Structural Monitoring Systems Plc ($SMN)

Thank you for standing by, and welcome to the Structural Monitoring Systems' March 2026 Quarterly Investor Webinar. [Operator Instructions] I would now like to hand the conference over to Mr. Rick Freeman, Chief Executive Officer. Please go ahead.

Well, for those of you who are joining, thanks for joining this webinar, and my name is Rick Freeman. I'm excited to be here for this. This is the second one of the webinars that I participated in. In case you don't know, I've been with the company now, the group for 8 months, and I'm excited to be here. I was excited to join Structural Monitoring Systems before I even started. But now that I'm here, I'm even more excited because I see a clear path of good opportunities to grow this business at the benefit of our customers and the shareholders. So, we'll just go on to the slides now. And then after I go through the slides, then we'll have some quick -- we'll do some Q&A. Go ahead. Next slide, please. Okay. So FY '26 Q3 at a glance. Just a comment at the top, going back to why I'm excited to be here, we design products and services that our customers want and need for their aircraft and their future aircraft. And that's why I believe this company has been very successful in the last couple of years. I'm super excited to work with this team. They're very customer-oriented, and they're really driving these results and it's exciting to be here and be a part of it. The main takeaway for Q3 FY '26 is that the financials are strong. We're focused on growing the revenue, increasing our margin and improving our business practices. The financial results, if I had to just summarize them really quick, year-to-date sales are 19% higher than year-to-date FY '25. The EBITDA year-to-date is 82% higher than FY '25 year-to-date. Cash flow is positive compared to 2025, and you will see that on the next slide as well. Revenue stream highlights. Avionics sales year-to-date are 43% higher than fiscal year '25 year-to-date. Contract manufacturing sales are basically in line with FY '25, but much higher than 2026 because before my arrival, we took the decision to discontinue the contract manufacturing, but then we actually decided that we were going to focus on that, and I'll talk about that later. And then Structural Monitoring Systems, the CVM activity submission of the 737 SB to the FAA was delayed. The schedule has been revised, and we'll talk more about that in detail in this presentation. All right. Next slide, please. So year-to-date '26, KPIs are positive. What I'd like to focus on first is that when you look at Q3 FY '26 revenue compared to Q3 FY '25, you see that it's basically flat. And the main reason for that is -- well, it's two-fold. One is that in March of 2026, we budgeted invoicing Delta Airlines for the CVM activity, and we could not do that as we planned. When I arrived in September, I saw that as a major risk. And the goal for us that we shared with the Board is that we are going to basically remove the CVM activity from the forecast. And then we have the full intention and plan to still meet the budget for total fiscal year FY '26 without the CVM activity. In March of 2026, our radio sales were a lot lower than expected, but we see that increasing, and we expect to see a partial recovery or quite a bit higher radio sales in April than we did in March. When you go over to the columns of the year-to-date FY '26 versus year-to-date FY '25, you can see the revenue. The cash flow is very positive, and the EBITDA is very positive as well. And then finally, the net profit and loss after taxes is tracking very well as well. You can see below that the group revenue just shown in a graph, not much to say about that. And obviously, the top right, you can see the EBITDA. And when you look at the year-to-date, that change is very positive. Below that is the gross margin, and that's where you see that the gross margins for FY '26 are 57%, much higher than past years. That's part of our plan to increase the gross margins by improving efficiency, doing things better in all aspects of our business. And we believe we'll continue to do that through the end of Q4 of FY '26. Next slide, please. Okay. So, a focus on the avionics business segment. On the left-hand side, you can see the product developments that we're working on, the new product introductions. You can see that the top 3 are not as heavily highlighted in the box as the bottom 2. The radio, the MTP 3 radio was introduced in 2024. Market potential is 3,000 units. I'm going to correct myself here. When I did this in December, I had 3,000 units for helicopter and another 3,000 units that were fixed ring. So, that number was 6,000. So, that was incorrect. So it's 3,000 units. By the end of this year, roughly 2 years after we started, we'll have 20% of that market by the end of FY '26. So, that's trending positively on the radio sales. The compact router is a new product that was introduced in '25, part of the digital audio systems. Those sales are going strong, and we're very pleased with that. And then in March of this year, we released the MTP138 radio, and I'll talk about that in a second. And then below that, you have the brand-new products. We're just labeling X and Y because we don't want to say specifically what they're about, but this opens up a very broad range market potential for our products and we're very excited about that. So, MTP138 radio launched in March or Q3 of FY '26. This is an interesting development for us. It's not a very big market segment for us. But this is targeting offshore oil, gas and wind farm market segment, and it's primarily for the international customers of ours. One of the things that we're working on now is to develop business stronger internationally outside of Canada and U.S. And so this is one of those products that is going to open up the European and Asian market for us. And then following the MTP138 radio, we have the new products X and Y, which are both for international markets as well. So, we're really setting up the future to do well in terms of avionics, and we expect FY '27 to be strong as well. Next slide, please. Okay. Contract manufacturing business. So, we grow our contract manufacturing business where we can add value to our customers, the group and the shareholders. So the contract manufacturing strategy, we provide value-added products and services our customers want and need with competitive pricing and best-in-class quality. One of the reasons why we were able to get back one of the customers that we decided to stop business with was because the quality of our team and the products that we deliver is much higher than the supplier that they transition to. So it was very positive to see them come back. But also equally important is that contract manufacturing adds value to the group and the shareholders. Our sales year-to-date, as I mentioned, are flat compared to fiscal year '25, but I think it's approximately $4 million higher than our budget on FY '26. And that is because we had taken the majority of it out of the budget as we wound down those sales. But what we've decided that we want to do is that we have customers that want to do business with us for contract manufacturing. And this type of activity not only helps us increase our operating leverage, but helps us reduce cost and improve efficiencies down on the operation floor, and that's what we want to continue doing. And so we are now implementing -- developing and implementing plans to grow that contract manufacturing business because we want to be able to have our avionics, our contract manufacturing and our CVM activities all kind of playing a role to increase the sales or be a buffer when some of our product lines aren't performing as planned in terms of sales and profitability. So it's actually what I would call a defensive move, but an offensive move to grow the contract manufacturing business. Okay. Next slide, please. Okay. CVM. So the goal for our CVM market segment is the recognized leader in the structural health and monitoring for safety of flight and reduce operating costs for our customers. So the 737 Service Bulletin approval has been delayed. What's positive since the December meeting is that all the technical documents have been completed and validated by the engineering teams at Boeing. And so that was something that we couldn't finalize before the end of last year's calendar year. But below here, I want to give you a little bit more clarity on what's going on because I know it's a little bit complicated. The service information packet that the engineering team at Boeing put together was passed over to the Boeing Regulatory Administration Group prior to its submission to the FAA, which means that they validate all the documents, they check the documents prior to submitting those to the FAA. In some of the documents, there was a reference to EASA. And there was no formal validation by EASA on those -- on EASA accepting the packet of work as it was being submitted to the FAA. So, what happened was we had to remove any reference to EASA approval before we submit it to the FAA. As a result of that, we had to revise our certification plan. And because we had to revise our certification plan, we had to resubmit the certification plan to the FAA for approval. The service plan was very quickly revised and submitted to the FAA on the first week of April. And we estimate that the FAA will review and approve the cert plan in June. And then once they review the cert plan, Boeing will very quickly submit the Service Bulletin to the FAA for approval. So, that is the process to get the product ready so that we can actually start doing the sales and marketing. So once that Service Bulletin is approved by the FAA, then we can invoice Delta Airlines for the work that we've done for them previously and then immediately launch the sales campaign with the major customers. Next slide, please. So once we are ready to go, the goal is, is that we are going to focus on the airlines listed below. Six airlines represent 98% of the 737 fleet operating in the Americas. And so that is basically where the bulk of the business is. Delta, as most people following our stock are aware is that Boeing has already installed on 71 aircraft. And we will be able to invoice them for that once that Service Bulletin is approved. I'll take a moment to answer one of the questions that came in, in the written format. And that is, well, why can't we invoice Delta Airlines now for the CVM that they have installed on their aircraft, as well as the 2 systems that are installed on the United Airlines aircraft. And the fact of the matter is, is that the reason why we can't invoice them is that they are doing us a service by operating their aircraft and periodically checking that everything is good with the CVM technology, but they cannot use the system to avoid or defer the heavy maintenance visual inspections of those areas. So, they are not receiving any benefit of the CVM activity at this time. So anyway -- so there, you see the top airlines there. Delta basically is in the bag. We have a total of 605 aircraft that we can fit with the CVM technology. I don't want to talk too much about the value of that. But what I would say is it's probably going to be somewhere in the $15 million to $30 million, assuming we capture all those aircraft. And we will -- as we get the sales campaign up and running, we'll be able to figure out pretty quickly, which airlines are going to want to do it and what would be the plan to install the CVM on their aircraft. And of course, it's all based on when their aircraft go in for heavy maintenance. Outside of North America, there are 230 737 NGs that will potentially use the CVM technology. Outside of U.S. and Canada, the biggest operator of 737 NGs is Qantas, and then those numbers drop off fairly quickly after Qantas. So, how we address the smaller customers that have 10 aircraft or less, we will see what the best way to do that as we launch that campaign. So, maybe what I want to say last on CVM is that I know people are frustrated that this is not moving faster. I'm frustrated as well. But even though we've been working on it for a long time, it is still a very new technology. It's still in a critical area, and everybody wants to make sure that everybody is fully agreed upon once we deliver that Service Bulletin to the market. And we will get there, and we will get there, I fully expect in FY '27. I don't want to attach a date yet, but it is coming. And I just want to remind people that Boeing had the 737 MAX crashes. There were several issues with the FAA and everybody is just very, very cautious and make sure they do things right the first time and that's good for all of us. And so don't lose faith. We'll get there. And then once we get this, we believe that they will open up other opportunities for other applications of CVM, and we look forward to addressing those as we go forward. And I think that's the end of the slides. I hope I didn't go too fast. I'm now ready to take questions if people have any.

[Operator Instructions] Your first question comes from Mark Chartres with Shaw and Partners.

Couple of questions. One, when do you think you'll be down in Melbourne or Australia, I guess, talking face-to-face with some investors to get a bit of traction. I know with Ross' time, he was barely down here, and I think it really hurt the market-facing side of the business. Second question is sort of looking at the $3.3 million you'll get paid from Delta across 71 aircraft. It works out at about $46,000. I assume the 3.3 million is Australian dollars. So, we're talking sort of $46,000 per plane installation. Is that sort of what we're looking at here across all airlines? Or will Delta be in a better -- getting better pricing? And then, of course, what sort of cost per plane are we looking at? So yes, because I look at AEM and it's been a great business to keep SMN -- people interested in SMN, but basically just profitable. And we're trading on about 11x earnings at the moment to really get the share price and the market cap of the company moving. I think it's all about CVM. I'm just trying to understand, yes, what sort of the margins we're looking at?

Okay. So anyways, thanks for those questions. I appreciate them. So as far as an Australian visit, I know I've talked and spoken to several shareholders. I'm open to coming down and doing a face-to-face meeting with the shareholders in Australia. That's just up to Neville and the Board to decide if and when it's appropriate. So, I'll just defer that for now. So, you've got a rough idea of what the cost is on -- and first -- secondly, I guess, is those dollars are in Canadian dollars. So, I think it's very, very close right now to Australian dollars. So, you can assume that it's the same. So the costing is going to vary somewhat from customer to customer on the NG application. And one of the reasons is that it depends on how the business case is structured. In the case of Delta Airlines, their aircraft goes out of service for 3 days. I believe it goes down to South America to do the heavy checks. So if this cost can be avoided by not having to go down there and do that heavy maintenance check, then they save a certain amount of money. On the other hand, United Airlines does their heavy maintenance for this type of check overnight or 24 to 36 hours. So the cost savings there is different for them as well. So, what we're going to be doing when we go to the market, there's going to be -- we have to take into account the business case and do the business case on how they do their maintenance. And the second thing that we're going to look at is they'll have to look at the return on investment, but if it's not a very big fleet, the business case is less attractive for things that they have to do internally to solve it. Our goal is to get this on as many aircraft as we possibly can and maximize the shareholder value the best we can. But it's also equally important somewhere to make sure that we get it on the aircraft. And the more operators that we have it and are exposed to this technology and the benefits of this technology will help us on future applications. So, one of the things I want to mention -- that I mentioned during the December webinar is that this is really the first application of CVM for a highly critical area. And when we're talking to Airbus about an application for them or a couple of different applications for them, one of the questions that they keep asking first is, well, is the Service Bulletin for the 737NG approved yet? And the reason is, is that once we get that first validation, then the customers and the airframe manufacturers will clearly know that this is a legitimate solution to ensure safety of flight and be a good tool to reduce operating costs at the airlines. So anyways, so the -- I didn't -- we have target prices revenue that we wanted to have, Mark, on that slide, but we took it off because we -- I guess, one is that we didn't want people seeing it outside that we didn't want to share anything that would get to the airline customers is why we didn't. That's why I gave a range of what we see as the value of CVM just specifically for the 737NG application. Did I answer all your questions? Or did I miss one? Or did you need me to clarify?

Costing for us per kit.

I'm sorry, costing...

Costing of production? Yes, per kit that we give for one of these planes. What's that cost versus?

Don't quote me on that, but I think we're talking about $6,000 or $7,000, maybe less. The chip is not very expensive, and we've done a lot of steps to reduce the cost of manufacturing of several of these components. So it should be a pretty high-margin business for us.

Your next question comes from [ Guillermo Infante ], a Private Investor.

I wanted to understand the potential additional applications of the CVM technology. And in addition to that, I wanted to understand any potential M&As in the avionics space given Eagle Audio was such a great acquisition looking backwards. Is there anything like that, that you think we could do?

Okay. Good. Thanks for those questions. So the first, the CVM question. So it's been communicated in the past that there's an application for us on the A320, I think it's called the Section 16 or whatever, location 16, I can't remember. So, we have customers, airlines that want to implement the CVM solution on that application. The challenge is, is that Airbus is reluctant to invest money to certify CVM for this application. So when the airline customers are complaining that they want to implement this solution, one of the things that Airbus did recently is they extended the time between checks to take some of the pressure off of airlines to implement the CVM technology. So one of the things, whether we like it or not is that we need to focus on the -- getting the buy-in from the airframe manufacturers on the CVM technology. And I think we'll start to have a better view of that once we get this first service bolt-in across the finish line. So the customers can push for us on our behalf, and there are several on this frame 16 of the A320, I think that's what it's really called. But if we can't get the OEMs to buy into it, it's not very easy. It's pushing uphill. But we are doing it. That's just part of doing the business. We will start looking at applications where we might do an STC instead of getting the airframe manufacturer approval. And we're also looking at doing military aircraft where they don't have the same level of scrutiny before they implement CVM technology because they're not transporting commercial public customers around. So, that's what we're doing. That's where we're at on the CVM side concerning your question. Concerning the avionics acquisitions, the avionics business is doing well. And I don't -- I wish I could tell you more about the new developments that we've got going right now, but they are potential game changers. We're pretty excited about them. But they are the biggest investments we've made in R&D in the history of the company, especially for one of them and they're going well. That's important for you to know. As far as acquisitions go, we'll have discussions with the Board on potential acquisitions for the avionics market segment. It's something that we're interested in. But the challenge is finding an avionics application like the Eagle, and you're exactly spot on that, that was a great investment to decide to go after. I think Gord, our CFO, was telling me it was roughly a $4 million investment, and it's already generated $18 million in sales. But it really set up the Gen 2 audio system and it's basically set up our other products that we built our R&D on, and it gave us some credibility in the marketplace to go down that path. So anyways, we will look at that. The challenge is finding avionics applications that are a good fit for SMS and one, obviously, that we can afford. And so that's why it's exciting that we're getting into that phase where we're starting to generate cash that will free up some money to look at possible acquisitions. And the Board will go over that with us and provide some guidance and discussion on key points when they're here next week in Florida.

And if I could do just a very quick follow-up question. In terms of growth of the Eagle section, is there any military angle? We've been hearing a lot of defense spending from NATO and potential push from the Canadian government into increasing their industrial base. Is there any angle we could benefit from that?

I mean, some of our products are used on -- in some military aircraft. I mean, we have them on there now. So the short answer could be yes. But the big prize applications, which are real military applications, our products actually don't meet that market segment yet. But in our discussions with the radios, when we enter that police market radio segment, that will set the footing to go to the military applications after that, if that's one of the things that we're going to do. And maybe on buying avionics acquisitions, we are all for that. But I can tell you that I am so excited about the engineering team here. They're really sharp. And one of the things that we need to look at with the Board is that do we buy something with our dollars that we have and our money that we have access to or do we reinvest with our own team here? It's going to be an interesting decision to make because they're both really, really good. When you invest in your own product line, you're investing in your own people and you know exactly what you're getting. So, there's a good business case for that, but we also want to get a bolt-on acquisition that will start not only generating revenue right away with maybe some minor investment to get it up to expectations. But when we add those type of products on, we will have the opportunity to use our sales team and our international rep organization to grow that business. So, we're in a pretty strong position that I'm excited about. Is there any other questions?

Your next question comes from [ Chris Girling ] with [ Moelis ]. Your next question comes from Johanna Burkhardt with Evolution Capital.

I'm sorry. I don't have a question. I think I might have pressed the wrong button. I'm sorry.

There are no further questions on the phone line at this time. I'll now hand back to Mr. Freeman.

Okay. All right. Well, thank you guys for that. I appreciate that. I'm looking at my notes here. I think that there was one question that was raised about having difficulties reconciling the half year reports year-to-date numbers versus the latest financials. Talk to Gary and Gord about that, and that's largely -- that's really due to the exchange rates. And if you would like to speak about that offline, [ Misha ], if you're on the call, we can gladly do that. I'm looking at -- to make sure that I answered the written questions.

Rick, there was one question that you might be able to talk to, which was around the seasonal patterns investors might want to be aware of for avionics and contract manufacturing businesses.

I'm sorry. Could you repeat that, Sam?

For the avionics and contract manufacturing businesses, are the seasonal patterns -- are there seasonal patterns investors should be aware of going forward?

Seasonal patterns.

I suspect it relates to possibly when the firefighting air helicopters and aircraft come in after the fire season and then they apply the radios and hardware at that point. Perhaps that's what the question relates to.

Okay. So let me answer that question, and then maybe I'll -- seasonal. Okay. So the firefighting radio, the MTP136 is a seasonal product. And so you're correct, they come in during the -- after the fire season ends. And then that's the time that they look over their aircraft. They look at what's the problems with the aircraft and how much they have to spend on getting the aircraft ready for the next season, whether it's a helicopter skiing or something else, whatever. That's the time that they do the radios typically. So it is a seasonal effect. What we did experience this fiscal year is that the fire season ended late, and there was a delay on selling radios. So, what I can tell you is, is that I believe that in fiscal year '25, the first year that we had a full year of radio sales, we did 250 radios. We believe that we're going to end this fiscal year with approximately 300 radios out the door before the end of the year. We did not sell many radios in March, but we've moved, I believe, 32 or 34 radios so far in April. And we expect to get another order for 50 radios from CAL FIRE probably the first week of May. So if your question is about seasonal, that's the answer. As far as -- I don't know about the pattern part, but since you mentioned contract manufacturing, contract manufacturing is not a seasonal business at all. And it's -- and I guess the only -- the radio for firefighting is seasonal. All the new products that we have -- currently have out their audio systems and future radios will not be seasonally based, which is one of the things that's positive. And just one other point along the lines of the avionics business. There's a lot going on in the world right now and gas prices are going high. One of the things we feel very fortunate about is when you're in critical mission aircraft avionics like we are as one of our market segments, we're immune to that because these aircraft need to fly and do their missions. And so what might happen in the commercial market that doesn't really impact us. So, we're pretty resilient as far as our business goes on the avionics side. Sam, was that it then? Or did you get any more?

There's a few others. Obviously, you've covered a lot of it in your presentation and some of the earlier questions received. There's some questions relating to CVM. Since we know that Boeing completed all technical documentation and it was submitted for the APB CVM, I think that -- I think he must mean that it's been submitted to Boeing and then subsequently resubmitted to the FAA after scope issue was identified requiring a revision of the certification plan. Does that mean, in effect, Boeing has now already accepted from its point of view but still subject to FAA regulatory process and approval that the SMN sensors are an acceptable alternative method of compliance. Sorry, it's a very long-winded question. Perhaps you can talk.

Go ahead. Sorry, Sam. Okay. So anyway -- so yes, so just to reiterate that Boeing completed the documents and that was submitted, but it was submitted internally to the Boeing group. But to answer your question, as far as Boeing is concerned, yes, Boeing has done everything they need to do. It's just going to be up to the FAA now. So, Boeing by completing all their documents from the various engineering departments and submitting that to the Boeing internal regulatory commission means that they've accepted everything. So it will be out of Boeing's hands and into the FAA's plans once -- once FAA accepts the certification plan. We will send them the Service Bulletin for approval or Boeing will.

Thanks, Rick. There's a couple of questions here from 2 different shareholders asking about the business model, whether it's one-time hardware sales driven, recurring. Can you provide any -- can you elaborate on that at all?

So if I understand the question, is it one-time hardware sales and then some reoccurring sales? So the answer to your question is that the majority of our sales are actually coming from -- on the avionics side is coming from the -- on the hardware sales. As we get more and more products in service, then those aftermarket sales will actually increase. But one of the things that we're doing with the current products is, is that because we have software-based products, we are actually having software upgrades that we will sell to our customers. And as an example, we missed a recent opportunity. We had to do some bug -- debugging of some software on the MTP136 radio and we did that. We actually put in some enhanced features for it. We couldn't separate the bug fixing software from the enhancements, but we're now ready going forward that we will be selling updated services that we can supply to our customers. And on the products that we have under development right now, we have hardware that's installed and the customers will pay to unlock certain features depending on whether or not they want them or not. So it's pretty exciting, but the goal is the more and more products that we get out there for the in-service, the sales of the aftermarket support will be better. The only thing is good and bad is that our products are very reliable, and that's why customers want them. So the repairs, it will take a lot of in-service to have more and more significant aftermarket sales. But ideally, I'd like to get up to 20% to 30% aftermarket sales on our products to support the products that we're selling now. And one thing I think we talked about last time is that we're bidding on 2 OEM opportunities that will give us fixed radio deliveries or audio systems delivery, whatever they are, every single month to build on our products that have to go through the aftermarket like radio. So, we've got a lot of opportunities to grow the business.

And Rick, the quarterly shows a significant improvement in cash flow and the group is now debt free. Can you talk through what's driving that, and what it means for the business going forward?

Okay. That's a good question. So, one of the things that, that means is that, as I mentioned, these developments that we have going on for new products are very, very heavy for a company our size. We're able to self-finance these developments so far and versus burning down our cash significantly. So that's positive. But one of the things that's driving this cash generation, it's coming from increasing the selling price of a lot of our products or some of them for one. But that cash is also coming from increasing our margins not only through price increases, but efficiencies in the operations. And then we're having success burning down our inventory to provide some cash too. So, my goal is, is that we self-finance these developments until they get to the market with our cash that we have. And then the money that we have available to us could possibly be used for acquisitions. But it's a combination of price increasing and increasing the margins. And I believe that year-to-date, don't quote me, but the gross margins on contract manufacturing have increased by $650,000, and our margins on repair have increased by $400,000 when compared to fiscal year '25. So, you have about $1 million in cash. Don't quote me on those exact numbers. I hope I got them right. But we've obviously generated cash there by having stronger gross margin on contract manufacturing and our aftermarket repair activity and obviously, selling better at higher margins on our OEM stuff is all contributing.

Thanks, Rick. As CVM progresses towards commercialization, how are you thinking about the revenue model? Is it primarily equipment sales? Or does it evolve into a more recurring revenue stream as adoption increases?

So, one of the things we're thinking about some of the airlines is, is that they might not want to make the investment in the CVM technology because they're worried that they don't know how long they're going to keep the aircraft. So, that's why we're considering doing possibly a leasing model so that they can pay for the CVM technology on their aircraft and the use of the tools. I mean the tool that you connect to the aircraft to draw down the data. I think that tool is 40-some thousand dollars, maybe higher. So you know what, we would lease those type of products. In the future, one of the things that could happen is that -- we've talked about is that we would use basically instead of somebody physically going out and connecting something, but we would by wireless, basically draw that aircraft -- data from the aircraft via connection so that when the aircraft comes in and downloads all of its other data, it will download the CVM data as well. So, those are 2 options that we're looking at. But if we can get it as a leasing option, that could be attractive for us and the airlines that don't know how long they're going to keep the aircraft. So right now, it's a single point sale and install on the aircraft. But once we start talking to more and more customers, then we'll get a feel for what our options are or what our commercial approach is to get that business and add value to their business and add value to us.

Rick, recent independent research and media coverage have highlighted comparisons between SMS and global avionics peers. How should investors think about where the company sits relative to those peers today?

How does -- who we think they compare to the...

How should investors think about where the company sits relative to those peers today?

Okay. All right. That's a good question. So, I'm not biased. I don't want to be biased, but I really think that one of the recent reports that came out that was independent was very, very good. I think that -- I think our stock is undervalued. And I think it's going to go forward. When I first read one of the independent reports that did the evaluation, I personally see a pathway to $1 per share. And we will get there even if there's delays in the CVM activity. So as I mentioned before, I believe that -- I believe we're going to lock in the CVM activity in fiscal year '27. But even if it doesn't, the pathway to grow the business and create value for the shareholders is going to be there because we focus on the 3 business segments and maybe a possible acquisition down the road. So, all I can do for the shareholders is share with you where we're at and where we're going. And when the Board comes out for the visit to Kelowna next week, we're going to be looking at the 5-year growth plan and where we partially meet that and how we meet that long term. And I think we've got a good story with -- primarily with avionics and CVM. We just need to be careful on how we add contract manufacturing business. But anyways -- but either way, it is part of the business. And I think our future looks pretty good right now.

One more, Rick. You've recently launched the MTP138 radio and expanded STC coverage. How important are these initiatives in terms of opening up new markets and driving future growth?

Okay. So, STCs are primarily for our radio products. And the nature that radios are very specific to whether or not it's police or customs and border patrol or emergency medical vac or firefighting or these supporting the offshore customers getting out to their oil rigs, gas rigs, windmill farms. So STCs are kind of a ticket we have to punch to play. So, on the new MTP138 radio, we're in the process to get an STC for the Leonardo AW139 radio, which is for the -- primarily for the European market segment. And then we'll be adding other radios for not only Europe and Asia. So, we're going to go after that business. And one of the things that we're doing that, that I didn't really talk about yet, but we're looking at expediting and lowering the cost of STCs by doing that work either partially or mostly in-house instead of going outside where we have to kind of wait in line and the costs are a lot higher. One thing I do want to go back and mention is that on back to how I think that SMS compared to some of the companies that are -- that they compared us to, that data was super interesting, and I had to say it was fun to look at it. And I appreciate the company that did that study. But one of the companies that they compared us to, even though were a very, very small company was TransDigm and HEICO. And what I can tell you is, is that at my last company, which was called IDD Aerospace, we were a wholly owned subsidiary of the Safran Group, the big European conglomerate. But they were going to sell us at one point. And I was going back and forth to New York to work with the private equity companies. And really, the model I use to turn around IDD and make it profitable, the best way I explain it to people is that I did usually -- basically the TransDigm model with a heart because a lot of customers dislike TransDigm. They're very successful in what they do. But at the same time, the work environment can be not so pleasant for some people. I fully think we can build a super strong profitable business by satisfying the customers and having a positive work environment and employees that are driven to success. So, I fully think we can do that, and that's what I did at my last company and I look forward to doing it here with the team, and that's why I'm excited to be here.

And the last one I've got for you, Rick. Can you clarify -- I'm just trying to combine a couple that are very similar. But can you clarify how revenue is recognized for CVM, particularly for aircraft already fitted such as Delta and United's fleet? At what point does that convert into revenue? And how should investors think about the embedded value within that installed base?

Wait, I don't know -- I don't know -- since that happened well before my time, I don't know if those -- I don't know if the costs were recognized at the time and flow through the financials. Gary or you might know more than I do about that. I do know that when we're going to invoice Delta, that wasn't a 100% margin. So, I don't know what's going on there. I don't know.

I mean, it's 60-day terms from the date of the FAA approval.

Yes. So, that will go straight to the bottom line. I don't -- what I don't know is if that's 100% profit or it's -- there are some costs that will be recognized when that sale goes through.

Yes. We've got -- so for the $3.3 million CVM that will go to Delta, the costs will be about $665,000. So, we're going to make almost 82% gross margin on those sales. So it will be one of our most profitable sales. On the avionics side, we're pretty happy at around 75%. And every once in a while, we'll get to 80%. But this is the initial order of CVM and we're at 82%, and we would expect to do better with our costing moving forward. So, there's a lot of profitability there at CVM.

So, thanks for that, Gord. I guess of that cost that we have, I don't want to put you on the spot, but do you know how -- roughly how much of that is royalties that we have to pay to Boeing and I believe we have a royalty to pay to Delta?

Yes. So, not Delta on this one. We only pay the Delta royalty on sales to other airlines. And the Boeing royalty, I'd have to quickly open it up. I think it's 10%, yes.

10% Okay.

And that's actually netted out of our -- of what we're expecting to see in revenue here.

Okay. Thanks for that, Gord. Sam, is there any other questions?

That's everything. Rick. Thank you, Gord, as well for your input.

All right. Well, everybody, thanks for participating and showing up for this meeting. And I hope I clarified some points for you, and have a good evening or the rest of the day.

Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.