In doing some post-Q3 report analysis, I noticed the great discrepancy between what KRC Insights predicted as hardware sales for Q3 and the actual hardware sales reported.
KRC had predicted $2,582,000 in hardware sales in Q3 on this premise... “Our increased forecasts are driven by a stronger than anticipated recovery in international travel (as reflected in the Q2/22 results), combined with the expectation that FLYHT will land certain large orders currently in its order book for the AFIRS 228.” (The Edge is not expected to have an impact until 2023.)
Actual hardware sales reported for Q3 by Flyht were just $480,064 – a shortfall of more than $2.1 million from KRC’s prediction.
In the sum of the other three revenue categories, Flyht exceeded KRC’s predictions by about $500k.
Reflecting on KRC’s comments, sales from the “certain large orders” must have either not materialized as yet or have not fully moved through the accounting to arrive as hard numbers in the hardware revenue column. (Deposits are an example.)
I thought one of these large orders could be the WVSS-II order pending with the U.K. Meteorological Office. These installations have been delayed according to Bill Tempany. “We were going to be doing the installation with Loganair and then Loganair got put up for sale and stopped all those programs. So we are going to meet with U.K. Met. and figure out a way forward. So standby on that one, it’s a work in progress.”
Another of these slow-to-be-realized large orders may be the anticipated hardware sales to Comac for installation on the ARJ21 and C919. BT: “their production has not ramped up to the point that they had hoped it would be”.
The agreement with Comac is likely different than the one with L3H/Airbus. Flyht may be delivering complete hardware kits to Comac instead of just the supplemental hardware I believe Flyht sells to L3H to go with licenses to build the actual AFIRS 228s for their clients themselves. If this is so, sales to Comac will wind up in the hardware column instead of mostly in the licensing column.
WestJet taking delivery of more of the SatCOM hardware it has ordered could be a third hardware sales source referenced by KRC, and the order from Frontier for SatCOM hardware for its near-term deliveries of A320 and A321 aircraft could be a fourth.
A fifth large hardware sales item not being delivered as yet might be the eventual product result from the collaboration with MBS to come up with a secure data loading system. I think it is to have the Edge at its core, so there shouldn’t have been any hardware revenue expected from this until 2023 – still, there might have been sales and deposits.
The partnership with Westjet-owned Swoop Airlines to reduce emissions related to APUs (Auxiliary Power Units) is likely to be a software offering that piggybacks on Flyht’s AFIRS hardware capabilities, which should mean hardware sales to clients who do not yet have AFIRS hardware. Trials funded by a grant are underway with no reported results or actual known sales as yet.
KRC Insights might have thought Flyht would see some revenue from any or all of these in Q3. If Flyht had made the additional $2.1M in hardware sales that KRC predicted, there could have been perhaps another million or more in reportable profit in Q3.
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| Forecast sales and income by KRC, with actuals for Q1 and Q2… | | |
| | | | | | | |
| KRC report, 08-22 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | 2022E | |
| (projections in blue) | | | | | | |
| | | | | | | |
| SaaS | 1,675,072 | 2,155,912 | 2,349,000 | 2,554,000 | 8,733,984 | |
| Hardware | 2,109,598 | 912,682 | 2,582,000 | 3,240,000 | 8,844,280 | |
| Licensing | 1,134,706 | 1,399,903 | 3,000,000 | 2,950,000 | 8,484,609 | |
| Technical Services | 111,281 | 412,875 | 400,000 | 276,000 | 1,200,156 | |
| | | | | | | |
| Sum of sales | 5,030,657 | 4,881,372 | 8,331,000 | 9,020,000 | 27,263,029 | |
| | | | | | | |
| Net income | (1,284,000) | (1,141,000) | 995,000 | 1,491,000 | 61,000 | |
| | | | | | | |
| | | | | | | |
| Year-to-date sales and net income numbers... | | | | |
| | | | | | | |
| Actual, Q3 in hand | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | 2022E | |
| (projections in blue) | | | | | | |
| | | | | | | |
| SaaS | 1,675,072 | 2,155,912 | 2,073,284 | | 5,904,268 | (to Sep. 30) |
| Hardware | 2,109,598 | 912,682 | 480,064 | | 3,502,344 | (to Sep. 30) |
| Licensing | 1,134,706 | 1,399,903 | 3,536,153 | 2,603,944 | 8,674,706 | (to Sep. 30) |
| Technical Services | 111,281 | 412,875 | 635,872 | | 1,160,028 | (to Sep. 30) |
| | | | | | | |
| Sum of sales | 5,030,657 | 4,881,372 | 6,725,373 | | 19,241,346 | (to Nov. 10) |
| | | | | | | |
| Net income | (1,284,000) | (1,141,000) | 703,765 | | (1,721,235) | (to Sep. 30) |
| | | | | | | |
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With $16.6M revenue in-hand already through three quarters, Flyht should easily surpass $20 million in sales in 2022.
The balance of license revenue for 2022 is known to be approximately $2.6M – the difference between the value of the order announced in the spring and what was delivered and paid for in Q2 and Q3. This alone brings Flyht very close to $20M.
$1M in CrossConsense revenue, considered very reliable and regular, would put Flyht revenue over the $20M threshold. Primarily SaaS, there should eventually be hardware sales through CrossConsense as they introduce Flyht products into their sales offerings. With perhaps another $1M in SaaS from Flyht itself, Flyht would reach $21M on the year.
Revenue from technical services has been on the rise, $0.5M is just a guess, bringing the year end total to $16.6M + $2.6M + $2.0M + $0.5M or $21.7M – without anything included for hardware sales in Q4. Flyht's highest revenue in any year to date was the $21,171,159 reported in 2019.
I think at one point there was a management estimate of $24M in total revenue for 2022. KRC’s prediction in August for 2022 was for sales in this year to reach $27M. KRC’s estimate seems high at this late date, though not, I suppose, unattainable.
Management’s estimate of $24M in annual sales would be a reach based on having made only $3,502,344 in hardware sales year to date. Flyht would need hardware sales of $2.3M in Q4 – about double the average of the three completed quarters - to reach $24M in total revenue this year.
With reported losses of $1.284M in Q1 and $1.141M in Q2 to go with the reported profit of $703,765 for Q3, Flyht has a hill to climb to report profitability for 2022 overall. Management has expressed that Flyht will be EBITDA positive going forward, though, so profit of some kind is expected in Q4, and for 2023E.