Firan Technology Group Corp
TSX:FTG
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Firan Technology Group Corp
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Ladies and gentlemen, thank you for standing by, and welcome to the FTG Q1 2020 Analyst call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brad Bourne. Please go ahead.
Thank you. Good morning. I'm Brad Bourne, President and CEO of Firan Technology Group Corporation, or FTG. Also on the call today is Jamie Crichton, 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 the 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.Well, 2020 is not off to a great start. While I would not rate our first quarter as one of our better quarters for operational performance, there were many, many external factors that also negatively impacted our performance. Let me start with the external situation as we see it now. But keep in mind, things are evolving fast. So comments today might be different from comments tomorrow or next week. By far, the largest external impact comes from the coronavirus. The virus in the short-term is impacting operations, and in the longer term, I think, it will impact market demand.Let me start with the short term. Everybody in FTG sites is in the geographic region with some sort of shutdown or stay-at-home order. For February, all of China is shut down, in part, and FTG plants in China were shut down. You will hear me talk about productivity or throughput a number of times today. And to that end, throughput in China in February was 0. We had 0 revenue and all normal costs except material. The Chinese government mandated that all employees should be paid. So there's no labor reductions in the month. Roughly, China represents about $0.5 million per month in revenue to FTG. It definitely hurt our Q1 as China was profitable in 2019, but not in February 2020. But the good news is the shutdown in China is over and things are getting back on track, although there are certainly lots of new rules in place regarding how an operation is run. These rules provided us with many valuable lessons for things we should do in our North American facilities to keep everyone safe.Next up was California with the stay-at-home order in March. But California designated defense as an essential industry. So we stayed open. That was the easy part. But our operations are being impacted in many secondary ways such as longer lead times from suppliers, some suppliers and service providers have closed and absenteeism has increased for many reasons, including needing employees to self-isolate for 14 days due to travel of various sorts or possible exposure. As mentioned, we also had to implement a number of rules and practices across FTG to do everything possible to keep our employees safe while at work. These measures include increased plant cleaning and sanitizing, mandatory temperature checks for all employees and any visitors entering our facilities and severely restricting all travel and incoming visitors, to name a few. Using our absenteeism as a proxy for productivity, we're running at about 85% typically right now with a few dips as specific events happen. California has intensified their stay-at-home order and is now recommending all people wear masks when outside of their home, but we continue to operate as best we can.Next up was Ontario, with their own stay-at-home order. But again, FTG remained open as manufacturing was designated an essential business, both on the original list of 74 essential businesses and the revised list last Friday. Again, we are seeing increased absenteeism in our Canadian plants during this period and, again, there are increased measures to try to keep everyone safe. Like California, using absenteeism as a proxy for productivity, Toronto sites are also running at about 85%.And finally, last week, Virginia issued their stay-at-home order. And again, FTG's Circuits Fredericksburg remained open due to defense being deemed an essential industry. So far, the impact there on productivity has been minimal. So overall, in the short term, there is some disruption and a lot of uncertainty. And at any time, if there are significant events at any site, it could shutdown indefinitely for the safety of our employees. But I believe we can and will manage through our short-term COVID-19-related challenges. I believe the longer-term implications from the coronavirus are more complicated with a larger risk and much uncertainty.Here is my assessment of the market implications as a result of the coronavirus. Air travel is down to almost 0 across the globe. There are government-imposed restrictions on most international travel, and people are concerned and not traveling for almost any reason. As a result, airlines are in survival mode. Airlines will and have to defer aircraft deliveries they can't afford, particularly when more than 50% of their existing fleet is parked. This has to ripple back to the aerospace industry from the OEMs of Boeing and Airbus down through their supply chain. As of this week, Boeing has announced an indefinite halt to all aircraft production, partly due to operational issues related to coronavirus, but also partly due to the market situation. It is expected that Airbus will announce reduced production rates in the near future. It is too soon to fully understand the impact to the industry and what, if any, government support might materialize, but this industry will go through a decline through 2020 and into 2021.Having said this, we are not yet seeing any weakness in demand or any significant pushouts of existing orders. In fact, our backlog at the end of Q1 was near record high of over $50 million, with over $30 million deliverable in Q2. When relating this back to FTG, roughly half our revenue is defense. Going forward, about 10% of our revenue is simulator work and the remaining 40% is all types of commercial aerospace. We believe the most significant risk to future revenues is from commercial aerospace with other segments being solid. So we still need to be mindful of the future and the likelihood of a downturn. We are taking actions now to stay ahead of the curve. For example, we have a hiring freeze across the company as well as the pay [ freeze ]. We have cut back our CapEx plans for 2020. We are monitoring and, as appropriate, pursuing government support coming out of both the Canadian and U.S. and Chinese governments. For sure, we will qualify for tax deferrals in all countries, and we will take advantage of these. And maybe we'll be able to access additional programs as they are implemented. Our number one focus on -- will be on maintaining our strong balance sheet through 2020 and beyond.Beyond all this, let me give you a quick update on some Q1 results. We achieved sales of $24.5 million in Q1 compared to $25.4 million in Q1 last year. There are a number of moving parts within these numbers. First, as previously discussed, our simulator-related sales are much more volatile than our traditional work and can vary a lot from quarter-to-quarter. In Q1 last year, simulator-related sales were about $3 million. In Q1 this year, they were only [ $1 million ]. The reduction in simulator work impacted all 3 of our aerospace sites. But our backlog for simulator-related work is strong at over $8 million. So we will see this segment pick up in the coming quarters. Other than this, we also did see a further decrease in our Aerospace-Chatsworth site due to timing on some other defense orders and our never-ending challenge to getting military components when we need them.On the Circuits side of our business, sales were essentially flat on a year-over-year basis at Circuits-Chatsworth and our JV in China. We did see a revenue drop at our Circuits-Toronto site in Q1 due to some challenges with new automation installations and some absences of key staff for family or medical reasons in the quarter. And overall, please remember, Q1 for FTG is never one of our stronger quarters due to lower production days available as a result of Christmas and New Year's holidays.Beyond our revenues, let me summarize some key positive metrics from our quarter. As mentioned, we ended Q1 with over $51 million in total backlog, and of this, $30 million is due in Q2 2020. We generated $3.5 million in cash in Q1 and ended the quarter with $5.2 million in net cash on the balance sheet. This is the strongest cash position the company has ever had, and our balance sheet is very strong. While we lost money in Q1, included in this loss was a $1.1 million noncash expense related to the intangible asset from an acquisition in 2016. We achieved EBITDA of $1 million in Q1, and our trailing 12-month EBITDA remains solid at $12.9 million.Other than what I've already mentioned, let me return to the market situation as I see it. While commercial aerospace backlog of orders remain high, the world situation has changed. And I believe that demand has to drop or be deferred for some period of time. Also, fuel efficiency of new aircraft has been a key benefit to airlines, but with lower fuel prices, the benefits are very limited. So we are expecting a downturn in demand in commercial aerospace. On top of this, while Boeing stopped delivering 737 MAX aircraft a year ago, they continued producing them until January of this year. But in January, they suspended production. This is now rippling through the supply chain. While FTG does not have much content on this aircraft, we estimate it to be about $2 million per year, we do now expect an impact. And there's no clear date when Boeing will resume production and at what level. And within the last few weeks, Boeing has stopped production of all aircraft for an indefinite period of time. Airbus has had and are planning production stops from a few days to 3 weeks at their various facilities in Europe, the U.S. and China. While these are related to coronavirus, we would not be surprised to see further stops or rate reductions in the future.Development activities in China on the C919 have been impacted by shutdowns due to the virus. We have not yet heard of any impact to the 2021 entering the service space, but it would not surprise me if it happened. For the A220, we do remain confident that the transition of this program to Airbus is positive for the long-term future of this aircraft. There are now over 500 orders, but the short-term is uncertain for the reasons I already mentioned. We continue to see mixed signals in the business and regional jet segments in the near term, an area where FTG has a long-term established base. In the areas we participate in the helicopter market, we have seen market weakness in the last few years. 2019 was stable and future demand will be driven by the strength of the resource industry. The defense market is strong. U.S. defense spending has increased in the last few years, and the budget is higher again this year. We expect governments will maintain high defense spending in the near term as part of their overall stimulus program.Both our acquisitions in 2016 and the one last year increased our exposure to the defense market, and this should bode well for us going forward. The ramp-up in production of the F-35 is a growth opportunity, and we have content on this aircraft. The acquisitions also increased our activity in the aftermarket support programs across a number of aircraft from the B-52 to B1-B bombers through almost all fighters in service. FTG has strived and will continue to try and balance the sales between the various market segments. This should help us maintain a more stable revenue stream as each segment go through its normal or abnormal cycles.Now let me turn back to a few other key metrics from Q1 -- FTG's Q1 results. Overall, at FTG, our top 5 customers accounted for 56.2% of total revenue in the year compared to 62.8% for last year. Only 1 of our top 10 customers are in the simulator market this year compared to 3 in Q1 last year. Also interesting to note, of the top 10 customers, 7 are customers shared between circuits and aerospace. We particularly like to see shared customers, but that means we are maximizing our penetration of these customers by selling both cockpit products and circuit boards. In Q1 this year, 33% of our total revenues came from our aerospace business compared to 40% last year. The drop is attributable to our drop in simulator work as well as our acquisition of Circuits Fredericksburg business, which consolidates into our circuits business segment.I'd like to turn the call over to Jamie, who will summarize our financial results for Q1 2020. And afterwards, I will talk about some site-specific items and other key priorities we are working on. Jamie?
Thanks, Brad. Good morning, everyone. All references to dollar amounts in my comments refer to Canadian currency. I'd like to provide some additional detail on our financial performance for Q1. On sales of $24.5 million, FTG achieved a gross margin of $4 million or 16.1%, compared to $6.8 million or 26.6% on sales of $25.4 million in Q1 2019. The decrease in gross margin of $2.8 million includes several factors. Firstly, the contribution to gross margin from the $2.1 million incremental sales of the Circuits Fredericksburg operation, which was acquired in July 2019, was approximately $500,000. The contribution to gross margin of Circuits Fredericksburg is net of its fixed costs. Excluding Circuits Fredericksburg, Q1 2020 sales volumes were actually down by nearly $3 million relative to prior year, which is primarily due to the stimulator products, the shutdown in China and the productivity issues in Circuits Toronto.Applying a 50% contribution margin to the reduced sales volume results in lower gross margin of $1.5 million. There is also a productivity component to a lower gross margin in Q1, which Brad will address in further detail. From a geographical standpoint, 75% of FTG's Q1 2020 sales were derived from customers in the U.S., which is up from 70% in the prior year. The shift is attributable to continued strong demand from the U.S. defense market and the acquisition of FTG's Circuits Fredericksburg. The Fredericksburg site, which contributed $2.1 million of sales, currently sells primarily into the U.S. Northeast region and primarily to defense market customers.SG&A expense was $3.4 million or 14% of sales in Q1 2020, as compared to $3.2 million or 12.8% of sales in Q1 2019. The dollar increase is the result of added head count and operating expenses at the Fredericksburg site of roughly $400,000 and termination costs of $100,000, partially offset by lower performance comp costs of approximately $300,000.R&D costs for Q1 2020 were $1.1 million or 4.5% of net sales, which is essentially flat with the prior year. R&D efforts include development and integration of robotic manufacturing equipment at the Circuits Toronto site. Our future plans include applying some of the processes developed in our Circuits Toronto site to the circuits sites in the U.S.FTG adopted IFRS 16 effective December 1, 2019, and the result being a recognition of a right-of-use assets of $13.8 million and lease liabilities of similar amount. In FTG's case, all facilities are leased and the liability recognized includes both the present value of obligated lease payments and the present value of lease payments for lease extension options, which we anticipate will be exercised. Q1 2020 operating results include depreciation of right-of-use assets of $397,000 and accretion on lease liabilities of $137,000 as new cost elements within our P&L. Absent this accounting charge, Q1 2020 P&L would have included rent expense of $446. The IFRS 16 impact for Q1 2020 is a reduction of earnings before income tax of $88,000.During the quarter, FTG determined the procuring value of intangible assets recognized following the acquisition of the Teledyne PCT business in 2016, exceeded its recoverable amount as of February 28, 2020 by $1.1 million and a noncash write-down was recorded.Earnings before interest, tax, depreciation and amortization, EBITDA, calculated as described in the press release, was $12.9 million for the 12 -- trailing 12-month period ended February 28, 2020, compared to $12.3 million for the trailing 12-month period ended March 1, 2019. The EBITDA margin for the trailing 12-month sales ended Q1 2020 is 11.6%, as compared to 11.4% for the comparable period ended Q1 2019. FTG recorded a loss before income taxes of $2.2 million, of which $1.1 million is for the impairment of the intangible assets. This compares to earnings before income taxes for Q1 2019 of $2 million. The Q1 2020 income tax provision of $0.5 million reflects that the corporation's Canadian operations were profitable and that deferred tax assets on foreign operating losses were not recognized during the quarter.Our financial position as of Q1 2020 is -- our net cash position, sorry, as of Q1 2020 is $5.2 million as compared to net debt level of $4.3 million as of Q1 2019. Free cash flow, defined as cash from operations, less cash used in investing activities, excluding acquisitions, was $3.3 million for Q1 2020 as compared to an outflow of $1.8 million for Q1 2019.During the quarter, we were able to reduce inventories by $1.5 million and increased contract liabilities, i.e., advanced payments from customers, by $3.9 million, which were the primary drivers of the strong cash flow in Q1 2020. As at quarter end, the company's primary sources of liquidity totaled $50.6 million, consisting of cash, accounts receivable, contract assets, income taxes recoverable and inventory, but excluding USD 9 million of availability on the revolving line of credit and approximately USD 2.9 million of availability on the revolving term loan, with our primary lender as at February 28, 2020.Our current banking facility expires in November 2020. Therefore, our outstanding bank debt of $5 million is presented on the balance sheet as a current liability. We expect that we will be able to complete a new banking facility to ensure that we continue to have sufficient liquidity to meet both operational and investment requirements. Working capital at February 28, 2020 was $25.8 million as compared to $28.6 million as of the 2019 year-end. Accounts receivable days were 72 as at February 20, 2020 compared to 70 as of the 2019 year-end. Inventory turns were 3.7 as at February 28, 2020, which was the same as of the 2019 year-end. And accounts payable days outstanding were 74 at February 28, 2020, as compared to 81 for the 2019 year-end.Investment in plant and equipment for Q1 2020 was $1 million. Current quarter capital expenditures included a deburring machine, sprink inkjet printers, and critical information technology infrastructure of approximately $200,000. The IT investments are focused on improvements to our network, which -- providing highly reliable and retrievable backups of data and software and will be substantially complete by the end of Q2. Although we entered Q2 2020 with a strong backlog of $51 million, we are operating with considerable uncertainty within the global economy as a whole, and in particular, within the commercial aerospace market. To mitigate that risk, we will be focused on cash management, cost control and operating efficiency. Our complete set of Q1 filings are now available on sedar.com. With that, I will turn things back over to Brad.
Thanks, Jamie. Let me delve into some details at the corporate level and then some at the site level. I wanted to first touch on the large margin drop in the quarter relative to our revenue drop. In Q1 this year, revenue was down $900,000, and gross margin was down $2.8 million. While revenue was down $900,000 overall, but as previously mentioned, revenue was down $3 million at legacy site up by the addition of the new Circuits Fredericksburg site. The $3 million drop would result in a $1 million to $1.5 million gross margin drop based on contribution margins. In China, the shutdown, of course, had more than normal impact on gross margins, and the $0.5 million revenue drop resulted in close to $400,000 gross margin drop in the quarter. On top of this, there was a significant difference in productivity in the 2 quarters. I mentioned a measure of productivity is a change in inventory of work-in-process and finished goods in the quarter, with an increase in these amounts indicating we produced more than we shipped and a decrease indicating we produced less than we shipped. In Q1 this year, WIP and FGI fell by $1.3 million. In Q1 last year, WIP and FGI went up $2.9 million. So the productivity difference between these 2 quarters was $4.2 million.Productivity or throughput has a similar impact on gross margins as revenue. So the impact to the quarter was a negative of a $1.6 million to $2 million gross margin. Offsetting these impacts was the margin achieved at our Circuits Fredericksburg in Q1 this year of about $0.5 million. These are the major items that account for the impact on margin relative to the revenue drop.At the site level, let me start with Circuits Toronto, which, while still strong, did have some setbacks when compared to Q1 last year. Sales were down 7% year-over-year and throughput was down about 10%. The decline was not related to any drop in demand. During the quarter, there were some production disruptions related to automation installations and some due to absences of key production and management staff. Because of the combined revenue and throughput drop, the impact on margins was magnified. By quarter end, these disruptions were eliminated. At Aerospace-Toronto, sales were down about $1 million year-over-year due almost exclusively to the temporary drop in simulator-related work. They also had a throughput drop also due to the drop in simulator work this year.In Q2, we will, for sure, begin production of our large simulator program, and this will drive up throughput in Q2. In Aerospace Tianjin, sales were down 30% on a year-over-year basis, again, due to the drop in simulator-related work there. Also, remember that site was closed for February due to the COVID-19 shutdown in China. But they have reopened in March at a decent level of productivity. In the Circuits joint venture in China, activity was actually up about 14% year-over-year, but still on a very small base. And this is with the 1-month coronavirus-related shutdown in February this year. Neither of the China sites has seen any material impact from the ongoing trade tensions between China and the U.S.At Circuits-Chatsworth, revenue was flat year-over-year, but throughput was down, creating a drag on our margins this year. At Aerospace-Chatsworth, activity was down about $1 million due to the temporary drop in simulator work, and there's an additional drop due to timing on some other defense programs. The margin effect was reduced due to year-over-year cost reductions achieved at that site. Circuits Fredericksburg is our newest site, and they contributed about $2.1 million in sales with about a 20% gross margin. As Jamie mentioned, we did write down some of our intangible assets in the quarter. The good news on this is it will result in a little bit more than a $0.01 per quarter improvement in earnings per share going forward or about $0.05 a year. We continue to manage our balance sheet, particularly during these uncertain times. While it has impacted our income statement in the short term, I'm actually very pleased with our drop in work-in-process and finished goods inventories, as it means we are converting inventory to cash.On a year-over-year basis, WIP and FGI are down $5.2 million. Also helping our balance sheet was a progress payment, which we received in Q1 of over $3 million for future simulator-related work. Offsetting this was year-end cash tax payments of over $600,000 and annual bonus payments to FTG employees of over $700,000. But our balance sheet ends Q1 stronger than ever with net cash of $5.2 million.Notwithstanding everything else going on, we are still advancing plans for increased aftermarket sales to drive longer-term margin expansion. 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. With a focus on operational excellence in all parts of FTG, our short-term focus on maintaining our strong balance sheet, we expect to weather the storm and return to long-term growth and improving financial metrics when we get past these short-term challenges. 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. Marcella?
[Operator Instructions] Your first question comes from the line of Nick Corcoran.
Just a couple of questions from me. Can you maybe discuss your Tianjin plant in more detail and if you've seen any impact on your supply lines in China?
Sure. Yes. With the 2 facilities in Tianjin, probably the one that's most relevant because that's bigger than the other one, is our Aerospace Tianjin facility. As I talked about, they basically shut down at Chinese New Year or Spring Festival and then the government mandated all industries stay shut and it evolved. But in the end, it became a shutdown for 1 month, and it was a harder shutdown. And so absolutely no activity happened in the month. To open it back up, we had to meet a number of requirements the government made for all companies and all industries in terms of how to have employee separation and how to sanitize and clean plants, how to get people to and from work, how to handle breaks and lunches. So we have implemented all of those rules. And it came back fairly fast. We got approval to open. We opened. There were a handful of people that could not come back to work right away because of things like self-isolation requirements if they had traveled, but that certainly is behind us. And there is small impacts today on the operations, but they are small. And that's good news for us.As it relates to supply chain in China, anything we are buying from China, of which a lot of materials that go into circuit boards come from China, virtually, all of the suppliers or manufacturers of the raw materials, laminate and such, were shut down if they were in China. And they basically went through the same process our facility went through. At this point, they are all open, and there was negligible impact to us from any of that. Because in almost all cases, where we're buying this laminate, we're buying it through distributors in North America. And between inventory, we had an inventory our distributors had, we are looking at somewhere between 3 to 6 months of inventory, and the shutdown was less than that. So there was no impact. And I believe unless something changes, there will continue to be no impact on our supply chain. There's noise stuff in transportation, shipping between Asia and North America is reduced. If you're trying to expedite things in the North America, we're seeing some small surcharges on shipping, but really, that's about it. So I'd say impact from China at this point going forward is negligible.
Your next question comes from the line of [ Justin Jacobs ].
Brad, just wanted to just ask a follow-up to comments you made earlier. You said that about half of your business is defense and -- correct me if I'm wrong in any of these, half of your business is defense, 10% simulators and 40% aerospace. A couple of questions on that. First is, what time frame are you looking at? Is that the most recent quarter? Is that over some longer period of time? And can you break the aerospace up into a couple of end drivers, helicopters, business jets, commercial kind of -- commercial jets?
The first one is easier. The time frame really is a little bit of a combination of historic and go forward. And the reason I say it's a combination, right now, is the simulator business in Q1 was down. But I know I have the backlog. I know it's going to start to shift in Q2 going forward. So I think it will be back at its traditional run rate of about 10%. So it's a little bit of a combination. But I would use it as a go-forward estimate of my revenue split. And then it's tougher to split that 40% commercial business into various different categories. It -- a lot of time we're supplying in the Avionic suites at the Tier 1 Avionics sites, and those suites can be used in a business jet and a regional jet. And so I don't have a breakdown on that. And I would love to have one, one day, but it's still not there.
Got it. Okay. But the defense is at 50% and with the acquisition of Fredericksburg, has that increased above that or still kind of at that 50%?
So that gets me to about the 50%.
[Operator Instructions] Your next question comes from the line of Gabriel Leung.
Brad, just as it relates to the $30 million, which -- in the backlog, which is scheduled to be delivered in Q2, given the level of productivity within your plants right now, your best guesstimate, what do you think of that $30 million, how much do you think is actually going to be delivered in the quarter?
Yes. I'd been thinking about that a lot and trying to get my arms around it. I guess, the simplest thing I came up with was, generally, my facilities are running at about 85% productivity. And so I'm thinking maybe the best estimate going forward would be 85% of the $30 million.
Got you. Second question is, I mean, as you've mentioned in your preamble, I mean, bookings have been surprisingly strong. What do you think has been driving that in light of the current environment? And I know it's still early, but have you had discussions with some of your prime contractor customers, particularly on the aerospace side -- commercial aerospace side as to how things might look over the next couple of months?
Yes. And it's still early that -- certainly, there's lots of news floating around and lots of heads up, we're going to replan and reschedule activity. We have not seen any replanning as of today. But we have been giving the heads-up it's coming. So as today -- as of today, I don't know what it might look like other than I know it's going to change. And it is confusing to me. For sure, in the last few weeks, we have seen significant orders for parts we're making, for instance, for the Boeing 787. At the exact moment when Boeing announced a production shutdown of the 787, we are seeing a spike in orders. I wish I could explain that, I cannot, but I do expect that's have to get replanned in the coming weeks.
Your next question comes from the line of Nick Corcoran.
One more follow-up question for me. You've mentioned that Circuits Fredericksburg had about $2 million of sales at about 20% gross margin. How do you expect that gross margin of that facility to maybe go up over time?
That's a good question. And for sure, our goal is to drive it up. So there's 2 things that we're doing to make that happen. One is still trying to drive revenue up there, given a whole bunch of uncertainty, maybe that's got a little bit more risk around it at this point. But that business is still primarily defense-related. So I don't -- it's not a huge risk. But for sure driving up revenue drives margin up in that site. And there's tons of capacity and opportunity to do that. The other one is we're still working through and pushing all of the suppliers that have supplied in the Fredericksburg to give them pricing on materials the same as what we get at other FTG sites. In some cases, we need to switch suppliers to be able to achieve that. And that is basically -- it means we can drive up margins through cost reduction. Some of that is there already. But I'd say there is potential for kind of a low single digits, somewhere in the 3% to 5% margin improvement from cost reduction still achievable in that site.
There are no further questions at this time. I'll turn the call back over to the presenters.
Thank you. An instant replay of this call is available until May 9, 2020 at the call-in numbers and ID on the press release. The 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.