Good morning everyone. My name is Ludy and I will be your conference operator today. I would like to welcome everyone to the FTG Q2 2025 Analyst Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session following the presentation. If you would like to ask a question during this time, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two. Please note that this call is being recorded. I would now like to turn the call over to Mr. Brad Bourne, President and Chief Executive Officer of Firan Technology Group . Mr. Bourne, you may proceed.
Thank you. Good morning. I'm Brad Bourne, President and CEO of Firan Technology Group Corporation or FTG. Also on the call today is Jamie Crichton, our Chief Financial Officer. Before we go any further, I must caution you this call may contain forward- looking statements. Such statements are based on the current expectations of management of the company and inherently involve numerous risks and uncertainties known and unknown, including economic factors and the company's industries generally. The preceding list is not exhaustive of all possible factors. Such forward- looking statements are not guarantees of future performance and actual events or results could differ materially from those expressed or implied by forward- looking statements made by the company. The listeners are cautioned to consider these and other factors carefully when making decisions with respect to the company and not place undue reliance on forward- looking statements.
The company does not undertake and has no specific intention to update any forward- looking statements, written or oral, that may be made from time to time by or on its behalf, whether as a result of new information, future events or otherwise. We set another sales record for FTG in our second quarter of 2025. We also had record EBITDA and adjusted EBITDA in the quarter. I'd like to thank everyone at FTG for their hard work and their contributions to our continued success. In the second quarter of 2025, FTG accomplished many financial goals, including our total bookings in the quarter reached CAD 45.8 million. Our quarter end backlog stood at CAD 133.5 million, a 9% rise from the previous year. We achieved record revenue of CAD 48.7 million, a 25.6% increase over Q2 last year.
We achieved record adjusted EBITDA of CAD 8.7 million in the quarter, up from CAD 6.5 million in Q2 last year. Our net earnings grew by 36% to CAD 3.5 million and we maintained a strong balance sheet with net debt of CAD 13.5 million including CAD 12.8 million of government loans or approximately 0.4 times trailing 12- month EBITDA. Our operating cash flow less lease payments was CAD 5.8 million for the first half of 2025. Other accomplishments in our second quarter included our recent acquisition FLYHT, which achieved profitability in Q2. There's certainly lots more work to do there, but it's great to see some early results and positive results for us. Also related to FLYHT, they achieved their first supplemental type certificate, or STC, from Transport Canada for its AFIRS E dge product on the Boeing 737. More STCs with this product are underway for additional aircraft sites and additional geographic features.
We finalized facility design and time delays for our planned aerospace facility in Hyderabad, India, with a target completion date of late 2020. Initial startup capital has also been invested in the new operations, officially now called FTG Aerospace Hyderabad. We completed qualification orders for some high volume U.S. defense programs in the quarter and received new qualification orders on further U.S. defense programs, partly in Q1, partly in Q2. We have strengthened our leadership team with the addition of Bill Sezate as Executive Vice President, FTG Circuits. Bill comes with extensive experience in all aspects of the circuit board industry and he will be responsible for all six FTG Circuits businesses. In addition, Marko Viinikka joined FTG in a newly clear role as Executive Vice President, FTG Aerospace. Marko comes with extensive experience in all aspects of the aerospace industry.
Marko will be responsible for the four FTG Aerospace sites as well as the site under construction in India. Finally, yesterday we added Russell David to our Board of Directors. Russell's unique experience as a board member of privately held companies including Davie Shipbuilding Canada and as a senior executive in public and private corporations and as a senior partner in financial services firm Deloitte and corporate client asset M&A advisory services. Jamie will provide more detail on our Q2 results shortly. Let me turn to some external items. Our end market demand remains strong. Airbus delivered 766 aircraft last year, but more importantly, they're looking to ramp to over 1,000 aircraft annually in the next few years. They have a backlog of over 8,000 orders, which is over a decade worth of production. At current production rates for 2025, they're projecting growth of 7% over last.
At Boeing, they shipped just under 350 planes last year, down from about 500 in 2023. The drop was due in part to the safety incident on the Alaska Air 737 as well as the machinist strike they had last year. Looking forward, Boeing plans to ramp the production to almost 700 planes annually in the next two years. Boeing's backlog is almost 6,000 planes, so also over a decade's worth of orders at current production rates. In the first half of this year, Boeing ships over 250 aircraft, but they have recovered from last year's challenges and are back on growth times. While 2024 might have been a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the European part market with the two to one advantage that aircraft shift in the last year and the 60% market share on order backlog.
This has implications for FTG's plans going forward. In the business jet market, Bombardier reported new single digit shipment increases last year. They're not providing guidance for this year due to the uncertainty around U.S. tariffs, which are okay for them for now but are still somewhat fluid. Recently however, Bombardier announced a new order for 50 aircraft with options for 70 more, which represents almost another year of backlog for them. They're also pushing hard to add a defense component to the business and have had some success in selling the business jets for defense applications. In the helicopter market, Bell Helicopter reported 5% overall revenue growth last year, but they also had some key U.S. military helicopter wins in the last few years that will drive significant growth going forward.
Airbus Helicopters had a backlog of 942 aircraft at the end of Q2 this year which represent about five years of production. All this bodes well for us as we look to future demands in the coming years. I've also looked at results from some key defense contractors. For instance, Lockheed Martin's reporting 4% increases this year. Also related to defense, Boeing was selected to develop and produce next- generation air dominant fighters. This is good news for them and based on the supply chain approach of the previous air superiority fighter, the F-22, I would expect sourcing for the new program will be for U.S. only suppliers. We did have small content on the F-22 when it was in production through our Chatsworth facility. We are much better positioned now to increase our content on U.S. only procurement with five U.S. based sites.
Also, there are new commitments from all NATO members including Canada to ramp defense spending to 3.5% of GDP with another 1.5% for defense infrastructure. Canada said they will increase defense spending this year to 2% of GDP. Again, all this indicates significant increases in defense budgets for all European countries and for Canada, and the U.S. is looking to increase defense spending next year as well. Looking at the longer term, Boeing's most recent 20-year forecast for commercial aerospace shows significant long-term industry growth, and it's continuing to show 20% of all new aircraft delivery is going to China and close to 40% going to Asia. As has been the case in their recent forecast, the business jet market is already seeing traffic recover.
A recent business jet market forecast from Honeywell similarly predicts growth in this market in the coming years with near-term double-digit growth rates for the sector. The simulator market mirrors the end market applications, but as we always remind everyone that this market is lumpy, so large year-to-year variations do occur. As we have said for many years, FTG's goal is to participate in all segments of aerospace and defense markets. As these markets move through their independent business cycles, it is not often all segments are growing. That seems to be the case now. Beyond all this, let me give you a quick update on some key metrics for FTG for the second quarter. First, as already noted, the leading indicator of our business is our bookings or new orders . Our bookings were CAD 45.8 million in the quarter. This resulted in a backlog of CAD 133 million.
Our second quarter sales were CAD 48.7 million, up CAD 9.9 million or 26% over Q2 last year. Growth is approximately 45% from organic growth and 55% resulting from the acquisition of FLYHT. In our Aerospace business, sales were up CAD 5.7 million or 56% in Q2 this year compared to Q2 last year. The increase was primarily due to the acquisition of FLYHT. Since Q1 this year, our Aerospace Chatsworth site had a tough quarter offset by strong growth in Toronto. Our Tianjin facility had modest growth in the quarter on the Circuits side of the business. Sales in our second quarter this year were up CAD 4 million or 14% over Q2 last year. All this growth is organic. Of note, our strongest percentage growth is from our joint venture in China. The largest dollar growth was from our Circuits Toronto, followed by our Circuits Minnetonka facilities.
Overall at FTG, our top five customers accounted for 52.8% of total revenue in our second quarter as compared to 56% last year. It's always good to see the drop in customer concentration as we add price and expand our customer base partly through the acquisition of FLYHT. Airlines were two of our top 20 customers in Q2 due to the FLYHT acquisition. 67.5% of sales are to U.S.-based customers in the quarter. This includes sales by U.S. sites as well as sales from FTG sites in Canada or China. This compares to 80.5% in Q2 last year. While sales grew by 5% into the U.S., sales grew by 58% in Canada, 120% in Asia, and 170% into Europe.
As we benefit from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring FLYHT, with sales globally, this increase of sales outside the U.S. is helpful in the event of any tariffs the U.S. might impose. Our goal continues to be to grow our non-U.S. revenues. For our non-U.S. sites in Q2 this year, 32% of our total revenues came from our Aerospace business compared to 25.5% in Q2 last year. The Aerospace business share increased due to the strong growth at Aerospace Toronto and the acquisition of FLYHT. I would now like to turn the call over to Jamie, who will summarize our financial results for Q2 2025, and afterwards I will talk about some key priorities we are working on.
Jamie?
Thanks Brad and good morning everyone. I'd like to provide some additional detail our financial performance for Q2 on sales of CAD 48.7 million FTG achieved a gross margin of CAD 15.9 million or 32.6% in Q2 2025 compared to CAD 10.8 million or 27.9% on sales of CAD 38.8 million in Q2 2024 for Q2 20 25 the FLYHT acquisitions contributed approximately CAD 2.1 million on incremental gross margin excluding the acquisition gross margin dollars increased by CAD 2.6 million when incremental sales of CAD 4.5 million. As a result of this operational improvement particularly within the Circuits segment and formed favorable foreign exchange rates in Q2 2025, the average FX rate in Q2 2025 was CAD 0.04 or 3% above the rate for Q2 2024.
Gross margin in Q2 2025 also benefited from partial forgiveness for loans on the Ontario government of CAD 400,000 gross margin within the Aerospace segment, was cons trained in Q2 by delayed qualifications of a new product line which has delayed the related revenue on a sequential basis. Q2 2025 gross margin increased by CAD 2.5 million or 1.5 margin points relative to Q1 2025 on a sales increase of CAD 5.9 million. Annualized revenue per employee as of Q2 2025 with CAD 259,000 is up 11% from prior year quarter.
SG&A expense was CAD 6.8 million.
Or 14.1% of sales. Q2 2025 as compared to CAD 4.8 million or 12.3% of sales in Q2 2024, the increase in SG&A includes CAD 1.3 million of expenses from FLYHT CAD 62,000 for the Hyderabad start-up efforts and higher performance compensation expense. R&D costs for Q2 2025 CAD 2.4 million or 5% of sales compared to CAD 1.6 million or 4.1% of sales in Q2 2024. R&D efforts with process development of Circuits segment and efforts to develop and qualify products for future aerospace program. FX expense to Q2 2025 was CAD 0.4 million greater than Q2 2024 and CAD 1.3 million more than Q1 2025. A component of FX expense is the quarter-end revaluation of U.S. dollar denominated balance sheet items, primarily cash, receivables, payable and bank debt . The FX rates for the last three consecutive quarters end dates are CAD 1.40 at Q4 2024, up to CAD 1.44 for Q1 2025, and then back down to CAD 1.38 at Q2 2025.
In Q2 2025, translation of U.S. dollar balance sheet items was a CAD 700,000 drag on earnings. Whereas in Q1 2025, this was a lift of earnings of approximately CAD 600,000. FTG continues to manage FX and gold risk in replacement of forward contracts. Our FX contract portfolio amounts to $52.9 million with a weighted average contract rate of CAD 1.34 over a duration of 36 months going forward. They have 1,050 troy ounces at an average price that's under $3,000 per ounce.
With a duration of 18 months.
Adjusted EBITDA was CAD 8.7 million or 17.9% of growth for Q2 2025 compared to CAD 6.5 million or 16.7% of sales for Q2 2024. EBITDA adjustments were.
Limited to stock-based comp in both periods and
India start-up costs of CAD 62,000 in the current quarter adjusted EBITDA for the trailing 12-month period ending Q2 2025 to CAD 31.9 million or 17.7% on sales of.
CAD 185.7 million with a net
Debt equal to 0.4 times adjusted EBITDA for the trailing 12- month period. Investment in CapEx.
Deferred development in Q2 2025
Was CAD 1.5 million or 3% of revenue. FTG expects investments in CapEx with deferred developers to run in this range for the duration of 2025. Operating cash flow less lease liability payments is CAD 5. 8 million for the first half of 2025 , broken down as a +CAD 8.1 million in Q1 and -CAD 2.3 million for Q2. Cash flow for the first half of 2025 and Q2 reflects the buildup of working capital levels, supported sales growth. I would also note that FTG made income tax payments of CAD 2.2 million in Q2 2025 which included some catch-up for Q1.
We are entering the second half of.
2025 with a backlog of exceeding CAD 133 million . Our focus will be continuing to deliver quality products to our customers on a timely basis and improving the efficiency of our operations. Our complete set of Q2 filings are now on sedarplus.com and with that I will turn the call back to Brad.
Let me delve into some important items for the future of FTG, starting with potentially negative items. Tariffs or threat of tariffs from the U.S. are the new normal and certain uncertainties surround these tariffs. This makes it challenging to plan and react to, but we are focused on this every day as it evolves. We have two sites in China which are now subject to U.S. tariffs that are on but a relatively small portion of their work ships to the U.S. for Aerospace Tianjin should have minimal impact as the site ships completed products to Canadian and Chinese customers. They ship some components and subassemblies to our solid sites who then make final products for shipments to the U.S. Government. For a circuit board joint venture, a small amount of work ships to the U.S. and will be subject to the new tariff.
Over the past five years they've had a tariff of 25% on their exports to the U.S., but they've also had work from Canada and Europe that will not be subject to U.S. tariff. Our growth plans for this business are to focus on customers in China, Europe, and Canada, and we are making progress on these plans. Our U.S. sites ship almost exclusively to U.S. customers, so there will not be any tariffs on shipments to their investments, but they are starting to receive some tariffs on input costs for raw material they buy, some of which come from Europe or Asia. So far the impact is immaterial, but we will continue to monitor this in the coming quarters. At this moment the FTG sites in the best situation are our Canadian sites.
We are not subject to any tariffs on input costs and at this moment we are not subject to any tariffs on shipments to U.S. customers as FTG products. FTG products are USMCA compliant, but every day is a new day so all of this could change at any time. As a reminder, we estimated about 55% of sales to customers last year located in the U.S. originated from FTG sites in Canada or China. While we are not close to tariffs between Canada and the U.S. at this moment, if they did happen, we do not believe the impact would be immediate. It will take time for the aerospace and defense supply chain to react to tariffs and find alternate sources of supply. We are concerned and we're taking actions to mitigate any impact. FTG first, our acquisitions in the U.S.
over the past year have reduced our exposure as they are inside the wall and would not be subject to tariffs on sale. Going along with this, our long-term strategy to be a global player has resulted in sales inside of North America of over CAD 26 million last year and was already CAD 27 million in the first half of this year. We are taking a difficult step. In 2024 we made a conscious decision to find ways to increase our exposure to Airbus, not because of tariffs, but because they are stronger performers in European transport markets. Whatever we do in this regard can help mitigate U.S. tariffs. More recently we have made a conscious decision to pivot away from the U.S. markets for our sites outside the U.S. Obviously, a focus on Airbus is part of this.
In Q1 this year we announced a significant new contract with De Havilland on their Canadair 515 water bomber aircraft. This is an example of a Canadian program that we will support from our Toronto or Canadian facilities. We are looking to become more locally focused by aligning U.S. customers with our U.S. manufacturing sites and our non-U.S. customers with non-U.S. manufacturing sites. We have identified CAD 4 million-CAD 5 million of revenue for non-U.S. customers currently being manufactured in the U.S. We have begun the process of moving this work out of our U.S. sites , thereby potentially freeing up some capacity to move work in the other direction. The acquisition of FLYHT will also help mitigate our exposure to tariffs. FLYHT's largest customer is in Canada and they sell globally.
As we look to in-source the manufacturing of FLYHT products, we will do so in a manner to minimize our exposure to tariffs. While on the topic of FLYHT, we acquired it for a couple of strategic reasons. First, we've expressed our desire to increase our activity in the high-margin aftermarket segment of our business for a number of years and the acquisition of FLYHT does this. Also, as noted earlier, we're looking for ways to increase our activity with Airbus and FLYHT has a satcom radio that is installed as a factory option on new Airbus aircraft. They are sold via a licensing agreement with an average annual volume of 200- 300 units. Finally, we think the timing on this acquisition could be superb. FLYHT has spent significant time and money investing in updating products and developing new products and the bulk of these investments are done.
We think we can leverage these investments to generate strong results for the company going forward now that we own FLYHT. We have three key actions. First, we need to reduce costs. FLYHT took significant costs out last September and another CAD 1 million dropped out due to the elimination of their public company costs when we closed our deal. We will continue to manage their costs going forward. Secondly, we need to sell the new products they develop. This is really the key action now. Let me delve a little deeper into this. There are three products that matter. There's a SATCOM radio that is sold into the aftermarket and licensed for delivery to Airbus as a factory option for the aftermarket. The product is established and sales are well established.
The product can be used as a safety backup voice system or it can be used to transmit data useful for the airline over the Iridium satellite system. When it is used for airline data over Iridium, FLYHT gets a recurring revenue stream reselling Iridium data services. The licensing agreement for Airbus has been in a hiatus mode for the past few years due to a multi-year delivery in 2022, but this is expected to kick in again starting next year, which is expected to result in a multimillion dollar uptick when it does. The second product is the Water Vapor Sensing System or WVSS-II. Its purpose is to provide humidity data outside the aircraft as it flies and provides this data to weather agencies such as NOAA in the U.S. and UK Met in England. We find it useful in weather forecasting.
This product design was modernized and updated last year. It was in qualification testing when we acquired FLYHT. Testing is now complete. There are firm orders from both NOAA and UK Met . These can shift as we complete STCs for the relevant aircraft, price expected to be ERJ and Boeing 737 once in service. There's also a data revenue stream associated with this product. Also related to products, there are potentially commercial and military applications for it to monitor aircraft contrails and we are exploring these. The third product is brand new. It's a 5G Wireless Quick Access Recorder or WQAR. This product collects data from the aircraft in flight and downloads it to airline operations while at the gate using a wireless or cell phone connection. The FLYHT product is the first 5G WQAR on the market.
This product is qualified and the team announced to get approval to install it on various aircraft types. The Boeing 737 approval has been received in Canada. This will now be expanded to Europe and China, which are expected to be the largest markets for this product. Aircraft testing for the A320 family of aircraft is also complete in Europe. Once approved in Europe, the priority will be to expand the approval to again include China. We have the FLYHT sales team focused on aggressively selling all of these products as they become available. Finally, our third priority for FLYHT is to enforce manufacturing to capture this margin with FTG . We are now looking at options for both the SATCOM radio and the WQAR products from our facilities, potentially in the U.S., Canada, or China.
These actions should enable FLYHT to become a positive addition to FTG and further mitigate risk from U.S. tarrifs . As mentioned earlier, FLYHT was profitable in Q2 this year. Also, as announced in Q1, we are implementing plans to open our aerospace facility in Hyderabad, India. We have been working on these plans throughout 2024. First, our decision to expand geographically was partly us looking for an insurance policy against anything negative that should happen to our China operations, but it's also partly to expand into new regions with growth potential. As we analyzed options, we concluded India is a very cost-effective place for manufacturing, and with Prime Minister Modi's "Make in India" policy coupled with significant defense spending, it would be an ideal place to operate. We selected Hyderabad as it has become an aerospace hub primarily focused on manufacturing.
Our legal entity is established. We have selected to have a facility build-to-suit due to a favorable location and the options of going different when necessary. This decision does mean we will have to wait for most of this year to get our facility completed. In the meantime, we will be sourcing the necessary equipment to be ready to go. Our estimated total investment is forecast to be approximately CAD 9 million. While not the original intent, we believe this initiative could also help any negative impact from U.S. terms. Finally, we are developing plans to add sales resources in Canada, Europe, and even Asia to support our pivotal waves in the U.S. markets. This would be for both the legacy FTG sites as well as FLYHT. As we enter Q3 2025, we see continued strong demand across most sites.
Of our CAD 133 million backlog, over CAD 60 million is due in Q3 this year. As we know, each year our Q3 includes the summer months of June, July, and August, and we typically lose about a week of production due to summer vacations. We're expecting to grow in 2025. The easiest aspect of our growth will be having the FLYHT acquisitions as part of FTG for over 11 months in the year. We also expect there will be organic growth. The geopolitical situation in China remains complex. In 2024, both of our operations in China had another record year notwithstanding the unevenness, but we have repatriated cash back to Canada during 2022, 2023, and 2024, and in total we've now brought back CAD 2.6 million in cash, and we are repatriating more in 2025.
By doing this, we don't have surplus cash stranded in China and reduce our exposure if things deteriorate between China and the West. On a more positive note, in China the C919 program is now in production, and this will benefit our Chinese operations going forward and make us less susceptible to any geopolitical uncertainties. We continue to address possible corporate development opportunities that could fit with either of our businesses. Our near-term priority is to integrate our recent acquisitions with a focus on operational excellence and all of our debt, issuing a strong financial performance last year. In the first half of this year, our recent acquisitions and our key sales win. We are confident on a strong long-term growth trajectory. This concludes our presentation. I thank you for your attention. I would now like to open the phones for any questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star followed by the number two. With that, our first question comes from the line of Nick Corcoran with Acumen Capital. Please go ahead.
Good morning and congrats on the record quarter.
Thanks, Nick.
My first question on the backlog, it was relatively flat from the last quarter. Is this where we should expect the backlog to settle and what would potentially drive it higher?
I'm not sure I expect it to settle, but we do see a little ups and downs each quarter based on significant events. In Q1 this year, for instance, we got the De Havilland water bomber contract. That was the multimillion dollar contract, so Q1 was up a little bit. We didn't have any significant events like that in our Q2, so that's why it remained relatively flat. The other one for Q2 is almost all our backlog is in U.S. dollars, and the exchange rate can cause our backlog to move up and down.
Jamie might correct me, but I think we had about a CAD 6 million impact on FX in the quarter in our backlog just due to FX rates. Having said that, going forward, we have lots of interesting opportunities and I'm expecting that we can see some good wins and continued growth in our backlog as we progress through the rest of the year.
Good color, maybe switching to FLYHT. I know you talked about in-person production of their products. Any indication what the timeline for this would be?
I would have thought it'd be by now, but it's not. We are a little bit late in making that happen. It's proving to be a little bit more complex. The original plan was simple.
I was going to push production of the first product, the SATCOM radio into the Chatsworth site, but then tariffs, the uncertainty of tariffs, have complicated our decision. It's causing us to delay a little bit and consider what is the right site or is it more than one site and where we want to manufacture this stuff. That has definitely slowed us down and it's proved to be a little bit more complex than anticipated initially to get this production going. Long answer. I'm hoping we are up and running, I can say this year, but it's that sort of timeline right now.
Great. And hopefully a lot tougher on. Thank you.
Your next question comes from the line of Russell Stanley with Beacon Securities .
Good morning and congrats on the quarter. Just understanding some sensitivity perhaps here, but you know that you qualify for some new high volume U.S. defense programs. Wondering if you can elaborate on what you're adding there?
Yes and no. I'll add a little bit. For sure these new programs are for our printed circuit board side of the business and really in our U.S. side skills, U.S. military program. We're still working on or negotiating and working through what the upside will be for FTG. I don't have firm numbers but I would expect it's in the multimillion dollar range. We're not dealing with hundreds of thousands of dollars here. I don't have a final number because we don't have it.
Understood. As always, appreciate the color around what you're seeing from some of the major end customers. Everything, as you noted, looks to be stronger than before. I'm wondering at the program level, have you seen any softness or any haircuts in any specific programs? I maybe call it the C919 given the tariff where disruptions of some exports of components there. Have you seen anything else at the program level, any hiccups in demand that you could call out?
Thanks to that, I'll talk about C919. You're right that I don't know when it was, a month or so ago, the U.S. decided to block export of engines for the C919. That has been removed, and those exports have begun again. That's what it is. It could have been a significant impact to that program for this year. It looks like it won't be. Every day is a new day, so we'll see what happens. Other than that, no, I'd say we always, in aerospace, everyone's schedules prove to be slightly more optimistic in the way they turn out. Like I said, it's day-to-day stuff on whether it's new development programs or just getting things ramped up. It always drags out a little bit, but nothing beyond the normal.
Got it. Maybe one last question for me.
Just on the working capital fund and specifically payables, I think you used some cash to pay those down during the quarter. Anything chunky or one- off in there that we should call out, or should we regard foreign payable levels relative to sales or COGS as the more normal level going forward?
Thank you.
Yeah, I don't know, I was expecting you or someone to ask more on the other side on receivables or inventory not on payables. You fix me on that one. I, you know, for sure we used a lot of working capital in Q2 overall with this, you know, being specific. On any one of them, I would say it is at an elevated level and I do expect working capital to come down in the coming quarters just due to some, you know, day-to-day nuisance things on both inventories and receivables at FTG. It's a little bit elevated right now and it will come back down in the coming quarters.
That's great.
If we can get the color, congrats again. I'll get back in the queue.
Okay, thanks Russell.
Your next question comes from the line of Robert Murphy. Raymond James please go ahead .
Okay. Hi team. Thanks for the time. Yeah.
First question just on the.
Aerospace segment, outside of incremental results from FLYHT balanced year, how do you see organic growth kind of progressing into Q3 and then into Q4 and then what are some of your factors underpinning this outlook? Thanks.
Yeah, I don't have a firm growth number for the Aerospace business, but Q2 was definitely a little bit softer than I would have anticipated. We had some product that we had built and we could not ship out in the quarter. That just hurt Q2 a little bit. We have really strong backlogs across the business in aerospace. Some of the defense contracts I talked about where we have got through qualification are the benefit of Aerospace Chatsworth where its backlog looks strong.
As long as we can work through stuff with our customers and get solid delivery dates, solid deliveries from our suppliers on components, you should see some pretty solid organic growth in the coming quarters.
Okay, great, that's super helpful. Just to turn around the margin there for Aerospace, I think you mentioned there's some delayed qualifications, new product line in there that might have impacted in the quarters. I was wondering if you could provide a bit more color here and then how we should see margins in the aerospace segment progressing here.
Yeah, it's a great program. The one that Jamie was referring to is on the commercial aerospace side of things. We're doing some cockpit assemblies. Some of them go into Boeing aircraft, some of them go into Airbus aircraft. It's a great program. It's definitely worth millions of dollars for FTG.
We probably were through all of our development efforts in the last year and we actually shipped some units and then we got into testing. It was actually an Airbus and the testing caused everything to stop. In the end, nothing changed, but it caused the delay in the actions. That's been a little bit frustrating. On the previous question I was asked about, I built inventory of about CAD 1 million of products that got built but could not ship in Q2. I think we're close to getting through that and getting all sorted out so we can start shipping products. I thought that in previous quarters as well. We'll see how we do this time. I do think we're getting close. That will start to convert to regular revenue for the aerospace business going forward. Even on that, the program is with our Aerospace Toronto facility.
Because of the volume of that, we actually were building product in Toronto and in Chatsworth in Q2 to try to support the demand. It turned out to be inventory as opposed to revenue in the quarter. At some point that inventory will become less.
Okay, great, that's helpful. Finally, just on India quickly, just wondering kind of when you expect to have sales visibility there. Thanks.
We're trying to do two things with our India facility. One of them is to sell back to the West and one of them is to penetrate the Indian market. For sure, the timeline to generate revenue from the Indian market is going to be longer than selling back to the West. I don't know what to say. I'd be surprised if we had any significant sales to the Indian market through next year even.
Selling back to the West, some of that's going to be we got to get the site approved and approved by a handful of customers, then we can transition existing work into that site. It's really a capacity management opportunity for us. I would expect maybe mid next year we'll start to see real revenue from that site for Western customers.
Okay, great.
Thanks for the time. I'll turn the line back.
Okay, thank you.
Your next question comes from the line of [Sebastian Charland] with [Agbay] Capital. Please go ahead.
Good morning. Solid quarter. Bravo. I'm trying to compare the revenue margin profile between a commercial and a military aircraft. From Firan's perspective, can you provide a rough ratio or revenue contribution that we could expect from, let's say, one military versus a similar commercial single- aisle aircraft?
No.
I tried.
I think now, generally I don't see a significant difference in margin whether it's commercial aerospace or defense work. Occasionally we're doing work directly with the U.S. Government generally on aftermarket parts. It goes through what's called the Defense Logistics Agency in the U.S., which is the agency set up to buy spares for the U.S. Military. When we're dealing direct with the agency, we do get into some government costing rules and regulations. Generally those rules depress margins a little bit because you have to support your price with costs and markups and everything. We're going through one of those right now. Even with that, it's not a material difference. I really think I see similar margins on my commercial aerospace work as I do on almost all of my defense work.
Okay, and per unit, like the revenue per unit, is it also similar, or there could be more equipment on one or the other?
Yeah, it can be either. It could be the same or it could be more or less. It really, the content depends on how successful our sales guys are in winning work. You know, my favorite program, for what it's worth, is a military program. It's the C-130 aircraft that's made by Lockheed. There's no reason I like that program. It's been around forever. It's been in production for about 50 years. It's not high volume, but it's there every year. That is one where we do sell printed circuit boards, we do sell illuminated cockpit products, we sell simulator products. I like that one just because we're selling everything we have onto that platform. Yes, each program is 100% dependent on what we get a shot at and what we're successful in winning. It can vary widely from aircraft to aircraft.
Okay, yeah, that makes sense. I guess I would compare like C-130 to Hercules as the higher revenue. Perhaps the F-22, which I think you alluded earlier to, less components approved.
Right. That's why I think it's now out of production. Yeah, when it was in production, for sure that was U.S. only. At the time that was in production, the only U.S. bodies we had was our Chatsworth Circuits facility, and we had one circuit board on that aircraft. That was pretty low content. Hopefully, going forward on U.S.- only programs, we can get more because we have much more capacity and technology available in the U.S.
Good.
Thanks for the color on this. Regarding the Bombardier record challenging g lobal order that they announced last week, I think it was like over 50 planes. It almost looks like a disguised NATO military order. Would it be reasonable to assume that Firan has a fair chance of getting a piece of that?
For sure. You know, it's two avenues. Just about every cockpit panel in every Bombardier aircraft comes from us, and so you know, we have great content in the cockpit and that's one avenue. The other one, you know, generally every Bombardier aircraft uses Collins Avionics and we supply into Collins on their avionics suite that ends up on those aircraft. Yeah, I fully expects to have content on everything they manufacture, whether it's for business, jet or military or any other application.
Great. Bravo again. That's it for me.
Okay, thank you.
Next question comes from the line of Ashvin Moorjani at Edward Jones, please go ahead.
Congrats on the continued strong execution . Are you seeing any further opportunities
On pricing? And or any low- hanging fruit projects that can generate a high ROIC? If you could speak about the cash sharing ability of these projects, that would be helpful as well.
Yeah, for sure there is pricing opportunities. Our favorite one is expedited deliveries, and we always see some of that. Maybe we're seeing a little bit more right now than we've seen through the last half of last year. When a customer needs expedited deliveries, generally that is a good pricing opportunity for us. Just overall demand, the demand in the market is strong, and that creates some pricing leverage as well. For sure on that. I lost your second question. I'm sorry, what?
Just in terms of different projects, low- hanging fruit projects will generate a higher ROIC.
You've been doing quite a bit with FLYHT, of course, to possess on that, but just any other opportunities to expand, to deploy capital that can generate a high, high cash return on that.
Yeah, I don't know. I try to do that on everything we do here, but I can't think of a specific program or something that's going to have a higher margin opportunity than others. Right now I'm just trying to make stuff up. I think right now I'm in the process of moving my production of the cockpit assemblies for the C919 from my Toronto facility out to Tianjin. The price doesn't change, but my cost should drop as I move this work to China. That should increase the margin on that opportunity. We're right in the midst of that. Hopefully we will start producing that work in Tianjin in Q3 this year.
That's one where we're going to expand margins. It's not a new program, but it's a margin opportunity. Other than that, again, a little bit of pricing leverage can help expand margins, but I can't think of any specific program that's going to give us an uptick in margins or return on capital.
Do you see any further pressure on.
The previous acquisitions you made or do.
You feel like the pricing has been.
Fully realized there because you mentioned there.
Was a gap in between what they were selling their products for in the past versus what you think you could sell them for?
Sure, that's a good question. Yeah, I do think there's still some opportunities. You know, our big acquisition in 2023 was the site in Minnetonka the first year and we did some price increase in the first year, but we were running blind. We've now basically been running with our ERP system for the last year. Definitely we're getting better cost data on all our products in Minnetonka. Knowing your cost is often helpful in pricing product, though definitely there are still opportunities in Minnetonka to take advantage of our much improved data to adjust pricing as appropriate.
Perfect, thank you.
If you would like to ask a question, please press the star one on your telephone keypad. We have no further questions at this time. I would like to turn it back to Mr. Brad Bourne for closing remarks.
Okay, thank you. A replay of the call will be available until Saturday, August 9. The numbers are listed on our press release. Replay will also be available on our website in a few days. Thank you all for your interest and participation. Thank you.
Thank you, presenters and ladies and gentlemen. This concludes today's conference call. Thank you all for joining me. You may now disconnect.