Firan Technology Group Corporation (TSE:FTG)announced financial results from its first quarter 2023.

Financial Highlights

● First quarter bookings of $33.0M were up 28% over Q1 2022 and up 2% over Q4 2022. This was the 9th sequential quarter of bookings growth.

● FTG first quarter revenues of $24.6M were up 20% over Q1 2022, as FTG ramps up production to meet customer demand.

● FTG achieved Net Earnings in Q1 2023 of $4.1M, which was up $4.8M from Q1 2022. Earnings included $3.4M of U.S. government support in Q1 2023 compared to $0.3M in Q1 2022.

● FTG has net cash on the balance sheet of $20.6M as of Q1 2023 as compared to $12.3M as at Q4 2022.

Business Highlights

Starting last year, FTG went on offence after two years of playing defence, and this has continued in the first quarter of 2023. The company has invested in technology in our existing sites, grown the business organically, announced two acquisitions and bought back stock. Through all these actions, FTG is strategically deploying its strong cash balance in ways that will drive increased shareholder returns for the future in both the near-term and long-term. 

Specifically, FTG accomplished many goals in Q1 2023 that continue to improve the Corporation and position it for the future, including:

● Achieved a 1.34:1 book-to-bill ratio for Q1 2023 resulting in increased backlog of $74.2M compared to $65.5M at the end of 2022.

● FTG added 12 staff in Q1 2023, including operations leadership, to help increase throughput.

● On November 17, 2022, the Corporation entered into an agreement to acquire IMI, Inc. (“IMI”) based in Haverhill, Massachusetts, north of Boston. The closing of the acquisition is subject to approval by the Committee on Foreign Investment in the United States (CFIUS) and other customary closing conditions. FTG will acquire 100% of the common shares of IMI for cash consideration of approximately $2.0M, subject to typical closing adjustments. It is expected that the CFIUS review will be complete in Q2 2023.

● On December 24, 2022, the Corporation entered into an agreement to acquire Holaday Circuits, Inc based in Minnetonka, Minnesota, a suburb of Minneapolis. The closing of the acquisition is subject to approval by CFIUS and other customary closing conditions. FTG will acquire 100% of Holaday for cash consideration of approximately $24.0M and contingent consideration up to $6.0M, subject to typical closing adjustments. It is expected that the CFIUS review will be complete in Q2 2023.

● FTG received $3.4 million in Employee Retention Credits (ERC) for its U.S. sites as they retained their staff through the pandemic.

● FTG received funding of $0.6 million in the quarter for a total of $2.5M received to-date under the Canadian Aerospace Regional Recovery Initiative (ARRI) program.

● In the quarter, FTG was awarded up to $2.6M of funding from the Ontario Ministry of Economic Development, Job Creation and Trade pursuant to the Advanced Manufacturing and Innovation Competitiveness (AMIC) program.  This funding will be a conditional loan against qualifying investments made by FTG during a 33-month period ending November 30, 2024. The conditional loan will be non-interest bearing through November 30, 2024, with up to $0.5M forgivable upon achievement of specified objectives.  The loan is repayable in quarterly instalments, with interest, from February 2025 through November 2028.

For FTG in Q1 2023, overall sales increased by $4.2M or 20.4% from $20.5M in Q1 2022 to $24.6M in Q1 2023. Increased revenue in Q1 2023 is the result of robust demand across our markets and specifically increased Simulator product activity. The average foreign exchange rate in Q1 2023 was 6% (8 cents) higher than in Q1 2022, with a positive impact on sales of $1.0M.  

The Circuits segment sales in Q1 2023 were up $1.4M, or 10.0% compared to last year. The sales increase was mainly driven by the commercial aerospace market.

For the Aerospace segment, sales in Q1 2023 were up $2.3M or 29.1% compared to last year. Aerospace segment sales in Q1 2023 included $3.2M of revenue from Simulator products as compared to $0.2M in Q1 2022.

Gross margin in Q1 2023 was $9.8M or 39.7% as compared to $4.2M or 20.7% in Q1 2022. Excluding government assistance, the gross margin rate improved to 28.0% in Q1 2023 from 19.5% in Q1 2022. The increase in the gross margin rate is due to the operating leverage of increased sales volumes, favourable exchange rate from Canadian to U.S. dollars and operational efficiencies.

Net earnings after tax at FTG in Q1 2023 was $4.1M or $0.17 per diluted share compared to a net loss of $0.7M or ($0.03) per diluted share in Q1 2022. Adjusted net earnings was $1.0M or $0.04 per diluted share in Q1 2023 as compared to an adjusted net loss of $1.0M or $0.04 per diluted share in the prior year quarter. The $2.0M increase in adjusted net earnings is the result of higher sales volume, operational efficiencies and a more favourable foreign exchange rate.

The Circuits segment earnings before income taxes and interest was $3.4M in Q1 2023 as compared to $0.2M in Q1 2022. Higher sales and higher government subsidies for the U.S. sites drove the increase in earnings.

The Aerospace segment earnings before income taxes was $2.2M in Q1 2023 versus $0.1M in Q1 2022. The increase in earnings was driven by higher sales of Simulator products and increased government assistance for our Chatsworth site.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG in Q1 2023 was $6.3M or 25.6% of sales compared to $1.3M or 6.5% of sales in Q1 2022. Adjusted EBITDA for Q1 2023, which excludes the ERC government assistance and expenses related to the two pending acquisitions, was $3.2M or 13.0% of net sales, as compared to $1.1M or 5.2% of net sales in Q1 2022. The increase in profitability is driven by increased operating leverage from higher sales and a favourable foreign exchange impact. For the trailing twelve months, EBITDA increased to $13.6M due to the improving results each quarter since Q1 2022.

As at March 3, 2023, the Corporation’s net working capital was $42.6M, compared to $30.5M at year-end in 2022.

Net cash at the end of Q1 2023 was $20.6M compared to net cash of $12.3M at the end of 2022, after completing the Aerospace Chatsworth facility sale leaseback transaction for net proceeds of $8.5M and receiving $3.4M from the U.S. Employment Retention Credit program (“ERC”), receiving an additional $0.6M in ARRI funding from the Canadian Government, partially offset by increased working capital usage to meet customer commitments.