Firan Technology Group Corp

TSX:FTG

Good morning, everyone. My name is Joelle, and I will be your conference operator today. I would like to welcome everyone to the FTG Q1 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.

Thank you. Good morning. I'm Brad Bourne, President and CEO of FTG or Firan Technology Group Corporation. Also on the call today is Jamie Crichton, 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 proceeding 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.

We are off to a great start in 2025. These are by far our best Q1 results ever. And to start the year, we closed the acquisition of FLYHT, adding another growth lever to FTG overall. I'd like to welcome the people from FLYHT to FTG and thank everyone in FTG for their hard work and their contributions to our continued success. In the first quarter of 2025, FTG accomplished many financial goals, including total bookings reached $51.5 million in the quarter, marking a 37% increase over Q1 2024. The quarter end backlog stood at $142.5 billion, a 43% rise from the previous year. Revenue was $42.9 million in the quarter, a 22.6% increase over Q1 2024.

Adjusted EBITDA was $8.4 million, up from $4.6 million in Q1 last year. adjusted net earnings rose by over 200% to $3.3 million. And we maintained a strong balance sheet with net debt of $8.3 million after the acquisition of FLYHT where we paid $4.3 million in cash and assumed $9.4 million in debt. In the quarter, we also paid out the earn-out from our Circuits Minnetonka acquisition of $1.5 million, we invested in CapEx and deferred development, we paid off our DSU plan, we paid a 2024 bonuses and profit sharing and PSUs earned.

We generated operating cash flow less lease payments of $9.3 million in Q1 2025. Other accomplishments in our quarter included the closing of our acquisition of FLYHT based in Calgary. FLYHT is an important addition to FTG, increasing our penetration of the aftermarket, which typically has higher margins and increasing our penetration of Airbus, who is clearly outperforming Boeing in the air transport market. We also see production in-sourcing opportunities that could benefit other FTG sites as FLYHT historically outsourced all their manufacturing.

We also announced in the quarter a new contract from De Havilland Canada, where we will provide updated cockpit control assemblies for the new the De Havilland Canadair 515 aerial firefighting aircraft. This is also strategic and this is a contract that we will increase our activity outside of the U.S. and therefore, not be impacted by any potential U.S. tariffs. FTG announced plans to open an aerospace facility in Hyderabad, India to support our strategic growth and expand our market presence there.

FTG completed a new 3-year banking agreement with BMO Corporate Finance, providing improved flexibility to reduce costs to support growth and corporate development objectives and restrengthened our leadership team with the addition of Bill Sezate as Executive Vice President, FTG Circuits. Bill comes to FTG with extensive experience in all aspects of the circuit board industry, including experience in senior management roles at Sanmina Summit and Hughes Circuits. Bill will be responsible for all 6 of FTG Circuits businesses or sites.

In addition, Marko Viinikka is joining FTG in a newly created role as Executive Vice President, FTG Aerospace. Marko comes to FTG with extensive experience in all aspects of the aerospace industry and most recently, Marko was responsible for new aircraft development at De Havilland aircraft, Canada. Marko will be responsible for FTG's 4 aerospace sites as well as a site under construction in India. Jamie will provide more details on our Q1 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 are 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. For 2025, they are projecting growth of 7% over last year. In the first quarter of this year, shipments were, however down, down 7% due to supply chain issues primarily related to engines. 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 [ in sum ] on the Alaska Air 737 as well as the [ machinist ] strike later last year.

But looking forward, Boeing's plans to ramp their production to almost 700 planes annually in the next few years. Boeing's backlog is almost 6,000 planes, so also over a decade worth orders at their term production rates. In Q1 this year, Boeing shipped 130 aircraft, which is up significantly from last year. Boeing 2 is constrained by supply chain issues on some models, including seat delays for the Boeing 787s. Well, 2024 might have been a low point for Boeing, it also it has also become clear that Airbus is outperforming Boeing in the air transport market with a 2:1 advantage in aircraft shipped last year and 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 mid-single-digit shipment increase last year, even in light of a short work stoppage they had during the year. They are not providing guidance for 2025 due to the uncertainty around U.S. tariffs which are okay for them for now but are still somewhat fluid. In the helicopter market, Bell Helicopter reported flat deliveries in 2024 compared to 2023, but with an overall 5% revenue growth for the year. But Bell also has some key military helicopter wins in the past few years that will drive significant growth going forward. All of this bodes well for us as we look at the future demand in the coming years.

I have also looked at the results from some key defense contractors. For instance, Lockheed Martin reported a 5% revenue growth last year compared to the prior year and gave guidance of 4% to 5% growth this year. also related to defense. Boeing was recently selected to develop and produce the next generation air dominance fighter in the U.S. This is good news for them. Based on the supply chain approach on the previous Air Superiority fighter in the U.S., the F-22, I would expect the sourcing for this program will be for 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 5 U.S.-based sites.

Looking at the longer term, Boeing's most recent 20-year forecast shows long-term industry growth, and it continued to show 20% of all new aircraft deliveries going to China and close to 40% to Asia, as has been the case in the recent forecast. The business jet market has already seen traffic recover. A recent business jet 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 application. But as we always remind everyone about this market, it is lumpy, so we see large year-to-year variations.

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 that all segments are growing as it seems to be the case now. Beyond all this, let me give you a quick update on some key metrics for FTG for our first quarter of 2025. First, as already noted, the leading indicator of our business is our bookings or new orders. Our bookings were $51.5 million in the quarter, and we added backlog due to the flight acquisition. This resulted in a record backlog of $142 million at the end of Q1. Our first quarter sales were $42.9 million, which is $7.9 million or 23% above Q1 last year. The growth is approximately 50% from organic activity and 50% from the acquisition of FLYHT.

In our aerospace business, sales were up $5.2 million or 53% from Q1 last year. The strike at the aerospace Toronto facility last year negatively impacted those results and the acquisition of FLYHT this year boosted Q1 2025. On the Circuit side of our business, our sales in the first quarter were up $2.8 million or 11% over Q1 last year. All of this is organic growth. Of note, growth at Circuits Minnetonka was about 10% in the quarter and Circuits Haverhill was about 50%. Overall at FTG, our top 5 customers accounted for 52.1% of the total revenue in our first quarter. This compares to 66.5% last year. It is great to see the drop in customer concentration as we add sites and expand our customer base.

Also interesting to note of our top 10 customers, 7 are customers shared between circuits and aerospace. We like to see the shared customers that means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. Given the actions of the new U.S. administration in the U.S. of implementing tariffs, it's also good to see that one of our top 10 customers is outside the U.S. and is, in fact, in China. And another 7 of our top 10 have some operations outside the U.S. While on this topic, 72.2% 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 82% in Q1 last year.

While sales grew by 8% into the U.S. in Q1 Sales grew by 49% in Canada, 83% in Asia and 130% into Europe as we benefit from previous efforts to expand globally, including things like our content on the C919 aircraft in China and acquiring flight with sales globally. 2024 -- in 2025, first quarter, 34.6% of total revenues came from our Aerospace business compared to 27.7% last year. The aerospace business share increased due to strong growth in Aerospace Toronto and the acquisition of FLYHT.

I'd now like to turn the call over to Jamie, who will summarize some of our financial results for Q1 2025. And afterwards, I will talk about some key priorities we are working on. Jamie?

Thanks, Brad. Good morning, everyone. I would like to provide some additional detail on our financial performance for Q1. FTG achieved a gross margin of $13.3 million or 31% in Q1 2025 compared to $8.9 million or 25.5% in Q1 '24. The gross rate margin rate is up 5.6 percentage points as a result of the following: organic sales growth and improved operating performance in the Circuit segment, resulting in higher leverage over fixed costs. Increased sales in the Aerospace segment from the FLYHT acquisition and the fact that Q1 '24 had a negative $3 million impact from the 6-week strike at the Aero and Toronto site, both of which boosted our gross margin rate.

Foreign exchange rates were also favorable with the Canadian dollar trading at $1.43 versus $1.35 to the U.S. dollar, which is favorable by approximately 6%. And lastly, during Q1 '25, FTG settled its portfolio of gold contracts, which resulted in a reduction of cost of sales of approximately $600,000. This was done in connection with our change in banks. In terms of productivity, annualized revenue per employee was $234,000 in Q1 '25, approximately 9% better than Q1 '24.

SG&A expense was $6.7 million in Q1 2025, up from $4.8 million in Q1 '24 and as a percentage of sales, it increased to 15.7% from 13.7%. This increase includes $1 million from the FLYHT acquisition, acquisition-related professional fees of $100,000 hydro bad start-up costs of just under $100,000 and higher performance compensation. There are increases in some of the other operating expense line items, which in the case of R&D expense, amortization of intangibles notional interest expense and accretion on lease liabilities that are principally the result of the FLYHT acquisition. The corporation also had a foreign exchange gains of $900,000 in Q1 '25 as compared to FX losses of $200,000 in Q1 '24. These gains and losses are primarily related to the revaluation U.S. dollar-denominated assets and liabilities at the balance sheet date.

Adjusted EBITDA was $8.4 million or 19.5% of sales for Q1 '25 as compared to $4.6 million in Q1 '24. Adjustments for the current quarter included acquisition and the Hyderabad start-up costs and stock-based comp expense adjusted for both the current year and prior year. On a trailing 12-month basis, revenue was $170 million, and adjusted EBITDA was $29.6 million or 17.4% of sales. Our net debt position as of Q1 '25 was $8.3 million as compared to $0.7 million as of Q4 2024, which equates to 0.28x adjusted EBITDA. During Q1 '25, cash from operations less lease liability payments was $9.3 million. Items included in the change in net debt for the quarter included $4.3 million of cash used for the FLYHT acquisition as well as assumption of debt at FLYHT of $9.4 million.

Capital expenditures and deferred development costs of $1.1 million, final settlement of the Holaday Circuit's earn-out of $1.5 million, net repayment of debt -- bank debt of $8.7 million, payment of year-end performance comp of $1.8 million, settlement of the DSU liability for $0.8 million and the purchase of FTG shares on the market for $600,000 to settle the PSU obligation. During Q1 '25, FTG completed a new bank deal with BMO Corporate Finance, which provides USD 20 million of committed financing lines and an uncommitted $15 million accordion facility for acquisitions. There are also facilities for FX forwards, precious metal forwards and credit cards.

As of the close of Q1 '25, FTG's use of the credit facility was USD 3.5 million. FTG has a total backlog of $142 million as of Q1 2025 with 89% of that backlog scheduled for the next 4 quarters. Our focus will be delivering quality products to our customers on time and improving the efficiency of our operations. Our complete set of filings are now available on sedarplus.com.

Back to Brad.

Thanks, Jamie. Let me delve into some important items for future FTG, starting with a [indiscernible]. Tariffs or threat of tariffs are the new normal and uncertainties surrounds tariffs each and every day. This makes it challenging to plan and react, but we are focused on this all day, every day as it evolves. We have 2 sites which are now subject to high U.S. tariffs. For Aerospace Tianjin, this should have minimal impact as the site ships complete product to Canadian and Chinese customers. They ship some component into subassemblies or Toronto site, who then makes the final product for shipment to U.S. customers. One of the work from Aerospace Tianjin should attract U.S. tariffs.

For our circuit board joint venture, a small amount of work ships directly to the U.S. and will be subject to the high tariff. But over the past 5 years, they've already been subject to a 25% tariff on their exports to the U.S. But they also have worked from Canada and Europe that will not be subject to any U.S. tariffs. Our growth plans for this business is to focus on customers in China, Europe and Canada, and we are making good progress on all of these plans. As of yesterday, our U.S. sites ship almost exclusively to U.S. customers, so there will not be any tariffs on shipments to customers. As of yesterday, they would have seen tariffs on input cost or raw materials they buy, but as of this morning, those tariffs have been paused for 90 days. And so the U.S. site at this moment, looks like they are not subject input cost tariffs or tariffs and shipping to customers. And in Canada, it's the same situation.

The FTG sites are well positioned. They are not subject to any tariffs on input costs, and at this moment, they're not subject to any tariffs on shipments to U.S. customers. As all FTG products are USMCA compliant. But every day is a new day, so all this could change at any point in time. As a reminder, we estimate another $55 million of sales to customers located in the U.S. originated at FTG sites in Canada or China. While we are not exposed to tariffs between Tianjin and 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. But we are concerned, and we are taking actions to mitigate any impact to FTG.

First, our recent acquisitions in the U.S. have reduced our exposure as they are inside the wall and would not be subject to tariffs on sales. Going along with this, our long-term strategy to be a global player has resulted in sales inside of North America of over $26 million last year and was almost $12 million in Q1 this year. We are taking additional steps. In 2024, we made a conscious decision to find ways to increase our exposure to Airbus, not because of tariffs, but because they are the stronger performer in the air transport market. But whatever we do in this regard can also help mitigate U.S. tariffs. And more recently, we have made a conscious decision to pivot away from the U.S. market for our sites based in Canada and China. Obviously, the focus on Airbus is part of this.

Subsequent to year-end, in our first quarter, we announced a significant new contract with the De Havilland on their Canada 515 Water Bomber aircraft. This is a Canadian program that we will support from our Toronto facility. We are also looking to become more locally focused by aligning U.S. customers with U.S. manufacturing sites and non-U.S. customers with non-U.S. manufacturing sites. We have identified $4 million to $5 million of revenue for non-U.S. customers being manufactured in the U.S. We have begun the process of moving this work out of our U.S. site and 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 customers are in Canada, and they sell globally. As we look to in-source the manufacturing of flight 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 key strategic reasons. First, we have expressed our desire to increase our activity in high-margin aftermarket segment of our business for a number of years, and the acquisition of FLYHT does this. Also, as noted, we are looking for ways to increase our activity with Airbus, and FLYHT has a SATCOM radio that is installed as an option on new Airbus aircraft. They are sold by our licensing agreement with the average annual volume being 200 to 300 units.

Finally, we think the timing of 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 3 key actions. First, we need to reduce costs. FLYHT took significant costs in September of last year, and another $1 million drop due to the elimination of the public company costs when we closed our deal. We will manage their costs going forward.

Second, we need to sell the new products. This is really the key action now. So let me delve a little deeper into this. There are 3 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 and ongoing. This product can be used as a safety backup voice system or 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 or Airbus has been in a hiatus for a few years due to a multiyear delivery in 2022, but this is expected to kick back in starting in 2026 and result in a multimillion dollar uptick in revenues when it does. The second product is a water vapor fencing system or WVSS too. Its purpose is to collect humidity inside of the aircraft as supplies and provide this data to weather agencies such as NOAA in the U.S., U.K. Met and England and find it useful in weather forecasting. This product was modernized and updated last year. It was in qualification and testing when we acquired FLYHT.

We've had a challenge with the accuracy of the unit in tests and have been working with Boeing at their lab and at FLYHT to resolve this anomaly. And the good news is that as of March, it has been resolved. This has delayed sales in Q1 this year, but there are firm orders from both NOAA and U.K. Met. These can ship now as we complete STCs for the relevant aircraft expected to be ERJs and Boeing 737s. Once in service, there's also a data revenue stream associated with this product.

And 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 the airlines' operations, while at the gate using a wireless or cell phone connection. The flight product is the first 5G WQAR on the market. This product is qualified. The key now is to get approvals to install it on various aircraft types. The aircraft testing required for Boeing 737 in Canada has been completed, and we expect the Canadian STC in Q2. This will then 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 expected to be done in April in Europe. Once completed in Europe, the priority will be to expand this approval to include China. And to go along with this, we have the FLYHT sales team focused on aggressively selling these products as they become available.

And finally, our third priority of FLYHT is to in-source the manufacturing to capture this margin within FTG. We are quoting the SATCOM radio product from both our Chatsworth and Toronto sites as we speak. These actions should enable FLYHT to become a positive addition to FTG and further mitigate the risks from U.S. tariffs. In Q1, FLYHT did generate a small positive EBITDA in our results. Also, as announced after our year-end, we are implementing plans to open an aerospace facility in Hyderabad, India. What has just recently announced, we've been working on these plans throughout 2024. First, our decision to expand geographically was partly us looking for an insurance policy against anything negative happening for our China operations, but is also apparently to expand into a new region 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 would be an ideal place to operate. We selected Hyderabad as it's an aerospace hub primarily focused on manufacturing, unlike Bangalore, which is more engineering and software focused. Our legal entity in India is established, bank accounts are set up, our first employees are hired. We have selected to have a facility built to suit due to the favorable location and the option to expand if or when necessary.

This decision does mean we'll have to wait for most of 2025 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 approximately $2 million. While not the original intent, we believe this initiative also helped mitigate any negative impact on U.S. tariffs.

And finally, we are developing plans to add sales resources in Canada and Europe and even Asia to support our pivot away from the U.S. market. This would be for both legacy FTG sites as well as flight. integration of the sites we acquired in 2023 is substantially complete. We will continue to drive growth and operating performance, but we do this at all our sites. As noted earlier, the sites are growing on a year-over-year basis.

We see opportunity to continue to grow going forward with our constraint being more how fast we can ramp production rather than finding growth opportunities. As we enter Q2 2025, we see continued strong demand across both sites of our $142 billion backlog, over $60 million is due in Q2. We are expecting to grow in 2025. The easiest aspect of our growth will be having the FLYHT acquisition as part of FTG for over 11 months in the year, but there will be organic growth, too.

We still expect to see further benefit from the high-value assembly orders first booked in May 2023 and more booked in 2024 for our Aerospace business. These assemblies go on both Boeing and Airbus aircraft. And we will see the benefit of the C919 program in China moving into production. We shipped our first production orders last year, and production will increase through 2025. The geopolitical situation in China remains complex. But in 2024, both our operations in China had another record year.

We've repatriated cash back to Canada during 2022, '23 and '24. And in total, we've now brought back $3.6 million in cash. By doing this, we don't have surplus cash stranded in China that reduces our exposure if things ever deteriorated between China and the West. A more positive note in China, the C919 program is now on production and this will benefit our Tianjin operation going forward and make us less susceptible to geopolitical uncertainties.

We continue to assess possible corporate development opportunities that could fit with either of our business -- businesses. But our near-term priority is to integrate our recent acquisition. With a focus on operational excellence in all parts of FTG, our strong financial performance last year and in Q1 this year, a recent acquisition and our key sales in, we are confident we are on a strong long-term growth trajectory. One final note. Many people have noticed that we are recruiting for a new CFO. This might be Jamie's last analyst call. It is his decision to retire.

We are disappointed to see it. But after just over 5 years of service at FTG. He's done amazing things for the company. He's helped us get through a cyber attack, he helped us get through the COVID pandemic. He's helped us with financing both with banks and with government agencies, he's helped us complete 3 acquisitions and is really being a key player in transforming FTG into what it is today. For sure, I thank him so much for his service. We will miss him, but he's not allowed to go anywhere until we do announce a new CFO.

This concludes our presentation. I thank you all for your attention. I'd now like to open the phones for your questions. Joelle?

[Operator Instructions] Your first question comes from Steve Hansen with Raymond James.

Brad, a question for you on the U.S. I understand the tariff's shifting that you're undertaking. Are there also opportunities that tariffs present for your U.S. facilities if other sites might be importing product into the U.S. that might be a challenge now is there opportunities to go after there domestically?

Yes. Again, every day is a new day. But depending on where the competitors are, if what country they're in outside the U.S., tariff rates are different, for sure, it can create opportunities for the U.S. sites. But as of this morning, tariffs are paused. So that benefit has gone away for the moment. But if it comes back, I would say, generally, the U.S. sites would benefit against competitors in any area or country with one of the higher tariff rates.

Understood. And the opportunity that you described with De Havilland, the more recent one, is interesting. It sounds like they've also had new avionics suite that they're looking to upgrade in the Dash 8. Is that something you could also be an opportunity and we see what other opportunities domestically here in Canada?

Yes, definitely. De Havilland's an evolving company. I think they have some pretty aggressive growth objectives. We've been doing business with them or parts that have rolled in to have 1 over the last number of years. I think we have a pretty good relationship with them. I think any time they are looking at new programs, new upgrades it creates an opportunity for us. It's not a guarantee, but it creates an opportunity.

Sure. And then just on the aero side -- aerospace side specifically, not too much of the weeds, but you described you had an incremental tailwind from the straight comp last year, and you also had some new incremental business from FLYHT. But I just -- was there something that also got missed out because it looks like -- or something that slipped away. It looks like organic growth there might have been lower if I just take the additions of the $3 million on the straight comp. I'm just trying to understand there's something underneath there that also slipped away.

Yes, [indiscernible] has slipped away. But I would say there's definitely some say never ending timing challenges within that business, primarily around our supply chain components and that. We're also in the midst of -- we have a significant program where we're doing 8 different box assemblies for cockpits that go on Boeing and Airbus aircraft. It's been a challenging program due to our customer or their customers. Of the 8 assemblies, 1 of them has moved to production. The other 7 have been delayed. And so for sure, that -- those things have also impacted the Aerospace business on a short-term basis. But one day, we will get through that, and you'll see the benefits.

Your next question comes from Russell Stanley with Beacon.

Congrats on the quarter. Maybe first, if I could ask around China and the C919 program. It sounds like COMAC wants to really accelerate the ramp here. I'm just wondering if you can talk to how the ramp-up of production and sales compares to your expectations? Are you tracking ahead or in line? Any color on that would be helpful.

Yes. I mean the ramp from the customer from COMAC is strong, is really strong. Last year, we shipped, I don't know, 15 or so ship sets. They want us to ship 70 to 80 ship sets this year. It's a big number. It's a huge ramp. It's a challenge for us. And in the midst of that, we're trying to move our production from Toronto to Tianjin, which is where it will stay long term. But yes, the demand from the customer has been huge. The ramp is fast and they want to go beyond that. Our struggle is going to be how to keep up with their demand.

And maybe understanding the near-term priority is still the integration of flight looking ahead and the resumption of M&A. Just wondering your latest thoughts around Europe has seen some really encouraging news there as far as potential for defense spending and more aggressive activity. I'm wondering what your latest thoughts are on that market as potentially being a target.

Yes. definitely a target for M&A at some point. It's on the list and for either business either on the Circuit side of things or in the cockpit product side of things. And it's twofold. Again, one reason we're interested in Europe and a footprint in Europe is to, again, increase our activity with Airbus. That's on the commercial aerospace side. That's the reasons what you just said. If you look at Europe as the entity, European defense market is definitely the second largest defense market in the world, and they are definitely looking to ramp their spending.

So it's an opportunity. It's attractive to us. We would love to find the right deal to pull the trigger and go. Nothing is on the table at this point, but it's definitely something we are trying to find a way to move forward with.

Great. And maybe one last question for me. Just around margins via gross or EBITDA in the next quarter, I think well ahead of what we have -- just wondering if anything in the quarter you would call out as being unsustainable looking ahead to the rest of 2025.

Really, I mean, Jamie talked about 1 item, which was we had -- in our transition of banks, we had to basically cancel out or close the gold hedges we had and that gave us about $0.5 million pickup in the quarter. Other than that, I think it was pretty clean. But I don't know, Jamie, do you have other items?

Russ, I guess I'd also point to the FX gain those FX gains and losses come and go based on exchange rates. Nothing has happened yet in terms of a real change in rates, but a repeat of that would not be likely.

Your next question comes from Nick Corcoran with Acumen.

Congrats on a great quarter. Just a couple of questions for you. The first is the backlog saw a pretty strong uptick in the quarter. Any details on what drove that? And maybe more specifically, how much was the De Havilland contract?

Yes. I guess what drove the growth in the backlog, 2 things come to mind. First 1 was the acquisition of FLYHT. FLYHT did come with the backlog. And so I'd say that was something on the order of $8 million in that range. So that got added in the backlog. Definitely, De Havilland contract also with significant added in the backlog. It was on the order of about $6 million. And other than that, it's just strong demand in all our markets was still just everywhere. And so that also just drives the backlog up.

Great. And then I think you mentioned that $60 million is deliverable in the second quarter. Any indication of what constraints might be to achieving that full number?

Yes. I don't know, lots of constraints we deal with every day. That's what we do. Some of the stuff I talked about a moment ago. So for sure, we still need to get through some customer approvals on some of the cockpit box assemblies we're trying to get out the door. So there's customer approvals needed on that. Supply chain challenges, we have our challenges that other people in the industry have -- you need 100% of all your components to be able to ship products. So if you get to 99%, it doesn't matter. So there's some supply chain challenges. And then it's just ramping.

And generally, to ramp, we need to add people, adding people is doable but adding people and getting them to the point where they are contributing and adding to the throughput, it does not happen instantaneously. The day someone who walks in the door, is not the day they start to contribute. There is a multi-month process to bring people up to speed, get them trained and adding value. So that is also a constraint in our ability to ramp to support the backlog.

That's helpful. And maybe one last question for me just on tariffs. Right now, it looks like 10% tariffs across the board is kind of the status quo in the U.S. How much of that key pass-through?

Standby. I don't know. It depends on how it works, right? When we're shipping, the customer is paying the tariffs directly. And so those are automatic. If the tariff is on input costs, we are definitely absorbing that cost. And then how much of that we can pass through I don't know yet because we haven't had to pass any on as of this moment. But our goal is definitely to pass those costs on dollar for dollar wherever we can.

Your next question comes from Steve Hansen with Raymond James.

Just a follow-up on cadence of deliveries for your customers. Boeing had some really strong deliveries last month, I believe, just 40 aircraft or so. How much of inventory would they carry in advance? In other words, if they announced the production rate increase next month is that thing they would have already accounted for and pulled forward? Or would that sort of step change our orders in tandem, like how much of a lag -- lead lag is there around those deliveries versus your own production?

There is a lag, a relatively significant lag between them shipping more aircraft and when they hit the supply chain. The supply chain typically is going to see that increase a lot sooner than Boeing in terms of their deliveries. But there's 2 things going on there as well that it's really weird situation of Boeing right now that they have a number of aircraft in inventory. And in some cases, they're missing a component or 2 the same challenges we have. So there are scenarios where you can see an uptick in their month-to-month deliveries is not really impacting positively or negatively on the supply chain like us. But generally speaking, I would say we'd be at least -- we would see an increase at least 6 months before Boeing would report an increase in deliveries to their end customer, at least 6 months.

There are no further questions at this time. I will now turn the call over to Brad for closing remarks.

Thank you. A replay of the call will be available until Saturday, May 10, 2025, at the numbers listed 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.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.