FTG.TOFTG.TOTSX
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Operator: I would like to welcome everyone to the FTG Fourth Quarter 2025 Analyst Call. [Operator Instructions] 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 FTG. Mr. Bourne, you may proceed.
Bradley Bourne: Thank you. Good morning. I'm Brad Bourne, President and CEO of Firan Technology Group Corporation, or FTG. Also on the call today is Drew Knight, our Chief Financial Officer. Before we go any further, I must caution you that 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 in the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the company. The listener is 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. 2025 was another successful year for FTG. We had record revenues, EBITDA and earnings, and we made great progress in integrating FLYHT into FTG and positioning it for future success. More specifically, in 2025, FTG accomplished many financial goals, including our bookings were $209.9 million in the year, marking a 14% increase over 2024. Our backlog at year-end was $148.5 million, a 21% increase from last year. Our revenue was $191 million, an 18% increase over 2024. Our adjusted EBITDA was $32.7 million in 2025, up 27% from $25.8 million last year. Our adjusted net earnings were $13.5 million in 2025, an increase of 31% from 2024. Our operating cash flow less lease payments were $13.7 million in the year. And we maintained a strong balance sheet with net debt of $8.3 million or 0.3x trailing 12-month EBITDA, including $11.2 million of government loans. Other accomplishments in 2025 included we took steps to grow our defense business. FTG Circuits recently qualified for two significant classified defense programs. Delivery is expected to start in 2026 and ramp up through 2027. FTG overall will also benefit from increasing customer demand on legacy defense programs. We diversified our revenue sources to reduce our exposure to U.S. tariff risks for our non-U.S. sites. During the year, we ramped up deliveries in support of the C919, China's first domestic single-aisle passenger jet. Also during the year, De Havilland Aircraft of Canada selected FTG to provide updated cockpit control panel assemblies for the new Canadair 515 aerial water bomber. FTG completed first deliveries of some units to De Havilland on this program in late 2025. We took steps to create value from the FLYHT acquisition. We obtained supplemental type certificates or STCs for the AFIRS Edge+ program for Boeing 737 in Canada, the U.S. and China and for Airbus A320 in Canada, Europe and China. The transition of AFIRS Edge to in-house production is now underway, and FTG recently delivered its first units to an airline in Asia, marking a key milestone in value creation from the FLYHT acquisition. And we strengthened the FTG leadership team. We continue to bolster our leadership team, including appointing a new CFO, Drew, who's with us today; Executive Vice Presidents for both the Circuits and Aerospace segments as well as some key site leaders due to retirements and other organizational growth. Also during the year, FTG appointed Russell David and Christine Forget to the FTG Board of Directors. Russell has served as a Board member and Senior Executive of corporations and as a senior partner at Deloitte in Corporate Finance and M&A advisory. Christine has served as a Board member and senior executive at several corporations, including as VP Global Procurement at Bombardier. Drew will provide more details on our 2025 and Q4 results shortly. Let me turn to some external items. Our end market demand remains strong. Airbus delivered 793 aircraft in 2025. But more importantly, they're looking to ramp to over 1,000 aircraft annually in the next few years. Airbus has a backlog of over 8,000 orders, which is over a decade worth of production at current production rates. At Boeing, they shipped 600 planes in 2025, up from 384 in 2024. 2024 was low due in part to the safety incident on the Alaska Air 737 as well as the machinist strike they had later in the year. But looking forward, Boeing has plans to ramp their production to over 800 planes annually in the next few years. Boeing's backlog is almost 6,000 planes, so also over a decade's worth of orders at current production rates. While 2024 might have been a low point for Boeing, it has become clear that Airbus is outperforming Boeing in the air transport market in terms of aircraft shipped, and they hold a 60% market share based on order backlog. This has implications for FTG's plans going forward. In the business jet market, Bombardier reported a high single-digit shipment increase for 2025. They shipped 157 aircraft in the year. They are also pushing hard to add a defense component to their business, and they've had some success to date in selling their business jets for defense applications. In the helicopter market, Bell Helicopter reported a 20% revenue increase in 2025, driven by increased defense programs. All of this bodes well for us as we look to future demand in the coming years. We also looked at results from some key defense contractors. For instance, Lockheed Martin reported a 6% revenue growth in 2025. And also related to defense, Boeing was selected to develop and produce the next-generation air dominance fighter. This is good news for them. And based on the supply chain approach on the previous air superiority fighter, the F-22, I would expect the sourcing for this will be U.S.-only suppliers. We did have content on the F-22 when it was in production through our Chatsworth facility. We are better positioned now to increase our content on U.S.-only procurements with our 5 U.S.-based sites. Also importantly, 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. And Canada has said they will increase defense spending in 2025-'26 to 2% of GDP. All of this indicates significant increases in defense budgets for all European countries and Canada. The recent creation of a defense investment agency in Canada to accelerate and streamline future procurement activity is positive for the industry here. And the U.S. is also looking to increase defense spending next year. Looking at the longer term, Boeing's most recent 20-year forecast for commercial aerospace shows significant long-term industry growth, and it continued to show 20% of all new aircraft deliveries going to China, close to 40% to Asia, as has been the case in the recent forecast. Business jet market has already seen traffic recover. A recent business jet market forecast from Honeywell similarly predicts growth in this market of 5% in 2026 and 3% annually over the next decade. So as we have said for many years, FTG's goal is to participate in all segments of the aerospace and defense markets as each moves through their independent business cycles. It is not often all segments are growing, as seems to be the case now. Beyond this, let me give you a quick update on some key metrics for FTG for our fourth quarter and full year. First, as already noted, the leading indicator of business is our bookings or new orders. Our bookings were $210 million in the year. This resulted in a backlog of $148 million at year-end. Full year sales were $191 million, which is up 18% over last year. 2/3 of this growth is driven by the acquisition of FLYHT earlier this year and the balance from organic growth. In our Aerospace business, sales were up 43% in 2025 compared to last year. The increase is about 90% due to the acquisition of FLYHT. Sales in Toronto and Tianjin were up, while activity in Chatsworth was down in the year due to timing of some orders. There was a significant ramp-up in C919 shipments in the year as well as assemblies for both Boeing and Airbus aircraft in Q4. The C919 shipments benefited both Toronto and Tianjin, while other shipments benefited Toronto. On the circuit side of our business, sales were up 6% over last year. All of this is organic growth. Our strongest growth in the year was in our joint venture in China, followed by our Haverhill and Chatsworth sites. Minnetonka had strong demand, but our ability to ramp production was constrained by adding and training new production staff. Overall, at FTG, our top 5 customers accounted for 51.7% of total revenue in the year. This compares to 58.4% last year. It's great to see the drop in customer concentration as we add sites and expand our customer base, partly through the acquisition of FLYHT. Airlines were 2 of our top 20 customers in the year due to the FLYHT acquisition. Also interesting to note of the top 10 customers, 6 are customers shared between Circuits and Aerospace. We like to see the shared customers as it means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. Given the actions of the new administration in the U.S. of implementing tariffs, it's also good to see that one of our top customers is outside of the U.S., and this is in China, and another 8 have operations outside of the U.S. While on this topic, 69.9% of FTG sales are to U.S.-based customers. This includes sales by U.S. sites as well as sales from FTG sites in Canada or China. This compares to 78.3% last year. While the sales grew by 5% in the U.S., they grew by 46% in Asia, 140% in Europe and by 35% in Canada as we benefited from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring FLYHT sales globally. The increase in sales outside the U.S. are helpful in the event of any tariffs that might impose on our non-U.S.-based sites. Our goal is to continue to grow our non-U.S. revenue for our non-U.S. sites. In 2025, 36% of total revenues came from our Aerospace business compared to 29% last year. Aerospace business share increased due to the acquisition of FLYHT. I'd now like to turn the call over to Drew, who will summarize our financial results for 2025. And afterwards, I will talk about some key priorities we are working on. Drew?
R. Knight: Thanks, Brad. Good morning, everyone. I would like to provide some additional detail on our financial performance for 2025 and Q4. On sales of $191 million, FTG achieved a gross margin of $60.6 million or 31.7% in 2025 compared to $44.2 million or 27.3% on sales of $162 million in 2024. As such, gross margin in 2025 was a substantial improvement and up 430 basis points. The increase in gross margin dollars and the gross margin rate is the result of increased scale on our fixed cost base, operational improvements, the addition of our new Aero-Calgary business and favorable foreign exchange rates. Revenue per employee was $254,000 in 2025 as compared to $240,000 in 2024, which is a 6% increase. Q4 2025 on sales of $51.7 million, FTG achieved a gross margin of $15.8 million or 30.6% compared to $12.8 million or 28.3% on sales of $45.2 million in Q4 2024. The increase in gross margin dollars for Q4 2025 as compared to Q4 2024 is a result of increased sales volumes in the Aerospace segment, including the new Aero-Calgary business, operational improvements and favorable exchange rates. From a geographical standpoint, FTG's sales growth was global, as Brad noted earlier. Diversification improved as 70% of FTG's revenues were derived from customers in the U.S. in 2025 compared to 78% in 2024. SG&A expenses were $26.7 million or 14% of sales in 2025 as compared to $20.4 million or 12.6% of sales in the prior year. The increase of $6.4 million during fiscal 2025 was primarily due to the acquisition impact of $4.7 million at Aero-Calgary. The remaining increase included Hyderabad, India start-up expenses, restructuring costs and acquisition expenses. Q4 2025 SG&A expense was 13.3% of sales, which is up from 12.7% in Q4 2024. Similar to the full year, this is mostly due to the Aero-Calgary business, which has high margins and high SG&A as well as restructuring costs and some India costs in 2025. R&D costs for 2025 were $10.9 million or 5.7% of sales compared to $7 million or 4.3% of revenue in 2024. R&D efforts included product and process improvements at the Circuits segment as well as Aerospace segment process improvements and product development. FTG is exposed to currency risk through transactions, assets and liabilities in foreign currencies, primarily U.S. dollars. The average exchange rate experienced in 2025 was 1.39 as compared to 1.36 in 2024, which equates to a weakening of the Canadian dollar of 2.2%. We estimate that for each 1% of weakening of the Canadian dollar, FTG would experience an increase in pretax earnings of $0.8 million, absent of any hedging countermeasures. Adjusted EBITDA, as detailed in the MD&A, was $32.7 million for 2025 or 17.1% of sales compared to $25.8 million or 15.9% of sales for 2024. Adjusted EBITDA is up 27% over 2024 as a result of growing the top line organically and via the acquisition, operational improvements and managing expenses. Adjusted EBITDA for Q4 2025 was $7.9 million or 15.4% of sales as compared to $7.6 million or 16.7% of sales in Q4 2024. While adjusted EBITDA dollars grew somewhat, the percentage of sales declined due to the new Aero-Calgary business, which added top line and gross margin that essentially broke even. We expect this business to scale up with new revenues on a fixed cost base to become profitable in the near future. In 2025, FTG recorded net earnings of $13.1 million or $0.52 per diluted share as compared to $10.8 million or $0.45 per diluted share in 2024 for an increase of 15.6%. For Q4 2025, net earnings were $3.7 million or $4.4 million in Q4 versus $4.4 million in Q4 2024, while adjusted net earnings were $3.9 million in Q4 2024 as this is adjusted for $0.8 million of reduction in contingent consideration related to the Minnetonka acquisition, which was booked as profit in Q4 2024. Q4 2025 adjusted net earnings showed a decline of $0.2 million versus prior year as reported. However, 2025 was burdened by $0.3 million of intangible amortization from the FLYHT acquisition, and there was $0.8 million of FX change from a gain in 2024 to a loss in 2025. Normalizing for these differences for an apples-to-apples comparison, then Q4 2025 is $0.9 million better than Q4 2024. The 2025 effective income tax rate was approximately 27.8% as compared to 27% in 2024. I would like to remind everyone that FTG continues to have substantial tax losses available to offset future income and the accounting benefits of these losses has not been recognized in our financial statements. These tax loss carryforwards are located in both the U.S.A. and Canada with the Canadian losses recently acquired in the acquisition of FLYHT in December 2024. Our net debt position as of Q4 2025 is $8.3 million as compared to a net debt position of $0.7 million as of Q4 2024. The debt increase resulted from the acquisition of FLYHT. Cash flow from operating activities in 2025 was $18.1 million as compared to $14.5 million in 2024. Full year cash flow from operating activities increased by $3.6 million. Cash used for lease liability payments was $4.3 million in 2025 as compared to $3.7 million in 2024. Capital expenditures were $4.6 million as compared to $7.2 million in 2024. Going forward, we expect CapEx to be closer to FTG's long-term target of 3% of revenue, notwithstanding any significant capacity increases. As at 2025 year-end, the corporation's primary sources of liquidity totaled $78 million, consisting of working capital of $58 million and $20 million of unused credit facilities. Accounts receivable days outstanding were 55 at the 2025 year-end, down from 70 in the prior year. Inventory days were 105 at 2025 year-end, up from 96 in 2024. And accounts payable days outstanding were 58 at the end of 2025 as compared to 68 in 2024. On to the outlook. We entered Q1 2026 with a record level of backlog of $148.5 million, of which approximately 80% is expected to be converted to revenue in 2026. The new business activities in both the aerospace and defense industries are strong and continue to accelerate. Both the circuits business and aerospace business are winning their share of new customer RFPs, including a couple of substantial classified defense programs, as Brad mentioned. We are focused on managing cash flow and improving operational efficiency and continuing with the FLYHT integration, which will bear fruit. Our complete set of year-end and quarterly filings are now available on SEDAR. With that, I would like to turn things back over to Brad.
Bradley Bourne: Thanks, Drew. Let me delve into some other important items for the future of FTG that will continue to build on our accomplishments from 2025. We will continue to pursue growth in the defense market. As noted previously, we expect defense spending to continue to grow in Canada, the U.S. and NATO. We've had some good success on some new programs in the U.S. last year, and we're pursuing more new programs in 2026. Beyond this, we will look for opportunities outside of the U.S. as well. The NATO budget was about 1/3 of the U.S. budget a decade ago, and it is 2/3 its size today. So it's definitely a market of interest to us. As Canada ramps its defense spending and its commitment to NATO, we are hopeful that it will create new opportunities for FTG sites outside the U.S. After the U.S. and NATO, the next biggest defense market is India. And as we get our site established there, we will look to capture some market share in this market as well. We will look to capture more work in the commercial aerospace market and grow as volumes ramp up. As part of this, we will look for ways to increase our activity with Airbus as they are the stronger performer right now. To do this, we will leverage our Canadian and China sites, and we will continue to investigate establishing a footprint in Europe. Given the uncertainty regarding tariffs from the U.S., we will look to continue to diversify our revenue streams for our non-U.S. sites. Some of the items I already mentioned will assist in this, but it will remain a priority action for us in 2025. In 2025, about $58 million of sales from our Canadian sites were to the U.S. customers. The site did increase their non-U.S. sales, but more will be done in 2026. Across FTG, sales outside the U.S. grew from $35 million in 2024 to over $57 million in 2025. We will increase our sales staff outside the U.S. in 2026 to help drive this growth. Tariffs are now impacting input costs in our circuits business. This is because a lot of materials used in our manufacturing processes originate outside of North America. The impact is highest for our U.S. sites, but Toronto is also impacted when materials shipped via the U.S. to Canada. We estimate the overall cost impact to be in the millions of dollars in 2026. We have started to work with customers to pass on these increased costs to them and their end users. And we will continue to take steps to create value from our acquisition of FLYHT. As of December 1, 2025, we have renamed the business, FTG Aerospace Calgary, as we amalgamated it legally into FTG. The amalgamation was done to possibly enable us to use FLYHT tax losses beyond just our operation in Calgary. But to be clear, we do not have certainty that this will be possible. In the Calgary business itself, we believe we are now well positioned to have a strong year as a result of our product certification and STC efforts last year. We are seeing strong demand for all three products, and our pipelines look robust. The licensing revenue on our SATCOM radio product has returned and should be consistent going forward. The licensed product ends up on Airbus aircraft, so we know the demand is strong. The Edge+ WQAR has lots of STCs in place. And with our first delivery behind us, we are quoting many new opportunities in a number of geographic jurisdictions. And we are starting to manufacture this product in our Tianjin plant to enable us to capture this margin as well. We expect sales of their weather product to ramp up in 2026 as well with contracts in place with both NOAA in the U.S. and U.K. Met in England. We are looking to manufacture both our SATCOM radio and the WVSS weather product in our Chatsworth facility in 2026. These actions should enable FTG Aerospace Calgary to be a positive addition to FTG and further mitigate risk from the U.S. tariffs. We will also open our aerospace facility in Hyderabad, India in 2026. Our decision to expand geographically was partly to look for an insurance policy against anything negative happening to our China operations, but was also partly to expand into new regions with growth potential. As we analyze 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 will be an ideal place to operate. We selected Hyderabad as it has an aerospace hub primarily focused on manufacturing. Our facility is under construction. It now looks like Q2 2026 for its completion. In the meantime, we will be sourcing the necessary equipment to be ready to go. Our estimated total investment is forecast to be approximately $2 million. As we enter 2026, we see continued strong demand across most sites. All of our $148 million backlog, 80% of that is due in the year. We continue to assess possible corporate development opportunities that could fit with either of our businesses. We have a few areas of interest, including establishing a footprint in Europe, growing our presence in India or expanding our technology in a few areas. With a focus on operational excellence in all parts of FTG, our strong financial performance in 2025, our recent acquisitions, our key sales wins, we are confident we are 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. Jenny?
Operator: [Operator Instructions] Your first question is from [ Ben Asuncion ] from Haywood Securities.
Unknown Analyst: Ben dialing in for Gianluca here. Congrats on the quarter. Could you perhaps give us a qualitative snapshot of how the backlog looks from a defense perspective? The Fed's here just announced a nice package on Tuesday, and we were wondering if you have any preliminary thoughts on how you might be looking about pursuing this and grabbing a piece of the bigger pie.
Bradley Bourne: Well, sure. I guess, first, -- to answer your question specifically? No, I actually don't know how my backlog splits out in terms of defense activity. What I would say is historically, we're running at about 40% defense, 60% commercial with some of the wins that we talked about on some classified programs, so I'm not going to name names of them, but that should increase our defense percentage a little bit, but I don't have an exact number. And then with regard to Canada, we're looking at it from a couple of perspectives. For sure, defense spending is going up. Canada just issued a defense industrial strategy, which is good for -- it's going to be great for the industry. I think it's something we've all been looking for and waiting for and asking for, for a number of years. The fact that's out is great. And it talks about build, partner, buy. So they're looking for ways to have the defense spending in Canada benefit the industry and build the industry. So I think that's going to be good for us. And then beyond that, as part of this, they are looking to make investments in companies or assist companies in making investments is a better way to put it. And we're definitely looking at that as well to see if there's funding sources to assist in investment activities we might be planning in the future.
Unknown Analyst: That's great. And I guess just for my follow-up here, are you starting to see any incremental quoting activity or program acceleration specifically in Canada for these defense initiatives? Or is it too early in the cycle?
Bradley Bourne: Yes. For us, it's early in the cycle. We -- our activity in Canada historically has been remarkably small. We went from 5% of sales to 6% of sales last year. But we're putting effort into it. Definitely, we're having lots of discussions with more Canadian companies about opportunities, but I wouldn't say it's converted into quoting activities yet.
Operator: Your next question is from Steve Hansen from Raymond James.
Steven Hansen: Brad, just on the new defense programs, it sounds like they're going to remain unnamed. That's fine. It does sound like delivery is expected to start later this year, though, and then ramp up next year. What kind of capacity capabilities do you have right now? I think you referenced Minnetonka still having some constraints. So I'm just trying to get a sense for how that capacity plan looks relative to the ramping new programs.
Bradley Bourne: Right. Sure. So capacity growth in FTG for all but one site is really about adding people and training people and getting them contributing. And so for Minnetonka, specifically, we have tons of capacity in terms of plant and equipment. So that one is all about adding people, training people. I've said this in the past, and I'd say it again here that adding people -- getting people is easy, but the way I'd describe it these days is if I add 10 people, 3 of them are going to leave because they don't like it. 3 of them are going to leave because we don't like them. And then you have a few left over that get through that training process, which is going to be at least 6 months, and then they're contributing to the business. So ramping capacity is constrained or the rate of ramp is constrained by that process of adding and training people. And that goes for all sites except one. My Circuits Toronto facility, for sure, to grow that capacity, I need to add plant and equipment as well as some people. But we have added that or included that in our plan for 2026. We have a capital investment plan for that site that should add at least 30% capacity to it. So the good news is when a plant hits capacity, it generally is not at every process in the building. There's 1 or 2 bottlenecks. So if you can add capacity in those bottleneck areas, you increase the capacity across the whole plant. So that's what we're doing in Toronto. We're committing to it. And as I say, at least a 30% growth in capacity is planned in that site for the end of the year.
Steven Hansen: Okay. That's helpful. And just, I mean, rough magnitude, is there any ability to give rough magnitude on these new defense programs and what they mean for '26 and '27? I presume they're relatively low rate production to start with, but just wanted to get a sense for what the opportunity set is there.
Bradley Bourne: Yes. And I guess activity started last year, to be fair. Now some of that was qualification build or initial deliveries. We're expecting it to be material amounts this year. It's going to be in the millions of dollars. Beyond that, I just -- I don't know is my honest answer exactly how much we'll ramp this year. But for sure, the overall demand on these programs is crazy big in the tens of millions of dollars. But whether we will be able to support all of that is not clear yet and whether it would be -- the production allocation is not 100% set. So we'll see how much of that we get and how much of it we can support. But the demand is huge on these programs.
Steven Hansen: Okay. That's good context. And then just one last follow-up for me, if I may, is just on the COMAC program. You've had some good success there. They did stumble a little bit in their own delivery profile last year, but my understanding is they expect to ramp again next year. Just relative to the initial contract that you signed, it looks like there's just under $10 million of value left there. How do you think about sort of that residual piece relative to what you delivered in '25 and whether or not you need to renegotiate or re-up the program? And how does that outlook stand for COMAC?
Bradley Bourne: Yes. A whole bunch of comments on that. I guess, first one, you're right, their deliveries were a little bit lower than their expectations last year, but that has not impacted our production rates or the demand for our deliveries to them. So their build rate still seems to be strong. The contract we signed a few years ago is complete at some point later in 2026. I have every expectation that there will be a follow-on -- it's not even a contract, a follow-on purchase order against the existing contract at some point this year that will carry production into the next few years. And then in addition to that, two other things going on of great interest. First one, in our contract, we also supply spares to them. And so we signed a spares contract with them just a few months ago that will be delivered in 2026. So it's a little bit of additional revenue. And then not a huge revenue impact for us in the year, but they're looking at a handful of design changes on our product and other products in the plane. The good news and the interesting news on this is they're doing this as part of their effort to get certified by EASA in Europe for enabling that plane to be sold and flown in Europe. So I don't know, not sure how they're going to do on that, but I think it's interesting. And definitely, EASA is engaged with them to go through the certification process. So that might create additional demand for that aircraft beyond what you see in China and the Far East.
Operator: Your next question is from Russell Stanley from Beacon Securities.
Russell Stanley: I guess, first, just on the orders look particularly high in Q4. Wondering how much the new defense programs may have contributed there or if there's anything else you would call out behind that beyond just ordinary demand. I know simulator-related demand has contributed in the past. But I'm wondering if there's any lumpiness there that you would call out? Or should we just look at this as a particularly strong quarter?
Bradley Bourne: Yes. I guess, first of all, specifically on the simulator, there was no big lumps of simulator orders in Q4, so that did not drive it. Our simulator activity is pretty constant right now. I'd love to see a lump one day, but right now, I don't see that. Beyond that, I am just -- I going to say it's mostly just strong demand across the business in Q4. No significant single contracts of big value in the quarter and definitely nothing of significant value in the quarter related to the two defense programs I talked about either. So the -- yes, it's just strong demand across the business.
Russell Stanley: Great. And how should we think about R&D spending relative to sales going forward? It looked a little elevated in Q4. I'm wondering, can you provide any more color as to what you're working on there? And to what extent maybe the Q4 number reflected work on those two defense wins?
Bradley Bourne: Right. Yes, it was up a little bit in the quarter. I agree with you on that. We again, nothing significant. We're definitely -- we spend a lot of time every quarter in driving process improvements, capability improvements in our circuits business. Definitely, some of that related to the defense programs, but not some -- not a material amount, but definitely, we are doing some development to support those programs and some other activities in other sites in the quarter. So -- but that's definitely the game for our circuits business to just keep driving capability improvements and be able to support the new technologies that generally are what we see on new programs. On the aerospace side, we did some -- continue to do development work on some of the products we sell. We show it in R&D. Some cases, it's customer funded, some cases it's not. The R&D we did in FLYHT in the year, generally, we did some development on the weather WVSS-II that was expensed in our R&D numbers in the year. We did a lot of work around STCs in the year. That was -- that's on our balance sheet as deferred development because for sure, it has future value. So that's not in the R&D number. Hopefully, that helps.
Operator: Your next question is from Nick Corcoran from Acumen.
Nick Corcoran: Congrats on the strong year. Just the first question, margins were down a bit in the quarter despite higher revenue. Can you maybe talk about what the drivers are and what we should expect for margins going forward?
Bradley Bourne: Sure. I assume you're talking EBITDA margin. But assuming I got that right, let me start on that. So first one, I think as Drew reported, our gross margin in Q4 was up, as you would expect. So as revenue goes up, margins go up -- gross margin goes up. But for sure, below gross margin, a couple of things to comment on. Also, Drew already mentioned this, but we had a basically revaluation of assets on the balance sheet in the quarter that was -- showed up in the P&L as an FX impact. It was a $600,000 hit in the quarter, $800,000 variance compared to last year. So that definitely hurt. If you were going down to net income, we have higher intangible asset amortization this year because of the FLYHT acquisition. So that when you're trying to compare Q4 last year to this year, that hurts on net income, doesn't hurt on EBITDA. And I guess the last one, which we didn't really talk about, but we do live in the real world. We definitely had a production or operational challenge in our Circuits Toronto facility in the quarter. We basically had our production -- or part of our production shut down for almost 2 weeks. It impacted revenue a little bit. And I think if you looked at it, you'd see our Circuits revenue was down in Q4, and it definitely impacted profitability. I don't -- it's hard to have an exact number on this because you don't know what it could have been if we had not had this challenge. But definitely, it impacted revenue and gross margins and therefore, EBITDA margins in the quarter as well. Good news is it was kind of in the middle of the quarter and the challenge was around. We had some contamination in our water that hurt some processes. But for sure, by November and by the end of the year, that issue was behind us. So it happens. As I say, we live in the real world. We dealt with it. I think the people at the site dealt with it really well, and it was back under control for year-end.
Nick Corcoran: That's helpful. And maybe can you talk about how much of it might be driven by mix just between aerospace and defense?
Bradley Bourne: Yes. I mean it's -- I'm not sure how that impacted profitability. Definitely, it impacted revenue that if you see our revenue was up dramatically in our cockpit product business in Q4. That increase was 100% driven by commercial aerospace. We had large deliveries of cockpit products for the China C919 aircraft to end the year and we had large deliveries of some cockpit assemblies we delivered to one of the Tier 1 avionics companies in the U.S., but these assemblies end up on both Boeing and Airbus aircraft. Those deliveries ramped up in Q4. But again, on the commercial aerospace side. So that drove the revenue growth. I think our margin and our profit is not really driven significantly based on whether it's commercial aerospace or defense.
Nick Corcoran: That's fair. And then maybe moving on to FLYHT. With the business amalgamated, what opportunities are there to improve the margins in the business?
Bradley Bourne: Yes. It's just -- we got to -- we have to have sales of the three products. We got to get them delivered, and it's got to -- if we have revenue, we will have margins and profit. And I think we will have good revenue. The SATCOM radio is an existing product. There's three ways we generate revenue from that. We sell hardware, and we have some good orders on that. So I think we're going to have some good SATCOM radio sales in 2026. We sell data where we basically resell Iridium data for people who use the radio. So that becomes another revenue stream. And then the third one is we license the design to a company who then sells the radio into Airbus, and that licensing revenue kicked in, in Q4, and I expect it to be kind of a regular amount each quarter going forward. So that product looks good. So I think we'll have revenue, therefore, we'll have margin. The WQAR or Edge+ product, we're seeing huge opportunities for us. We're working hard to establish a market position. So there's going to be a combination. We have to win some orders, but I think we also have to have a plan to ramp margins as we go forward and capture market share, but I do expect that's going to happen in the year. And then lastly, on the WVSS-II, the weather sensor that we sell, we have contracts in place. We need to get through some certification processes. We're trying to get that product certified on a 737 and on the Embraer 145. That's just because the airlines that are planning to fly this product. If we get those certifications done in 2026, which I'm sure we will, then we'll start to see some hardware sales from that product. And there's also a data or recurring revenue stream from that product. So as we get more units installed, the data sales will go up. And so I don't know all indications to me are that we are going to see some good revenue from that business in 2026. And for sure, that will just drive good margins as well.
Nick Corcoran: Great. And maybe one last question for me. I believe the Toronto union contract is coming up for renewal. Any comment on that?
Bradley Bourne: I can comment that you are correct. It is coming up for renewal middle of this year. There has been no discussions yet, no negotiations. They haven't started. Typically, we do it kind of towards the end of the contract because you never settle this until the end. But for sure, that's a bit of a risk in 2026. But other than our one instance a couple of years ago, we've been pretty successful in getting through contracts without any disruption. So hopefully, we can do that again this year.
Operator: Your next question is from [ Sebastian Sharlin ] from Agave Capital.
Unknown Analyst: Following up on the FLYHT amalgamation that happened in December, I know you said the key there is to increase the sales, and I think I see the paths that are open for this. Wondering on the SG&A side because sales and gross margins have been great there. On the SG&A with the amalgamation, should we expect more restructuring in terms of the sales team perhaps combining together or even just the admin side? I think Drew mentioned something about not being sure you can amalgamate them with the Calgary operation.
Bradley Bourne: Yes. Let me start with the sales part of it. So I really don't see a path to integrate the sales teams of FTG with FLYHT. And the reason I say that is FTG, we sell basically into original equipment manufacturers. We sell into the Honeywells, Collins, GEs, Boeings, Bombardiers. The FLYHT products are for the aftermarket, and we sell to the airlines. So it's definitely a very different sales channel. The FTG guys are good at what they do. The FLYHT sales guys are good at what they do. So we're not going to integrate the teams, I guess, with one exception that Peter Dimopoulos runs sales and -- has run sales at FTG for a number of years. He's definitely also running sales at FLYHT or running the FLYHT sales team. That's really just to bring the FTG mindset to the FLYHT sales process. But beyond that, not really. And then on the rest of the SG&A on the admin side, we took a lot of cost out last year because they were public before we acquired them and a lot of public company costs. I don't see a lot -- I don't see any real opportunity for SG&A savings going forward. So the key really is to grow the revenue number, and that will bring down the SG&A percent of sales.
Unknown Analyst: Great. Super color. I get. So it's more going to be a referral kind of way of working together with the sales teams than integrating. And perhaps the next one is a little more technical for Drew. You mentioned there are -- you guys have a bunch of tax loss carryforwards, especially since you acquired FLYHT, I think it's north of $42 million in Canada, if I'm not mistaken. You mentioned that you will benefit from them, but they're not as a tax asset on the balance sheet yet. Should we expect those to be at some point considered on the balance sheet? I know the condition they need to be likely -- more likely than not to be, I'd say, harvest in the future? Or is that something that's never going to happen?
R. Knight: No. So I guess it's a couple of steps. So step one, obviously, was the amalgamation. And the one certainty is as FLYHT becomes profitable, that should be tax-free profit. So that's certainly a good thing. But now that we have the amalgamation done, we've got some work to do just to prove that FLYHT is a same or similar business to FTG, which it's in the ballpark, but it's not exactly the same. So we've got to document that and get a pre-ruling from CRA on the fact that it's a similar business and we can utilize and access those tax losses.
Unknown Analyst: Makes sense. And yes, the amalgamation was December 1, which is in the new fiscal year. Would it be reasonable to believe that work would be done by the end of this fiscal year?
R. Knight: It's reasonable to believe that the work will start in this fiscal year. It's just starting now. So we're certainly targeting to get it done by the end of the year, but it could bleed into early 2027. But I would say that FLYHT broke even or was slightly profitable in 2025. And the plans for 2026, as Brad mentioned, there's a bunch of sales opportunities and growing the top line there. We expect FLYHT to be profitable, and that should be tax-free profit.
Unknown Analyst: Great. That's helpful. Perhaps the last one for Brad. You mentioned input costs sometimes because of crossing the border, input costs coming from the U.S., for example, increasing the product cost and then that you are already discussing to pass on through those to customers. More out of curiosity, do your products, especially the circuit boards use RAM, the memory chips, which have been on a tear recently in terms of price increase? Or are they not in your product?
Bradley Bourne: No. We don't. So that's not our issue at all for sure. It's just -- it really is most of the circuit boards in the world are made in Asia. So the supply chain really is mostly in Asia. So when we make them here, we're importing products. Obviously, for our U.S. sites, we import it into the U.S., but even for Canada, sometimes the product comes from Asia to the U.S. and Canada. So we are purely seeing tariff cost impacts on a lot of the raw materials for circuit boards. So we are yes, working with customers to pass it on. They don't like it, but we don't like it either. So we're just trying to find a way to be fair. We didn't cause it. They didn't cause it. We just got to work together to manage our business.
Unknown Analyst: Okay. So no RAM memory chips kind of included in the product need to be to worry about. Great.
Operator: Your next question is from Steve Hansen from Raymond James.
Steven Hansen: Just a quick follow-up. I know you referenced the India facility to be done in 2Q and you've got equipment on order. How should we think about the ramp of that facility through the back half of '26 and into '27?
Bradley Bourne: Yes. So a couple of things. It's partly what I said on for my other side. So for India, today, we have 2 employees. We are just starting the process to staff up. There's going along with building the building, getting equipment, we got to hire the people and train the people. The revenue impact in 2026 is negligible. We're going to be spending our time training people, building product, going through government or industry certifications like AS9100, that type of thing, customer approvals. So negligible revenue this year. Hopefully, in 2027, we start to see some benefit from that. But I honestly have not tried to put a number on it for 2027 yet.
Steven Hansen: Okay. That's helpful. And then just lastly, on the corp dev, you referenced you're looking at a number of different opportunities. I think you cited sort of three buckets. Is there one in particular that you're focused on or that you think has the best opportunity set for you guys? I think you referenced Airbus exposure being one in particular. But just how do you think about that set of opportunities as they stand today?
Bradley Bourne: Yes. I mean I'm always interested and always looking. Definitely, as I've said a million times, my plan for FTG is always try to find a way to double the business every 5 years. To do that, I go to have organic growth plus I could do some acquisitions. So it's always on the table, something we're looking at. Definitely, FLYHT's well under control. So we're not focused on trying to integrate that. So we can look forward into what's next. Yes, Europe is of interest to me. I've said that for a bunch of reasons, it's of interest to me because of Airbus. It's of interest to me because NATO defense spending is ramping so much. It's of interest to me because it's a jurisdiction with no real risk of tariffs. So lots of reasons why I'm interested in it. And so that's probably top of my list. But beyond that, certain technologies, if the right deal became available, I'd be interested in those. And so the only thing I would say, I'm not looking to expand beyond my current product base, whatever we do would still be focused in circuits or cockpit products. And that won't change because I, for sure, believe we can do another couple of doubles at FTG, still staying focused in these product areas.
Steven Hansen: Okay. Great. And actually, just one last one then, if I may, and it dovetails on your last remark is just how do you think about the new platform developments out there? The DOD down South has got a big new push towards new modernized technology and warfare. And just trying to think about how you decide to leverage that theme or get involved with that theme over time, recognizing that the volumes are still relatively low today.
Bradley Bourne: Yes. It's an important topic for us for sure that my belief is the best way for FTG to change or grow our market share is to get involved in new platforms when they're in development. And so there's lots of new platforms in development in the U.S., and it could be helicopters, it's fighters, it's drones, there's just everywhere. There's lots of new developments going on. So we are doing whatever we can to try to secure a position on these and then ride them into production in the coming years. None of this happens quickly. But you have to be there at the beginning if you want a shot at that production revenue stream. So we definitely do that, and we will continue to do it. And I'd say, particularly on the defense side right now, there's a lot of opportunities.
Operator: [Operator Instructions] And your next question is from Russell Stanley from Beacon Securities.
Russell Stanley: Just a question on the circuits business. Wondering if you can talk about space, how much of a share that is now of revenue and maybe what opportunities you're seeing there given the growth potential?
Bradley Bourne: Yes. Well, we're interested in. And I guess I don't talk about it a lot. I always say I want to be in all these different market segments because they all go through their own cycles. And then I don't talk about space, but we definitely do circuit boards for space. And interestingly enough, we do cockpit products for space, too. And -- now we have products on the Orion spacecraft that hopefully will be flying shortly. It almost took off in February, but maybe in March. But back on the circuit board side, it's of interest to us. I'd say our history is we're not involved -- we haven't been involved in the crazy high-volume programs like Starlink and that. But it's of interest to us as a -- I can say, a relatively small percentage of our overall business. We do some work with MDA in Canada. We do some work in the U.S. We do work with Honeywell Space. So yes, but it's a small percentage of our overall business.
Operator: There are no further questions at this time. Please proceed.
Bradley Bourne: Okay. Thank you. A replay of the call will be available until Thursday, March 19, at the numbers on our press release. The replay will also be available on our website in a few days. I thank you all for your interest and participation. Thank you.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.