FLYHT Aerospace Solutions' (FLYLF) CEO Tom Schmutz on Q4 2015 Results - Earnings Call Transcript

| About: Flyht Aerospace (FLYLF)
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Flyht Aerospace Solutions, Ltd. (OTCQX:FLYLF) Q4 2015 Results Earnings Conference Call April 6, 2016 11:00 AM ET


Tom Schmutz - CEO

Nola Heale - CFO


Walter Winnitzki - Buckley Capital Partners

Fadi Benjamin - Euro Pacific Canada

Alex Ruus - Arrow Capital

Marc Berger - MKB Associates


Thank you for standing by. This is the chorus call conference operator. Welcome to the FLYHT Aerospace Solutions’ Fourth Quarter 2015 Earnings Conference Call. As a remainder, all participants are in a listen-only mode and this conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] Due to the volume of questions expected on today’s call, we ask that you please limit your questions to three to allow others to ask. If there are any outstanding questions at the end of the call, the company will be happy to take them over email at, that's [Operator Instructions]

At this time, I would like to turn the conference over to Tom Schmutz, Chief Executive Officer of FLYHT. Please go ahead, Mr. Schmutz.

Tom Schmutz

Thank you, Anastasia. The format for this call will be that I'll provide a review of our 2015 result operationally and financially from a high level, then Nola Heale, our CFO will provide a more detailed review of the financial results fourth quarter as well as for the year-end total, we'll then discuss our 2016 goals and answer some questions that we received via email prior to this call, and then finally we'll answer any questions that may be called.

So, I'd like to start-off the call by thanking our shareholders and those who have dialed in to learn more about FLYHT. Our results in the fourth quarter were improved and produced best revenue records for our financial performance. We made excellent progress on our stated goals for the year.

We enhanced our Board of Director and sales team and we won awards in the industry and the community. We also smoothly transferred Executive control of the company and use that transition to review what we were doing and how we did it.

Our focus is to improve our organization and our operational performance. So, we've disclosed this effort into our high level internal strategy that we called Adopt Excellence. This is our roadmap for becoming profitable and for increasing shareholder value. There's significant optimism within the company, resulting from our improving revenue performance and the strong feedback that we're receiving from OEM and solution partner that we do indeed have a unique offering for this market and that is timely.

The 2015 ended with a record revenue fourth quarter of $3.8 million which was 47% higher than our previous best quarter which was the first quarter of last year. Q3 was very close to Q1 and total revenues, so it was exciting that we had our three highest revenue quarters in our history and they are all in year 2015.

Resulting $10.5 million annual revenue for the 2015 year was also recorded. It was 52% better than 2014 and 31% ahead of 2013, which had been our previous best year. So, our financial progress has been made, but we have more work to do to fund our own operations.

When we look closer at our own cash flows, there's optimism there also. The company utilized $2.6 million in cash last year because of the losses, but the cash balance reported at the end of the year was actually higher than September 30th. FLYHT progressively sell-funded more of its operations consuming less cash each quarter. So, in the first quarter, we used $1.7 million in cash, in quarters two and three, we used $600,000 in cash and we were slightly positive in Q4.

Also a success, we added an additional Board member in 2015, Mark Rosenker was the eleventh Chairman of the NTSB and he currently a consultant CBS News and appears on their network to discuss transportation safety issues. Mark served President George W. Bush's Deputy Assistant to the President until the President nominated him to lead the NTSB.

I can tell you that Mark is extremely passionate about aviation safety. He is a huge supporter of the AFIRS system and he believes strongly that the solution that we've create at FLYHT is the solution that will make commercial aviation travel safer and more efficient for the carriers that install it.

To Mark's addition follows the previous year's additional Barry Eccleston who is the President of Airbus Americas and John Belcher, previous CEO of ARINC. These gentlemen combined with the legacy members on our Board create an outstanding group with excellent market reach and wisdom.

FLYHT spent a significant amount of time and energy participating in ICAO and IATA meetings and conferences last year discussing the after-math of MH370 and what the industry responses should be.

FLYHT continues to monitor the industry discussions on aircraft tracking and other safety related industry initiatives. But the delays in the stonewalling that we see in these efforts indicate that there will not be any type of regulatory action in the next year or more.

Most ICAO recently adopted new provisions to include requirement for an aircraft to carry autonomous tracking which will transmit location once every minute in distress circumstances. This is scheduled by year 2021, which is quite a ways from now.

This new provision separate from ICAO's proposal to require a standard of reporting aircraft position at least every 15 minutes when in oceanic or remote airspace. So, this requirement -- this latter requirement is targeted for 2016. Originally, it was targeted for 2016, pardon me -- but it's been pushed to 2018.

So, FLYHT stands ready with our solution. We're able to address these and other regulatory responses, but what we're truly focused on is demonstrating how our existing field of proven solutions save our customers' money today and dramatically enhance the safety in the situation of their fleet today and for the future.

Little bit on research and development, the bulk of the research and development in 2015 was directed at completing our safety services TSO for the AFIRS product, continuing the expansion of the STCs for the AFIRS 228 and finally, we did a great deal of prototyping of a new cloud-based UpTime server.

So, our development team completed and received the TSO-C159b for safety services for our AFIRS 228S product. FLYHT is the only company in the world to receive this TSO from any safety authority for a combined safety services voice and data product. We're really quite proud of this accomplishment and practically what this means from a business perspective is that it's easier for us to install AFIRS or safety services in different aircraft in future. Also it will allow us to meet certain customer's requirements.

Our STC creation continues to be a market differentiator for FLYHT. This is a real barrier to entry for potential competition and we keep an excellent accounting on our website for customers to quickly review and to understand where we are in the process of achieving installation approvals.

Right now we're able to install 95% of the aircraft used for commercial air transport. The major development for us in 2015 was the prototyping of our next-generation cloud-based aircraft situational display and other related UpTime products.

We spent a lot of effort and time understanding what features our customers are looking for and how best to incorporate the important lessons that we've learned from our legacy server-based applications that we currently provide providing service in the connecting aircraft space. This is hard-learned knowledge and knowledge that is not generally held by others in the industry.

At the end of 2015, we look closely at what we were working on in our development areas, what the relative priorities were and what are the products we're producing the market. As a result of this review, we made a decision to stop selling the Dragon product.

So, we'll continue to support our installed customer base and any contractual requirements that we have. However, we will not sell any product to new customers Dragon product and we will divest of the product line if we find the right opportunity.

We feel like there are much better features to work on and better returns working on our core AFIRS product line at this time with the resources that we have.

Moving onto the end of last year, we signed a technology licensing agreement in December with an undisclosed technology company. This licensing agreement is a win-win for both companies. So, the technology company, they get a jumpstart on development using FLYHT SATCOM IP, allowing them to focus on more application-specific developments and less on basic SATCOM, saving time and getting them to market more quickly.

For FLYHT, the deal allows us to monetize our IP without losing what we consider to be core know-how, which is the monitoring and real-time elements on an aircraft, altering and alarming, operational monitoring, and streaming our FLYHT data.

These elements that I just referred to are not included in the IP to be transferred. This agreement also gives FLYHT the right to resolve their technology companies resulting product into our markets and into customers.

The timing of this transfer and subsequent payment will sweep in the first quarter of this year. It's now been amended to the second quarter. Both companies hope that this agreement is executed as it's written, but there is some doubt to the technology company having to achieve some approvals before they proceed. So, we will have to be patient and closely monitor what happens here. Internally, we're optimistic.

So, reviewing the 2015 goals, we -- they included expanding the sales team and capturing a major carrier. We did expand our sales team and we put in place standardized sales processes and materials.

Also recently David Perez, our VP of Sales has established some partnership with Tri-Wing in Southeast Asia. This is a company that some of us have had excellent experiences with in past associations. We also had a goal to capture a major carrier. We did capture our largest customer today, which was Avmax who operates a 146 Bombardier aircraft -- operate or lease 146 aircraft.

We've begun installation with this carrier and five units have been shipped with more on order. More units will be delivered and installed as their aircraft become available for installation.

We had a goal for continued expansion in China and we won positions at five-year [ph] lines and began the process of establishing a depot maintenance facility. At goal of completing the MRO, the maintenance, repair and overhaul depot was not completed, but remains a goal for 2016.

Jeff Brunner has been in China this year working on the MRO partner and we plan on commissioning the depot this summer. We responded to a significant OEM opportunity for learning and streaming aircraft data which was one of our goals. We remain helpful that our outstanding technology will be selected. That opportunity is being processed by the OEM and FLYHT remains a strong option for the selection.

So, overall, the company did a good job of meeting our goals that were established in the previous planning year and the entire team is very proud of this.

So, in addition the ranking sales in China, we also saw a significant increases in the part sales portion of our revenues. This is where we record our license sales to OEM and partners. This revenue increase from about $720,000 in 2014 to nearly $3 million in 2015. This quadrupling of revenue is very exciting for FLYHT and underscores the great work that was done by the team establishing this revenue source.

And now I'd like to turn the call over to Nola who will provide more of the financial detailed results. Nola?

Nola Heale

Good morning everyone, and thanks Tom. FLYHT's fourth quarter results during 2015 are certainly encouraging. This quarter was albeit revenue quarter, in fact, I remember saying the same thing in May of 2015 that the first quarter was our record revenue quarter, thus the fourth quarter has beaten that one by 47%.

2015 had three record quarters as Tom mentioned and established an exciting trend for FLYHT. All three revenue categories, the AFIRS sales, the recurring revenue, and the part sales, which of course, includes that license fee were records for FLYHT.

Shareholders will have taken the time to study our annual report. It does contain both good and bad news. The bottom-line for the year and the fourth quarter was not a profit. We did end the year with a higher cost base and efforts which we commenced the year.

The staff headcount remained approximately the same throughout the year, but the total cost is now higher. We also now have some additional consultants, especially in the sales team. This is good news and should deliver results and in the third and fourth quarter, we started to see increasing sales contracts, both closed and under negotiation. You can see those cost impact in the distribution expenses in the financial statements.

Administration and the research and development expenses were both in line with the prior year. If you recall, the prior year research and development expense line item as it appears on the face of the income statement, is actually lower and this was abnormally distorted by that $1.95 million SNC provision reversal in the 2014 year.

The loss in the fourth quarter is attributable to the higher distribution expenses and especially, but not entirely through one-time charges that will now recur, these being in particular attributable to changing our senior management of the company.

Performance has definitely improved. You'll note that the fourth quarter was also operated at cash flow breakeven. Cash absorbed by operations improved $3.2 million compared to 2014. In other words, we have succeeded in absorbing $3.2 million less cash in the year. And as Tom mentioned, through the course of 2015, we absorbed progressively less cash as each quarter continued.

At Q3, I reported that the China business was slowly beginning to flow at an increasing pace as we had been anticipating over the prior couple of years would happen. We continue to report China is doing well. The Chinese airlines are installing satellite communication to meet third mandate inspection deadlines. The sales are both through SKYBLUE, our partner, and direct sales customers.

Investors will note that in that customer deposits, we grew our paid backlog about the same amount as we had in 2014, $230 increase in customer deposits. Deposits now are just over a $1 million.

In the unearned revenue, you see that our AFIRS units shipped and turning into revenue is more smooth than they had been the past. There's less delay between the shipment and the recognition of the revenue. The AFIRS revenue recognized has increased $984,000 in 2015 compared to 2014, a large part of this came in the fourth quarter.

The AFIRS installments in process which are included in our inventory have come back a little bit from the prior year as we're seeing some movement towards payment after installation rather than in advance. This was expected as we move into larger airlines and in China, but the aging of our account receivable remains excellent.

The working capital, of course, is significantly negative on these statements of financial position as both of the debentures the $2.3 million repayable and the $3.1 million convertible or repayable in December of this year now appear in the current liabilities.

Our executive management is very well aware of these liabilities and is working on their retirement. If we remove these liabilities from the working capital, we would be working capital neutral and the decrease compared to 2014 is attributable to the decrease in cash.

This in turn ties to operating loss in the year so we're literally utilizing cash to support the operating loss which was come back in comparison to prior years and we're not growing our assets, which is necessary for a company like FLYHT.

As we sit on the third quarter conference call, the financial position and performance of FLYHT are improving.

With that I'd like to hand the microphone back to Tom.

Tom Schmutz

Thank you, Nola. Excuse me. Moving onto 2016, we're very excited about the developments that we have planned and the goals that we have established for the year.

As I mentioned earlier, we're making significant investment in the redevelopment and rollout of an updated cloud-based implementation of the UpTime ground-based user software. This will be a suite of products including FLYHT voice, FLYHT log, FLYHT aircraft situational display, or FLYHT ASD, FLYHT mail, FLYHT health, FLYHT fuel and of course, FLYHT stream.

UpTime features will include an integrated user interface to the suite using the latest cloud-based application implementations and this will enhance our service availability and will improve intuitive usability while providing some dramatic enhancements.

We have a sales client be enrolling the elements of this new system out to our customers this year and beyond. So, in the second half of this year, we'll be the initial rollout. Our customers will find significantly enhanced functionality in their releases and will also find more control has been moved into the customer configuration portion of the server.

We created some other goals for 2016 including the launch of a 24x7 call center. This will enhance customer service. Internally we've implemented our Adopt Excellence program, which establishes our strategies to grow and improve our internal efficiencies, which will improve our financial performance and increase shareholder value.

Furthermore, we've set very aggressive sales calls and budgets to control expenditures, to continue our effort towards achieving profitability.

We're currently engaged in activities associated with satisfying the June debenture, we have held discussions with several of the debenture holders who are individuals and are well known to our company.

These major holders like our shareholders are very much advocate to the products we have and the industry problems that we're solving. So, we feel like there are several options moving forward to satisfy this debenture. We'll have more information on this topic on the next conference call.

So, the next portion of the call is going to be to answer some of the questions that have come in from email. So, we have -- we do have a few questions.

So, the first question discusses the number of units that we've sold through our relationship with an OEM and our European manufacturer. The question, the number of units that were sold and the number of units that will be sold in -- that we anticipate will be sold in 2016?

I think as we've covered in past, our agreements don't allow us to discuss the quantities and numbers like that. However, these sales show up in our punch revenue and I referenced that it was like a quadrupling of that number -- more than quadrupling from last year this year, so I think if you look at that number, you can begin to understand the exciting opportunities that we have in this part of our business.

There's a further request of Avmax and rollout. I discussed that during my talk, we don't have a targeted date for completion, really, in many ways, will depend upon our customers. Avmax is like all of our direct sale customers and they set a challenging schedule of aircraft checks and operating the aircraft and trying to manage their schedule. So, it's really difficult anticipate exactly when these things will be taken out of the service, and when they will be installed.

In some case, not necessarily, Avmax, but in some cases, there's STC questions and we need to do minor mods, the STC or things like that. So, once we make the sale, the real work begins on scheduling and getting all of the installations done. So, hopefully there are -- I know our customers understands, hopefully, our shareholders begin to understand the challenges that exist in trying to predict exactly when these things will happen.

There was a question about COMAC, ARJ21, and the C919 when they would begin deliveries. So, we had -- we have signed an agreement with [Indiscernible] previously and they were assisting us to get on the ARJ21. Exactly what the production rates of that aircraft will be is really unknown. It was pretty late in its delivery cycle and whether or not they actually produced the quantities that they predicted is something that we'll have to discover as time goes by.

So, I don't have any information to provide on when we might be shipping units for that ARJ21. However, the C919 is a project that we're pursuing. We have a strong Chinese presence and we're working very hard to get on that aircraft. So, hopefully I can provide information in the future.

The -- there was a question about the Canadian search and rescue aircraft. I think that was discussed previously. There is a bid out and we expect we're included in that and we expect to hear back in the third or fourth quarter this year is the latest intimation on that particular project.

There was a question on when would we achieve the 1,000 unit millstone and what were the criteria used to be to qualify the milestone?

So, that's a good question. I mean that would certainly something that we would celebrate. I think I indicated earlier in CEO Letter that we have begun writing the -- we had in January this year achieved a equilibrium on the units that we had sold directly and shipped directly to our customers along with the units that we had sold in our license.

So, right now that brings us up to having fielded or shipped to an order of roughly 800 units, little bit more since that time is going to come by. So, I would expect that if we measured in terms of unit shipped, we feel that we would accomplish that this year. So, I will certainly make you aware when we do accomplish that.

There was a question here about IP license fee. I think I answered that during the call; I don't have any information other than what I said on the call.

There was questions on the debenture and I believe I addressed that on the call. I think we said all we can on the debenture at this point.

So, there's a question here that says, China does not have the best record of prospecting intellectual capital, can you discuss the management ideas, risk and benefits of this business? What is the company doing to protect this vital asset?

It's true; we don't currently manufacturer our products in China, we manufacturer them in United States. So, we don't have the detail billed information or the software or any of the core IP that has -- that goes into making the product anywhere other than in our facility, at contract manufacturer and then add a select partner of that intellectual property deal goes through. So, we're very careful in controlling our intellectual property. There is a possibility that our company could, in some aspects, reverse engineer a product.

Quite frankly that's -- there's not much you can do about that. I mean you have to sell product to stay in business and it's very difficult to reverse that in all aspects of the product. So, I think that we've done what is required from due diligence standpoint to protect our IP.

So, it says our tier-1 airlines considering AFIRS, do you expect that way for regulations to force them to install? So, we are pursuing tier-1 airlines where it makes sense. We have pursued different opportunities. We're still in search of the win. They are a difficult in because of their integrated systems, the requirements, the amount of requirements that they have make it difficult.

So, we do continue to pursue the tier-1 airlines where it makes sense. We do have our core focus though on those airlines that are currently not using AFIRS that are operating without any type of data capability. We feel that right now those are the opportunities that hold the most success probability for us. So, we continue to pursue both and so I hope to be able to provide more information on that as we move forward as well also.

Are the new Chinese airline installations one-offs or the beginning of numerous installation? This is really interesting question. When I arrived in October, the number that was reported to me was that there was 46 airlines in China. And the last count that I received was 52 or 53. So, just in the timeframe since I've moved to FLYHT, which is five months, there has been an increase of somewhere in the neighborhood six or seven commercial aircraft companies in China. That's incredible, that's a really exciting opportunity for FLYHT. We're very, very much engaged in China.

So, even when we make an announcement and say that we made an initial sale to a new start-up Chinese airline, they are growing rapidly. There's a huge demand for air travel there and so giving our product in and becoming part of their operations is huge.

This is pretty much a true statement around the world is that once we get our product installed and our customer start using it, they continue to use it. They don't take it off the aircraft. In some instances, the company may dissolve, which means that they can no longer run their operations, but once they start using our product, they pretty much re-up, they pretty much continue to use it, it becomes important part of their operations and that's I think a real strong compelling takeaway that I've seen in the five months that I've been here. We are selling to Chinese companies that are both large and small and we think that there's great -- there continues to be great opportunities.

Does this -- the rate of installation AFIRS on OEM product line increasing steady or decreasing?

So, the answer to that question is in fact increasing. We see it ramping up dramatically, it's continuing to ramp and it's very, very exciting for us.

So, I believe that that covers all of the questions that we received. Anastasia if you want, you can work in whatever phone calls that we have.

Question-and-Answer Session


Thank you. We will now take questions from the phone. [Operator Instructions]

Thank you. Our first question is from Walter Winnitzki of Buckley Capital Partners. Please go ahead.

Walter Winnitzki

Yes, thanks. I actually have two questions. First, I’m trying to get at the underlying operating EBITDA in Q4. You had mention there were some retirement and other one-time charges. Could give us an idea of what those were and it looks if you extract those out was operating EBITDA are closed to breakeven, so that’s first a question.

And then second, Tom, maybe you can step back and discuss the overall go-to-market marketing strategy which has changed a lot in the last year or so with the addition of Ascend Tri-Wing and Dave coming on Board. Just to provide a little overview of -- there were logic behind the changes and how some of those initiatives like Ascend going at this point in time. Thanks in advance.

Tom Schmutz

Okay. I’m going to let Nola take the first part and I’ll second.

Nola Heale

Thanks very much for the question, Walter. You are in fact correct. We were at operating breakeven, in fact a little bit about if you review those retirement one off kind of charges that we included in the quarter that we not expect to recur. So, flat in the fourth quarter did achieve operating breakeven.

Tom Schmutz

Okay. From a marketing standpoint, I would say that the marketing strategy that was put in place by the team prior to my arrival was sound and that was there initial efforts targeted getting our products installed OEM production lines that is we can use benefits currently for the company.

We’re currently are large European installation line as well as Bombardier. And so we will continue to work to get our product installed with the air framers because when it comes out of the factory installed, it’s much easier to pursue and get the referring services than having to sell and install it and then working the services. Common sense.

Secondly, that doesn’t mean that we’re not actively pursuing direct sales. We R&Ded and that was the emphasis [ph] last year was to build up a team. So David Perez is in charge of our sales team and he is doing a good job getting everybody aligned and making direct sales. We brought on Ascend last year. We have terminated our relationship with Ascend. So they are no longer working full flight.

However, there were some good results from that partnership. We have recently as I indicated brought on Tri-Wing which was bring us great exposure into that South-east area. And I hope to be able to provide more indications of the successes of the sales team quite soon.

Walter Winnitzki

Okay. Thank you. Maybe I’ll squeeze one more in. Maybe you can discuss the prioritization of maybe beginning a relationship with the Boeing folks. And if that’s something that’s on the radar screen for us to be thinking about over the next one or two years so, how realistic that would be?

Tom Schmutz

Yes, so we are very interested in getting our product on all of the air framers and that’s a big learning hold. We have significant STCs for Boeing aircraft. We have installations on Boeing Aircraft all around the world. We would love to have a flight product coming out of the Boeing factory and we’re very much engaged and trying to make that happen.


Our next question is from Fadi Benjamin of Euro Pacific Canada. Please go ahead.

Fadi Benjamin

Thank you for taking my question. Just quickly, if I want to go back and I want to have a look at the number of kits that were deposited. I know here that and for your comments that essential you flat lined on the payment received 2015 to 2014 for customer deposits. However, you have received payments for 36 kits versus 57 from last year. So, just wondering, is there a change to your pricing strategy that’s undergoing for the AFIRS? That’s the first question.

And second one was with regards to the Avmax. Tom, if you could and maybe I missed that odd, did you -- could you at least provide some quantitative measure to how many units have been shift to Avmax and what’s -- and how many have been installed for stocks? So go ahead.

Tom Schmutz

Okay. Well, I’ll take the last question first because I understand a little bit better. I think I said during the thing that we shipped five; I think three are installed and we’re working with that customer to continue to shift more.

So I think I said during the call that it’s really a challenge for our customers to get the aircraft available and do the install. So I don’t really have any more information on Avmax. That program we consider to be going quite well.

On your first question, it was confusing to me. But I will take it -- use it as an opportunity just to explain a little bit of a complexity of the revenue recognition sales cycle that we have and I know that you are aware of this thought, but maybe everybody isn’t. So we this sales cycle where for direct sale that we’re providing services to a customer we sell the product.

We manufacture the product. We shift the product and it gets installed on an aircraft. All these things occur without are being able to recognize revenue. It’s not until it’s been installed and provided service for fine item out of time that we can actually recognize the revenue of that shipment.

In that cycle between making the sale receiving deposit and actually turning on service there could be quite of a time that goes by depending upon the status of STC depending upon availability of the aircraft depending upon the all the different things that going to this complex operation.

So it’s really difficult for us to predict when sale will turn into revenue. And we have this challenge and I know that the accounts that look at our -- folks have this challenge trying to predict exactly where we’ll be. I don’t know Nola if you want to add anything to this that would help.

Nola Heale

No, I certainly agree. Fadi, as I had mentioned we are seeing that the customers are starting to install the boxes are lot faster than they had been. So there is a late of a delay between the date at which we shift the box and when it just installed and turned on so that we are able to recognize the revenue. So there is bit of a distortion if one looks at it from there perspective and in terms of a number of units shift and/or installed in a year versus revenue that we recognized. It’s a bit of a funny ratio this year.

Fadi Benjamin

My question was with regards to the customer deposits. You basically had about the same amount about $2.8 million, $2.9 million on UT year. And you have received less in terms of unit -- in terms of deposits for units. So you’ve received and I’m just reading from your MD&A total payment for installation kits to 36 compared to a total of 57 in 2014.

Yet, you have disclosed the same amount of payment. So if I take the information at face value you are getting more dollars per kit on -- at deposit. Is that a correct statement? Am I reading this the right way?

Nola Heale

At absolute face value, yes, we are getting more, but it’s not that we are actually receiving more per kit. That is very much dependent on the kind of the kit that we are receiving the deposit on. There is a price difference in different regions and there is also a difference between the various muddles of our units.

So the mix of those units that are included in that payment that we received from customers will definitely distorted. I do recall that late in 2014 we had relatively more by number of the less expensive units than we had in 2016 late in the year. Sorry, I’m leaving ahead.


Our next question is from Alex Ruus of Arrow Capital. Please go ahead.

Alex Ruus

Hi, guys. Congratulations on the good quarter. I was just curious on the European OEM installations. Have you guys been able to translate any of those installations to ongoing service revenues yet?

Tom Schmutz

No, that’s work in progress, Alex.

Alex Ruus

Okay. What odds would you give that -- you'll be able to turn somebody in the next 12 months?

Tom Schmutz

Well, there are several activities that we need to undertake before we’d be able to do that. So it’s an extremely high priority activity and one day we think that we’ll be successful accomplishing but I can’t really give a date on when that would be occurring.

Alex Ruus

Okay. And the other question I had was, the first Geared Turbofan fan engines are going out and the first leap engines are now going out and part of what GE and Pratt talk about is the high level of monitoring to those engines and how important data is to the reliability those engines. Like how are GE and Pratt obtaining data on their engines and is there opportunity for you guys in that area?

Tom Schmutz

Yes, we absolutely see opportunities with the engine manufacturers and I think that the real verification of the work that has been done flight can be seen and the capabilities that exists in the new Boeing 787 and the Airbus A350 aircraft. So those aircraft were designed from the ground up with significant real-time data capabilities through typically in Mar-Sat [ph] satellite communication means.

Really what they’ve done and design those aircraft is the same work that this company has been doing from day one on the legacy aircraft. Now while that might sound communist because the OEMs are actually building the capabilities into the aircrafts. It’s actually quite exciting because what approves is that the types of services that we provide are essential and necessary that as the operators get the 787s and 350s they’ll begin to understand how to use and how important to do they becomes.

And then there is this enormous legacy fleet of aircraft that are exciting in the world that are being flown and that are still being manufactured because all of the other aircraft that are being manufactured don’t have this capability. We think that there is a huge market and that again the time is right for flight. I think that this is really exciting for us.


[Operator Instructions]

The next question is from [Indiscernible], a Private Investor. Please go ahead.

Unidentified Analyst

Hi, hello.

Tom Schmutz


Unidentified Analyst

Hello. Thanks for the opportunity given. And I’m a student from India. I have few questions, few basic questions about AFIRS. What is weight of the AFIRS normally? And how sure that it will not affect the effectiveness of flying? And what is the antenna used for this so that you could overcome the signal disconnection during the streaming? And what are the parameters in which AFIRS will be triggered for streaming?

Tom Schmutz

Okay. The weight is about 6 pounds I think. The antenna is the passive antenna that’s used. We source the antenna from antenna manufacturers but it’s a passive antenna. That is a low profile which makes it very advantageously used on everybody aircraft because it doesn’t take up a lot of room space or requires a lot of challenges on installation. The triggered data really is configurable by the customers. So there is certain parameters that we will recommend the use for the triggering. There is also configuration that can be done so that customers can customize how they trigger and when they trigger.

There was a question that you asked in the middle there that I don’t think I captured.

Unidentified Analyst

Yes. The question in the middle was what is the technology of antenna you used in this AFIRS to overcome signal disconnection during this streaming pauses.

Tom Schmutz

Okay. Well, the antenna is the passive antenna, so I think that’s all I can say on that. In terms of disconnection, there is of course the possibility if the aircraft was in a very unusual attitude during a serious event you could have a disconnection. There was evaluation done by the BEA after the Air France 447 crash, where they wanted to understand if you remember part of those meetings that after we went through and looked at the Air France 447 and we went to triggered streaming set of meetings.

And they did some test where they put antennas satellites, SATCOM antennas on a rotating barrel and they evaluated the probability that you’d maintain a connection with the satellites if you’re rotating that barrel. And the result is captured inside of their report it’s really quite interesting. They did recommend that for complete connection surety that you would have two antennas one on the top and one on the bottom of the aircraft. So the actual probability that would disconnect with a single antenna was really quite a little -- it was surprising to me.

So I think that we have in our black box streaming flight stream capability a real safety winner. I think that probability that we get to date of the aircraft is pretty high. And I think that it’s something that is quite frankly astounding that we haven’t had more uptick on this in this industry. Hopefully that answers your question.


The next question is from Marc Berger of MKB Associates. Please go ahead.

Marc Berger

Hi, guys. Thanks for the call. Good quarter. Are we going to soon target the leasing market? Seems like it’s a perfect area that have large fleets of planes ideal for them to know where their planes are at all times, that they are being maintained because absolutely they are absentee landlords?

Tom Schmutz

Yes, Marc. Nice to talk to you. We absolutely are. We have this deal Avmax. So with that customer that they bought like the FLYHT Log and FLYHT health product, which like you said gives them the opportunity to manage the fleet to understand it to be able to give real time data to understand how it’s been operated.

But then there is an opportunity as they lease those aircraft to their customers that we can go an upsell all the other services that we offer to those customers and so there is -- layered on to the service that are done by lease. So we see that as a great model. I think you’re spot on and we’re pursuing it.

Marc Berger

Second question on insurance. I know the operators don’t share their cost with you, but perhaps we have to come out at it from a different direction. Why not go after the insurance company themselves either pick one or two that wish to enter into the market space or one is that may want to expand their reach.

If we can bring the operator to them if they give the operator discounted rate, first the insurance companies -- first of all, the insurance companies should be able to look at this as a risk tolerance event it would be an advantage to them to be able to sale to new clients while at the same time be able to receive revenues from a sort of like -- if it’s like an order company giving a discount to good drivers plus devices. But I don’t know true numbers, but let’s suppose an operator gets charged to $1 million a plane a year on an annual basis for maintaining and giving insurance.

And if they give the operator 5% discount that would be a 50,000 savings per year that would take for the entire cost as well as recurring revenues for at least 1 to 1.5 years as to the operator is saving -- operator's saving don’t have savings for likes of plane, but actually becomes an income generating element because after they finish paying for the service they still have that cash flow coming through.

So thus, the results would be the operator gets top of the line product actually generates income while protecting the plane also saves an additional cost through maintenance, the savings that monitors on both their systems allows through tracking streaming of the black box in case of emergency.

The insurance company gets a new client which generate sales as well as an opportunity to upsell them their additional insurance products and also have a lower risk profile. And obviously flight gets to sell more systems generates recurring revenues and who knows maybe you can extract some additional things from insurance company as a onetime blinder or recurring revenue fee as well.

Tom Schmutz

I think your logic is right. I think it makes sense and it’s certainly something that we’re pursuing. We do have evidence that customers have received reduced rates after installing our systems. We haven’t really been able to turn this into sales opportunity, but we’re trying -- we’re working on this. You’ve present some good ideas. We’ll continue to work it and I agree with you. I think that there should be opportunity there. And I hope that we discover.


We have time for just one more question and that will be a follow-up question from Fadi Benjamin. Please go ahead.

Fadi Benjamin

Thank you. Just quickly, it’s for Nola. Keeping in mind that a lot of the installations in China are going to be on the voice side of it and whatever you’re having with factory installed on Airbus is still going to be on very basic acres. Could you go historically looking back at your voice and data services?

Is it possible for you to give us sort of a break of 2015 of how much of that recurring revenue was strictly on, call it, the lower end, just voice side of it? And how much of it is tied up to the higher end getting more of the AFIRS functionality -- or related more to the AFIRS functionality to the different product lines that are on the AFIRS UpTime?

Nola Heale

Fadi, I don't unfortunately have those numbers in the room with me at the moment. But I can comment that the mix between voice and data did stay approximately the same through the year compared to what it had been in prior years.

Potentially as we signed up more Chinese customers if they were to stay with exclusively voice, the mix would increase; we'd have more of the voice-only customers. But at the moment, we haven’t seen a significant shift. Although we're also as we've mentioned in the past, we're pursuing data with Chinese customers.

So, there is the possibility that we'll be able to sign at least some, if not all, of the Chinese customers for data as well which will allow us to maintain or potentially even increase our average per customer rate, because we would have both voice and data.

But through 2015year, we didn’t see terribly much of a difference in the exact spilt. I could get you the numbers after if you would like.

Fadi Benjamin

Much appreciated. Thank you.


This concludes the question-and-answer session for today's call. I would now like to turn the conference over back to Mr. Tom Schmutz for closing remarks.

Tom Schmutz

Well, I thank you very much everybody for dialing in and listening to the call. I'm quite proud of our year last year and particularly the fourth quarter. We remain very positive about our significant ability to improve operational efficiencies of airlines and we're engaged as ever here at FLYHT.

I'm really very personally happy with the way the company has welcomed me and my ideas concerning how we continue to build up on the excellent work that was implemented before my arrival. So, I just want to say thank you for your support of our company and we look forward to a very exciting and opportunity-filled 2016. Thank you.


This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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