Firan Technology Group Corp
TSX:FTG
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Firan Technology Group Corp
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Good morning, ladies and gentlemen. My name is Chris, and I will be your conferencing operator today. I would like to welcome everyone to the FTG Q1 2019 Analyst Call. [Operator Instructions] Please note that this call is being recorded today, April 11, 2019, at 8:30 a.m. Eastern Time. I would now like to turn the call over to Mr. Brad Bourne, President and Chief Executive Officer of Firan Technology Group. Mr. Bourne, you may proceed.
Thank you. Good morning. I'm Brad Bourne, President and CEO of Firan Technology Group Corporation or FTG. Also on the call today is Melinda Diebel, our Chief Financial Officer. Before we go any further, I must caution you that this call may contain forward-looking statements. Such statements are based on the current expectations of management of the company and inherently involve numerous risks and uncertainties, known and unknown, including economic factors in the company's industry generally. The preceding list is not exhaustive of all possible factors. Such forward-looking statements are not guarantees of future performance. And actual events and results could differ materially from those expressed or implied by forward-looking statements made by the company. The listener is cautioned to consider these and other factors carefully when making decisions with respect to the company and not place undue reliance on forward-looking statements. The company does not undertake and has no specific intention to update any forward-looking statements, written or oral, that may be made from time to time, by or on its behalf, whether as a result of new information, future events or otherwise. We are off to a great start in 2019. We achieved a 13% growth in shipments in Q1 2019 compared to Q1 last year. And I am saying shipments as last year's revenue included a onetime $5 million revenue adjustment on the development program that was not true activity in that quarter so it does not make sense to include it when looking at year-over-year comparisons. Within this revenue growth was record sales from the FTG Aerospace Tianjin facility, up 67% (sic) [ 68% ] over Q1 2018. We are very pleased with our financial results overall for the quarter. But before I get into that, let me summarize some key accomplishments from this quarter. We achieved earnings before interest, taxes, depreciation and amortization or EBITDA of [ $3.2 million ] in Q1 2019, an increase of $1.7 million or 122% over Q1 last year. We achieved a trailing 12-month EBITDA of $12.3 million. We achieved net income of $1.2 million and diluted earnings per share of $0.05 in Q1 2019, a $1.5 million increase over Q1 2018. We achieved bookings of 23 -- $24.3 million in the quarter. We received Canadian Technical Standard Order or TSO approval for a cursor control device, enabling FTG to begin production of this product that has been under development over the past 3 years. And subsequent to the end of Q1, FTG announced we had entered into a definitive purchase agreement to acquire a U.S.-based printed circuit board manufacturer subject to approval of the Committee on Foreign Investment in the United States, or CFIUS, and other customary closing conditions. As a result of the acquisition, we incurred the $62,000 in legal expenses in Q1 and expect final deal expenses in Q2. Now let me briefly update the overall market situation. In the commercial aerospace market, until the recent very tragic crashes of the 2 Boeing 737 aircraft, the large aircraft manufacturers have been increasing production rates on a number of aircraft models. In 2018, both Boeing and Airbus reported record shipments and both reported plans to ramp up production rates in the future. The plans remain in place for Airbus, but for Boeing, everything has changed in the short term. Boeing has announced they will stop all shipments of 737 aircraft until the crash investigations are complete and the fix is implemented to prevent future similar actions. In the first quarter, shipments of single-aisle aircraft from Boeing were down 33%. Initially, Boeing had indicated they would continue to build at their normal production rate. But very recently, they have announced a cut in the production rate to 42 aircraft per month, again, with no shipments to customers. At FTG, we have limited content on this aircraft that I would estimate at approximately $1 million to $2 million per year. Our content is shipped to Tier 1 suppliers. And as of now, we have not seen any cut in demand for our components. Outside of the 737 aircraft issues, Boeing production rates remain at normal levels. Both Boeing and Airbus continue to have order backlog that stretch out to 7 to 8 years of production. And again, looking past the immediate challenges of Boeing, both companies have plans to increase their production rates on their single-aisle aircraft later in 2019. There are also new entrants into this market segment with aircraft still under development or in initial production. Specifically, the new programs or the C-Series, now called the Airbus A220 and the C-919 with COMAC in China, both of which FTG has content on. The forecast for the C-919 has proved with full production rates, our content on this program should be on the order of $5 million annually. The C-919 continued through flight testing with 3 test aircraft and a fourth is planned to start testing in the near future. In the short term, we continue to support the development program with qualification and certification activities, and we are shipping preproduction hardware for the test aircraft and various test and integration facilities in China. 2019 revenues on this program should be somewhere between $1 million to $2 million for FTG. For the A220, we remain confident that the formation of the joint venture with Airbus is positive for the future. There are now over 500 orders, and over 60 aircraft have been delivered, including 8 in the first quarter of 2019. We continue to see mixed signals in the business in regional jet market segment in the near term, an area where FTG has a long-term established base, particularly for our Canadian facilities. Bombardier, one of our key customers, has recently projected increased production in 2019 by as much as 15% as their Global 7500 aircraft enters production. In the areas we participate, in the health aftermarket, we have seen market weakness over the past few years. Looking forward, we believe there will be growth as the resource industry recovers. The defense market remains strong. The U.S. defense spending has increased in the last few years and the 2019 budget is higher again. Both our acquisitions in 2016 increased our exposure to the defense market, and this bodes well for us going forward. The ramp-up in production of the F-35 is a growth opportunity, and we have some content on this aircraft. Our acquisitions in 2016 have increased our content from the JSF program as well. The acquisitions also increased our activity and aftermarket support activity across a number of aircraft from the B-52 and B-1 bombers through almost all fighters in service. Finally, primarily through our PhotoEtch acquisition, we have become a much bigger player in the aircraft simulation market. The overall market is estimated at over $7 billion annually. The key systems providers are CAE, FlightSafety, Boeing, Rockwell, L3, Lockheed and Thales. We are engaged with 5 of these 7 companies. As disclosed in various press releases in the last few years, we have captured some significant contract, and simulation-related revenues have become a material part of FTG's overall sales. For Q1 2019, 3 of our top 10 customers are in the simulation segment. This business is a bit more lumpy than typical production parts, so swings in this activity could be reflected in future quarters. FTG has strived and will continue to try to balance the sales between the various market segments. This should help maintain a stable revenue stream as each segment goes through its normal cycles. Now let me turn back to FTG's results. In Q1 2019, total bookings across FTG were $24.3 million. And the backlog at the end of the quarter was approximately $48 million, which is down about $1 million from the start of our year. Over $30 million of the backlog is due in the second quarter of 2019. And I see strong backlog across all sites, with the exception of our surface joint venture in China. For Q1 2019, FTG sales were $25.4 million, again, a 13% increase from Q1 last year on an apples-to-apples basis. We did benefit from a $0.07 weakening of the Canadian dollar versus the U.S., which represents about $1.5 million of sales growth. Also, please remember that our Q1 includes a Christmas period and/or the Chinese Spring Festival, so our available production days are reduced by about 8%. If you compare our Q1 sales to Q4 from last year, the sales were down about 9%, so production rates were very much in line with what we achieved at the end of last year. We did hope to ship a bit more in Q1 than was achieved. Some specific production issues held us back at a few sites, and I'll explain more of business later in my remarks. Overall at FTG, our top 5 customers accounted for 62.8% of the total revenue in the quarter compared to 55.7% last year. The primary reason for the change was the merger of Rockwell Collins and the United Technologies Aerospace, as they were each in our top 10 customers before their combination. As mentioned earlier, 3 of our top 10 customers are in the simulation market segment this year compared to only 1 in Q1 last year. Also interesting to note that the top 10 customers, fiber customers, shared between circuits and aerospace. We particularly like to see the shared customers as it means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. In Q1 2019, 40% of our total revenues came from our Aerospace business compared to 37.3% last year, again, excluding our onetime revenue adjustment last year. I'd like to turn the call over to Mel, who will summarize our financial results for Q1 2019. And afterwards, I will talk about some sites, specific items and other key priorities we are working on. Mel?
Thanks, Brad, and good morning, everyone. All references to dollars within my presentation refer to Canadian currencies unless otherwise specified. So let's start by walking through our operating results and financial position at the end of Q1 2019. So we started off with strong momentum in 2019. Sales of 24 -- $25.4 million in the quarter, generated gross margin of $6.8 million or 26.6% and realized net earnings attributable to equity holders of $1.2 million, translated into basic and diluted earnings per share of $0.05. Comparatively, Q1 2018 sales of $27.5 million generated a gross margin percentage of 17.6% and realized a net loss attributable to equity holders of $293,000, translated into basic and diluted loss per share of $0.01. This comparative quarter included a onetime adjustment, which improved sales by approximately $5 million, but depressed gross margin percentages, which otherwise would have been 20.4% in Q1 of 2018. FTG continues to see the results of its focus on sales growth, cost savings and operational improvements. Organic sales growth has benefited from a mix of legacy FTG customers and former customers of both PhotoEtch and Teledyne PCT. The continuation of contracts acquired under these transactions and the subsequent follow-on sales from the same is a great revenue stream, which we hope to continue to benefit from in the future, as we prove to our new customers that we have worked through our transitional issues and are committed to providing excellent quality parts on time for a competitive price. Net sales for the FTG Circuits segment during the first quarter of fiscal 2019 were $15.2 million. Our Toronto Circuits operations specifically continued to show significant organic growth, gaining almost 20% over their Q1 2018 sales levels in the current quarter. This growth was partially offset by some setbacks in FTG's Chatsworth Circuits operations due to certain regulatory certification processes. Net sales from FTG Aerospace segment in the first quarter of fiscal 2019 were $10.2 million, a decrease of 3.2 -- sorry, yes, a decrease of $3.2 million or 24% over the same period of 2018. The decrease in the segment sales was predominantly due to the onetime adjustment, which bolstered 2018 sales by $5 million, partially offset by certain organic growth within all of aerospace facilities. If we exclude the onetime adjustment, this segment would have shown an increase of 21.1%. This increase was dampened by the impact of temporary component shortages, particularly with connectors in FTG's Aerospace Chatsworth facility. FTG's focus on cost savings and margin improvements has led to significant reductions in infrastructure, labor, material and quality costs in our North American division. These activities will continue throughout 2019, though on a smaller scale. The first quarter of 2019 also benefited from higher throughput, reduced inefficiencies and increased yields due to operational improvements in all wholly owned divisions, with improved gross margins at all North American locations and at our 10 Aerospace Tianjin facilities. These improvements have been shared by both our Aerospace and Circuit segments, with both seeing significantly higher margins than the same period last year. Further, the Aerospace segment's gross margin is the highest achieved since the transitions of Teledyne PCT and PhotoEtch. However, despite these positive signs, management recognized that these improvements have been hindered by material shortages, as discussed previously, largely with respect to custom connectors and certain regulatory certification processes in our U.S. Aerospace division, which Brad is going to touch on later. This depressed our sales and increased costs in the quarter. Steps have been taken to address the underlying issues, and operating results in the remaining quarters of 2019 are not expected to be significantly impacted by these issues. These overall results are heartening and support our continued focus on controlling FTG's infrastructure, material and labor costs. R&D costs for the first quarter of fiscal 2019 were $1.1 million or 4.4% of net sales as compared to $1.2 million or 4.4% of net sales for the same period last year. R&D costs were slightly lower in the current quarter. During the current quarter, U.S. and Canadian operations both focused on process and product improvements as well as testing of new techniques, technology and special material. Toronto Circuits also had an additional project which focused on automations. Our consolidated balance sheet remains healthy. Our net debt position at the end of 2001 -- or sorry, at the end of Q1 2019 was $4.3 million, representing additional debt of approximately $1.9 million versus the ending balance in 2018. Additional funds were drawn in the current period to cover additional working capital demand and certain capital asset investments. As we have previously stated, paying down our debt is one of our capital management goals. That being said, our debt level remains very conservative and our management team is committed to continued growth and technological improvements and is willing to draw on existing facilities to fund working capital for larger customer contracts and do purchase equipment to expand our offerings and improve throughput and yield. Further, the company believes that accretive business combinations, such as the recently announced purchase of a U.S. circuit board company represent a good use of its available debt facilities. All of the corporation's credit facilities with its primary lender are secured by a first charge on all of the corporation's assets. The company was in compliance with all of its financial loan covenants as of March 1, 2019. As at the quarter end, FTG's primary source of liquidity totaled $47.9 million versus $48.5 million as at the end of last year. It is made up of cash, accounts receivable, tax receivable and inventory, but excludes USD 8.3 million of availability remaining on our revolving line of credit and USD 2.1 million of available -- availability remaining on our revolving term loan with our primary lender. Working capital at the end of the quarter was $30.4 million as compared to $28.7 million at the end of last year. Accounts receivable days outstanding were 62 as of March 1, 2019, compared to 59 as of November 30, 2018. Inventory turns at the end of the quarter were 2.7 compared to 3.2 at the end of last year. And accounts payable days outstanding were 76 at the end of Q1 2019 as compared to 78 at the end of Q4 2018. Management believes that the corporation has sufficient liquidity and capital resources to meet its obligations for the foreseeable future. Plant and equipment for the year-to-date period includes additions of approximately $400,000. Current year fixed asset additions were predominantly for our Circuits divisions and related to new equipment and upgrades on key equipment to improve technological offerings and improve automation within our operations. Provisions relate to warranty amounts, which remain relatively consistent with historical levels and certain restructuring amounts for post-employment costs for 2 senior divisional executives. This quarter, FTG adopted IFRS 9 for financial instruments and transitioned to IFRS 15 revenue from contracts from customers. There were no significant effects on FTG's operating results or financial position. However, it did affect the nature and length of our disclosures. Looking forward, FTG continues to strive to balance its sales between commercial aerospace and defense customers in order to help us maintain a favorable revenue stream as each market fluctuates. FTG is engaged with most of the top aerospace and defense prime contractors in North America, and it is making significant progress penetrating markets beyond this continent. FTG's focus on this market is based on the belief that it can provide a unique solution to its customers and attain a sustainable competitive advantage. This focus has allowed FTG to secure bookings of $24.3 million in the current quarter and $104.7 million in the last 12 months. Within our Aerospace segment, we entered Q2 2019 with a strong backlog of $28.4 million. And our Circuits product segment has a backlog of $19.9 million at the end of this quarter. FTG continues to increase its technical skills in both segments to support the demand from customers for more complex, challenging solutions on new programs and opportunities. As we move forward, we will continue to focus our efforts on reducing our working capital requirements, lowering our overall debt levels and controlling the corporation's infrastructure, material and labor costs, while increasing the utilization of our facilities and realizing significant operational leverage and margin expansion. The FTG management team is committed to running a healthy business, offering stability to its customers, suppliers and employees while delivering long-term value to all of its stakeholders. Our complete set of Q1 2019 filings were posted on SEDAR last night. With that, I would like to turn things back over to Brad.
Thanks, Mel. Let me delve into some details at our sites. Circuits Toronto continued to perform exceptionally, both financially and in meeting all customer expectations. They continue to invest in automation. They have their second robotic system in development with their internal team, and they're evaluating a third system to be provided by an outside integrator. They're awaiting new equipment to move to an additive manufacturing process for [ its automats ] application within their production pool. They've continued to find ways to ramp production. But as they are running the plant virtually 24/7, there's the limit to how much more they can do. I will come back to this when I discuss our pending acquisition. Aerospace Toronto has increased activity year-over-year. They had the bulk of the new simulator programs, and they definitely left some sales on the table in Q1 as the workload in the engineering of many, many new assemblies proved to be too much to accomplish in the quarter. The site also had about a $1.7 million increase in inventories of the total $1.9 million increase across FTG due to the amount of the simulator work in production at quarter end that they could not get out the door within the quarter. In Aerospace Tianjin, sales were up 67% in Q1 2019. Total sales were approximately $1 million. This would make their utilization rate about 25% to 30%. The increase made a remarkable change in their financial performance, and they have some of the best margin and net income percentages of any FTG site. While they have lots of room for growth, we are adding some specific equipment in the next few months to add capacity to be able to support continued growth going forward. And we are seeing some nice growth opportunities at the site, including our first part number there that goes on the Boeing 737 aircraft. Hopefully, the recent events do not create any setbacks for us. In the Circuits JV in China, activity was flat year-over-year. There has been some significant management changes in our JV partner, and this is causing us some challenges. But the site has recently completed additional qualification activities and has won new part numbers valued at over $2 million annually. So if we can reset with our partner, we are optimistic about the future. Neither China sites had seen any material impact from the ongoing trade tensions between China and the U.S. At Circuits Chatsworth, our first quarter was impacted by a ship hold placed on us for some military products as we required to deal with some administrative issues with our certifications. Shipments were down close to 20% from Q1 last year as a result. But after the end of the quarter, the ship hold has been released, and we now have significant backlog to ship in Q2. Operating performance was solid in Q1 at that site, but the reduced shipments made for mediocre financial results. And finally, there's Aerospace Chatsworth. Activity was up about 15% year-over-year. Operating performance continued to improve. Cost reduction activities also progressed, and we reduced our headcount by an additional 8 staff in Q1. We are now at a steady state headcount for that site finally. And we continue to reduce costs in material inside services, expediting, et cetera. I'm very pleased with the improved performance at that site. They were however challenged by the ongoing lead time extensions by military connector suppliers, which the whole defense industry has experienced, and this limited their sales somewhat in Q1. We continue to manage our balance sheet. We did have the inventory increase at Aerospace Toronto, as mentioned earlier, but this clearly is something that will be temporary. We did have a significant cash tax payment in Ontario as we have finally used up all of our provincial tax credits, so we paid over $700,000 in cash taxes to the province in Q1. Going forward, assuming similar performance, the quarterly payments would be approximately $150,000. We also paid out about $1 million in incentive compensation in Q1. Every single employee at FTG can earn incentive compensation. And given our improved results at many sites last year, the payments in Q1 went up. This item will always impact Q1 cash flow as this is when the bulk of the payments for the previous year are made. Subsequent to our quarter end, we announced we had signed an agreement to acquire a U.S.-based circuit board company focused on the aerospace and defense market. Other than the obvious alignment and market focus, there were a few key strategic reasons for our decision to pursue this acquisition. First, as mentioned earlier, our Circuits Toronto facility is approaching capacity. And while we are trying to offload some of their work to China, there is some work that must stay in North America. We see the acquired company as a great candidate to take on some of the more standard product currently produced in Toronto, freeing us capacity to take on more challenging work in the Toronto site. While we have our Chatsworth facility, their expertise is more around rigid flex thermal management and specialty products, so they are not suited to take on the standard product. Also, our sales team, particularly in the U.S., has been telling us for a number of years that there are some U.S. customers in the defense market that are not going to buy cross-border. So we don't have a solution or offering for them for more standard circuit board products. This new acquisition will fill this gap perfectly. As noted on our press release, before the acquisition closes, we are seeking approval by the Committee on Foreign Investment in the U.S. Our draft submission is now with the committee for review. The complete approval process is expected to be up to 4 months. Until that time, we are under a strict confidentiality agreement and cannot discuss any more details regarding the company. Also, as noted in the press release, the target company has sales in the CAD 7 million to CAD 9 million range, and the purchase price is about CAD 4 million, which will be funded from our existing bank facilities. The facility of the acquired company is almost twice the footprint of our Chatsworth facility and it is well capitalized. So we believe there's opportunity for revenue growth at that site. And based on due diligence data, we see opportunities for cost savings in materials. Beyond the acquisition, our focus is on margin expansion. We see a number of possible paths to achieve this, including revenue growth, operational efficiencies and some adjacent product or market opportunities. Let me touch on each one of these. For revenue growth, we see 6 factors driving this. The first one is the overall market growth, which is currently in the mid-single digits. The next one is capturing new work on new programs as they are being developed. In Q1, after almost 2 years of effort, we obtained approval from the Canadian government to participate in the CR929 program, a twin aisle aircraft being jointly developed by China and Russia. As there are sanctions in place against Russia, we needed a sanction exemption from the Canadian government to participate. With this in place, we believe we are now well positioned to capture content on this aircraft through the reuse of our C919 cockpit products. The third revenue growth initiative is to perform for our customers, but they all tell us that if you perform, you get more work. The key initiative in this area is the development of an FTG operating system to standardize the way we operate across the company using best practices. The fourth initiative is investing in new technology. And again, in Q1, FTG's investment in R&D approached 5% of sales. The fifth initiative is globalization. And FTG's footprint in Canada, the U.S. and China position us well in the global aerospace market. And the last slide, acquisitions is our sixth growth initiative. For margin expansion from operational efficiencies, again, our efforts on an FTG operating system and standardization are key. In addition, improved cost-sharing of some functions between sites and acting as one company with suppliers to take advantage of increased buying power are also important. And the last initiative for margin expansion is expansion into adjacent markets and products. Following Boeing's initiative to expand their sales into aftermarket support, we are beginning a process to also evaluate this. While we do not have all the answers, based on some benchmarking against others in the industry, there does appear to be significant margin opportunities in aftermarket spares and support. Also in this area, we continue to look at product growth opportunities within our existing market niches. With a focus on operational excellence in all parts of FTG, our increased product offering in cockpit products and high-technology circuit boards, our positions on key new programs, our initiatives in China and the pending acquisition, we expect to see continued long-term growth and improving financial metrics going forward. The management of FTG has been and will remain fully committed to creating shareholder value through developing and implementing revenue and profit growth strategies for the company. This concludes our presentation. I thank you for your attention. I would now like to open the phones for your questions. Chris?
[Operator Instructions] Your first question comes from Gabriel Leung of Beacon Securities.
Brad, quick question regarding Chatsworth Circuit. Are you able to quantify how much revenues, I guess, slipped into Q2 as it relates to the certification delay?
Yes. It's not an exact number, but it's, I'd say, somewhere under $1 million, maybe in the $800,000 to $900,000 range.
Got you. And so that's delivered in Q2, obviously, as you said. And so as I look at your comment around the $30 million deliverable backlog, I guess, that's expected for the quarter. Given that you've pretty much got all quarter to deliver, do you expect that $30 million is actually deliverable?
Yes. We look at it. We definitely have it available. They will look at Q1, as I mentioned, there's always the risk of operational challenges that either we cause or supplier causes. So perfection is hard to achieve. But having said that, Q2 is typically a stronger quarter for us because we don't get into the holiday period. We have maximum production days. So I am at this point optimistic we can have a solid Q2 given that $30 million plus backlog.
Got you. And in terms of the -- I guess, the other challenge on Chatsworth around material shortages, how do you see that sort of playing out for you guys, whether it's Q2 or the remaining quarters of fiscal '19?
I guess the lead times -- and this really is what Mel said around custom connectors, custom military connectors. Almost every supplier has virtually double the lead time. So the lead time was 20 weeks, it's now 40 weeks. That's the bad news. And I don't see that those lead times pulling in. But really, what impacts us is when they change lead times. Once you get into the new steady state, then you're back at a solid flow. And I think we're mostly through that transition period. So hopefully, there is less impact from quarter-to-quarter through the balance of 2019.
Got you. And maybe let's talk about margins for a second here. Obviously, Q1 gross margins were extremely positive considering the lower revenues on a year-over-year basis or even quarter-over-quarter, I guess, and then your operating costs are pretty well-managed as well on a quarter-over-quarter basis. Anything unusual in there? Or is this just a result of some of the cost efficiencies that you've been putting through?
Yes. Yes. It truly is just representative of the efficiencies and the cost reduction initiatives that we put through in the year. There is no onetime upside in that quarter.
Got you. And I guess all else being equal, as you -- assuming you get to $30 million of revenues in Q2 or somewhere around there, would it be safe to say that we should see some operating leverage on the gross margin side?
Yes. That is the nature -- that's the economics of FTG. Top line definitely has an impact on bottom line. So if we can ramp up the revenue in Q2, that will flow to the bottom line.
I think some other initiatives other than cost savings, we also -- we had some really good improvements in throughput and in yield, and those both have directly go into our gross margin.
Got you. And those yield improvements you're seeing are sustainable going forward?
Yes.
Got you. Maybe one last thing. Brad, I know there's only so much you can say about the pending acquisition. But at very least, you sort of disclosed the top line to us. Can you talk about, at that $7 million to $9 million revenue range, what would that sort of represent from a utilization perspective in terms of the acquisition?
Good question. We haven't looked at it or been able to get our arms around it in detail in terms of capacity utilization. But as I did say, the facility is almost twice the size of our Chatsworth facility. At Chatsworth, we have definitely achieved -- the Circuits Chatsworth, we definitely achieved $15 million in sales within Chatsworth. So with this larger facility, with good equipment, there's definitely -- in my opinion, room for growth. Maybe there's a few pieces of equipment in specific bottleneck areas that we need to add to grow it. But to go from the $7 million to $9 million range, there seems to me to be significant growth opportunities there.
It's good labor market there, too, so there's opportunity with employees there.
Got you. And on that $7 million to $9 million of revenues, is the target EBITDA positive or profitable? And is it expected to be accretive to your numbers immediately? Or is there going to be some work required?
Yes. It is EBITDA positive in their current run rate.
[Operator Instructions] Your next question comes from Brian Pow of Acumen.
Just, Brad, on the backlog, how much of that backlog relate to simulators?
That's a really good question that I really don't have an answer for sitting here at this moment.
I can send you an e-mail later with that, Brian.
Yes. I just wanted to -- I'm just trying to think about in terms of your comment that with now 3 of your top 10 customers being simulator customers and just sort of you've indicated there could be some risk, that it could be lumpy. I'm just sort of trying to get a sense of what potential swing could you see in your revenue from the lumpiness.
Sure. But yes, we'd have to dig into that a little bit to get you that number.
Okay. And then just as you walk through your margin expansion, the one thing that sort of I thought was interesting was your comment about sort of consolidating suppliers and things like that. When you sort of look through those sort of all those margin expansion goals and things like that, what potential margin gain do you -- are you trying to target for?
I don't have a specific number in place in terms of percentages or dollar, but there is some good opportunities there. And one of the keys is to see the various sites work together and approach suppliers together, and it's actually been good. And I've seen some great stuff already. Between Circuits Toronto and Circuits Chatsworth, by sharing some information on what they're both paying on some specific items right now, I had seen between 5% and 15% cost reductions, primarily at the Chatsworth site. So there's significant opportunity there. But again, I don't have that tied down to what's that going to do in terms of a margin percentage or a gain for the company overall.
Okay. And then you're currently working on this one acquisition with the anticipation of closing later in the year. Will this preclude you from looking at anything else? Or how should we think about your appetite for additional acquisitions?
There's still interest for sure on our side. And I would say we -- there are opportunities out there. We continue to see new ones. People are reaching out to us, which is always encouraging. I would expect we're definitely going to get through the closing of this one before we got serious on the next one, but we might begin to explore opportunities in the near term.
Okay. And then looking at what you sort of booked, additional bookings in the quarter, should we think just in general that there's any seasonality to the booking? Or how should we think about the bag for the next 3 quarters in terms of your ability to replace the business that you're putting out the door in Q2?
Sure. I would not say bookings are seasonal. But again, I'd go back to my comments around the simulator market, they tend to come in, in lumps. And if you look at our Q1 last year to Q1 this year, Q1 last year had significantly higher bookings. But within that, there was a one order $10 million contract on a specific simulator program, and so they tend to come in, in lumps, but not tied with seasonality.
Okay. So sorry, what was the booking number for last year?
Don't have the total in front of me, but I do remember we had booked a single $10 million order around the KC-46 simulator business. And the bookings tend to be even more lumpy than the revenue in that we booked that $10 million order and then we shipped it out over about 18 months. So the deliveries get spread over a little bit, but the orders come in, in significantly big chunks.
Okay. And then just on Chatsworth Aero, in terms of was there any onetime costs relating to expediting shipping or over time or third-party work on any of that?
Not very material.
Nothing material. Okay, so…
Or let me word it as nothing out of the normal course of business. Let me word it that way. There's always going to be a little bit of that. But nothing because we're still trying to catch up or we're still [ weighing over ] in parts. That is pretty much behind us.
Our next question comes from John Sartz of Viking Capital.
I just have one question. Actually, it's a very short one. The pending acquisition, how is -- how was it that became available to you? Or to rephrase that, what was the seller's rationale for wanting to get rid of it?
Okay. Yes. That's a good question, and it's an easy one, too. The company is -- it's an owner-operator and he is retiring. And so he hired an investment banker, who went out to sell the company on his behalf, and the investment banker reached out to us.
Okay. And there is management in place to at least carry it over till you get your hands around it?
Yes. Actually, the owner-operator has agreed to stay on for a transition period, and we actually have already worked together, and he has hired his replacement who is in place at this moment.
Your next question comes from Brian Pow of Acumen.
Brad, just a follow-up question on -- you made a comment earlier on about your Aerospace gross margin was highest since -- I think since you did the acquisition. Can you just sort of add a little bit more substance to that?
Yes. I think it was actually Mel who made the comment, but notwithstanding that, a couple of things. Aero Toronto continues to have -- operate well. Aero Chatsworth improved operationally, which was great to see. So we saw improved results there. And then truly the star of the quarter, if I could call them that, is the Aerospace Tianjin facility. It's not huge numbers in terms of absolute values. But with their 67% increase in sales, they definitely went through and way beyond the breakeven point. And on a percentage basis, they, I think, had the best operating margin of any site in FTG in Q1. Just amazing to see the operating leverage in that site.
And is that sustainable?
Yes. It's -- they are booking significant work. And again, the only thing I would say is part of their growth, and it started in Q4 last year and rolled into Q1, amazingly, was also in the simulator market. One of our customers, Rockwell, I guess now Collins Aerospace, has built out its simulation manufacturing facility in Tianjin. So it's near us. They needed some Chinese suppliers. We were an obvious choice because of our long, long-standing relationship with Rockwell in North America. And so we had significant simulator activity in that site in Q1. But I -- and it's just initial production for the Collins simulation business, so we need them to continue to build simulators there, but I have to believe that they built out a facility, they have plans to do so. And just the thing on that, which we talked about previously, up until this moment, most of our simulator -- almost all of our simulator-related revenue was on military simulators. The activity in China is on commercial aircraft simulators. And again, the Rockwell facility at this point in time has built 1 Boeing 737 and 1 Airbus A320 simulator in China, and that's it. But it's commercial aerospace.
There are no further questions at this time. I will now return the call to our presenters.
Great. Thank you. An instant replay of the call is available until May 11, 2019, at (416) 621-4642 with conference ID 7866427. A replay will also be available on our website in a few days. And thank you all for your interest and participation. Thank you.
This concludes today's conference call. You may now disconnect.