MisterIR wrote: The research analyst team at Paradigm Capital has published a short report on FLYHT, adding us to their "Technology Watch List".
Technology Watch List 4.0
July 22, 2024
Highlights: Additions to Our Watch List
FLYHT Aerospace Solutions (TSX-V: FLY) provides “plug and play” aerospace communications devices and intelligence software. Its products are used in the world’s most widely flown planes such as the Boeing 737 and Airbus 320. The industry is transitioning toward 5G communications and FLYHT stands to benefit from this upgrade cycle.
SUMMARY:FLYHT provides communications equipment and intelligence software for aircraft operators. Its "plug-and-play" devices are installed in some of the world's most widely flown planes, such as the Boeing 737 and Airbus 320. Aircraft built decades ago still depend on legacy 2G/3G/LTE cellular networks for communications and connectivity. These legacy networks are now being decommissioned around the world. As such, operators face an urgency to upgrade their fleet to modern connectivity standards. FLYHT stands to benefit from this investment cycle. Its latest flagship product, the AFIRS Edge, provides 5G connectivity capabilities that significantly increase the amount of data that can be collected and transmitted from an inflight aircraft in real time. The company has recently applied for STC certifications, with approval from the FAA expected near year-end. A growing backlog of $39M and an additional US$209M sales pipeline provide significant potential near-term catalysts and a long runway of growth opportunities.
SIZEABLE MARKET OPPORTUNTY: The total global commercial aviation fleet as of 2024 is 28,400 and is expected to grow to +36,000 by 2034, according to Oliver Wyman, a global management consultancy. Maintenance, repair and overhaul is expected to be a US$104B market. FLYHT expects 5G aviation hardware to provide revenue of $30,000 per aircraft, which translates into a market opportunity of +$850M. Aside from hardware sales, FLYHT also offers intelligence software that it pegs as a $3B opportunity.
STICKY AND EXPANDING CUSTOMER BASE: FLYHT serves ~115 customers in over 38 countries, including some of the most renown airlines such as Lufthansa, Swiss airlines and easyJet. While the client portfolio is concentrated in Europe today, it is quickly expanding globally, serving full-service airlines, ultra-low-cost carriers as well as national meteorological agencies. These customers are sticky, with FLYHT demonstrating a 95% retention rate. It also serves weather and meteorology agencies such as the National Oceanic and Atmospheric Administration (NOAA). This vertical is expected to be a meaningful growth driver.
REVENUE MODEL: FLYHT generates revenue through sales of hardware and software. Contracts typically span five years with auto-renewal terms, providing a clear line of sight on the top line. Hardware, installation, maintenance and licensing accounted for $9.5M of revenue in 2023. Revenue from SaaS offerings, which are recurring in nature, accounted for $10.7M, which represents a 31% y/y increase. Gross margins of 59% point to very healthy unit economics. The company generated an EBITDA loss of $2.8M in 2023 as it re-invested in R&D for its latest product release. Last year, it achieved breakeven EBITDA.
FINANCIAL PROFILE: The company ended its latest quarter with $1.0M in cash and other financial assets and $5.2M in debt. Subsequent to the quarter, FLYHT refinanced its debt. It expects revenue from its new AFIRS Edge product to begin materializing by the end of the year, which should be supportive of cash flow and improve its financial
position.
CONCLUSION: We view FLYHT as having an essential product for aircraft operators to transition to the next generation of communications standards. The market is substantially large with sticky customers and we see potential to expand its data analytics/SaaS software solutions.