FLYHT Aerospace Solutions Ltd. (FLY) Earnings Call Transcript & Summary

Mr. Chair, I will hand the floor over to you.

Good afternoon, ladies and gentlemen, and welcome to the Annual and Special Meeting of FLYHT shareholders. My name is Kent Jacobs. I'm the President and Interim CEO of FLYHT, and I will be acting as Chairman for today's meeting. Before we begin with the formal business of the meeting, I would like to thank you all for joining us today. In order to cover the required business in an efficient manner, we have prearranged with certain shareholders to move into second motions of the business. This is in no way intended to discourage comments from the floor. On the contrary, should any registered shareholder or a proxy holder who preregistered as outlined in the notice of meeting wish to speak on a matter, please do so at the time by tightening your question in the Q&A section on your screen within Zoom. If the shareholders present have no objections, I welcome all guests and ask any non-securityholders to refrain from asking questions or voting during the formal part of the meeting. Following the formal meeting, there will be a presentation on the company's Q1 and 2023 results. We welcome questions submitted from any participant using a Q&A function on screening during that presentation. This meeting will now come to order and winter approval, I shall ask Alana Forbes to act as Secretary for purposes of recording the minutes of the meeting. The first item of business will be to point will be the appointment of scrutineers. With the consent of the meeting, I shall ask [ Mark Wingara ] of Odyssey to act as souvenir. Odyssey has indicated that shareholders of record at the close of business on April 6, 2023, were mailed the notice calling this meeting, together with the accompanying meeting documents on April 20, [Audio Gap]. Accordingly, with the consent of the meeting, I would propose to dispense with the reading of the notice and I direct a copy of the notice and proof of service to be kept by the Secretary with the records of this meeting. I note that a quorum of shareholders is present at the meeting irrespective of the number of persons actually present if 2 shareholders or do we [ appointed ] proxy holders are present. I have received the preliminary scrutineers' report indicating that a quorum is present. It shows that there are 9 shareholders present represented by proxy, representing 13,225,134 common shares being 34.09% of the total [indiscernible]. I ask that when a vote is requested, shareholders do so by choosing from the responses available on the polling questionnaire that will appear on screen as each motion is good for. The notice and quorum requirements having been met, I now declare that the meeting is regularly called and properly the transaction of business. The first item of business is to receive and consider the financial statements for the year ended December 31, 2022, together with the auditor's report thereon. With the consent of the meeting, the reading of such financial statements and auditors' reports will be dispensed with. Copies of the financial statements and the auditor's report thereon have been made today accessible to each registered shareholder who have had an opportunity to view them and no action is requested. I would be pleased to answer any questions after this meeting. The next item of business is to fix the number of directors of the corporation to be elected at this meeting to hold office until the close of the next annual meeting of the FLYHT shareholders.

My name is Flint Walter, and I move that the number of directors to be elected at the meeting to [indiscernible] the close of the next Annual Meeting of FLYHT shareholders to be fixed at 7 directors.

My name is Juan Devonian and I second the motion.

The motion is now open for discussion. You have heard the motion and if there is no further discussion, I ask for all shareholders present to indicate their vote using the on-screen poll. Based on the preliminary scrutineers' report and the votes conducted at this meeting, I declare the motion carried. The next item of business is the election of directors to hold office until close of the next annual meeting of the FLYHT shareholders.

My name is Juan Devonian and according with the bylaws of the corporation as detailed in the information circular, they nominated Brent Rosenthal, Focus Jumai, Mary McMillan, Michael Brown, Nancy Young, [indiscernible] to be elected as directors of the corporation to hold options until the close of next annual meeting of the FLYHT shareholders or until their successors are duly elected or appointed.

My name is [indiscernible] and I second the motion.

I ask for someone to move and someone to second the resolution to elect those nominated as directors of the corporation to hold office until the close of the next Annual General Meeting of the FLYHT shareholders.

My name is Flint Walters, and I so move to elect those nominated as directors of the corporation to hold office until the close of the next Annual General Meeting of the FLYHT shareholders.

My name is Derek Taylor, and I second the motion.

The motion is now open for discussion. You have heard the motion and if there is no further discussion, I ask for all shareholders present to indicate their vote using the on-screen poll. We will pause for a few moments to give you time to complete your voting. Please indicate whether you wish to vote in favor or withhold your vote for each of the candidates for director by checking the box beside the name of each director you are voting in favor of. To withhold your vote for a candidate, leave their checkbox blank. Based on the preliminary scrutineers' report and the votes conducted at this meeting, I declare the motion carried. The next item of business is the appointment of auditors for the current year. I will now ask for someone to move and someone to second a motion in this regard.

My name is Alana Forbes, and I move at KPMG LLP, Chartered Accountants. We hereby appointed as auditors of the corporation to hold office until the close of the next annual meeting or until a successor is appointed and that the directors are hereby authorized to fix their [indiscernible].

My name is Paul Takalo, and I'll second the motion.

The motion is now open for discussion. You have heard the motion, and if there's no further discussion, I ask for all shareholders present to indicate their vote using the on-screen call. Based on the preliminary scrutineers' report and the votes conducted at this meeting, I declare the motion carried. The next item of business to be conducted today is to consider and if thought advisable, to pass an ordinary resolution to adopt and approve the stock option plan of flight. The ordinary resolution approving the stock option plan can be found on Page 12 of the information circular. With the consent of the meeting, I propose to dispense with the reading of the resolution in its entirety and proceed with approving by way of ordinary resolution of the shareholders, the stock option plan, all as provided before in the information argued. I will now ask for someone to move and someone to second such ordinary resolution.

My name is Paul Takalo, and I move that the stock option plan as described in the information circular, be approved in the stock option plan of the corporation.

My name is Greg [indiscernible] and I second motion.

I'm expecting the motion. You have heard the motion and if there is no further discussion, I ask for all shareholders present to indicate their vote using the on-screen poll. Based on the preliminary scrutineers' report and the votes conducted at this meeting, I declare the motion carried. As there is no further formal business, we brought before the meeting, I would now ask for someone to move and second the termination of the meeting.

My name is Alana Forbes, and I move that the formal part of the meeting be terminated.

My name is Derek Taylor, and I second the motion.

You have heard the motion. And if there is no further discussion, I declare the meeting terminated.

The next portion of the meeting will include presentations from Kent Jacobs, President and Interim CEO; and Alana Forbes, CFO. Following their presentations, they will address questions received in advance at investors@flyht.com, and then questions from participants present in this meeting. If you have questions, please submit them using the Q&A function on screen during the presentation. Participants who have indicated that they would like to ask a question will be introduced and unmuted by the conference organizer one at a time. On FLYHT's website, flyht.com, a press release has been posted covering the information that will be reviewed today as well as a recording of this meeting. An archived version of today's meeting will be posted on the Investor Relations section of FLYHT's website as soon as it is available from the meeting provider. Before we start the Q1 2023 presentation, we would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we have included in our first quarter 2023 report. Certain of the statements made today may constitute forward-looking statements, and these statements are FLYHT present expectations. Relevant factors that could cause actual results to differ materially are listed in the earnings materials and SEDAR filings. During the course of today's call, FLYHT may also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the first quarter 2023 report. With that, I will now like to turn the meeting over to Kent Jacobs.

Thank you, Gabe, and good afternoon, everyone. After delivering record revenue and profitability in 2022, we are continuing to build on this momentum with a record pipeline of opportunities in '23. FLYHT's strong competitive posture has placed us in an excellent position to benefit from the ongoing robust demand for our legacy solutions and the serving interest in our new and innovative 5G products. I've never been more optimistic about our current state and future opportunities. Starting off 2023, FLYHT is in a solid position, both strategically and financially. Over the past 2 years, FLYHT has transformed into an actionable intelligence provider, which is not only a significant competitive differentiator for our company and is also the key to driving fast revenues meaningfully higher. FLYHT 's flagship product, the FS-228 has a proven track record with over 4,000 aircraft utilizing the Iridium's.com solution. Sales of the AFIRS 228 remains strong, accounting for a significant portion of our SaaS growth. Additionally, Transport Canada recently granted FLYHT a supplemental [ Indiscernible] certificate to install the AFIRS 228 on the Boeing 727 MAX 8 aircraft. This STC update creates additional growth potential for us. Airlines can now request that their new aircraft come off the factory line with Iridium fathom provisions, and this STC allows for updates to those provisions to accommodate FLYHT's [indiscernible]. The commercialization of FLYHT's 5G-enabled wireless quick access recorder, the AFSG, is making significant progress as we recently received DO-160 environmental certification dates. The certification means of the AFIRS is now ready for installation on commercial aircraft, and we are in the process of obtaining STCs for the product on multiple aircraft platforms. FLYHT's approach is to target the A320 and the Boeing 727 fleet for our initial STCs, and we have several opportunities to work with airline partners during the aircraft installations. As further into our [indiscernible] Edge miles builds, we have released production orders and expect to receive our first production [indiscernible] throughout the summer. We are continuing to make contact with new prospects through different conferences and sales meetings. This week, FLYHT was -- had a significant presence at the AMC, the aviation maintenance Conference in Denver, and we continue to make preparations for and look forward to hosting the AWC, IATA, EFB Users Conference in Calgary later in June. As a consequence of the aforementioned opportunities, our pipeline of potential business has increased more than 10% quarter-over-quarter, reaching an all-time high. This pipeline is expected to continue growing due to the recovery of global passenger traffic and increasing demand for our innovative solutions. We've spoken a lot about FLYHT's opportunity to meet the industry's needs as 2G and 3G network sunset around the world in the coming years. It's undoubtedly the biggest opportunity for our company system. But there's another opportunity that is increasingly becoming real for us and that is weather. There's a growing need for new solutions to meet net 0 commitments for airlines and to provide government private industries with enhanced weather data. FLYHT has unique assets in this area is building solutions that leverage our technology. FLYHT WDS 2 water vapor sensor system in conjunction with either an AFIRS Edge or an AFIRS 228 is becoming an increasingly valuable tool for aircraft-based observations particularly in relation to weather forecasting models and aviation operations. Discussions continue with U.K. net and we believe this will act as a catalyst for other government-based weather agencies to engage with FLYHT on similar aircraft-based observation programs. FLYHT delivered solid Q1 2023 results despite a 5% year-over-year revenue decrease, which was largely due to last year's large licensing orders not repeating this year in Q1. Our gross margins remained robust at 57%, and our cash balance increased by over $500,000 to $3.2 million as we collected on the large OEM order filled in 2022. In closing, I look forward to working closely with our new Chairman, Captain Mary McMillan and the rest of our Board of Directors, including our new members, [indiscernible]. I would also like to thank former Board members Nina Johnson and Jack Olcott for their guidance and unwavering commitment to FLYHT over the years. I'd now like to turn the call over to Alana for a review of our financial performance.

Thank you, Kent. I will begin by reviewing our first quarter 2020 results, then we'll discuss key operating metrics. While we experienced a decline in revenue and an EBITDA loss of over $1 million, it is important to note that we are continuing to invest in our future growth opportunities. We are making strategic investments to position ourselves ahead of what we believe is the biggest opportunity in our company to the street. We remain focused on ensuring that we have the necessary capital to support our organic growth strategy, which is critical to our long-term success. We are confident in our ability to execute on our plans and create value for our shareholders over the long term. FLYHT delivered total revenue of $4.8 million in Q1 of 2023. This was a $200,000 decline from $5 million in Q1 of 2022, when we had a very strong quarter of licensing revenues totaling $1.1 million in zone. Licensing revenue has been lumpy each quarter since the beginning of that revenue source. So overall, we are pleased that we were able to offset most of this with strong growth in our recurring SaaS business. SaaS revenue increased 44% to $2.4 million in Q1 of 2023 over Q1 2020. The addition of cross-consent staff revenues and post pandemic recovery of the customer -- our customer base contributed to this increase. Hardware revenue decreased 16% to $1.8 million in Q1 2023 over Q1 2020 at a total of 32 installation kits were shipped this past quarter compared to 34% in the quarter prior. Licensing revenue, as I mentioned previously, decreased by $1.1 million to just $9,000 in Q1 due to decreases in the number of modems and associated license fees ordered for derived compared with peds. Technical Services revenue increased 407% to $560,000 this past quarter compared to Q1 2020 as a result of the addition of cross-consent services to this even category. In terms of profitability, we reported a strong quarter of margins with Q1 2020 gross margin of 57.3%, increasing 260 basis points year-over-year compared to 54.7% reported for the same period last year. This year-over-year increase in gross margin was driven primarily by our selling SaaS revenue, which represented 51% of revenues from Q1 2023 compared to 33% last year's Q1. SaaS is one of our higher margin revenue sources, carrying gross margins in excess of 60%. We recognized an EBITDA loss of $1.2 million compared to $940,000 containable in the same period last year, representing a negative variance of $400,000. Total operating expenses increased 10% to $4.2 million this past quarter compared to $3.9 million reported in the same period last year. This year-over-year increase was due to the addition of the cross-consent personnel resulting from our March 2022 acquisition of our business as well as incremental investments in tools and marketing made through 2022. We continue to expand our commercial team, extend our marketing reach and invest in R&D as we further enhance our actionable intelligent speed of products and AFIRS Edge. Likewise, net income was a loss of $1.7 million compared to a loss $1.3 million reported in the same period last year, representing a negative errors of [ 207 000 ]. For the quarter, we generated $950,000 in costs from operations and corrected on the large OEM order that we took bold in its entirety last year, ending the quarter with $3.2 million in cash and equivalents, representing a $550,000 increase compared to $2.6 million in Q4 of 2022. And now looking ahead, we expect continued growth in our business, driven by the ongoing recovery of the global aviation industry as well as the execution of our strategy. We expect over the coming years, Edge platform sales will drive increased hardware sales and that SaaS revenue right in all continued growth.

Certainly, the muting of the computer has caused Alana to go silent.

Moving ahead, we expect continued growth, sorry about the technical difficulties. Kent has lost both, I believe, his mic and video. So he will be joining me on my screen, and I'll pick up where I think we left off as mic cut out. We expect continued growth in our business, driven by the ongoing recovery of the global aviation industry as well as the execution of our strategy. We expect over the coming years, Edge platform sales will drive increased cargo sales and that tax revenue will likewise enjoy continued growth. A second phase of fast growth should occur as the installed base [indiscernible] Edge platforms increases and customers recognize and accept the tremendous value of our software solutions provided to their operations. Our contracted backlog, which includes business of $19 million at the end of last quarter, gives us pretty good visibility on revenue over the 3 quarters. Additionally, our pipeline, which includes [indiscernible] contracted opportunities for our newer offerings such as the Edge increased 10% sequentially to $77 million and is the most robust, we would [indiscernible]. As we received STCs on our Edge platform, we expect our type of opportunity will continue to grow over the course of time. With that, we would like to read several questions that we received at investor.com. Thank you to those who [indiscernible].

The first [indiscernible] what are the differences between Edge and Edge+?

And I apologize for that technical problem. The difference between Edge and Edge+. The Edge is the FLYHT [indiscernible] Edge product and the Edge+ is the BNC version. So the FLYHT product is the one that can be installed above the liner of the cabin because the frames on the aircraft can be installed in the avionics space. It's a smaller form factor, better for aircraft like midsized and large-sized turboprops and even the business jet side of things. The Edge+ is the 4MCU replacement of the primary incumbent wireless QAR product out there in the market. So that form factor is a much more standard avion product. you try to handle on the front, it would only be installed in the avionics of an aircraft. It's the simple replacement. You take the existing product out, you slide this one in with the same interfaces of the airline [indiscernible] the back, and it fits right into the aircraft in this part vacated by the competitors' product. So the difference is the form factor of the product, primarily the functions are identical. Both have a wireless IR will provide AID functionality. They've got the 5G radio. They've got the WiFi radios, they interface to the aircraft on the same day of the box. Same product, different form factor.

What is the difference in what we charge clients?

This compares our target price is between 25,000 and 40,000 per ship set. And it will vary based on the features of the product that the customer is interested in based on the aircraft type that it's being installed room and based on the installation kits that as a result will be required. And there may be out wires, but in general, that would be the range for the main Edge products, the Edge parcel see a small increase from that range.

Our second set of questions start with going to expand on the [indiscernible]. Your press release implies that is now needs to be deployed, getting [indiscernible] STCs.

And it's a good observation. The DO-160 certification is the environmental testing and qualification of the box. So the AFIRS Edge we've taken is put to a set of environmental test. There were -- it was shaken. It was warmed up. It was cooled down. They were MRI considerations that had to be taken into account, make sure that it wasn't we radio at. That's the environmental testing of the product. And that environmental testing will apply to any FTC that we now get. So the environmental testing has to be done once. It's done on the product, and that set of information around the successful completion of the environment testing will be incorporated into the various STCs.

What is your expectation on [indiscernible] approval for the Edge.

Well, we already have the provisional -- the Transfer Canada provisional SEC for the A320. We are expecting next week to have the provisional STC for the Edge for the 77 MAX. What we're doing now is we have to get that product, have it installed on those types of aircraft in Canada with Canadian registered aircraft. We will then complete the insulation, complete the function testing. What happens then is we gather the information from that and we resubmit that back to Transport Canada and transport Canada will then return back to us the final activation of NCC. So we're at that stage right now where we have the provisional STCs on the A320. We're a week or 2 away -- a week away from getting it on the 737. We complete the installation. We resubmit Transport Canada. We get the activation of SEC-back.