Thank you for standing by. This is a conference operator. Welcome to the FLYHT Aerospace Solutions Third Quarter 2021 Results Conference Call. As a reminder, all participants are listening remote and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. Due to the volume of questions expected in today's call, we ask that you please limit your questions to three to allow time for other attendees. If there are any outstanding questions at the end of the call, we will be happy to take them by email at investors@flyht.com. I would now like to turn the conference over to Bill Tempany. He's the Chief Executive of FLYHT. Please go ahead, Mr. Tempany. Thank you very much. Welcome to our Third Quarter Call, everyone. We're very excited about progress that was made in the last quarter. Today, we're gonna have Alana go through some of the financial highlights, and then I'll go through some of the business highlights and what we expect to see from the industry and from our products in the future. Alana, over to you. Thanks, Bill. Our Q3 performance really reflects the efforts we're making at FLYHT to improve our business and be well-positioned to assist our customers as they recover from the pandemic. Our revenue quarter-over-quarter increased for the first time in almost two years, significantly from last year's Q3. Our revenue increased by 55% to CAD 3.2 million. SaaS was down from Q3 last year, but we showed an increase in that category over Q2, as our customers and the world is showing inconsistent recovery through the quarters. It's slowly getting there. Changes are being made, but the recovery has been inconsistent as we see the results of the second quarter's "significant" wave. Our hardware was up from a year ago, and we were really happy to see increases in licensing particularly. We were over CAD 1 million in Q3 versus just a nominal amount in Q3 last year. This we see as a really positive sign as the industry is starting to move on new aircraft purchases and leases. For FLYHT, it's really helpful to the bottom line, given the high gross margins of that revenue stream. Our gross margins were pretty similar to Q3 last year. Looking at operating expenses, they increased by 20% compared to Q3 2020. The main reason for that is, our government grants have been changing. We were able to access grants and funding through the U.S. government in 2020, but not in 2021. The Canadian government helped us out throughout 2020 and 2021. Those programs have been changing, and the amounts available have been dwindling. We'll feel a little bit in Q4, but those programs have really come to an end. That will be what we'll see going through. What we've seen is what we'll see. The increase in the distribution category in particular shows an improvement in our bad debt reserves. Our customers are recovering, and they've been paying more consistently. We've seen that reflected in the numbers. They've been really focused on paying down their past overdue amounts, and so that has been really positive for us. The increase that you're seeing in research and development costs really reflects our investments in building out our Actionable Intelligence product suite and the effort that was involved in and has been involved in building out our Edge product. Both our EBITDA and net loss have shown improvement over Q3 2020. We've been able to control costs, access governmental support where possible, and really trying to minimize the impact of the pandemic on the bottom line. Looking at our balance sheet, we ended the quarter with positive working capital of CAD 6 million compared to just over CAD 3 million at last year-end. At September 30, we had CAD 8.2 million in liquidity available to us, with CAD 5.4 million in cash, CAD 1.5 million available to us in our undrawn line of credit, and CAD 1.4 million remaining in contributions under our governmental loans to the WIN program that we haven't received yet. We continue to apply for funding on a quarterly basis. Typically, we've received one chunk of WIN funding per quarter. Q3 wasn't received until Q4, so the impact to cash, we'll see that in Q4. We're expecting to see two chunks of WIN funding received in Q4 versus the typical one to make up for the amount that we didn't receive in Q3. During the quarter, we really took some important steps to enhance our capital structure and provide the company with more flexibility to carry out our growth strategy. In July, we closed on an oversubscribed private placement, resulting in proceeds of CAD 6.6 million, and directors, officers, senior employees contributed 10% of that total offering. Those funds, some of them remained on the balance sheet. As I was mentioning, with our CAD 5.4 million remaining in cash at the end of the quarter, some of it was used to repay in full our convertible debentures due in July. It's CAD 1 million used for that. We invested in inventory to secure some of our long lead time items, and we also used the cushion to acquire the Water Vapor Sensing System product line, the WVSS-II from SpectraSensors, to enhance our weather business. We purchased that line for half a million USD, and we now own both airborne weather sensors in the world. We anticipate this will be accretive to earnings. You can see the increase on our balance sheet in the prepaid area, intangibles, and inventory as we recorded on the balance sheet the exact items and the assets that were purchased from that product line. We continue to evaluate other possible accretive acquisitions. Paul, back to you now. Thanks very much, Alana. I think that if you look at Q3 this year compared to Q3 last year, it's been a transformational 12 months. The industry is still in turmoil with the changing regulations. Our directors just flew in for our directors meeting this week. The hoops they had to jump through to get all of the right tests at the right time to catch an airplane, and it wasn't the first airplane, it was the one to Canada. They put out an exceptional effort to be here for the meeting. It's the first in-person board meeting we've had since I came back to the company, and it was an extremely productive meeting where the board members got to mix with the staff and the management and see what we've achieved as a company. We're very proud of the transformation in both our products, our customer mix, and particularly our staff, in being able to deliver solutions quickly to our customers as problems are identified and solutions defined. Being an independent company, not a tier one supplier to the airlines and to the aircraft manufacturers is proving to be a real benefit to FLYHT. We don't go out and try and sell replacement parts. We aren't selling services. We're helping the airlines utilize the information to improve their financial performance, and that's being very well regarded by the customers when we go out and talk to them about what we do and how we do. The fact that we've been around for 20 years, we have a strong balance sheet, that we've got people that have been in the business. We hired people out of the industry as product owners in the company, and they can go and talk to peers in the industry in a very knowledgeable way, gives us a really strong capability to develop our SaaS focus. One of the questions that came in on the investor page was the SaaS isn't growing as quickly as any of us would like, but it's because of the industry. It's not because of our capabilities or our products. Our hardware products are very critical in our business plan to provide information for our SaaS products that's not available normally to airlines. We've been working on the integration of those hardware products for the aircraft to drive SaaS revenue. SaaS revenue isn't gonna grow as quickly as selling hardware because the hardware is a one-time up-front lump sum fee. You're gonna see as the airlines recover and get back into doing normal C checks, hardware is gonna be a part of the next year of the recovery from the pandemic. The SaaS revenue will grow. They'll continue to be strong. The products and services that we're bringing to the market are the things that the airlines are saying they need because they've got individuals that came back from the pandemic, and they did one job before the pandemic, and you got four jobs to do today. They're looking for ways to streamline that. The industry is having trouble hiring people. I'm sure everybody's seen the news where American Airlines canceled 200 flights one weekend, Southwest Airlines canceled 400 flights because of a lack of staff and trying to get the machine back working, and we're helping with that. Our flights are recovering. Our customers are slowly coming back to service. It's temperamental because every time they've geared up to come back full steam in Canada, particularly, in June, July, it was in Alberta, it was open for the summer. Then the fourth wave hits and everything shuts down, and they gotta rewind and figure out how they're gonna restart. Changing rules for our guys that have to do international travel for aircraft certification. You have to plot your trip to and from on when you can get a COVID test and where you can get it and when it's gonna be ready. If you miss your flight, you gotta start all over again because it's expired. A very difficult environment to operate in. The lumpiness of our SaaS revenue is because of that. Our customers buy when they can. One of the things that I've discussed with Alana, we've always separated the license fees from the SaaS revenue because it is something that you get an order one quarter and nothing for three quarters and then a big order for a quarter and then the next one another quarter. That license revenue is really selling our software and our IP to an end user, and we separate it because of the lumpiness. If you combine the SaaS revenue, we've got really strong growth in our high margin revenues year-over-year from last year to this year. We've got about a CAD 12 million last 12 months revenue ramp. One of the things that is happening is customers that have ordered services and hardware are looking at those and saying, "Okay, that aircraft's been parked for two years, so it's going back into service." They're restarting their C-check schedules and restarting their service schedules. We see a good strong recovery coming in that side of the market, which will also drive SaaS revenue. There's lots of earning power in the IT that we have, in the customers that we have, and the market is looking for solutions that we're building. I'm very confident in what we're gonna be able to build for a revenue stream over the next few quarters as we see how the world unfolds from this catastrophe. I think we're in the best position we've ever been in as a company from a financial statement point of view. From a team, the people are here, they're motivated, they're knowledgeable, they're trained, they've got new tools. We've been working really hard with Amazon Web Services to become a critical partner of theirs in what we're doing. We've got the industry's attention. We've hired people over the last year, people like Willie Faessel, who've been in the industry for 20 years and done data transfer and data collection for all the major airlines in the world. Willie is in Toulouse this week as the keynote speaker at a conference talking about the move from 4G to 5G. Our device is 5G, and I think that a lot of the customers are gonna say they're gonna jump from the 3G solution they got today to a 5G solution, because how long will 4G be around once 5G arrives? I think that our disruptive technologies that we have put out there and that we continue to build that integrate the airline, airport, and aircraft data to give a different view of the data, to give the operational excellence that the airlines are gonna need to get back to full strength are gonna take the 20 years of technology that we've put together and put it to really good use. We're reusing probably 80% of the software that was written for the original AFIRS units on the edge, and all of the capabilities on data handling, data transfer, on wing flight data management are gonna be incorporated in that box, and that gives us tools to do things that nobody else can do. We've said all along that we're very focused on our ESG efforts. Part of the reason we purchased the WVSS sensor is because it ties into our ESG strategy to be a partner with the industry and the government and the agencies that are looking at climate change. They're looking for data to monitor and help them improve that. We've had really interesting discussions through this purchase process with some very important agencies in both aviation and the weather community on where WVSS fits in the long-term strategy to monitor hurricanes and wildfires and tornadoes and all the things that really rely on the humidity of the atmosphere. The accuracy of our TAMDAR and WVSS products gives them a very unique view of that data. We're working very, very diligently with China to help them put more sensors on aircraft in China. It's a large chunk of the planet, as far as landmass goes, and not a lot of data available for the World Meteorological Organization for that landmass. The weather part of our business has not shown a great deal of revenue over the last two or three years, but we do have plans to really extend that and extend our presence in that market, as the regulations get tighter and things move along. Aircraft emissions is a huge problem. Everybody understands that, they're doing everything in their power to reduce that. There's 200 companies out there today that claim they can get 3% fuel savings by various means. And there's lots of technologies that'll help with that. I think we have the best technology on the planet to monitor that and help people reduce the time that the aircraft is sitting on the ground with the engines running, give them information so that they're flying smarter, straighter, slower. Because if you've got somebody that says, "I'm supposed to be at Calgary Airport at 2:20," and you know that there's somebody stuck at the gate because they have something done and they're not gonna be able to get in to their gate until 2:25, you can get a message to the operations control center and the dispatchers and tell the guy to lift his foot. Don't get there on time. Just get a little bit later, and you're not gonna be circling and waiting for a landing slot, and you're not gonna be burning as much fuel because you can use up the delay by flying slower instead of flying further. We're building a bunch of tools for the efficient use of fuel. It helps the airline save money, but it also helps the environment by reducing the amount of fuel that's spilled. The money that Alana referred to in R&D for our products and our tools, we've built a product called JetBridge, which gives us the ability to interrogate data from existing systems, integrate it with data from the aircraft, and provide real-time Actionable Intelligence to the people that are making the operations on the aircraft on the ground or during flight, and give them a better picture of what's going on with that aircraft. How you can improve the financial and fuel performance of that aircraft in real time. That's what we set out to do a year ago. We, as I said, have got a team in place that can do that's delivering that value. We've got a strong balance sheet. We're actively pursuing other companies in our space that would add to our capabilities and add to our knowledge base. Over the next few quarters, I think you'll see some really good news about both our revenue increase from our existing tools and products and some acquisitions that we're working really hard on and have been for quite some time. With that, we'll throw it open for questions, and happy to answer anybody's questions here or at investors@flyht.com if you don't get answered with you. Before we go to the queues, there was a second question in investors.com or investors.flyht.com. Could you explain the revenue model for the weather sensor service? Okay. Right now on the TAMDAR system, we provide the data to a third party who incorporates it with data from ground stations. We get paid per observation. The deal we have right now, we get paid through this third party. NOAA pays all those bills, and then they redistribute it to the World Meteorological Organization. We're working with several other meteorological groups to do both direct feeds of that data into their systems and also to be able to collect the data from sensors that exist today on other aircraft to get to both the weather forecast services and other companies that wanna be able to use that data. It's based on a per sensor reading. Okay. Any other questions? It's not COVID. It's an alien. We will now. The email. email. Go ahead. We will now begin the question and answer session. To join the question queue, you can press star then one on your telephone keypad. We'll hear a tone acknowledging your request. If you're using a speakerphone, please pick it up before pressing any keys. To control your questions, please press star then two. Pause for a moment before leaving the queue. The first question is from Bruce Krugel, KRC Insights. Please go ahead. Hi, Bill. Hi, Alana. Congratulations on the AFIRS 228 C919 design-in. I just wanted to confirm that you will be installed on the plane coming off the production line in China. The SATCOM is an option. A lot of the C919s are likely to be shipped to India, Africa. India has banned Iridium bandwidth. If C919s are being shipped to India, they will not have an AFIRS unit on it because it's Iridium-based. If they're shipped to Africa, they likely will. I think that every aircraft shipped in China will be equipped with Iridium, so it'll be our device as far as we know today. Okay. Because I was looking at production volume, full rate, and I fear that the new line starts off a little bit slowly. The one that I was reading was talking about 150 aircraft by the third year in by the time it reaches volume production, which would be quite a sizable win for yourself if you get a fair chunk of that. I feel confident we'll have a really good chunk of that, but it is an option. With our contract with Airbus, from what we can figure out, there's about 75% of the A320s that go out of the factory that have AFIRS on them. We don't really get very good visibility on whether when they buy a license from us, whether it's going in a new aircraft or a retrofit. Initially, there were a lot more orders than were being produced on the A320, so we know there was a big retrofit market there. You know, and today I would say that roughly 75% of the A320s produced have got SATCOM on them and HUD blocks. Okay. I just wanna go into more detail on the weather front. I came across an excellent document written by the World Meteorological Organization where it dealt specifically with aircraft-based observations. It's volume 21, April 2021, document. It goes into AMDAR, your WVSS and TAMDAR in a fair amount of detail. What is clear from that document is outside of AMDAR, you own the only weather measurement equipment. One of the points that came out of it is that there are significant structural changes within the World Meteorological Organization as it targets aircraft-based observations, and they're aiming at expanding and enhancing AMDAR systems. In your discussions when you acquired WVSS, did you come across any of that indication from the World Meteorological Organization? Absolutely, we did. At one point, we went to the sensor systems people and said, "Look, the way the deal is structured and the things that we have to do, we just can't make a business case out of this." They did an announcement that they were going to stop building WVSS because there was no business case for it. There was an immediate reaction from U.K. Met, NOAA, China Met. We had about 8 different agencies say, "Please, please don't let that go away." The TAMDAR sensor is a good sensor. It's fairly accurate. WVSS was a much more accurate sensor because it uses a different technology than TAMDAR to find it. The WVSS sensors are critical for the models, particularly in the U.S., because of the, you know, Tornado Alley and the hurricane seasons and the wildfires in California. The atmospheric humidity changes very rapidly and in very strange ways. If they're gonna do proper forecasting, they need that. There's an article that was written by NOAA that said the lack of airborne observations because of COVID had reduced the accuracy of the U.S. weather forecast by 13%, I think. Some number like that. It's in our financial statements, I think, the quote from NOAA on what it did. They all encouraged us to find a way to do the deal and buy this. One of the things with WVSS is it doesn't have a temperature sensor built into it because the aircraft it was installed on all have accurate temperature sensors in the aircraft, so they just use that data feed. You need the temperature as well as the humidity. One of the advantages of our TAMDAR system is it does temperature as well as humidity. On aircraft like an ATR or a Dash 8 that doesn't have an accurate external temperature sensor, it's better data for weather forecasting to use TAMDAR than it is for WVSS. These products, although they're very similar, are very unique in the fleets that they're best for, and both products will be long-term survivors. We're having weekly discussions with the meteorological associations and some of the airlines that are key partners of NOAA, and working on a plan to enhance and expand the capability of using these sensors. Okay. Can you bring some more detail to that? According to this document, there are 148 installs of the WVSS, and that's primarily through UPS and Southwest. Those revenues go to Rockwell Collins. How are you gonna transition? How are you going to generate revenues from WVSS going forward? I can't talk about that right now, but I'll tell you there's a very good plan that's being worked to have that revenue go elsewhere. All right. Carrying on that front, if we go on into the TAMDAR annex, there's a fair amount of documentation about because of the lack of flights, the TAMDAR weather readings have decreased, et cetera. There's 328 TAMDAR installs, and at the time of the writing of the document, only 127 aircraft were active. Your SaaS revs were down 5% on a year-over-year basis, and I suspect a big chunk of that is because of weather. When can we expect to see TAMDAR weather revs start to recover? One of our biggest users of TAMDAR is AirAsia. As you know, AirAsia has been hit harder than most with the pandemic because when they closed all the borders down there, you know, an in-country Malaysia flight is about twice as long as the runway in Kuala Lumpur. There's not a lot of flights been going on. The big reason for the reduction in the number of TAMDARs as well as the revenues is because AirAsia hasn't been flying. We've had recent correspondence with AirAsia that they see some light at the end of the tunnel. I think they've got maybe 15 aircraft out of 150 active today. They're looking at an increase to 40 by the end of first quarter or something like that. It is gonna come back. The other TAMDAR sensors, a lot of them were on Alaska Airlines aircraft Dash 8 Q400 fleet. Again, with the pandemic, they just aren't flying the flights that they would normally be. You know, Alaska, I think, is ahead a lot of the other airlines in their recovery and we should see that coming back. Believe me, everybody would love to see all of that come back, not just the weather forecasters. There's no reason they aren't going to. The airlines, all of our customers except for two, survived the pandemic. Two of them went into receivership. One has been refinanced and come out and reinstalled AFIRS on their fleet. The other one in the Caribbean, as long as everybody can get out of the snow this winter and get to the Caribbean, they'll be back. They've already told us that they're gonna reinitiate AFIRS as soon as they're back out of receivership protection. You know what? I don't have a crystal ball as far as when that's gonna happen, but I'm confident that none of us are gonna stop flying. If there's a way we can do it without a lot of hassle, we're gonna be back in the air as soon as it's practical. Okay. I'll just finish off the same document. You alluded to it in your prepared remarks. The U.K. intends to proceed with initial implementation of CT WDFS systems. Program approval has been granted. Are you aware of this, and will you be the beneficiary of that decision if it were to move forward? Yes and yes. Okay. Thanks, Bill. Ciao. The next question comes from Jaeson Schmidt from Lake Street Capital Markets. Please go ahead. Yes, thanks for taking my questions. Bill, just curious if you could update us on the Actionable Intelligence rollout. I mean, at one time, revenue was set to kick off here in Q3 and for ramp going forward. Has that timetable been pushed out at all? Yeah, it has. It's been pushed out mainly by the fourth wave. I was out for dinner with the president of one of our customers about four weeks ago, and he said for every 100 reservations they're taking today, they're getting 75 cancellations. So they're having a real hard time planning loads and destinations and airport staff availability and pilot availability, and it's just a nightmare to juggle with. As I said in my prepared remarks, the people that are being recalled back to the airlines that used to do one job are coming back and being given four jobs, and they're trying to learn new jobs. They're trying to get things done with less people, and to load them on with new systems to say that you need to learn this too has been a challenge. They all wanna do it. They're all. The communications are strong between the customers and us. The adoption of the software has been slowed by the availability of people to take the time to do it. Okay. That all makes sense. Just not so much looking at sort of the labor market correction, but are you seeing any constraints from a supply side, electronic component side? We're in really good shape. As Alana said in her remarks, we spent about half a million dollars on inventory. We went out and did large buys of any critical components that could have been tied up in the supply chain before the problem became as big as it is. We've got all of the critical parts that would have to come in from anything outside of North America to build our next two to three years of forecasted product. We've protected ourselves. That was part of the raise, to make sure that we don't get any supply chain issues on our hardware. Okay. That's helpful. Thanks a lot, guys. No problem. Thanks, Jaeson. Once again, if you have a question, please press star then one. There are no more questions in the queue. I'd like to turn the conference back over to Bill Tempany for closing remarks. Sorry about the interruption. We have one more question. The next question comes from Marc Berger from MKB Associates. Please go ahead. Hi, Marc. How are you? Good. Great. Quick question on the sales team. How many people do we have on it, and is there any consideration of still increasing the size of that as well? Mark, everybody in this company is a salesman. We're out there beating the streets and talking to anybody who will listen to us. The formal sales and marketing team I think is nine people now. We have got one more that I don't know for sure if they're gonna be in the sales and marketing side or in the development team. We've got a position open to look for. We're calling it a business analyst, but somebody with airline experience that can help with writing proposals and doing financial models and helping the sales team do better proposals and so on. A sixth of the company is sales, and as I say, everybody in the company is a salesman role. When a proposal comes in or a request for proposal comes in, people from all departments chip in and help with it. When we're doing presentations, we've got people from development or engineering or hardware that go along with the salespeople for support, for technical questions. We've got a strong, good, solid sales team in place. Okay. Besides the commercial side of the business, are you guys looking to venture some time into freight carriers and business jets, or is it still gonna mostly concentrate on commercial vehicles or commercial airlines? About 18% of our fleet today is in freight. We've got some solutions that the freight companies really love because they're flying. They don't fly to the same airport every day. They go to a different airport every day, and there's no infrastructure to support the aircraft there. We do have a strong contingent in freight, and that's part of the reason that our SaaS revenue didn't drop as far as the industry norm or the industry dropped during the pandemic is because the freight carriers were really busy. Business aircraft, we were fairly heavily involved years ago with NetJets and had it installed on the Hawker jets before Hawker kept building them, and they decided to not fly those aircraft anymore. Jack Olcott's still on our board. Jack is becoming father of NBAA, and we've actually had discussions in the last week with him about the Edge product, our new product, and some of the things that we could do for business aviation that they just wouldn't put a full-blown AFIRS on to do. Today we don't have a business aircraft group, but we are looking at the opportunities there with the Edge. Okay. Also, could you give us some type of color on the size of the Actionable Intelligence orders that we could bring in? I mean, what is each contract worth? $1 million, $5 million? You know, what kind of numbers can we look forward to? What we've been doing with that is looking at what, you know, individual components, what we believe we can get for revenue per month per tail. I look at these opportunities as 20-year deals. Historically, when we get AFIRS on board and we get their systems integrated, we've got customers that are 17, 18 years they've been with us doing this, and they're not gonna change. What we've been doing is looking at individual components and whether we can get, you know, CAD 100 a month or CAD 300 a month per tail, for each of the applications. That's how we're going about it. These are not, you know. When we do the press releases, we'll be doing them in, you know, a 5-year if this would be the value of that contract. What I've got the sales team focused on and our whole company focused on is let's go and win those CAD 100-dollar, CAD 200-dollar a tail per month deals, and they'll add up to some really nice numbers real quickly. Okay. One last question. With regards to mandates, can you give us an update as to China mandates, and anything international or U.S. or whatever in terms of timing? Well, like everything in aviation, the mandates are put in place and then ignored and delayed and postponed by the airlines because they've got other things they wanna be doing instead. You know, the SATCOM mandate in China is a great example of a mandate that comes along that should be really good for us. We've got 300-400 aircraft installed in China with our system. I believe 2,000 of the 3,000 units that Airbus has provided have gone to China with our SATCOM unit on it to meet that SATCOM mandate. Again, I don't have visibility on it, but that's sort of the range. If you look at international sales of aircraft and the percentage that go to China, it'd be in that range of the units that Airbus has put out that are in China. There's no mandate today incoming that I know of in the U.S. or Canada that's gonna affect us. We expected that we would get the timely recovery of data mandate to do us a favor, because our streaming capability would meet all those requirements. Boeing and Airbus decided they were gonna use deployable recorders. Hats off to them. I love to know that every new aircraft coming out is gonna have an 80-pound box that can be ejected at any time over a city. It's a great solution. Hats off to the brains that do it. All right. Thanks, Bill. That's all for me. Okay. Have a good day, Marc. You too. This concludes the question and answer session. I'd like to turn the conference back over to Bill Tempany for closing remarks. Great. Again, thanks everybody for your time. As I say, we're very excited about the progress we've made to date and the opportunities ahead of us as the industry recovers. Stay tuned. We're here for the long term, and it's gonna be a fun ride. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.