Firan Technology Group Corporation (“FTG”) Announces Third Quarter 2021 Financial Results

TORONTO, Oct. 13, 2021 (GLOBE NEWSWIRE) -- Firan Technology Group Corporation (TSX: FTG) today announced financial results for the third quarter of 2021.

• FTG achieved a third sequential quarter of increased bookings as the aerospace industry recovers from the COVID-19 pandemic.

• Third quarter bookings are up 7% over Q2 2021 and up 28% over Q4 2020.

• FTG increased net cash on the balance sheet to $17.1M, an increase of $2.3M in Q3 2021 again showing the cash generating nature of the business. Over the past 21 months, during the pandemic, FTG has generated $13M in Free Cash Flow, after investments in R&D and capital equipment.

• FTG received forgiveness of USD 1.3M, being the residual of US Paycheck Protection Program funds received by our US operations as a result of FTG maintaining our workforce for the required period of time.

• FTG was approved for an additional $0.7M in Canada Emergency Wage Subsidy (CEWS) in the quarter which we used to help maintain our workforce in the face of revenue reductions due to COVID-19.

• Extended the existing $20M USD committed credit facility with our primary lender to July 2026 with improved financial terms.

Third Quarter Results: (three months ended September 3, 2021 compared with three months ended August 28, 2020)

	Q3 2021			Q3 2020
Sales	$19,738,000			$24,364,000
Gross Margin		3,796,000			6,722,000
Gross Margin (%)		19.2%			27.6%
Operating Earnings (1):		477,000			3,600,000
• R&D Investment		1,225,000			1,302,000
• R&D Tax Credits		(159,000)			(195,000)
• Foreign Exchange (Gain) Loss		(423,000)			1,011,000
• Amortization of Intangibles		51,000			94,000
• Forgiveness of debt		(1,668,000)			-
Net Earnings before Tax		1,451,000			1,388,000
• Income Tax		703,000			773,000
• Non-controlling Interests		(26,000)			(30,000)
Net Earnings After Tax	$774,000			$645,000
Earnings per share
- basic	$0.03			$0.03
- diluted	$0.03			$0.03

Year-to-Date: (nine months ended September 3, 2021 compared with nine months ended August 28, 2020)

	YTD 2021			YTD 2020
Sales	$59,038,000			$75,724,000
Gross Margin		12,886,000			19,356,000
Gross Margin (%)		21.8%			25.6%
Operating Earnings (1):		6,685,000			8,155,000
• R&D Investment		4,112,000			3,966,000
• R&D Tax Credits		(465,000)			(570,000)
• Foreign Exchange Loss		739,000			596,000
• Amortization of Intangibles		210,000			490,000
• Impairment of Intangibles		-			1,145,000
• Forgiveness of debt		(3,004,000)			-
Net Earnings before Tax		2,089,000			2,528,000
• Income Tax		1,779,000			2,544,000
• Non-controlling Interests		(74,000)			(98,000)
Net Earnings After Tax	$384,000			$82,000
Earnings per share
- basic	$0.01			$0.00
- diluted	$0.01			$0.00

(1) Operating Earnings is not a measure recognized under International Financial Reporting Standards (“IFRS”). Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating Operating Earnings may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Business Highlights

FTG accomplished many goals in Q3 2021 that continue to improve the Corporation and position it for the future, including:

• Achieved a 1.06:1 book-to-bill ratio for Q3 2021. Increased bookings by 7% compared to Q2 2021, and by 28% compared to Q4 2020 as the Commercial aerospace industry moves into recovery.

• FTG Aerospace Chatsworth has been awarded a $3.7M CAD after-market contract from the United States Defense Logistics Agency (DLA) to provide electronic assemblies to retrofit airborne radar systems on various US defense aircraft.

• Shipped first parts to a new customer for a bezel to be used on the new US T-7A trainer jet. Received first orders from a second customer for cockpit panels, also for the US trainer jet program.

• The Averatek semi-additive circuit board manufacturing equipment in our Circuits Fredericksburg facility completed installation and was operational in Q2. Activities are underway with over 10 potential customers to develop this process to address future industry demands.

• Subsequent to quarter end, FTG Circuits Chatsworth has been approved for USD 0.4M of funding from the Aviation Manufacturing Jobs Protection (AMJP) program, which will be used to offset eligible employee compensation costs for a six-month period ending March 2022.

• FTG Aerospace Chatsworth, which maintained an engineering office in Dallas-Fort Worth since the acquisition of Photo-Etch in 2016, will close this office by the end of 2021. Some employees will move to a work-from-home model, and some roles will move to the Chatsworth site in California. This will result in a $200K reduction in costs in 2022 and beyond.

Overall for FTG, sales decreased by $4.6M or 19% from $24.4M in Q3 2020 to $19.7M in Q3 2021. The COVID-19 pandemic has negatively impacted commercial aerospace activity as well as the weaker US dollar has negatively impacted sales reported in Canadian currency. The average exchange rate for Q3 2021 was $1.25 as compared to $1.34 for Q3 2020. This represents approximately a $1.6M negative impact on sales in the quarter compared to Q3 last year. On a year-to-date basis, sales were $59.0M compared to $75.7M for the same period last year. The drop is due to the COVID-19 pandemic, timing on Simulator related orders and the year-to-date foreign exchange impact.

The Circuits Segment sales were down $2.6M or 17% from $15.7M in Q3 2020 to $13.1M in Q3 2021. All sites were down but the largest decline was seen in the Circuits Toronto plant which is more heavily exposed to the Commercial Aerospace market. On a year-to-date basis, net sales were $38.1M as compared to $51.7M for the prior year period.

For the Aerospace Segment, sales were down $2.0M or 24% from $8.7M in Q3 2020 to $6.6M in Q3 2021. Simulator related sales were down $2.8M in Q3 2021, which was partially mitigated by the continued strength in military business, which is primarily executed at the FTG Chatsworth site. On a year-to-date basis, net sales were $21.0M as compared to $24.0M for the prior year period.

Gross margins in Q3 2021 were $3.8M or 19.2% compared to $6.7M or 27.6% in Q3 2021. The lower sales impacted the overall margin. The CEWS added $0.7M to gross margin or 3.3 percentage points (Q3 2020 – $0.7M or 2.9 percentage points). On a year-to-date basis, gross margin was $12.9M or 21.8% as compared to $19.4M or 25.6% for the comparable prior year period. The decline in gross margin is due to the lower level of sales, partially offset by CEWS of $2.6M in 2021 as compared to $1.4M in 2020.

Trailing Twelve Month (TTM) earnings before interest, tax, depreciation and amortization (EBITDA) for FTG was $11.3M. Lower sales, unfavourable foreign exchange impact and some operational challenges in Circuits Chatsworth, were partially offset by wage subsidies in Canada and the PPP forgiveness in the US.

The following table reconciles net earnings to EBITDA⁽²⁾ for the quarter and the trailing 12 months ended September 3, 2021.

	Trailing 12 Months
Net earnings to equity holders of FTG		1,693,000
Add:
Interest, accretion		640,000
Income taxes		2,619,000
Depreciation/Amortization Stock Comp./Impairment		6,380,000
EBITDA	$11,332,000

(2) EBITDA are not measures recognized under International Financial Reporting Standards (“IFRS”). Management believes that these measures are important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating EBITDA may differ from other corporations and accordingly may not be comparable to measures used by other corporations.


Net earnings after tax at FTG in Q3 2021 was $0.8M or $0.03 per diluted share compared to $0.6M or $0.03 per diluted share in Q3 2020. Revenues were reduced due to the decline in the Commercial Aerospace market as a result of the COVID-19 pandemic and the weaker US dollar. In Q3 2021, the average FX rate was 1.25 as compared to 1.34 in Q3 2020. The reduction in sales in Q3 2021 is offset by $1.6M of debt forgiveness, whereas Q3 2020 had no debt forgiveness. For the year-to-date period, FTG incurred a net earnings of $0.4M or $0.01 per share as compared to a net earnings of $0.1M or $0.00 per share for the comparable period of 2020. Apart from the reduction in sales, the 2021 year-to-date period included $3.0M of debt forgiveness, whereas the prior year period included $1.1M of impairment of intangible assets.

The Circuits Segment net earnings before corporate and interest and other costs was $1.6M in Q3 2021 compared to $1.1M in Q3 2020. Segment profitability was negatively impacted by lower sales and operational issues at the Chatsworth site. We are addressing the operational issues at Chatsworth through continuous improvement initiatives and investment in capital equipment. PPP debt forgiveness of $1.6M helped offset reduced sales and operational issues.

The Aerospace net earnings before corporate and interest and other costs in the quarter was $0.3M in Q3 2021 versus $1.1M in Q3 2020. Segment profitability was negatively impacted by lower sales and the weaker US dollar.

As at September 3, 2021, the Corporation’s net working capital was $40.5M, compared to $39.4M at year-end in 2020.

Net cash at the end of Q3 2021 was $17.1M compared to net cash of $12.6M at the end of 2020.

The Corporation will host a live conference call on Thursday, October 14, 2021 at 8:30am (Eastern) to discuss the results of Q3 2021.

Anyone wishing to participate in the call should dial 647-427-2311 or 1-866-521-4909 and identify that you are calling to participate in the FTG conference call. The Chairperson is Mr. Brad Bourne. A replay of the call will be available until November 14, 2021 and will be available on the FTG website at www.ftgcorp.com. The number to call for a rebroadcast is 416-621-4642 or 1-800-585-8367, Conference ID 6469182.

ABOUT FIRAN TECHNOLOGY GROUP CORPORATION

FTG is an aerospace and defense electronics product and subsystem supplier to customers around the globe. FTG has two operating units:

FTG Circuits is a manufacturer of high technology, high reliability printed circuit boards. Our customers are leaders in the aviation, defense, and high technology industries. FTG Circuits has operations in Toronto, Ontario, Chatsworth, California, Fredericksburg, Virginia and a joint venture in Tianjin, China.

FTG Aerospace manufactures and repairs illuminated cockpit panels, keyboards and sub-assemblies for original equipment manufacturers of aerospace and defense equipment. FTG Aerospace has operations in Toronto, Ontario, Chatsworth, California, Fort Worth, Texas and Tianjin, China.

The Corporation's shares are traded on the Toronto Stock Exchange under the symbol FTG.

FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements. These forward-looking statements are related to, but not limited to, FTG’s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes. Such statements are based on the current expectations of management of the Corporation and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the Corporation’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 Corporation. The reader is cautioned to consider these and other factors carefully when making decisions with respect to the Corporation and not place undue reliance on forward-looking statements. Other than as may be required by law, FTG disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

For further information please contact:

Bradley C. Bourne, President and CEO
Firan Technology Group Corporation
Tel: (416) 299-4000 x314
bradbourne@ftgcorp.com

Jamie Crichton, Vice President and CFO
Firan Technology Group Corporation
Tel: (416) 299-4000 x264
jamiecrichton@ftgcorp.com

Additional information can be found at the Corporation’s website www.ftgcorp.com

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Financial Position
(Unaudited)				September 3,	November 30,
(in thousands of Canadian dollars)				2021	2020
ASSETS
Current assets
Cash and cash equivalents				19,547	19,032
Accounts receivable				13,809	16,795
Contract assets				533	985
Inventories				17,598	19,304
Prepaid expenses and other				5,168	3,363
				56,655	59,479
Non-current assets
Plant and equipment, net				11,142	12,640
Right-of-use assets				10,806	12,130
Investment tax credits recoverable				539	1,359
Intangible and other assets, net				824	1,068
Total assets				79,966	86,676
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities				11,715	13,904
Provisions				571	885
Contract liabilities				409	388
Current portion of bank debt				884	2,931
Current portion of lease liabilities				1,753	1,810
Income tax payable				830	155
				16,162	20,073
Non-current liabilities
Bank debt				1,543	3,464
Lease liabilities				9,588	10,659
Deferred tax payable				760	1,192
Total liabilities				28,053	35,388
Equity
Retained earnings				19,519	19,135
Accumulated other comprehensive income				1,291	958
				20,810	20,093
Share capital
	Common Shares			21,881	21,881
Contributed surplus				8,329	8,303
Total equity attributable to FTG's shareholders				51,020	50,277
Non-controlling interest				893	1,011
Total equity				51,913	51,288
Total liabilities and equity				79,966	86,676

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings (Loss)
			Three months ended								Nine months ended
(Unaudited)			September 3,				August 28,				September 3,				August 28,
(in thousands of Canadian dollars, except per share amounts)			2021				2020				2021				2020
Sales				19,738				24,364				59,038				75,724
Cost of sales
Cost of sales				14,540				16,203				41,898				52,080
Depreciation of plant and equipment				1,028				1,048				3,142				3,111
Depreciation of right-of-use assets				374				391				1,112				1,177
Total cost of sales				15,942				17,642				46,152				56,368
Gross margin				3,796				6,722				12,886				19,356
Expenses
Selling, general and administrative				3,144				2,827				8,494				10,314
Research and development costs				1,225				1,302				4,112				3,966
Recovery of investment tax credits				(159	)			(195	)			(465	)			(570	)
Depreciation of plant and equipment				60				62				185				162
Depreciation of right-of-use assets				17				12				51				37
Amortization of intangible assets				51				94				210				490
Interest expense on bank debt, net				14				61				81				159
Accretion on lease liabilities				120				139				368				417
Stock based compensation				(36	)			21				26				112
Foreign exchange loss				(423	)			1,011				739				596
Forgiveness of debt				(1,668	)			-				(3,004	)			-
Impairment of intangible assets				-				-				-				1,145
Total expenses				2,345				5,334				10,797				16,828
Earnings before income taxes				1,451				1,388				2,089				2,528
Current income tax expense				670				734				1,685				2,429
Deferred income tax expense				33				39				94				115
Total income tax expense				703				773				1,779				2,544
Net earnings (loss)				748				615				310				(16	)
Attributable to:
Non-controlling interest				(26	)			(30	)			(74	)			(98	)
Equity holders of FTG				774				645				384				82
Earnings (loss) per share, attributable to the equity holders of FTG
Basic			$	0.03			$	0.03			$	0.02			$	0.00
Diluted			$	0.03			$	0.03			$	0.02			$	0.00

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
				Three months ended								Nine months ended
(Unaudited)				September 3,				August 28,				September 3,				August 28,
(in thousands of Canadian dollars)				2021				2020				2021				2020
Net earnings (loss)				$	748			$	615			$	310			$	(16	)
Other comprehensive earnings (loss) to be reclassified to
	net earnings (loss) in subsequent periods:
	Change in foreign currency translation adjustments			$	862			$	(1,071	)		$	(645	)		$	(305	)
	Net gain (loss) on valuation of derivative financial instruments
		designated as cash flow hedges		$	(2,511	)		$	4,117			$	1,246			$	3,257
	Deferred income taxes on net gain (loss) on valuation of
		derivative financial instruments designated as cash flow hedges		$	628			$	(1,030	)		$	(312	)		$	(814	)
				$	(1,021	)		$	2,016			$	289			$	2,138
Total comprehensive income (loss)				$	(273	)		$	2,631			$	599			$	2,122
Attributable to:
Equity holders of FTG				$	(247	)		$	2,685			$	756			$	2,219
Non-controlling interest				$	(26	)		$	(54	)		$	(157	)		$	(97	)

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
Nine months ended September 3, 2021							Attributed to the equity holders of FTG
												Accumulated
												other						Non-
(Unaudited)		Common			Preferred		Retained		Contributed			comprehensive						controlling			Total
(in thousands of Canadian dollars)		shares			shares		earnings		surplus			income			Total			interest			equity
Balance, November 30, 2020			21,881			-		19,135		8,303			958			50,277			1,011			51,288
Net loss			-			-		384		-			-			384			(74	)		310
Stock-based compensation			-			-		-		26			-			26			-			26
Other comprehensive income (loss)			-			-		-		-			333			333			(44	)		289
Balance, September 3, 2021			21,881			-		19,519		8,329			1,291			51,020			893			51,913
Nine months ended August 28, 2020							Attributed to the equity holders of FTG
												Accumulated
												other						Non-
(Unaudited)		Common			Preferred		Retained		Contributed			comprehensive						controlling			Total
(in thousands of Canadian dollars)		shares			shares		earnings		surplus			loss			Total			interest			equity
Balance, November 30, 2019		$	19,323		$	2,218	$	17,745	$	8,933		$	(1,554	)	$	46,665		$	1,094		$	47,759
Net (loss)			-			-		82		-			-			82			(98	)		(16	)
Stock-based compensation			-			-		-		112			-			112			-			112
Transfer from contributed surplus to share capital for
	PSU’s exercised		760							(760	)		-			-			-			-
Common shares repurchase and issue on exercise
	of PSU's		(420	)		-		-		-			-			(420	)		-			(420	)
Other comprehensive income (loss)			-			-		-		-			2,137			2,137			1			2,138
Balance, August 28, 2020		$	19,663		$	2,218	$	17,827	$	8,285		$	583		$	48,576		$	997		$	49,573

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
					Three months ended								Nine months ended
(Unaudited)					September 3,				August 28,				September 3,				August 28,
(in thousands of Canadian dollars)					2021				2020				2021				2020
Net inflow (outflow) of cash related to the following:
Operating activities
Net income (loss)					$	748			$	615			$	310			$	(16	)
Items not affecting cash and cash equivalents:
Stock-based compensation						(36	)			21				26				112
Loss on disposal of plant and equipment						-				-				1				6
Effect of exchange rates on U.S. dollar bank debt						90				(415	)			(194	)			(217	)
Depreciation of plant and equipment						1,088				1,111				3,327				3,274
Depreciation of right-of-use assets						390				403				1,162				1,214
Amortization of intangible assets						51				94				210				490
Amortization, other						9				17				35				28
Impairment of intangible assets						-				-				-				1,145
Investment tax credits/deferred income taxes						155				950				201				1,555
Accretion on lease liabilities						120				139				368				417
Forgiveness of debt						(1,668	)			-				(3,004	)			-
Net change in non-cash operating working capital						708				434				2,578				3,030
						1,655				3,369				5,020				11,038
Investing activities
Additions to plant and equipment						(956	)			(236	)			(1,951	)			(2,721	)
Recovery of contract and other costs						(2	)			11				20				60
Additions to deferred financing costs						(54	)			-				(62	)			-
						(1,012	)			(225	)			(1,993	)			(2,661	)
Net cash flow from operating and investing activities						643				3,144				3,027				8,377
Financing activities
Proceeds from bank debt						-				-				-				3,309
Repayments of bank debt						(227	)			(514	)			(685	)			(1,552	)
Lease liability payments						(443	)			(448	)			(1,343	)			(1,360	)
Repurchase of common shares on exercise of PSU's						-				-				-				(420	)
						(670	)			(962	)			(2,028	)			(23	)
Effects of foreign exchange rate changes on cash flow						515				(730	)			(484	)			(291	)
Net (decrease) increase in cash flow						488				1,452				515				8,063
Cash and cash equivalents, beginning of the period						19,059				14,258				19,032				7,647
Cash and cash equivalents, end of period					$	19,547			$	15,710			$	19,547			$	15,710
Disclosure of cash payments
Payment for interest					$	31			$	46			$	102			$	155
Payments for income taxes					$	112			$	18			$	706			$	1,136