Q3 2022 FLYHT Aerospace Solutions Ltd Earnings Call

Ladies and gentlemen, please standby the call will begin momentarily.

Yeah.

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Thank you for standing by this is the conference operator, welcome to the flight Aerospace solutions third quarter 2022 results conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.

Should you need assistance during the conference call you May signal, an operator by pressing Star then zero.

It was just the volume of questions expected on today's call. We ask that you limit your questions to three to.

To allow time for others to queue. If there are any outstanding questions at the end of the call. The company will be happy to take them by email to investors that flight Dot com.

I would now like to turn the conference over to Bill Company, Chief Executive Officer for flight. Please go ahead Mr Company.

Thank you very much and welcome everybody to our Q3 conference call.

We're very excited about the results in this quarter.

The future of the company looks very rosy.

We've been working very hard with the staff and our customers and our prospects to make sure that the.

Products were building the services that we're putting together meet the needs of the industry as they recover from the Covid pandemic.

We've invested over the last two or three years and new hardware additional software and taken advantage of all of those learnings and software that we've built over the last 20 years.

Talking to an investor that the other day and.

The flight to 20 year old company that spent 17 years learning what the industry didn't want to do building tools that did things Ian.

Industry was I'm interested in in the last three years, taking those tools and those learnings and creating solutions that the industry needs and wants to know and appreciate it.

We've rolled out a lot of those over the last six or eight months we.

Attended 16 shows in 'twenty two we've got about 19 industry type shows that were booked for in 'twenty three and we now have a sales force of 13 people around the globe to go out and sell.

All of these products with relationships with the customers all over the Globe are recent addition in Europe of the cross consents team has opened doors in companies' opportunities over there that were never opened to us before because we were at North American company and focused on smaller aircraft.

The crops concerns team is focused on larger aircraft larger customers larger airlines and <unk>.

The experience and expertise in dealing with those companies we've since beefed up.

Our European sales force with the addition of Murphy Skelton in Scotland.

We do have a part time person in England, helping Jacob talked to customers in the <unk>.

Middle East Africa, and Europe , and we're very excited about the way the pipeline is growing.

We're currently sitting at about $26 million in backlog.

Just curious with signed contracts waiting for us to deliver product.

And we've got our sales pipeline.

Near term sales opportunities.

Some $75 million. So we're looking at a $100 million of near term sales opportunities and backlog that we believe are going to very easily fill the great opportunity. We had this year in our licensing revenues with new hardware and new services revenue.

We've got a full suite of products functional and working we've done trials with several customers. We are in the process of signing contracts with those customers on our actionable.

Actionable intelligence tools the databases, the Amazon Web services.

<unk> are there and we're continuing to develop.

Those solutions with new customers and old customers.

I think you'll see a significant ramp in revenues.

The next 12 to 24 months as the industry recovers our customers get back to flying in our new products get rolled out across the industry. So.

We're very pleased with the results. We think we can sustain that level of opportunity going forward and it's certainly our intention to have the company continue on the growth path.

100% growth year over year.

It is significant.

The largest revenue quarter in our history.

There was one quarter with higher EBITDA, but it was supported by one time payments.

Bumped, the or reduce the cost to a point where that.

Became a very profitable quarter.

I think that everybody in the industry is seeing what we're doing when we talk to companies that the shows they look at the products. They look at the.

Legacy of the company. The fact that we've been around for nearly 25 years and continue to develop and build.

The stock is really excited to be part of it we made it through COVID-19 with very few changes to the staff.

We added staff in several areas and I think we're tooled for success for the future. We have a strong sales team we have got very experienced and knowledgeable development certification team are.

Administrative and customer support teams have been solid throughout the pandemic.

10, 15 years of experience each but it is really serving well for our customers. So.

I'm very excited about what we're doing and where we're going and I'd like to turn it over to Aladdin to make comments on the financial results. Thanks, Bill happy to.

So I'll just kind of look at the balance sheet. First then we'll turn to the state.

Statements.

First thing you'll notice on the balance sheet is a reduction in cash from year end and then right. After an increase in receivables, they're almost exactly offset a major portion of the portion of the cash decrease is reflected in our AR balance at quarter end.

Some increases in the AR.

And AP balances relate to the addition of cross content.

It was at the end of Q1, which carried forward to Q2 and Q3 and they are fully consolidated into our results.

Or intangible balance you'll see a large increase over last year that again is cross consent worked on the allocation of the purchase price continues and I am highly technical equation.

And we'll have that solidified by yearend hi, it well.

Basically we're working on and allocation of the overall goodwill amount into allocating it.

Various intangible brand.

Our customer contracts and so on.

Something new.

And our balance sheet as compared to last year in the contract liabilities category and that's the balance.

That's right.

And haven't been yet delivered and some of the cross content customers are billed annually for recurring monthly services.

And now turning to the income statement, we're really pleased with our revenue increase compared to Q3.

'twenty one we showed increases in all categories, except for hardware, which has historically been lumpy and then we showed increases in all categories year to date.

This quarter includes included a large licensing portion and licensing is our highest margin revenue line.

And we continue to deliver on that large <unk>, we announced that we received in Q2.

On the G&A side, we also see increases due to increased scale of our business in adding cross consents in Europe . So our consolidated results and also increases in distribution and R&D expense as we focus the organization on the completion and the sale of our edge product.

We're really happy to show a return to profitability, both EBITDA and net income.

Oh. It was the result of a lot of hard work by the team and some pandemic recovery that is both going into peak and these kinds of results.

And so given with that we'll go to your questions from the group.

Just one thing I'd like to add on that.

That's.

One thing I'd like to add on the.

Increased G&A expenses as everybody knows we're having are in.

Inflation event.

We've gone and given the staff.

Inflation increases to make sure that they continue to be happy and can survive is as our economies evolve to come out of Covid.

And I think you'll see increases there. We've also changed our customer contracts to include a CPI riders. So that we're not locked into long term contracts, while the global economy goes through then the bumps in terms, it's going to go through to recovered from the investments in Covid over the last three years from government.

There will be increases to cover the cross delivering for our staff and.

It's global it's not something that's regional every jurisdiction, we do work and is going through so.

Something to keep an eye on and something that we're monitoring and making sure. We stay ahead of both from a customer point of view and an employee point of view. So then we'll take some questions.

Thank you well.

Well now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speaker phone. Please pick up your handset before pressing any case and to withdraw your question. Please press Star then two.

Our first question is from <expletive> Ryan from Oak Ridge Financial Please go ahead.

Great. Thanks for taking my questions today, Bill and a lot and congratulations on the strong quarter.

I guess.

My first couple of questions really probably on the segments.

Highlighted licensing being strong driving the gross margin can you remind us how much is left on that large order and will that being delivered.

As you know by the end of this year or will some of that push into next year.

We actually we have a bell in our office to celebrate significant advance and during our board meeting yesterday, when we were approving the.

The financial statements the Bell rang.

And the final part of that order has been shift so.

When we announced it we said that all deliveries would be done in this fiscal year and our mission accomplished its done.

You know I think the anticipation was there might be a pause in light of the thing at least through the first half of next year or whatever what's the outlook for follow on.

Orders and licensing has that outlook changed at all.

I think if you look at the global distribution of aircraft deliveries and how Airbus is becoming so dominant and most deliveries.

Got it that is going to pick.

Pick up the the deliveries and licensing I L. Three obviously was doing Oh.

Aby to cover supply chain issues with the large order that was placed but.

I think that they'll consume that much quicker than before just because of the percentage of deliveries being done by Airbus versus others.

We have a.

In agreement with our coal Mac to factory install our satcom on the C 919.

I saw a recent articles I think yesterday that they have something like 600 aircraft on order. We believe will be installed on the majority of those aircraft, which it won't be booked in license revenue will be booked in hardware, but it's an OEM sale.

Excuse me.

We're working with a couple of other.

Manufactures smaller manufacturers that are installing our system for safety services as well.

It will show up in hardware revenue rather than license revenue, but that's all part of the sales pipeline that I was talking about.

Okay, and maybe looking at hardware our hardware.

Kind of backed off sequentially in each of the last two quarters, but it sounds like there is backlog there.

What's the gating factor is it supply chain not getting components or materials, you know, even though I haven't seen your inventory Bose. So I'm not sure if it's that or is it more on the government certification side.

We're having a real problem with certification with both the FDA and transport Canada.

R. R. S GC packages and approval packages are not being processed in a timely fashion and it's not just us but everybody in the industry has got a backlog there.

Well we've got.

Orders on the dock for a lot of kits for this quarter.

And probably half of them are waiting for a rubber stamp from either transport, Canada. The FAA. So we can ship.

Our team is working hard we have great relationships with those entities, but they're working from home and are not doing a lot of work out.

And we've got to get that fixed the world has got to get back to normal we've got to get people back in the office back doing their jobs and being accountable because the only way the economy is going to recover as if everybody is doing their job.

Just to clarify I mean, you do have certifications on the 300 twenty's than the 730 sevens, but not the meal was done the math. So that's what you're waiting on so I mean, it's not like you have to reinvent the wheel right.

No. It's not these are these are additions.

Additions to existing packages that need to be.

[noise] approval, so theyre not new STC is there.

There are enhancements.

Okay great.

Thanks Bill.

Thanks, Nick.

The next question is from food Crambo, a private investor. Please go ahead.

Hi, there great set of results.

Wanted to clarify that.

<unk> reported on that Comex front that they that the number of orders received.

At the recent Chinese Asia was 338 crops. So that was 300 919 and 30 a R. J 21, what is the driver bill to be installed on those aircraft.

Does that need to be did they have international requirements or was it purely internal Chinese satcom requirements.

If they've delivered in China, the internal satcom requirements are what's driving me installation, but.

I haven't seen announcements of international or outside of China carriers buying those aircrafts, yet, but I know, they're working hard in Africa and southeast Asia.

So.

In Africa, they are flying over land they may not come on.

And southeast Asia, if they're flying over water, they're going to need satcom.

But I haven't seen a list of non Chinese airlines that are buying are intended to buy so it's really hard for me to say what percentage will end up with satcom on.

Okay.

Alright.

Moving onto.

In Asia. So it raises to report its Q3 later this month and revenues are forecast to increase almost 100% sequentially. So that suggests that air Asia is starting to see or should be starting to see a recovery are you seeing any recovery in air Asia at this point.

We are seeing some recovery Air Asia is a very complex company because they have partnerships in 10 different countries. So Vietnam.

I think.

There's three of their subsidiaries that are back flying in Malaysia.

Malaysia itself still has border restrictions on international flights.

It's kind of a mixed bag and we're working with them.

Almost on a daily basis to make sure that we have the right product on the plane they come back.

Okay.

Any update on that U K met office contract.

Oh actually camps going on Sunday to.

London and has meetings with them on Tuesday.

We were going to be doing the installation with Logan era Logan are put up for sale and stopped all those programs. So we're going to meet with you came out and figure out a way forward. So.

Standby on that limit so work in progress.

Okay.

And then just my final question.

<unk> met with a number of clients that are looking at the edge device.

Perhaps even starting testing on the edge device is there a particular service.

And that is resonating with clients.

Well, they're definitely interested in five G wireless QE or as the <unk> networks get shut down.

The product has other features there's a aircraft interface device that runs third party software and there you saw in March we announced the <unk>.

Marketing arrangement with M b outside of Great Britain for an avionics data loader.

That is of interest to the airlines because.

I was talking to a director of one of the European Airlines on the weekend last weekend and he said we've gone from the Bryan patent to the fire in running this business. We went through three years of Covid, not having passengers and trying to keep the company's stitch together amendment restrictions get lifted.

Then we have no trained staff the fuel prices are going through the roof and a war in Ukraine.

And a lot of the things that we've been working on building that we're rolling out today.

Part of help them reduce the number of people lay up to retrain them to get back into business.

So things like our <unk> product helps them utilize resources on the ground for turns better than they could if they were doing it the way they used to do it.

We've got a bunch of things with the edge, but download the data and get information to the people that need it. So they don't have to run out to the aircraft to either pick up data or tell somebody we're ready to load customers.

So.

The things that we've put together, we're specifically design.

To help reduce the bottleneck is the recovery.

Under way and we're seeing.

Great interest in those tools.

Right.

Thanks, Bill Thanks Atlanta.

Hum.

The next question is from Mark Berger with <unk> Associates. Please go ahead.

Congratulations bill on a great quarter.

Thanks Mark.

Okay with regard to the Chinese orders.

What do you expect that you might start making deliveries on them and what kind of revenues do you expect to receive the orders.

We've already started delivering we've delivered I think five kits.

We've got three C 919 kits in China, I think one installed.

And.

I mean, it's really hard to predict.

To see 91, nine got certified in China, but not a drill.

For international sales yet.

D J as basically being used by the Chinese Airlines and and I think we'll probably be on all of them as they rollout, but they have been.

I'll leave it or not supply chain issues in China and that production has not ramped up to the point that they had hoped it would be.

I think the last thing I saw us deliver between three and five C. 919 hundred 23, when the original plan had been to do 50, so theyre, having teething pains like everybody else and supply chain issues like everybody else.

I have no doubt it.

Hey, Ken.

Kind of a Chinese party Communist party goal, but they will be self sufficient that aviation by the M C.

The millennial.

Hum.

We're working towards it and they will achieve but it just takes more time than even April .

Hmm mm.

On the edge.

When do you expect you'll start delivering on some of that product. We've looked in the early 2023 may 2020.

First quarter 'twenty, three we will be installing edge products on aircrafts.

Okay.

And on those seven huge orders or.

Uh huh.

Potentials that you have out there.

Yeah, the idea as to when you might close some of those in terms of timing.

Mark you've been involved in this story for a long long long time.

Yes, I know.

<unk>.

When I expect and when they actually put pen to paper are very divergent numbers most times.

I think with the sales force we've got in the knee.

You need to do something before the three G networks go dark we should see a lot of activity in the next 12 to 18 months on all of those opportunities.

Tell me, what's going to hit aviation next.

Yeah.

Okay.

And Europe could you give us an update on.

What's going on in the European market in terms of potential waters.

We were.

We're looking really good I don't know two or three opportunities.

<unk> growing as we are in.

Great Cross consents and their customers with our tools and products and people.

Yeah.

Okay sounds good that's all for me. Thank you.

Thanks Mark.

Once again, if you have a question. Please press Star then one our next question is from <expletive> Ryan with Oak Ridge Financial. Please go ahead.

Thank you.

A follow up on an edge.

Probably more from a competitive landscape you know you got pretty good boots on the ground with the Teledyne hires that you made during the summer.

Is there anything going on on the competitive side or or can you give us a sense of what.

Some of the airlines are doing are you know are they waiting for Ed or are they kind of going with maybe the quick fix sort of solutions that teledyne may offer just kind of give us the lay of the land there if you would.

Hum.

I don't really have an answer on that.

I mean, we.

The Guy who started 12 weeks ago and they have been reaching out to people. They know in the industry and attending shows in and getting a great deal of interest to move to our platform because of other things, we're doing in and functions they want it.

I have no doubt there is a percentage that are going to take the the short term fix are the teledyne's offering it's not a <unk> solution, but it get some two LTE for the next two or three years.

There's 15000 aircraft out there are five of them decided to stay in 10000 decides to come with that so I'll be happy we'll get the other 5003 years from now in LTE goes dark.

Okay.

And just one last one on the SaaS side, you talked about SaaS being a driver going forward outside of cross consensus contribution this fast.

What have you seen you know over the last couple of quarters, just on your kind of legacy SaaS business.

Yes, its waiver it up and down as as.

The restrictions came off a lot of our SaaS businesses in southeast Asia, and the Covid situation, there is totally different than Europe or North America.

So you know we've had some gains we've had some losses.

The beauty of the crowds consensus businesses, it's very regularly.

<unk> signed long term contracts with known values.

And it's a nice steady business, it's something you can count on them.

Our traditional business is tied to if they're flying the aircraft or not and there's so much of that outside of their control and our control that we get.

The the waves in them.

The new products a lot of the things, we're putting out there are per month charge as opposed to a per flight or per flight hour charge. So we're trying to level that out so it's more predictable and manageable, but you know that's not something that.

It's going to show for the first couple of quarters next year, but then it should start showing big time.

Okay.

Okay. That's it thanks Bill.

No problem.

Yes.

We have a follow up from Mark Berger with <unk> Associates. Please go ahead.

Okay, Bill could you give us an update on potential research coverage I know you're spending a lot of time doing.

Doing more competences and everything.

The other research firms on the street, becoming interested because of the edge and everything else. That's going on is that bring some more attention to you and what can we expect going forward.

Well, we have Lake Street, and Oak Street, covering US right now Bruce crude oil has the private report out on us.

I'm talking to two investment banks next week that or.

Have an analyst talking to us.

It's one of those things that I think as we build out the business and show the continued improvement in our results and our and our penetration in the market there'll be people interested in getting involved in it and.

It's kind of a chicken and egg thing, where we go to the liver to get the analysts involved and the analysts get involved and it drives us to deliver better so.

We continue to work on a nonstop.

But outside our control.

Well last question with regard to earnings.

Now positive do you anticipate we stay positive or will it be an up and down the theory based on.

Certain orders coming in or is there more.

Forward looking reasonable expectation that we should be looking for.

Or are we.

We get a longer term planning cycle this year than we normally do.

And.

The plans that we have in place.

And put a lot of thought into it from both a sales and a product point of view.

We believe that we will be EBITDA positive and cash flow positive.

Going forward.

Okay, great. Thank you.

For me.

This concludes the question and answer session I'd like to turn the conference back over to Mr. Bill Company for closing remarks.

Okay, well, thanks, everybody for taking the time to listen I as I said to start I think that we've.

We've put together a team of people with a suite of products and a customer base that requires what we're doing and I'm very excited about what the next quarters and years are going to bring.

The the long term planning I, just talked to mark about shows that.

The market penetration that we've got the tools, we've got should generate very positive returns for our investors. So I want to thank all of the patient investors that have been around as long as me, which seems like forever some days, but.

A bright and Sunny day here in Calgary, and I feel very excited about what we're doing and where we're going so.

Thanks for your time, and we'll talk to you next quarter.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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Okay.

Okay.

Okay.

Okay.

Uh huh.

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