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Independent Reviews for Venture Investors

FLY.V - Turbulence.

Flyht Aerospace Solution Ltd. (FLY.V) helps airlines improve safety and decrease operational costs through innovative products. FLY.V streams data from an aircraft via satellite to the airline's flight operations center. FLY.V's coverage was initiated February 2017 with subsequent notes on September 3, and November 17 and March 21. Since then if you're a passenger, its been a bumpy ride.

Mar. 22 - (AFIRSTM) installed for real-time data services on their aircraft have logged over two million flights in the UpTimeTM services platform. The one million UpTime flight was logged in April 2014 and proceeded to double the number of flights in less than four years.

Apr. 2 - Applies for warrant amendment from $1.60 to $2.50 (1.6M) warrants. The foregoing warrants are set to expire on May 12, 2018.

Apr. 3 - Q1 2018 Update: $2.9M in Sales in Q1 2018. Ten customers renewed their sales contracts for UpTimeTM data services. FLYHT also sold AFIRSTM hardware kits to an Aerospace and Defense original equipment manufacturer (OEM) for integration into one of its airframes,

At quarter end, the sales backlog for AFIRS kits and voice and data services exceeded $26M.

Apr. 9 - 3 Million Flight Hours Logged on FLYHT’s UpTime™. The 1st million took 7 years, the 2nd million (3.5 years), and the 3rd million (2 years).

Apr. 10 -Reports 2017 Year End Results: Revenue of $3.5M, which represents a 13% decrease over the fourth quarter of 2016. AFIRS hardware revenue of $1,5M, an increase of 76% over the fourth quarter of 2016, and parts sales $1,0M, a decrease of 50% Net loss of $0.5M, which was a decrease of $0.6M over the $0.079M net income in the fourth quarter of 2016.

"Our overall revenue in the past two years was essentially the same. The profitability difference was largely decided by the one-time IP license income in 2016 which was absent in 2017.”

Apr. 30 -Ships 2000th AFIRSTM Unit to Azur Aviation. Azur has purchased AFIRS equipment for their entire fleet.

May 8 - Issuance of Incentive Stock Options 0.42M common shares at $1.55 cents - with vesting schedule of 1/3 yearly: 2019, 2020, and 2021.

May 15 -Retained Adelaide Capital Markets Inc. (“Adelaide”) to provide investor relations services effective immediately. Adelaide will receive $6,000 CAD per month from FLYHT, as well as, 30,000 common stock options on or before June 1, 2018.

May 16 - Reports Q1 2018 Earnings. Revenue of $3.3M represents a 12.3% decrease from the first quarter of 2017. SaaS Revenue of $1,0M, a decrease of $0.11M or 9.7% over the first quarter of 2017. AFIRS Hardware of $1.5M, an increase of $0.49M or 46.4% over the first quarter of 2017. Revenue was recognized on 31 installation kits in Q1 2018 compared to 11 in the first quarter of 2017.

Licensing of $0.62M, a decrease of $0.86M or 58.9% compared to the first quarter of 2017. Technical Services of $0.082M, an increase of $0.048M or 147.7% over the first quarter of 2017. Research & Development (R&D) expenses were $0.73M, or 31.7% higher than in the same quarter of 2017, due mainly to increased staffing effort involved in R&D activities.

Net loss of $0.58M was a reversal of $0.70M over the first quarter of 2017’s net income of $0.11M. The balance of $0.83M in customer deposits at quarter end was an increase of $0.137M over Q1 2017 but a decrease of $0.84M from Q4 2017, due to deposits received in Q4 applied to Q1 2018.

May 22 -Re-signs Loyal Customer to Five-Year Contract - Software as a Service (SaaS) contract. Renewal value of $1.03M (USD), assuming services over the full term of the five (5) year contract The airline operates in North America and uses the (AFIRSTM) and UpTimeTM.

May 24 -First Certified Application Provider (CAP) to be certified for Inmarsat’s SB-S platform - AFIRS will be deployed through SB-S platform. SB-S is in commercial operation with Hawaiian Airlines and is undergoing in-flight evaluations with United Airlines and Shenzhen Airlines. It has also been selected by Airbus as a Light Cockpit Satcom (LCS) solution on its A320 and A330 families.

Rockwell Collins, SITAONAIR, and China Transport Telecommunication Information Group Company Limited (CTTIC), Aviation Data Communication Corporation (ADCC) in China are distributors. Also terminal equipment is available from Cobham SATCOM and Honeywell.

A few factors have contributed to the descent in the stock price to date. First, the sentiments in the update are inconsistent with the actual earnings. For instance, Q4 and Q1 updates, along with the milestone announcement (i.e. 2M flight logged (Mar. 22), 3M hours in Uptime (Apr. 9) are dissonant.

Second, lowering the warrant conversion threshold (from $2.50 to $1.60 - Apr. 2) and granting options ($1.55 - May 8) were not in line with market's expectations. While, lowering warrant conversion is sensible, the issuance of stock options below these levels is problematic. By lowering the options, below the warrant price, FLY.V resets expectations on the share price. It also send a message to warrant holders that the company will rewards itself at a discount to investors. That is definitely not the right message to send, and the timing was also poor.

Hence, it came to no surprise that the day the warrant expired (May 12th) corresponds to the beginning of the decline in the stock price. Thereafter, disappointing Q1 results led to a massive sell off. The contract and the Inmarsat release were unable to mitigate selling pressure.

Depicted below is the trading activity from May 14 to 28 inclusively. Cannacord and BMO make up 43% of the total sales. Telling.

Equally surprising is that to date, FLY.V's has not responded to the market by making any insider purchases. This represents a missed opportunity as the stock price is at a multi-year low and has been steadily dropping since November.

Despite being the only Avionics vendor selected for the ecoDemonstrator program (Boeing/Fed Ex), and now the only Certified Application Provider with Inmarsat, FLY.V has had numerous consecutive weak earnings, has not manage market expectations, nor responded accordingly.

We still think that FLY.V is mispriced - the revenue (13%) drop is not proportional to the stock price drop (51%) year over year.

However, FLY.V will need to do more to change market sentiments.

For now, a questionable flight-path and turbulence.

DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.


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