's been around forever. It's been in production for about fifty years. It's not high volume, but it's there every year.

But that is one where, you know, we do sell circuit boards, we do sell cockpit products, we sell simulator products. And so I like that one just because we're selling everything we have onto that platform. And yeah. But each program is a 100% dependent on, you know, what we get a shot at and what we're successful in winning, and it it can vary widely from aircraft to aircraft.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Okay. Yeah. That makes sense. So I guess I would compare, like, c thirty, one thirty, the Hercules as the higher revenue and and perhaps f 22, which I think you alluded earlier to less components approved.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yeah. Know. Right. And the f p that point is now out of production. But, yeah, when it was in production, you know, for sure that was US only.

At the time, that was in production. The only US site we had was our chat for circuit facility, and so we we had one circuit board on that aircraft. So, yeah, that was pretty low content. You know, hopefully, going forward on US only programs, we can get more because we have much more capacity and and, you know, technology available in The US.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Good. Thanks for the the color on this. Regarding the Bombardier record challenger in global order that they announced last week, I think it was, like, over 50 planes. It almost looks like disguised NATO military order. Would it be reasonable to assume that Iran has a fair chance of getting a piece of that?

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yeah. For sure. You know, it's pretty two avenues. Just about every cockpit panel and every Bombardier aircraft comes from us. And so, you know, we have great content in the cockpit.

And so that's one avenue. The other one, you know, generally, every Bombardier aircraft uses Collins avionics, and we supply into Collins on their ADI suite that ends up on those aircraft. So, yeah, I fully expect to have content on everything they manufacture, whether it's for business jet or military or any other application.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Great. Well, bravo again. That's it for me.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Right. Okay. Thank you.

Judy, Conference Operator: Next question comes from the line of Ashton Morjani with Edward Jones. Please go ahead.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Hi. Congrats on the continued strong execution. And are you seeing any further opportunities on pricing and or any low hanging fruit projects that can generate a high ROIC? And if you could speak

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): about the cash generating ability of

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): these projects, that'd be helpful as well.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yeah. For sure, there is pricing opportunity. Our our favorite one is, you know, is expedited deliveries. You know, we we always see some of that. Maybe we're seeing a little bit more right now than we've seen through the last half of last year.

But when a customer needs expedited deliveries, generally that is a good pricing opportunity for us. And just overall demand, you know, the the demand in the market is strong and that creates some pricing leverage as well. So, you know, yeah, for sure on that. And I lost your second question. I'm sorry.

What

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Just in terms of different projects, low hanging fruit projects that generate a higher ROIC. You've been doing quite a bit with Flight, of course, and perhaps on that. But just any other opportunities to expand which deploy capital that can generate high high cash return on that?

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Yeah. I I don't know. I'd probably do that on everything we do here. But yeah. I I I don't can't think of a specific program or something that's gonna have a higher margin opportunities than others right now.

You know, I'm just trying to make stuff up. Think, you know, right now, I'm in the process of moving my production of the cockpit assemblies for the c nine one nine from my Toronto facility out to Tianjin. The price doesn't change, but my cost should drop as I move the work to China. So, you know, that should increase the margin on that opportunity. Hope, you know, we're we're right in the midst of that.

Hopefully, we will start producing that that work in Tianjin in q three this year. But that's where we're gonna expand margins. It's not a new program, but it's a, you know, margin opportunity. Yeah. Other than that, you know, again, a little bit of pricing leverage can help expand margins, but I can't think of any specific program that's gonna give us an uptick in in margins or return on capital.

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Do you see any further pricing on

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): the the previous acquisitions you made?

Jamie Criton, Chief Financial Officer, Frant Technology Group Corporation (FTG): Or do feel like the pricing has been fully realized there? Because you mentioned there was a gap in between what they were selling their products for in the past versus what you think you can sell them for.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Sure. No. It's a good question. Yeah. I I do think there's still some opportunities.

You know, our our big acquisition in '23 was the site in Minnetonka. The first year, you know, we did some price increase in the first year, but we're running blind. We've, you know, now basically been running with our ERP system for the last year. Definitely, we're getting better cost data on all our products in Minnetonka and knowing your cost is often helpful in pricing product. So, you know, definitely there is still opportunities in Minnetonka to, you know, take advantage of our much improved data to adjust pricings as appropriate.

Perfect. Thank you. Thank you.

Judy, Conference Operator: And we have no further questions at this time. I would like to turn it back to mister Balboar for closing remarks.

Brad Born, President and CEO, Frant Technology Group Corporation (FTG): Okay. Thank you. A replay of the call will be available until Saturday, August 9, at the numbers listed on our press release. The replay will also be available on our website in a few days. And thank you all for your interest and participation.

Thank you.

Judy, Conference Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

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