FLYHT Aerospace Solutions Ltd

XTSX:FLY

Earnings Call Transcript

[Operator]

Welcome to the FLYHT Aerospace Solutions First Quarter 2018 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Tom Schmutz, Chief Executive Officer for FLYHT. Please go ahead.

[Thomas R. Schmutz, Chief Executive Officer]

Thank you, Ariel. The format for this call is I'll provide an overview of our first quarter results operationally and financially from a high level. Alana Forbes, our CFO, will then provide a more detailed review of the financial results of the first quarter and the changes in our accounting due to IFRS revision 15. I'll then discuss some current activities at FLYHT and answer some questions that we received from e-mail prior to the call. Finally, we'll answer any questions that maybe called in. I'd like to thank all of you for calling in and listening and for those of you that access the recording after the fact online at flyht.com/pres.The -- FLYHT has reassessed the revenue categories from our reporting in tandem with the changes we have implemented for IFRS 15 as part of our Q1 financials. Alana introduced these categories at the annual meeting a couple of weeks ago, and she will do so again later during this call. There's also a description in the Q1 Letter to Shareholders and in the MD&A. I will discuss the first quarter revenues using these new categories, which are Software as a Service, AFIRS Hardware, Licensing and Technical Services.FLYHT's Q1 total revenue of $3.3 million was down from Q1 2017 by 12%, due primarily due to reduced Licensing revenue. This decrease was expected, is in line budget-wise with where we are expected to be at this point in the year and was forecasted on the Q4 conference call a couple of weeks ago. There's a few reasons for this reduction in Licensing revenues, but the primary one is that there are fewer retrofit service bulletins being sold by the airframer that our OEM partner sells to. We believe that certain customers purchase retrofit packages to achieve commonality within their aircraft assets. And that part of the demand is currently satisfied leaving the forward-fit aircraft business represented by the Q1 leasing revenue component -- Licensing component, excuse me. This component has been and will continue to be uneven throughout the year, but we expect the annual revenue at the rate represented by the amount in Q1. On the last conference call, I reviewed -- I referred to this Licensing revenue rate as the new normal.The good news in this year's -- in this quarter's financials is the increase in AFIRS Hardware sales, which was up 46% compared to Q1 of 2017. We recognized revenue on 31 systems in Q1 of 2018 compared to 11 systems in Q1 of 2017. We believe this increase in hardware sales can ultimately improve the revenue in the Software as a Service category, which was down 10% relative to Q1 2017 due to customer insolvencies and other headwinds. Several of the systems that were shipped in Q4 of last year and Q1 of this year will be installed and turned on with Software as a Service revenues resulting from these installations. Those systems not currently contractually scheduled for Software as a Service are candidates for upselling of the services, and the entire company is focused on this Software as a Service selling effort as our #1 priority.FLYHT has also announced $2.9 million in sales contracts in the first quarter, which produced an end of quarter $26 million in sales order backlog for AFIRS Hardware and Software as a Service. A good portion of these contracts was the renewal of quantity 10 of our existing customers, who, in some cases, upgraded their Software as a Service contracts or UpTime services. Contract renewals are one of the best measures of customer satisfaction, and the FLYHT team works very hard to keep our customer base satisfied with our products and services.FLYHT also sold AFIRS Hardware kits to a new aerospace customer, who is integrating the product into an airframe, which could produce future sales; to a new global leasing company that wants better oversight of its assets; to an OEM which installs into the regional jet postassembly line with our STC and prior to delivery to one of our Software as a Service customers. Also, interesting in this set of sales is the launching of a paid trial with a large global organization to monetize weather data from certain aircraft. Finally, FLYHT sold an existing OEM partner modems with the related license fees for delivery.Now I'd like to turn the call over to Alana, who will provide more details on the financial results. Alana?

[Alana Forbes, Chief Financial Officer]

Good morning, shareholders, and thank you for joining us on this call. Before we get into the detailed financial results, I have a few comments on our revenue categories and our adoption of IFRS 15.First of all, you'll notice a change in our revenue categories. Over the past several years, we've received questions regarding what type of revenue was included in each of our traditional categories. As we examined our revenue streams during our evaluation of IFRS 15 and made changes accordingly, it was felt that changes in categorization would help to increase understanding of our revenue sources and their trends, and the timing seemed right as IFRS 15 was requiring other changes that would also impact revenue effective January 1.So first of all, we renamed voice and data services to Software as a Service, or SaaS, to be more in line with the way this type of revenue is referred to within the industry. We eliminated our former parts sales category to isolate license fees with modems and to move all spare parts, Underfloor Stowage Units and AFIRS unit sales without kits together with kit sales into one new category that encompasses all sales of hardware called AFIRS hardware. We renamed our former services category to the more descriptive technical services to further distinguish it from SaaS revenues. So going forward, our 4 revenue categories will include SaaS, AFIRS Hardware, Licensing and Technical Services.And now looking back, although the IASB was thinking about large-scale revenue change for many years, IFRS 15 first appeared on our radar in 2015. We have been working through the impact on our revenue, our contracts and our systems since that time with support from KPMG, culminating in full adoption January 1, 2018.The new standard uses a 5-step method to determine whether, how much and when recognize -- recognition of revenue is required. The main impact to FLYHT of adopting IFRS 15 has been to AFIRS Hardware, as revenue will now be recognized at time of shipment instead of waiting for the customer acceptance trigger that was such a large factor in determining our recognition under the former standard IAS 18. You'll notice 4 changes to our statements resulting from the adoption of IFRS 15. Firstly, note 3 explains in detail the accounting policy changes that have resulted, together with a restatement of 2017 results so that full comparative information continues to be available throughout 2018. Secondly, additional required revenue disclosures have been included in note 7. Thirdly, contract assets have been carved out of receivables to be shown on their own, and this line item contains our unbilled receivables for which we have delivered hardware and services, but have not been able to build quite yet as contractually we are waiting for installation or for system testing. And then finally, you will notice the big impact for FLYHT with the absence of unearned or deferred revenue on our statements as hardware is being recognized upon shipment.And now looking at our financial results. Our first quarter revenues of $3.3 million were in line with the average for the past 3 quarters but were lower than Q1 2017 by $330,000. SaaS revenues are down from last year's first quarter, largely due to the expiration in May 2017 of one customer through a third-party contract. AFIRS Hardware showed an increase over last year's first quarter, due mainly to a larger number of kit shipments, which bodes well for future SaaS revenues, as our installed base grows opening the possibility for increased usage of the installed AFIRS solutions.Licensing revenues decreased from Q1 2017 as fewer modems with related licensing fees were ordered and shipped in Q1 2018. Gross margin was at 59.9%, compared to 2017's Q4 of 76.4%, which is partially due to higher portion of hardware sales in 2018's revenue mix, but the other contributing factor is that Q4 2017's cost of goods sold contained recovery for FLYHT's warranty provision.As we are able to capture and access more information in our new ERP and we're developing a bank of this information over time, we have been able to refine our estimates and expectations of future warranty requirements, which have decreased due to the positive performance of our products in the field. These changes in estimate resulted in the cost of goods recovery in Q4 2017 and our requirements for warranty provision into 2018 and beyond as a proportion of revenue is expected to continue at a lower rate than in Q3 2017 and prior.Continuing with our recent trend and aligning with our desire to hold steady on G&A, Q1 distribution, admin and R&D expenses were comparable to both Q1 2017 and Q4 2017, which resulted in a net loss this quarter of $582,000 compared to net income in Q1 2017 of $119,000. Similarly, EBITDA also decreased by $712,000 in the first quarter as compared to last year.And now turning to the balance sheet. Cash decreased throughout the quarter by $1.38 million to close the quarter at $630,000, as the customer deposits received throughout Q3 and Q4 2017 for hardware were shipped and recognized as revenue and the parts required for those shipments required payment. We continue to receive funding each quarter through the WINN program, and we have a $1.5 million line of credit available to us, should the need arise. The decreases in inventory balances are partly due to a concerted effort to reduce inventory on hand, together with the absence of installations and progress associated with the unearned revenue that is no longer a factor in 2018.I'll now pass this back to Tom for a discussion of current activities at FLYHT.

[Thomas R. Schmutz, Chief Executive Officer]

Thank you, Alana. Moving onto 2018, we're very excited about the developments that we have planned and goals that we have for the rest of the year. FLYHT has just received recertification according to AS9100 of our quality systems to comply with the new revision D after completing the audit earlier this year. FLYHT achieved initial certification last year for the first time in its history. This quality systems standard qualification is designed for aerospace customers and is essential for FLYHT to provide products and services directly to larger industry players.FLYHT has completed the flying portion of the Boeing ecoDemonstrator Program where our AFIRS product provided real-time streaming of flight data recorder information over Iridium and Inmarsat SwiftBroadband Safety as well as streaming cockpit audio from a digital cockpit area microphone in the flight deck.FLYHT claimed many firsts in this trial. FLYHT has been the first and only company to stream the essential parameters from the flight data recorder over Iridium. The product FLYHTStream was commercially launched 4 years ago with the operator First Air. During this recent trial, FLYHT streamed the entire black box in real time, utilizing the significantly greater bandwidth available on the SwiftBroadband Safety network. This was a first. FLYHT also leveraged our triggered streaming patent issued now in the United States and China and pending elsewhere where we triggered the streaming of flight data based on flight data safety parameters and on operational control requirements. This was also a first.FLYHT also streamed data backwards from the trigger point, which provides the data leading up to the trigger for aircraft investigators to gain an understanding of what caused the trigger. This is the first time any company has done reverse streaming from the trigger. Finally, FLYHT streamed cockpit audio forwards and backwards from a trigger simulating the streaming of cockpit voice recorder over SwiftBroadband. This streaming of cockpit audio is also an industry first.To accompany these many firsts, FLYHT partnered to animate the streaming data to create a virtual cockpit on our UpTime server platform. The streamed flight data was used to create a 3-dimensional animation of the Boeing Fedex 777, which was shown flying over the actual train model with an opportunity to select advantage from which the operator viewed the aircraft. Additionally, a 2D map showed detailed location and a set of cockpit instruments were driven in real time to animate the cockpit instrument readings simulating the environment that the pilot sees onboard the cockpit.Linear plots display whatever sets of flight data parameters you wish to display and engineering units in real time. In addition to this, the cockpit audio can be played to produce a virtual cockpit on the ground enhancing the situational awareness and creating an environment where third parties can quickly understand what is happening onboard the aircraft and can dramatically improve the situational awareness and reduce the decision cycles dramatically.FLYHT and Boeing are capturing the results of the trial on a white paper and are planning our next steps in industry. Independently, FLYHT is going to show the capabilities of this virtual cockpit to industry, including representatives from the NTSB and the FAA very soon, so they can understand firsthand the significant safety values that real-time streaming and that the cockpit virtualization brings to complement this significant operational interest that our solution has sparked across the industry. Everyone that we've shown this to has really been blown away at the results that we achieved.On the investor relations front, FLYHT recently hired Adelaide Capital Markets in Toronto to provide investor relations services for FLYHT and announced those services in a press release on 15 May, which we are required to do. Adelaide Capital Markets, under the leadership of Deborah Honig and Jackie Kelly, specializes in institutional, retail and high-net worth clients. Services offered include key message development, establishing sell-side analyst coverage, investor days, national and international roadshows and conference opportunities along with communication support and crisis management. So we welcome Adelaide to the FLYHT team, and we're excited to work with Deborah and Jackie.So at this point, we'd like to answer some of the questions that have come in from the e-mails.

[Thomas R. Schmutz, Chief Executive Officer]

So the first of these were regarding investor relations. The question said, what were the lessons learned from Ivan Peill? Will the emphasis of Adelaide Capital be different?And so the background on this is last year, we completed our relation with our previous IR firm, which was The Howard Group. We had a long and successful relationship with The Howard Group. And we, at that time, were searching for a new CFO and a new investor relations representation. We thought that -- strategy was to hire an individual that could do internal IR and marry that person with a CFO with capital markets experience.I had actually talked to Alana at that time about the CFO position, and we both felt like that it was perhaps a good time to bring in somebody with capital markets experience. And so we ended up bringing in Derek Payne and hiring Ivan to a short-term contract. Unfortunately, the relationship with Ivan didn't work. It was not a good fit. And Ivan did not proceed on his contract past the initial 3 months. We had originally aligned Ivan to do IR, internal communications and some product marketing in order to fit him into the company. And so ultimately, that didn't work.The contract with Derek also, Derek had some personal items that he had to resolve. So he ended up leaving the company. And so earlier this year, we found ourselves in the same situation looking for a CFO and an IR representation. At that time, Alana discussed it and thought it was time for her to become the CFO, which I'm super pleased with her decision to do so. And we then look for representation in the market, somebody that could help us on the capital markets side.We had received several recommendations about Deborah and Adelaide. So we engaged her. We spoke with others, but we're really excited about the energy that they brought. It's a new company. We felt like FLYHT needed somebody to help us bring some freshness into our story and in the markets. We felt like they could do that. And so we're really excited to work with them. They are going to focus primarily on Canada.We had discussed with some other IR firms the possibility of looking more in the United States. But with the stock performance not doing as well in the last 6 months, we think it's right to focus in Canada, kind of get the stock performance -- performing better and then reevaluate the United States down the road. So that's the sequence of events that occurred there. It's taken a little while to get where we're at, but I'm very pleased right now with the team that we have assembled to move forward.The next question is, it seems like the stock price is not trending proportionally to the decline in revenues, 12%. Stock price last year at this time was $2.30 versus yesterday's close at $1.45, which was a 37% drop. How do you explain this variance?We're pretty much puzzled daily at the way that the market reacts to our stock. We know that fundamentally, it's a matter of us performing. And if we performed, ultimately, the stock price will ride itself. We had several back-to-back quarters of profitability when the Licensing revenues were higher. Those have become losses since the Licensing revenue has dropped. Despite the hardware climbing, the hardware has inclined fast enough in order to make the quarters positive. So I think that that's the primary reason disappointment on our moving into the red.But we're extremely excited with the sales order funnel that we have in front of us. We have -- the types of opportunities that we are engaged with now compared to the types that we were engaging with when I joined the company are night and day. So the RFPs and the customers that we are currently engaging is just a completely different class of customers. So FLYHT has really moved up quite a few notches in the pecking order of sales throughout the company.All of that isn't necessarily demonstrated in our revenue performance to date, but I'm absolutely confident that it will be. We have enormous opportunities that continue to be presented in China and around the rest of the world. So I think that's the best answer that I can give on the stock price.The research expenses increased 31% year-over-year, continues to be a trend. Do you anticipate this trend to continue and for how long?The -- as I -- I mentioned a couple of calls ago, maybe last year, that the research and development will continue to be an expense that this company incurs. This is not a product or a market where you can build a product and then go into maintenance mode and sell it. There's always -- there's significant competition every step of the way. We have to continually add value to our products.We have a product that is installed on a large number of different types of aircraft in a large number of different markets with operators that do a large number of different things. So that means that ultimately, when we engage with the customers there's going to be unique and different -- differences that they require. So there's always going to be a need for us to do research and development, to add different values to our products. We are doing things in such a way that we are trying to push as much of the customization towards our customers as possible, which is something that we have introduced with the UpTime cloud product, and that is the development that continues.So in terms of what your expectations can be, the research and development run rate that we had in the first quarter, I think, it's fairly typical for steady-state on the company. We have run leaner in the past. However, in the past, what we have found is that if you have an individual or 2 that decide to leave the company, then it disrupts your programs and deliveries to companies, and we can't have that happen.So I was running as lean as I felt like it was practical to do. But at the end of last year, we decided to staff up a little bit, and we did that in order to make sure that if there are changes in the workforce that it doesn't impact our delivery of projects. Ultimately, our workforce is really kind of determined by the industry that we operate in. So I've been in both the telecom and the aerospace areas in my career. There's far more regulation in aerospace. We have certification bodies from around the world that come to FLYHT, and they do audits on our processes. They evaluate from a regulatory standpoint, how we do things. We have to have federal approval to even ship our product.If you contrast that within the telecom world where you could kind of set up shop with a couple of folks and deliver product, the largest concern that you have is regulatory emissions in some cases, which is just significantly a different paradigm. So we would love to -- we run the company as lean as we possibly can, and we have to make sure that we account for all of these regulatory requirements. We have to make sure that our product developments hit the mark and deliver on time to our customers even if we assume that there's going to be personal turnover like there is in any business. So that's, I think, the best explanation that I can give in terms of our R&D.Do we anticipate new products in 2018?We are continuing to flush out the capabilities in our UpTime cloud product now. So we have -- we had several years of the UpTime classic and capabilities that were built into that classic. We're migrating those into cloud. It takes some time to migrate those capabilities over. There's not only functions and products within the class if they need to be migrated, but there's uniqueness for different aircraft types.So it will be a migration that will continue through this year and into next year. We are evaluating other strategic projects this year as well. And those strategic projects when we launch them, they will have an impact on staffing levels. And so those are really still in the evaluation phase. But right now, our focus remains migrating the capabilities into UpTime Cloud. And we have several trials that are underway with operators that have asked for specific capabilities that we are building into the cloud that we think represent really exciting opportunities to serve fleets of specific types of aircraft.The next question is, what are the sales backlog right now? How many AFIRS units are in the pipeline? So as I stated, the backlog is at $26 million. We evaluate this and presented quarterly in our end-of-the-quarter sales report. And so that's what I intend to do in the future is continue to update that quarterly. I don't want to give the number of AFIRS units that are in the pipeline because I feel like that gives away some information, but it is a significant number.Setting aside the Software as a Service revenue, what is the approximate or average revenue for each AFIRS unit that FLYHT installs? So this is a great question. Unfortunately, I can't give that answer because there's a huge variance in the cost of goods that we sell. It goes everywhere from selling individual AFIRS unit that an operator or less or may integrate on their own into their aircraft, so they buy the majority of the shelf, the kits, the connectors, the antennas, all of the ancillary equipment that is necessary to install the equipment into the aircraft, all the way up into operator that buys our equipment with the kit in total so that they receive everything that's necessary for us to install it under our STC to the probably -- the top-level kit would be a kit that implements FANS ACARS over Iridium capability and is certified to provide that service along with a kit. So the variance between that most complicated kit down to the most simple kit can be -- can exceed $40,000, the difference between the cost of those 2 kits. So we provide the number of kits that we sell in a particular quarter as part of our financial results in order to give insight to our shareholders around a number of kits that we're selling, but that's only part of the story. So if you looked at -- for example, we had another question from a couple of shareholders this year, which was, that you sold 11 kits in the first quarter of last year and 33 kits this year, but your revenue from that component only increased by 46%. And so this was the case where in Q1 of last year, all of those 11 kits were premium kits that had all of the associated hardware versus in the first quarter of this year. Some of the kits that we sold were of the minimal type that I talked about that don't have a great deal of the ancillary hardware with it. And another component that goes into our kit pricing is volume of the sale and then whether or not they buy Software as a Service products when they buy the hardware. If a customer buys Software as a Service products when they buy the hardware, then we're able to, from a sales return standpoint, become much more aggressive on the pricing of the hardware as part of that deal.So the take away on kits is that there's a huge variation in the pricing that we sell various kits on. Every deal is different. Every deal is going to depend upon the type of functionality that's required, the type of aircraft that it's going to be installed on because there is different cost associated with the aircraft type, whether or not they buy the hardware services and then features and functions.So the next question is, is AFIRS available as an OEM option on Boeing aircraft at the moment? If not, is this expected to happen this year and would it involve L-3?So we are not currently an OEM option on Boeing. We just finished the ecoDemonstrator flight phase. We're now engaging them in the -- engaging industry phase with the results. I'm optimistic that this relationship can lead to business, but I can't provide any guidance on that at this time. Right now, the work that we're doing with Boeing is direct. It does not involve L-3. The only involvement in L-3 was we did purchase a digital cockpit area microphone from L-3 that we use as part of the trial. And that was a nice addition because it had a 429 interface so we could integrate it directly into our product in a pretty straightforward way.The next question says, following Boeing's ecoDemonstrator testing on one of their planes, has FedEx shown interest in AFIRS for its fleet?We've had a couple of different meetings with FedEx. I can't provide any report at this time.Did anything further come from the 2 test units installed for Air Canada more than a year ago? This didn't happen on my watch. This was something that -- at least 3 -- probably 3 years ago. I don't have any feedback from that activity.How many of the 146 AFIRS units ordered by Avmax have been delivered to date for the contract on September 2015?So units that have been shipped in on order #30 at this point with Avmax.With the cost of aviation fuel on the rise again, has there been a corresponding increase in the interest in flight fuel software?We're seeing some additional interest. This is not one of our big sellers. Our biggest sellers are FLYHTLog followed by FLYHTHealth. We would like to get more traction on flight fuel. And David Perez and his team are looking for opportunities. But I wouldn't say that we've necessarily seen an uptick yet.There's a question here that talks about Southwest Air and what happened there. I've got a closing statement on that. So I will cover that at that time. There's another question that says, do we still presently have $27 million of backlog that we have $26 million at this point? How much of that number will we expect to drop in 2018?That's a great question. So we characterize the backlog as a 5-year backlog. That's because we sign contracts in 5-year increments. All of you that have been following the FLYHT story long enough know that, the -- it's a challenge understanding how quickly our customers are going to take delivery of the product when we sell it. It goes everywhere from Azur, which is on the one end. They signed the contract in October, and we've already delivered all of the units that were in that contract by this time. So that was, I think, the fastest delivery of any customer that we've had at least inside the near for sure, contrast that with customers that sign contracts and don't begin deliveries for a year sometimes. It really depends upon the customer upon their business plan, upon the availability of their aircraft, when their aircraft are going to be delivered. So I would love to give very deterministic answers to this question and say that we expect a certain exact number to come through '18, but the fact is, is that we oftentimes do not know and sometimes a customer that has been silent drops us a PO and it's out of the blue based on an existing contract, and we're thrilled. But they didn't give us any indication that, that was going to happen. And by the way, they want their delivery tomorrow, which is difficult for us to accommodate in many cases because there's a lead time to the product. And I think you've noticed that we try to -- we've been improving the management of our inventory. We're improving the turns on our inventory. And we're doing that in a systematic way. And so it's a -- we would love to have much of inventory on hand so we could always satisfy the orders as soon as they come in but then we end up sacrificing cash for inventory, and that's a challenge as well. So...It said -- the last question here that says, with the China required mandate now moved to 2019, do we still expect a rush for operators to purchase equipment? And will they also be required to retrofit their older planes? How is the China business doing? So we have published the changes in the regulations in China where the requirement to have 4-minute communication with aircraft was moved from a circular with a compliance date of 2017 into the CCAR 121 Rev 5, which is the Chinese regulation. So it was moved into a much stronger -- it was essentially moved into law in China from circular guidance with a date of 2019 -- December 2019 for compliance.So we expect this to have a stronger influence on compliance within China. China is a little bit of a different place. So it does -- it doesn't behave like the west. I mean, I don't really have the time to go into the details of how business occurs in China, but there is give and take between the regulators and the operators, especially the large operators in terms of how they comply. And so -- but we are seeing a very significant large number of sales opportunities in the sales funnel. It has slowed down a little bit in terms of our closure of those sales, but the opportunities themselves have not slowed down. So we've been working on several for some time. I hope to be able to share those results soon. I know that it's difficult to wait sometimes. It's -- I mean, that we've had to get used to, but I'm very, very confident in the team that we have there that's selling. I'm very, very confident in our solution, in our ability to continue to win business there. Again, we've won 23 of the 57, and we have several that are very, very close, and I think that those will be exciting when they finally close.Those are the questions that we received in e-mail. And so Ariel, if you would like to open it up to caller questions now?

[Operator]

[Operator Instructions] Our first question comes from Jerome Hass of Lightwater Partners.

[Jerome Hass, Portfolio Manager]

It's a question for Alana. You explained some of the changes of IRS 15 (sic) [ IFRS 15 ] this side on your balance sheet and income statement. Can you talk a little bit about what is defined as contract assets in your current assets? Because it seems to be you've had an impact on both trade receivables and inventories.

[Alana Forbes, Chief Financial Officer]

Yes. So contract receivables are basically unbilled receivables -- or contract assets are unbilled receivables. So we've delivered the goods. They are receivable to us. It's an asset on our book. But for contractual reasons, we've been unable to bill until a future event. So some of our contracts allow us to bill a certain percentage upfront and then second percentage after the fact, and it's generally dependent on either installation or system testing.

[Jerome Hass, Portfolio Manager]

Okay. And now because you're using IFRS 15, will your future contracts still be structured in the same way? Or will you amend them such -- to recognize the new realities of IFRS 115 -- sorry, 15?

[Alana Forbes, Chief Financial Officer]

I would say that our default payment terms are 100% prepayment upfront. And that's what our default would be. Certain contracts -- I think, our customers and our potential customers during negotiations, they are not going to -- I don't think negotiations with them will change based on IFRS 15 necessarily. We still default to 100% prepayment whenever possible.

[Jerome Hass, Portfolio Manager]

Okay. And a question for Tom. He couldn't touch on in his remarks, but maybe he can give us an update on the trials in China and how those -- when they're scheduled for?

[Thomas R. Schmutz, Chief Executive Officer]

Yes. So we have several activities underway in China. We continue to progress with operators there. I have not talked in detail about those publicly, and I don't intend to do so now.

[Jerome Hass, Portfolio Manager]

Okay. And you mentioned you had a new AFRS (sic) [ AFIRS ] client in Q1. We should be able to indicate what region of the world they're from.

[Thomas R. Schmutz, Chief Executive Officer]

Could you say that again? I didn't quite understand that.

[Jerome Hass, Portfolio Manager]

I thought in your remarks you mentioned that you had a new AFIRS client that just started receiving shipments in Q1 that could potentially be a larger client. Can you indicate what area of the world they're from?

[Thomas R. Schmutz, Chief Executive Officer]

AFIRS, okay, a new AFIRS client. So I talked about in the sales release in Q1 that we had sold to a new lessor. I talked about that we had sold to a new airframer. I had talked -- so we were deliberately vague for competitive reasons, Jerome, on where those go. I would love to be able to say who these individual companies are, but we don't feel like we can release their names. But the airframer is based in the United States. The lessor is international. And I hope that answers your question. I'm not sure if I did or not though.

[Operator]

Our next question comes from [ Tom Bussey ], a private investor.

[Unknown Attendee]

My question is, how are you going to deal with short-term cash flow issues? Currently, your cash and cash equivalents are $629,000. You lost a little bit less than that in the last quarter, which says that you run out of cash by the next quarter unless some provisions are in place. So the exciting developments, the firsts are all fantastic, but how are you going to live through the short-term challenges of cash flow?

[Thomas R. Schmutz, Chief Executive Officer]

So we have 2 large receivables that are imminent. We have a WINN payment that's due any day, and then we also have -- we delivered a large number of license units in last month, and so that payment is due soon. So if you rewind and look at our cash position since we paid off the debentures at the end of 2016, we started 2017 with $700,000. We built that up through the year to $2 billion that we closed. And now as you saw, our balance is $649,000 (sic) [ $629,000 ]. So we report our cash position just 4 times a year. It varies pretty dramatically in between those 4 points. And so right now, we're not in a different position right now than we have been in the last 5 quarters. So we're managing it. We manage it very closely. Again, we have cash coming in imminently. So if things do get tight, we have the line of credit. So we feel comfortable right now.

[Operator]

[Operator Instructions] Our next question comes from [ Bruce Kugle ], private investor.

[Unknown Attendee]

Got a couple of administrative questions. The one is this paid weather trial. Where are those rates included? In the fast rates or somewhere else?

[Thomas R. Schmutz, Chief Executive Officer]

Those will be in SaaS.

[Unknown Attendee]

In SaaS. And this change to IFRS 15, if you compare to your old accounting policy, it almost looks we could say that in the current quarter because of the change, you might have had to pull forward some AFIRS sales, i.e., that you got 31 recorded for rates this quarter. Is that the case? Or did it not really impact the number of AFIRS units sold in the current quarter?

[Thomas R. Schmutz, Chief Executive Officer]

It definitely improves our ability to recognize. So last year and previously, depending -- we had I think -- correct me, if I'm wrong, and I have 9 different accounting rules on -- depending upon the specific contract type when we could recognize that hardware. And now all of the hardware is recognized on shipment. So that aspect of IFRS 15 is definitely beneficial to us. Also, we're now able to on our Technical Services, say, if we're performing an STC -- paid STC for a client, we can claim revenue on work performed. And that's beneficial because that -- we'll distribute the recognition of that revenue throughout the quarter as the work is done rather than at the end when the work is completed. So those are a couple of examples of where we really like the changes that are introduced with IFRS 15.

[Unknown Attendee]

Great. So a follow-on from that would be, what is the Q2 looking like with regards to AFIRS shipments?

[Thomas R. Schmutz, Chief Executive Officer]

It's been strong through this month. So we are likely to looking forward have probably stronger Licensing performance in the second quarter and a little weaker AFIRS hardware sales in the second quarter compared to the first.

[Unknown Attendee]

Okay. I think you said in your remarks that you were going to make a reference to the Southwestern Airlines dynamic. If I misheard you that -- my question is, have you done -- have you made any follow-up to Southwest with regards to your company's services and products you could deliver to Southwest Airlines?

[Thomas R. Schmutz, Chief Executive Officer]

We have reached out to Southwest, and we'll continue to do so. But it's not only Southwest, most of the operators that operate the CFM engine will require significant inspections. I will close with a discussion about this. And so if it's okay, I'll include my comments at that time.

[Unknown Attendee]

Sure. I know you've been pressed by some other people, and I'm going to ask the same thing. I mean, you talk about some pretty significant opportunities. And I guess, it boils down to the timing of when we -- when you think we'll see evidence of these opportunities coming out. Do you have anything with regards timing on a significant -- on the significant contracts you mentioned earlier?

[Thomas R. Schmutz, Chief Executive Officer]

Well, never as fast as you want them to come out. The opportunities with an operator like Boeing or more specifically the opportunity to parlay what we've done on the timely access the flight recorder data is really targeting this 2021 and beyond requirement. ICAO has indicated that new airframes in 2021 and beyond have to account for timely access to flight data and that was the basis of our demonstration on the Boeing ecoDemonstrator. So you can work backwards from 2021 for an airframer. These are all Tom Schmutz guesses. These are not any indications from airframe manufacturers. But my experience tells me that in order to be ready and into market at that time frame, there needs to be procurement in the industry for those elements starting next year. And by procurement, I mean, vendor selection programs kicked off, qualifications done so that you can meet the '21 -- 2021 time frame. So if that '21 -- 2021 time frame stays in place, then I would expect that they'll start to be news around the selections and how they're going to deal with these beginning early next year. That would be the time line that I would expect the industry to respond. Those are only part of the -- when I said that we're seeing significant contracts, those are not all associated with timely access to flight data. We're working on other significant contracts now with a range of operators and several of those are in the queue to decide starting this summer through the end of the year.

[Unknown Attendee]

Okay. So I guess and just to finish off, with regard, for instance, Boeing and the 2021 deadline, the way we, as stock investors, would see it would be perhaps that you are now in the trial although -- the demo trial or would it go straight to purchase order from your side?

[Thomas R. Schmutz, Chief Executive Officer]

I can't speak for Boeing on how they're going to proceed. All I can say at this point is that we had a tremendously successful trial with them. The resulting virtual cockpit that we created and streaming that we did is blowing away everybody that we show them. And by blowing away, I mean, showing people that have been in the industry for years, and they've never seen anything like it. To me, that's exciting. Now it's up to myself and my team to take that excitement and turn it into purchase orders, and I think we can. But it's not going to happen immediately. It's going to be -- the -- unfortunately, the aviation space does not move super rapidly, but it moves. And so we have really, really, elevated FLYHT as a company in the eyes of people and the industry around the world with what we're doing. I know that that's a consolation right now to our shareholders. I want the stock price to rise. But in my mind, it's untapped value that we're taking to the market and that untapped value will ultimately result in higher stock price.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Tom Schmutz for closing remarks.

[Thomas R. Schmutz, Chief Executive Officer]

Well, thanks. As I stated earlier, we're very excited about the opportunity that we're currently pursuing and the potential that continues to exist in our technology.I wrote in the CEO Letter to the Shareholders that 1 person was killed and 7 other passengers sustained minor injuries on April 17 on a Southwest Airlines flight from New York to Dallas. One of the aircraft engines exploded during the flight and shrapnel caused the window to shatter and partially sucked a passenger out of the window. The preliminary investigation indicates that there's evidence of metal fatigue in the turbo fan blade, which caused the engine failure. We still don't know all the facts surrounding this. It's being investigated. But the terrible incident sounds a lot like a situation that FLYHT's AFIRS systems prevented in one of our customers. Last year, I described that incident in a success story in the fifth edition of my investor letters, which is on our website. Not only did our customer potentially avoid such a tragic accident, the loss of life and injury, along with the impending litigation, but they ended up saving millions of dollars by using the real-time exceedance monitoring to shorten their decision cycle. So by shortening their decision cycle, what I mean by that is, they were able to receive an instantaneous report and make a decision to pull the aircraft out of service versus probably the couple of weeks that it would take for ground maintenance to download the data, cycle it through the flight operations quality assurance cycles and then bring it back to the operational crew to make a decision. So it's a dramatic difference in what FLYHT can provide. The -- I'm currently reaching out with the help from our board members and others in the industry, to carefully follow this up. We're reaching out with e-mails to make sure that -- to some of these senior members at some of these large operators that they understand that there's a solution available now that can help resolve this. And so I talked earlier about what we did on the ecoDemonstrator and how we kind of painted a picture of the future. How our system provided ultimately the -- what we think is the situational awareness that's required in the future to help operators control and operate their fleets. This is capabilities and functionality that we have had in the field now for quite some time that can help these operators now and help them with real-world issues that -- although these -- an engine problem like this doesn't happen very frequently. When it does happen, it's catastrophic. And our operator was able to use our system to prevent a very, very similar incident like this from occurring. And so we are actively reaching out both to operators as well as to press. I did an interview. I hope to do some more, and hopefully that shows up soon in periodicals on the industry, and that will continue to raise the awareness of what FLYHT can do both for operators now and in the future.So with that, we thank you very much for your time, and thank you for supporting FLYHT. And we'll talk to you again in 3 months.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.