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Firan Technology Group Corporation announced financial results for the second quarter 2021.
- FTG achieved a second sequential quarter of increased bookings as the aerospace industry recovers from the COVID-19 pandemic.
- Second quarter bookings are up 8% over Q1 2021 and up 20% over Q4 2020.
- Gross margins rebounded 7.2 percentage points over Q1 2021 to 26.8% with increased revenues and stronger operating performance, demonstrating the operating leverage that results from increased sales.
- FTG increased net cash on the balance sheet to $14.8M, an increase of $1.4M in Q2 2021 again showing the cash generating nature of the business. Over the past 18 months, during the pandemic, FTG has generated $13M in Free Cash Flow, after investments in R&D and capital equipment.
- FTG was approved for an additional $1.2M 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.
- FTG accomplished many goals in Q2 2021 that continue to improve the Corporation and position it for the future, including:
- Achieved a 0.97:1 book-to-bill ratio for Q2 2021. Increased bookings by 8% compared to Q1 2021, and by 20% compared to Q4 2020 as the Commercial aerospace industry begins to recover.
- Was approved for an additional $1.2M in Canada Emergency Wage Subsidy (CEWS) which we used to help maintain our workforce in the face of revenue reductions due to COVID-19.
- Subsequent to the end of Q2, FTG received forgiveness of USD 1.3M, being the residual of US Paycheck Protection Program funds received by our U.S. operations as a result of FTG maintaining our workforce for the required period of time. This amount will be included in income for Q3 2021.
- FTG Aerospace Chatsworth, which has 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 and move the function to the Chatsworth site in California reducing the site’s facility costs in 2022 and beyond.
- Received significant new bid and qualification opportunities for both businesses that are expected to benefit FTG revenues and market share in the coming quarters:
- Repatriation efforts to re-shore some circuit board sourcing to North America.
- New Aerospace opportunities for circuit board sourcing from low-cost countries (China).
- Opportunities to participate in the new US trainer aircraft cockpit.
- Increased awards for circuit boards on a contract renewal from a US Tier 1 avionics manufacturer.
- New qualification opportunities for circuit boards for a major US-headquartered EMS provider.
- New opportunities for space applications for circuit boards and shipped first flight cockpit panels for manned space vehicle within the quarter.
- Large new circuit board and assembly opportunity from a large US Defense contractor.
- A number of new US military aftermarket assembly opportunities for multi-year procurements.
- The Averatek semi-additive circuit board manufacturing equipment in our Circuits Fredericksburg facility completed installation and was operational in Q2. Activities have been initiated with over 10 customers to develop this process to address future industry demands.
Overall for FTG, sales decreased by $6.5M or 24% from $26.8M in Q2 2020 to $20.3M in Q2 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 Q2 2021 was $1.24 as compared to $1.40 for Q2 2020, which is a decline of 11%. This represents approximately a $2.5M negative impact on sales in the quarter compared to Q2 last year. On a year-to-date basis, sales were $39.3M as compared to $51.4M in 2020. The decrease is due to the COVID-19 pandemic impact on commercial aerospace activity as well as the currency impact. The average exchange rate for the year-to-date period in 2021 was $1.26 as compared to $1.36 in the comparable prior year period.
On a sequential basis, sales increased from $19.0M in Q1 2021 to $20.3M in Q2 2021, with the gradual recovery of commercial aerospace shipments taking hold, as well as fewer COVID-19 issues within our operating sites.
The Circuits Segment net sales in Q2 2021 were down $6.6M, or 35% in Q2 2021 versus Q2 2020. 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 $25.0 as compared to $36.1M for the prior year period.
For the Aerospace Segment, net sales in Q2 2021 were $7.3M compared to $7.2M in Q2 last year, an increase of $0.1M or 2%. Increased shipments to military customers from our Chatsworth, CA site exceeded the combined impact of the downturn in the commercial aerospace market, reduced Simulator related sales and the currency impact. The Aerospace Tianjin site was down as it is exclusively focused on commercial aerospace. On a year-to-date basis, net sales were $14.3M as compared to $15.3M for the prior year period.
Gross margins in Q2 2021 were $5.5M or 26.8% compared to $8.7M or 32.3% in Q2 2020. The lower sales impacted the overall margin. The CEWS added $1.2M to gross margin or 5.8 percentage points (Q2 2020 - $0.8M or 3.0 percentage points). On a year-to-date basis, gross margin was $9.1M or 23.2% as compared to $12.6M or 24.6% for the comparable prior year period. The decline in gross margin is due to the lower level of sales, partially offset by CEWS of $2.2M in 2021 as compared to $0.8M in 2020.
Trailing Twelve Month (TTM) Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG was $11.5M. 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.