Earnings call transcript: Firan Technology Q4 2024 sees strong growth

Firan Technology Group Corporation (FTG) reported robust financial results for Q4 2024, with a 20% increase in full-year revenues to $162.1 million. The company achieved an EPS of $0.16 for the quarter, contributing to a full-year adjusted EPS of $0.43. The stock responded positively, rising 2.24% to $8.68, nearing its 52-week high. According to InvestingPro data, FTG has delivered an impressive 69.8% return over the past year, with particularly strong momentum shown by a 44.1% gain in the last six months. This performance underscores FTG’s strong market position and growth trajectory in the aerospace sector.

Key Takeaways

• Full-year 2024 revenues increased by 20%.
• Adjusted EBITDA rose by 33%.
• New $17 million contract for Comac C919 aircraft assemblies.
• Strategic acquisitions and expansion into India.
• Stock price increased by 2.24% post-earnings announcement.

Company Performance

FTG demonstrated significant growth in 2024, with total bookings up by 25% and a year-end backlog increase of 26%. The company continues to strengthen its position in the aerospace market, capitalizing on new contracts and strategic acquisitions. This growth is supported by a focus on operational efficiency and cost reduction. InvestingPro analysis reveals the company maintains a healthy financial position with a current ratio of 2.54, indicating strong liquidity to support its expansion plans. The company has earned a "GREAT" financial health rating, with particularly strong scores in profit and price momentum metrics.

Financial Highlights

• Full-year revenue: $162.1 million (20% increase from 2023)
• Q4 revenue: $45.2 million
• Gross margin: $44.2 million (27.3% of sales)
• Adjusted EBITDA: $25.8 million (15.9% of sales, 33% increase)
• Adjusted net earnings: $10.3 million ($0.43 per diluted share, 47% increase)
• Net debt at year-end: $700,000

Market Reaction

FTG’s stock price rose by 2.24% following the earnings announcement, reflecting investor confidence in the company’s growth prospects. The stock’s movement towards its 52-week high suggests positive market sentiment, driven by strong financial results and strategic initiatives. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading slightly above its intrinsic value, with a P/E ratio of 20.37 and robust revenue growth of 31.85% in the last twelve months. InvestingPro subscribers have access to 10 additional key insights about FTG, including detailed valuation metrics and growth indicators.

Outlook & Guidance

FTG anticipates organic growth in the mid to high single digits, with contributions from the Flight acquisition. The company plans to open a new aerospace facility in Hyderabad, India, which is expected to start generating revenue in 2025. FTG is also focused on increasing its geographic footprint to mitigate potential U.S. tariff impacts.

Executive Commentary

CEO Brad Born highlighted the record year for FTG, stating, "2024 was another record year for FTG," and expressed confidence in the company’s long-term growth trajectory. He also noted the seasonal challenge in Q1 compared to Q4 performance.

Risks and Challenges

• Potential U.S. tariffs impacting cost structures.
• Dependence on key customers, with the top five accounting for 58.4% of revenue.
• Boeing (NYSE:BA)’s reduced aircraft shipments could affect related revenues.
• Integration of acquisitions and expansion into new markets pose operational challenges.

Q&A

During the earnings call, analysts focused on FTG’s capacity for growth and the impact of potential tariffs. The company reassured minimal customer reaction to tariffs and emphasized operational excellence as a priority. The new India facility’s contribution to revenue growth was also discussed, with expectations set for 2025.

Full transcript - Firan Technology Group Corporation (FTG) Q4 2024:

Conference Operator: Good afternoon, ladies and gentlemen, and welcome to the FTG Fourth Quarter twenty twenty four Analyst Call Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 02/19/2025. I would now like to turn the conference over to Mr.

Brad Born. Please go ahead.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Thank you. Good afternoon. I’m Brad Born, 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 of management of the company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the company’s industry generally. The proceeding 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 by or on its behalf whether a result of new information, future events or otherwise.

2024 was another record year for FTG and our fourth quarter was another record quarter. Revenues increased each quarter throughout the year with Q4 revenues totaling $45,000,000 and full year sales exceeding $162,000,000 It was a great year for FTG and was achieved by the great team of people at our company. I’d like to thank everyone at FTG for their hard work and their contributions to our success. Through 2024, FTG accomplished many financial goals, including total bookings reached 184,500,000 marking a 25% increase over 2023. The year end backlog stood at $122,400,000 a 26% rise from the previous year.

Full year revenues increased by 20% to $162,100,000 Adjusted EBITDA was $25,800,000 up from $19,400,000 in 2023. Adjusted net earnings increased by 47% to $10,300,000 And we maintained a strong balance sheet ending the year with net debt of just $700,000 after investing over $14,700,000 during the year. Other accomplishments in 2024 included the continued successful integration of our twenty twenty three acquisitions with improvements in throughput pricing and cost savings at Circuits Minnetonka and Circuits Haverhill. We secured a $17,000,000 contract to supply cockpit interface assemblies for Comax C919 aircraft with production spanning from late twenty twenty four through 2026. And we had a number of announcements subsequent to our year end that I will discuss later.

Jamie will provide more details on the full year as well as our Q4 results. Let me turn to some external items. Our end market demand remains strong. Airbus delivered seven sixty six aircraft in 2024. More importantly, they are looking to ramp their production to almost 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. At Boeing, they shipped just under three fifty planes in 2024, down from about 500 in 2023. The drop was due in part to the safety incident on the Alaska Air (NYSE:ALK) seven thirty seven as well as the machinist freight they had later in the year. But looking forward, Boeing has plans to ramp their production to almost 700 planes annually in the next few years. Boeing’s backlog is almost 6,000 planes, but also over a decade’s worth of orders at current production rates.

While 2024 might be a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the air transport market with a two:one advantage in aircraft shipped in the last year and a 60% market share based on the order backlog. This has implications for FTG’s plans going forward. In the business jet market, Bombardier (OTC:BDRBF) reported a mid single digit shipment increase for 2024, even in light of a short work stoppage they had during the year. In the helicopter market, Bell Helicopter reported flat deliveries in 2024 compared to 2023, but with a 5% overall revenue growth for the year. Bell also had some key military helicopter wins in the past two years that will drive significant growth for them going forward.

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 Martin (NYSE:LMT) reported a 5% revenue growth in 2024 compared to 2023 and gave guidance for 4% to 5% growth in 2025. Looking at the longer term, Boeing’s most recent twenty year forecast shows 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 also has seen traffic recover.

The recent business jet market forecast from Honeywell (NASDAQ:HON) 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 application. But as we remind everyone about this market, it is lumpy for us, so large year to year variations do occur. So as we have said for many years, ATG’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 at the same time that seems to be the case right now.

Beyond this, let me give you a quick update on some key metrics for FDG for 2024. First, as already noted, the leading indicator of our business is our bookings or new orders. Our bookings were $184,500,000 in the year. This resulted in a backlog of $122,000,000 at year end. In 2024, sales were $162,000,000 which is $27,000,000 above 2023 sales.

The growth is partly due to owning the two acquisitions from 2023 for the full twelve months as compared to only seven months in 2023 and partly due to organic growth. The growth was also achieved even though our Aerospace Toronto facility had a six week work stoppage early in the year. Late in the year, the Aerospace Toronto facility obtained TSO approval from new cockpit assemblies and began shipping to a Tier one avionics supplier that will ultimately tip on and be installed on Airbus aircraft. They also started shipping high value cockpit assemblies for the C919 aircraft in China. For the acquisitions, revenue growth was approximately 16% for Circuit’s Minnetonka in 2024 compared to last year and was about 4% for Circuit Subaru (OTC:FUJHY).

In particular, for Circuit’s Minnetonka, the run rate in Q4 was over $30,000,000 This is getting close to where they were in 2019 when they were at their peak. We continue to make progress towards getting them to revenue levels where they will materially contribute to FTG sales and profitability. In our Aerospace business, sales were up 3% or $1,600,000 in 2024 compared to last year. Again, the strike at the Aerospace Toronto facility early in the year negatively impacted results, but this was offset by strong performance later in the year. On the circuit side of our business, sales were up $26,000,000 or 28% on a year over year basis.

Some of the growth came from the two acquisitions and the balance from organic growth. Overall at FTG, our top five customers accounted for 58.4% of total revenue in 2024. This compares to 56.1% last year. Also interesting to note, the top 10 customers, seven are customers shared between circuits and aerospace. We particularly like to see the shared customers as it means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards.

Given the anticipated actions of the new administration in The U. S. Of implementing tariffs, it’s also good to see that three of our top 10 customers are primarily outside of The U. S. And another four have some operations outside The U.

S. While on this topic, 78.3% of FTG sales are to U. S. Based customers. This includes sales by U.

S. Sites as well as sales from FPG sites in Canada or China. In twenty twenty four, thirty percent of our total revenue came from our Aerospace business compared to 34.5% last year. The Aerospace business share decreased due to the impact from the 2023 acquisitions. I would now like to turn the call over to Jamie, who will summarize our financial results for last year.

And afterwards, I will talk about some key priorities we are working on. Jamie?

Jamie Crichton, Chief Financial Officer, Fran Technology Group Corporation (FTG): Thanks, Brad, and good afternoon, everyone. I’d like to provide some additional detail on our financial performance for 2024 and Q4. On sales of $162,100,000 FGG achieved a gross margin of $44,200,000 or 27.3% in 2024 compared to $39,300,000 or 29.1% of sales of $135,200,000 in 2023. Excluding $3,200,000 in government subsidies in The U. S.

Operations in 2023, gross margin in 2024 was up 60 basis points. The increase in gross margin dollars and the gross margin rate is a result of higher sales volumes, operational improvements and favorable foreign exchange rates. Revenue per employee was $240 k in 2024 as compared to $2.25 ks in 2023, which is a 7% increase. In Q4 twenty twenty four, on sales of $45,200,000 FTG achieved a gross margin of $12,800,000 or 28.3% compared to $10,700,000 or 26.9% on sales of $40,000,000 in Q4 twenty twenty three. The increase in gross margin dollars for 2024 as compared to Q4 twenty twenty three is the result of increased sales volumes in both the circuits and aerospace segments, operational improvements and favorable foreign exchange rates.

From a geographical standpoint, FGG sales growth was concentrated in The U. S. And Asia market segments. Growth in The U. S.

Market was driven by the full year impact of the acquisitions completed in 2023 and growth in Asia was driven by robust markets for commercial aerospace. 78% of sales were derived from customers in The U. S, which is in 2024, which is the same as 2023. SG and A expense was $20,400,000 or 12.6% of sales in 2024 as compared to $17,000,000 or 12.5% of sales in the prior period. The increase of $3,400,000 during fiscal twenty twenty four includes the acquisition timing impact of $1,200,000 as Minnetonka and April were included for the full twelve months and increased headcount targeted at operational leadership.

Corporate development related expenses were $400,000 for 2024 and $600,000 in 2023. In Q4 twenty twenty four, SG and A was 12.7% of sales, which is up from 11.9% in Q4 twenty twenty three with all of the 2024 corporate development expenses being incurred in Q4 twenty twenty four. R and D costs for 2024 were $7,000,000 or 4.3% of sales as compared to $6,600,000 or 4.9% of sales for 2023. R and D efforts include product and process developments at the Circuit segment and efforts to develop and qualify products for future aerospace programs. FGG is exposed to currency risk through transactions, assets and liabilities in foreign currencies, primarily U.

S. Dollars. The average exchange rate experienced in 2024 was 1.36 as compared to $1.35 in 2023, which equates to a weakening of the Canadian dollar less than 1%. We estimate that for each 1% of weakening of the Canadian dollar, FGG would experience an increase in pre tax earnings of $500,000 Adjusted EBITDA as detailed in the press release was $25,800,000 for 2024 or 15.9% of sales compared to $19,400,000 or 14.3% of sales for 2023. Adjusted EBITDA is 33% is up 33% over 2023 as a result of growing the top line organically and through acquisitions, operational improvements and managing expenses.

Adjusted EBITDA in 2024 excludes expenses incurred for the flight acquisition of $300,000 and startup costs in India of $100,000 We also adjusted EBITDA with a $800,000 reduction in contingent consideration related to the Minneton Blanca acquisition, which was booked as a profit adjustment in Q4 twenty twenty four. The Minnetonka acquisition had an earn out provision as part of the purchase price and US1 million dollars was paid to the former shareholders in December 2024. Adjusted EBITDA for Q4 twenty twenty four was $7,600,000 or 16.7% of sales as compared to $6,000,000 or 15% of sales in Q4 twenty twenty three. For 2024, FGG recorded net earnings of $10,800,000 as compared to $11,600,000 in 2023. Adjusted net earnings for 2024 was $10,300,000 or $0.43 per diluted share as compared to $7,000,000 or $0.29 per diluted share in 2023, which is an increase of 47%.

In 2023, adjusted earnings excluded $3,800,000 in government subsidies for our U. S. Sites and a deferred tax recovery of $1,500,000 related to the two acquisitions completed by FGG in 2023 in The U. S. The 2024 effective tax rate was approximately 27% as compared to 16% in 2023 with 23 benefiting from that deferred tax recovery.

I’d like to remind everyone that FTG continues to have substantial U. S. Tax losses available to offset future income and the accounting benefit of those losses has not been recognized in our statements. Our net debt possession as of Q4 twenty twenty four was $700,000 as compared to a net debt of $3,600,000 as of Q4 twenty twenty three. Cash flow from operating activities in 2024 was $14,100,000 as compared to $11,300,000 in 2023.

Excluding that $3,800,000 of government subsidies received in 2023, full year cash flow from operating activities increased by $6,600,000 this year. Cash used for lease liability payments was 3,700,000 in ’twenty four as compared to $2,900,000 in 2023. Capital expenditures were $7,200,000 as compared to $6,500,000 in 2023. Capital expenditures in Q4 included approximately $1,000,000 for infrastructure upgrades at the Circuit Toronto facility. Going forward, I would expect CapEx to be closer to FGG’s long term target of 3% to 4% of revenue.

As at the 2024 year end, the Corporation’s primary sources of liquidity totaled $80,000,000 including consisting of cash, AR, contract assets and inventories. In December 2024, we completed a new three year credit facility with BMO Corporate Finance, which includes committed facilities for operating loans of US10 million dollars and firm credits of US10 million dollars The agreement also includes an accordion facility of US15 million dollars in support of acquisitions. Working capital at 11/30/2024, was $49,900,000 accounts receivable days were $68,000,000 up from $64,000,000

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): in the prior year

Jamie Crichton, Chief Financial Officer, Fran Technology Group Corporation (FTG): inventory days were 96 at the twenty twenty four year end, down from 113 in 2023. And accounts payable days outstanding were 68 at the 2024 year compared to 78 in 2023. We enter Q1 twenty twenty five with a record level of backlog of 122,400,000 of which complete the integration of the Flight acquisition, managing cash flow and improving operational efficiency. A complete set of filings are on sedarbus.com. And with that, I will turn the call back to Brad.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Thanks, Jamie. Let me delve into some important items for the future of FTG, starting with a negative item. The new U. S. Administration appears committed to implementing tariffs on imports into The U.

S. This could negatively impact FTG as we estimate about $55,000,000 of sales to customers located in The U. S. Originate at FTG sites in Canada or China. While this would be negative to FTG, we do not believe the impact would be immediate.

We’ll 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 are taking actions to mitigate any impact to FTG. First, our recent acquisitions in The U. S. In 2023 have reduced our exposure as they are inside the ball and would not be subject to tariffs.

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 in 2024, and this is expected to grow in the coming years. 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.

Subsequent to year end, we announced a significant new contract with De Havilland on their Canadair five fifteen 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 our U. S. Customers with U.

S. Manufacturing sites and 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 being manufactured in The U. S.

We have begun the process of doing 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 FLYT will also help mitigate our exposure to tariffs. FLYT’s largest customer is in Canada and they sell globally.

As we look to in source the manufacturing of FLYT products, we will do so in a manner to minimize our exposure to tariffs. While on the topic of flight, which we acquired on December, subsequent to our year end, we acquired it for a couple of key 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 FLYT helps do this. Also, as noted earlier, we are looking for ways to increase our activity with Airbus and Flight has a SATCOM radio that is installed as an option on new Airbus aircraft. They are sold via a licensing agreement with an average annual volume being 200 to 300 units.

Finally, we think the timing of this acquisition could be superb. Flite 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 FLYTE, our key actions are threefold. First, reduce costs.

FLYTE took out significant costs in September and another million will drop out due to the elimination of their public company costs. Second, we need to sell the new products. We need the sales team at Flight to aggressively sell the products developed. In parallel with this, we need our internal team to continue to add approvals to enable us to sell the products onto a wider range of aircraft in more geographic jurisdictions. And third, we need to in source manufacturing to capture this margin within FTG.

These actions should enable PHYKE to become a positive addition to FTG and further mitigate the risk from U. S. Tariffs. Also, as announced after our year end, we are implementing plans to open an aerospace facility in Hyderabad, India. While it was just recently announced, we have been working on these plans throughout 2024.

First, our decision to expand geographically was partly us looking for an insurance policy against anything negative happening to our China operations, but it was also partly to expand into a new region with growth potential. As we analyzed options, we concluded India was 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 specifically as this has an aerospace hub primarily focused on manufacturing, unlike Bangalore which is more engineering and software focused. Our legal entity in India is established, bank accounts are set up and our first two employees are hired. We have selected to have a facility built to suit due to the favorable location and the option to expand if or when necessary.

This decision doesn’t mean we have to wait for most of 2025 to get our facility completed. In the meantime, we will be sourcing the necessary equipment to be ready to go. Our estimated total investment is forecast to be approximately $2,000,000 While not the original intent, we believe this initiative will also help mitigate any negative impact from U. S. Tariffs.

And finally, we’re developing plans to add sales resources in Canada, Europe and even Asia to support our pivot away from The U. S. Market. This would be both for the legacy FTG sites as well as flights. The integration of the sites we acquired in 2023 is substantially complete.

We will continue to drive growth and operating performance, but we do this at all our sites. For CircaTable, we acquired them to grow our presence in the RF circuit board market for aerospace and defense applications. While they are small with a historic run rate of about 4,000,000 to $5,000,000 we like their capabilities. Our focus is to engage our sales team with them to find new customers and grow the business. This is definitely not an overnight process, but one where we can generate incremental margins and profitability for the benefits of FTG.

Going along with this will be some focused CapEx to address a few production constraints to enable future growth and some capability expansion into additional RF technologies. FTG Circuits Minnetonka was a larger acquisition. Their sales were over $30,000,000 before the pandemic. They were hurt by the pandemic like we were. We see the long term positioning of Minnetonka to be a source of high technology circuit boards similar to our Toronto facility but with The U.

S. Footprint. This U. S. Footprint is critical as we will look to grow our share of The U.

S. Only advanced circuit board in the defense market. In the short term, we have three priorities for the site. First, we need to ramp the throughput in sales, and we did make great progress on this in ’twenty four, ending the year at a $30,000,000 run rate. To grow sales, one key priority is to expand their customer base, again in The U.

S. Defense market. We successfully added a couple of such customers in 2024, which is great to see as the process to add the aerospace and defense customers is always a long complex one. In Minnetonka, the second priority is to reduce material costs. It will take some time to fully achieve the savings as in some cases it requires customers approval and internal engineering efforts.

But when complete, we still expect to achieve savings on the order of $1,000,000 annually. And our third priority is to improve pricing. We believe Minnetonka had not been sufficiently proactive in adjusting prices if costs went up. We’ve had some successes on this already and we will continue to address this. The good news is that with the FTG standard ERP system implemented at that site, we now have a much better handle on costing for all parts in production.

As we enter 2025, we see continued strong demand across most sites. All of our $122,000,000 backlog, over $50,000,000 is due in Q1. While not a great metric, we ended the year with about $16,000,000 in past due orders, down from $18,000,000 at its peak but up from the latest quarter, even though our shipments in Q4 were record high. Our goal is to work hard to reduce our past due orders substantially in 2025. We are expecting to grow in 2025.

The easiest aspect of our growth will be having the Flight acquisition part of FPG for over eleven months in the year. We expect there will be organic growth too. Based on the last year, we would expect organic growth to be in the mid to high single digits. We still expect to see further benefit from the higher value assembly orders first booked in 2023 and more in 2024 for our aerospace businesses. These assemblies go on Boeing and Airbus aircraft.

And we will see the benefit of the C919 program in China ramping in production. We shipped our first production orders last year, and we expect to see production rate increases in 2025 and beyond. With the more complex geopolitical situation in China, I’m sure there are still questions or concerns about our activities there. In 2024, both our operations in China had another record year. We also repatriated cash back to Canada during the last three years.

In total, we have now brought back $2,600,000 in cash. By doing this, we don’t have surplus cash stranded in China and it reduces our exposure since it did deteriorate between China and the West. On a more positive note, the C919 program is now in production and this will benefit our China operation going forward and make them less susceptible to geopolitical uncertainties. We continue to assess possible corporate development opportunities that could fit with either of our businesses, but our near term priority is to integrate life. With a focus on operational excellence in all parts of FTG, our strong financial performance in 2024, our recent acquisition, our key sales wins, we are confident we are on a long term growth trajectory.

This concludes our presentation. I thank you for your attention. I would now like to open the phone for your questions.

Conference Operator: Our first question comes from the line of Nick Corkyant from Acumen Capital. Your line is open.

Nick Corkyant, Analyst, Acumen Capital: A few questions from me. The first is you posted sales of $45,000,000 in the quarter. Can you maybe talk about how close you were to capacity across your sites?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Sure. I guess couple of comments on that. There’s different ways to measure capacity. The biggest capacity number is if we look at it from a plant and equipment perspective, if the plant and equipment was fully utilized twenty four hours a day, seven days a week, we actually have significant capacity available still. And the reason I say that, if you look at any of our sites, we have one site that’s really running three shifts, that’s our Circus Toronto facility.

But even within that, we’re running a full shift in the day and two thirds of the shift in the afternoon, a third of the shift at night. So, there is still room to grow the capacity. So, I don’t actually have a hard number. But in terms of plants and the capacity, we have a fair amount of and plants and equipment, we have a fair amount of capacity still available. The other constraint around capacity is staffing.

As I described, we’re not fully staffed. But at the current staffing level, we’re running pretty efficiently these days. So, there’s not a lot of room to grow our revenue without adding people. But, we’re more than happy to do that. That’s a cost that has great contribution margin.

If we can add some staff and ramp our capacity, that’s good for our financials. So, good for the bit of a complex answer, but I’d say we still have significant capacity available to grow our business given the infrastructure, the plant and equipment we have available.

Nick Corkyant, Analyst, Acumen Capital: That’s helpful. Maybe asking a different way, what is the headcount at the end of

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): the third quarter compared to the end of the fourth quarter? No idea. I know at the end of the year, we were just under 700 people. So, I think six ninety seven there, though I honestly do not remember what we were at the end of the third quarter. And I guess just to further complicate your question, one of the other ways we can short term ramp our capacity or our equivalent headcount is with overtime.

And for sure in Q4, we were busy and we were working a significant amount of overtime across the company to hit the record numbers that we hit.

Nick Corkyant, Analyst, Acumen Capital: That’s fair. Any indication of how the sales pace has been in the first quarter?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Sales pace in terms of bookings or?

Nick Corkyant, Analyst, Acumen Capital: In terms of production.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): In terms of production? Yes, I guess, no, that’s a good question and maybe I should have touched on this. And it’s really a reminder for everyone. Our first quarter is challenged compared to our fourth quarter every year, and that’s because our Q1 includes the months of December, January, February. For sure, every year, kind of that period between Christmas and New Year’s hurts us.

We lose production days. And so, we lose 8% to 10% of our production availability just due to staff holidays and the Christmas period. So, for sure, our Q1, just given that, would be expected to come down from where we were in Q4. But hopefully Q1 in ’twenty five would be above where we were in Q1 ’twenty four. So it’s always a challenging start for us each year.

Nick Corkyant, Analyst, Acumen Capital: Maybe moving on to the flight acquisition. Any indication how long it will take to fully integrate that?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes. I mean, I call it integration and that might not be a great term. We’re going to run it as is where it is. This is actually our first acquisition where I am not pushing hard to switch their ERP system. They run something different from what FTG runs.

But the business is pretty different. It’s not a manufacturing business. So our integration is not so much integration. It’s just getting everyone focused on these three priorities that I talked about. So, the cost saving one essentially is done.

Flight did a lot of it before we acquired them. The public company costs came out kind of by default when we acquired them. So that’s done. So on the cost savings side, we’re in good shape. In terms of selling the products we have, we’re working hard on that.

And there’s really the internal, external aspect of it. You need to get approvals for different each product for different aircraft and in different geographic regions. And so the internal part of getting those approvals, the external part with the sales guys is go sell product. And we’re working hard on both of those with the team just to really accelerate that as much as we can. But, it’s early days.

We’ve owned them just since December 20. But, for sure, we all know what we’re working on and what we’re focused on. And then, the last piece of it, as I say, is in source to manufacturing. We’re working through that process right now. We’re trying to get the not trying, we have the drawings and the statement of work from Flight in terms of what they’ve been buying outside.

We’re giving that to FTG sites as we speak to quote us and find a way to bring it into FTG in a way that is good for the FTG site and good for flight as well. So that’s underway. That’s probably still a few months away from converting anything to internal manufacturing, but it’s in process. So again, not really integration, but those are the things we are focused on and where we’re at this moment.

Nick Corkyant, Analyst, Acumen Capital: That’s helpful. And maybe one last question for me. What opportunities do you see for either sales synergies or cross selling?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes. Less so at this point. Longer term, there might be something. But at this moment, and I didn’t really touch on this either, but there is an FTG sales team, there is a FIGHT sales team. We are not putting these two teams together.

We are running them pretty independently or totally independently. And it’s because we really are selling into different channels. The FTG sales team sells into the original equipment manufacturers as it sells into the Tier one avionics guys or the airframe manufacturers. Flight sells into primarily the airlines, so very different sales channel. So not a lot of cross selling opportunities, but that’s one of the reasons we bought Flight is we wanted to have more access into the aftermarket, which is where you are selling into airlines.

So, yes, not a whole lot of what you asked.

Conference Operator: Our next question comes from the line of Steve Hansen from Raymond (NSE:RYMD) James. Your line is open.

Steve Hansen, Analyst, Raymond James: Brad, curious on the India announcement. Congrats. I think you described roughly $2,000,000 in capital to be spent there, which seems pretty modest. Given that you’ve been working on the opportunity for some time, just curious on what type of specific opportunities you see in that domestic landscape there to fill the facility and ultimately when you expect to start generating revenue? Thanks.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes, sure. I guess couple of comments on that. So first of all, and we’re really, in my mind, following the model that we used when we went into China. When we went into China, the plan was to sell to existing customers in the West. We didn’t actually have plans to sell into the Chinese aerospace market.

But once we got there, we realized we should and we are. As we go into India, for sure, our initial plans are to sell to existing customers in the West. And that I think we can get going pretty quickly. But definitely this time, we know there is a market in India. As I said, Modi has a specific strategy in India called Make in India where they want to domesticate as much of the aerospace and defense activities as makes sense for them.

So, they’re pushing that. There’s definitely opportunities there that realistically will take some time to really get the benefits from. But interestingly enough, we announced last week that we’re going to India. That’s because we were at an air show in India or aerospace conference in India, which was pretty big. But, the interest we garnered just from a few days at this conference was amazing from Indian customers.

So, there is definitely a great market there, timing to penetrate at TBD at this moment. And then, just in case you’re asking, our timing to actually start generating revenue in our facility, realistically it’s next year. I think this year, we’ll be waiting for our facility to be built out, getting equipment installed and operating and be ready to go next year.

Steve Hansen, Analyst, Raymond James: Color. Thanks. And just on the Minnetonka site, I think you described a couple of opportunities, ramping up sales, the pricing or the repricing opportunity as well. How do you think about that site specifically for this year? I think you described roughly a $30,000,000 run rate at this point.

But is it a combination? Can you get the bulk of the pricing initiatives done this year, do you think, of the contracts role? And or how do you feel about staffing in terms of ramping capabilities there? Thanks.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes. In terms of pricing, I think we will be done whatever makes sense and whatever we can achieve this year. Again, one of the key things for me has been the implementation of the FTG standard ERP system. With that, I just have so much better visibility on the cost of product we’re making. And with that, I can quickly or not me, but the guys there can quickly determine, is this a winner or loser?

And if it’s a loser, what we do about it? So pricing could be really complete this year. And then in terms of ramping, we cannot keep up with demand there for sure right now. And so we are adding staff and we are working to grow this year. But how much can you realistically grow at a manufacturing site in the year?

It’s not realistic to do a 30% growth or something like that. But I think, as I said, overall, we’re trying to grow kind of mid to high single digits, something like that’s achievable, maybe a little bit more if everything goes really well.

Steve Hansen, Analyst, Raymond James: And I know you’ve got

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): a lot of balls already in

Steve Hansen, Analyst, Raymond James: the air and the organic growth pipeline looks pretty rich. Just curious on how you feel about additional M and A at this point or is it just still too early?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes. It’s early. For sure, our focus right now and any spare minutes we have is on flight and doing the things I talked about with flight. There’s opportunities floating around out there, but I am internally focused for the next number of months for sure. Our

Conference Operator: next question comes from the line of Russell Stammi from Bikken. Your line is open.

Russell Stammi, Analyst, Bikken: Good afternoon and congrats on the quarter. Just a question around margins. Obviously, a strong quarter. At the segment level, it looks like circuits performed exceptionally well, maybe aerospace saw a bit of margin compression. Just wondering if there’s anything behind that, if that’s just a function of product mix in the quarter, given I think revenue for the segment actually increased a little bit quarter over quarter.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Well, I will congratulate you, Russ, on spending more than me looking at the segment data, the overall numbers. But, I’m just finding what happened in aerospace in the quarter. Definitely, we had some strong sales. I think, as I said, part of what we were doing, we finally got some approvals on some higher value assemblies that we’ve been working on for the last couple of years. We got some good revenue out the door, but it was definitely a messy process to get that done.

And it happened really right at the end of the year. We had to get Transport Canada approval on the product. We were messing around. Customer changed some requirements. So I’d say that whole nexiness of getting that stuff going into production probably impacted our costs and therefore our margins in the aerospace business in Q4.

Russell Stammi, Analyst, Bikken: Thanks on that. And thanks for your earlier color around the levers you have with respect to tariffs. That’s helpful color. I’m just wondering what any notable customers are saying to you at this point on this subject? What are their comments so far?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): It’s actually been relatively it’s actually been very quiet on the whole topic of Perus in terms of anything any discussion with customers. For sure, they’re looking at it, we’re looking at it, but no one is reacting yet. And the aerospace industry does not turn on a dime. There’s just so many approvals and qualifications that need to happen for work to move around. Whatever does happen is definitely going to take time.

And you’ve heard me say, it takes forever to get qualified as a new customer, it takes forever to approve a new site. So that is to our benefit should tariffs happen.

Jamie Crichton, Chief Financial Officer, Fran Technology Group Corporation (FTG): Got it.

Russell Stammi, Analyst, Bikken: Maybe just a last question for me. I think Honeywell formally announced plans to split the company up further. I think there was a lot of speculation this might happen. But I’m just wondering, does this impact your business with them at all either way?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): No, I don’t think so. We deal exclusively with Honeywell on the aerospace side of their business. We’ve never engaged. I could not even really tell you what the other segments are of Honeywell. So, the fact that the aerospace business spins off, I think will have, I would expect, zero impact on our relationship and activity with them.

Jamie Crichton, Chief Financial Officer, Fran Technology Group Corporation (FTG): Got it.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): That’s great

Russell Stammi, Analyst, Bikken: color. Thanks for the help and congrats again on the quarter.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Thanks, Ross.

Conference Operator: Our next question comes from the line of Mark Berger from MKV.

Mark Berger, Analyst, MKV: As a follower of Flight and a shareholder of Flight, it’s refreshing to actually see positive earnings for a change. So my question is, Flight has considerable amount of planes, about 2,000 planes in the air that are carrying their product, which is for the SATCOM system. And they do not have the flight turn on. So question is with, are you going to try to get those customers to also add the full product? And as FLYT is redoing that product right now, which is not profitable for them, does this give you the opportunity to renegotiate that contract and you’ve been a bigger company, get a better return for Flight and for FTP?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Yes, this is a really good call for me today. I’m learning a lot of things. Like I did not know there’s 2,000 aircraft flying flight product. But with regard to your questions around SATCOM system, now honest answer at this point, I’m not sure what my opportunities are. I guess in terms of the flight licensing agreement on the SATCOM, I actually think it’s a good agreement right now.

You’re saying is there opportunity to renegotiate it? Maybe, I truly have not looked at that, but it’s not on my list of near term things that would help flight. As I said earlier, I’m more focused on can we generate some sales continue to generate sales on SATCOM, but at the same time generate some sales on their Edge products, generate some sales on their redesigned WVSS2 product, really get those converted into some revenue going forward. I think, short term, that’s my bigger upside or at least where I’m putting my focus at this moment.

Mark Berger, Analyst, MKV: Also, Flight has a huge presence in China and they’re also on that nine nineteen. Does the fact that you are a much larger company and carry a little more heft allow flight to be able to generate more business from more carriers in China? Or you get additional more business in China due to flights positioned in there?

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Right. I don’t know. We’re working on that. Definitely, we brought all the sales guys in and sat with them back in January, including their sales guy from China. And separately, we actually had a meeting in China with their sales guy and our sales guy.

And we looked at all of these opportunities, again, pretty early on to know what the upside potential is. But as I said, just generally for the two companies, so flight selling into the airlines, we’re selling into the OEM market. Both of those exist in China. And so, is there opportunities to grow to sell their product into the OEM or to sell some of our stuff into the aftermarket? We’ll see, but that’s definitely on the list.

And again, if I go back to to what I said a second ago for their Edge product, they believe and I’ve seen the data that there is significant upside opportunities to sell Edge into China. It’s one of the priority markets, one of the markets with the most number of aircraft that could use this product. So, we’re looking at all these things, but I am hoping and expecting we can grow our market share in China between what FTG did and what Flight does, if we can put it all together, yes, there’s definitely some upside we need to take advantage of.

Mark Berger, Analyst, MKV: There

Conference Operator: There are no further questions at this time. Mr. Borne, please continue.

Brad Born, President and CEO, Fran Technology Group Corporation (FTG): Thank you. As noted in our press release, a replay of the call will be available until Tuesday, 03/18/2025. The numbers are available on our press release. The replay will also be available on our website in a few days. I thank you all for your interest and participation.

Thank you.

Conference Operator: This concludes today’s conference. Thank you for participating. You may now disconnect.

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