Sypris Solutions Inc (SYPR) 2014 Q4 法說會逐字稿

Good day and welcome to the Sypris Solutions, Incorporated, conference call.

Today's call is being recorded.

At this time for opening remarks I would like to turn the call over to the President and Chief Executive Officer, Mr. Jeffrey Gill.

Please go ahead, sir.

Thank you, Doug, and good morning, everyone.

Tony Allen and I would like to welcome you to this call, the purpose of which is to review the Company's financial results for the fourth-quarter and full-year 2014.

For those of you who have access to our PowerPoint presentation this morning, please advance to slide 2 now.

We always begin these calls with a note that some of what we might discuss here today may include projections and other forward-looking statements.

No assurance can be given that these projections and statements will be achieved, and actual results could differ materially from those projected as a result of several factors.

These factors are included in the Company's filings with the Securities and Exchange Commission.

In compliance with Regulation G you can access our website, Sypris.com, to review the definitions of any non-GAAP financial measures that may be discussed during this call.

With these qualifications in mind, we would now like to proceed with the business discussion.

Please advance to slide 3.

I will lead you through the first half of our presentation this morning, starting with an overview of the highlights for the year, to be followed by a brief discussion of each of our two business segments.

Tony will then provide you with a more detailed review of our financial results for the quarter and year.

Now let's begin with the overview on slide 4. The financial results for 2014 reflected the continued strong operational performance of Sypris Technologies offset by challenges faced by Sypris Electronics during the year.

Revenue, gross profit, and operating income for each increased by double digits when compared to the prior-year period, while earnings improved to a loss of $0.06 per share from a loss of $0.51 per share for the prior year.

The year had a number of bright spots, with cash flow generated from operations moving into positive territory, up from breakeven for 2013.

We continue to make investments in research and development and capital equipment to support our future operations.

Our balance sheet will certainly serve as an important asset as we look to diversify and grow the business profitably going forward.

Our investments in process improvements as well as the initial positive results from our highly productive partnership with Toyota and the Toyota Production System have already increased our baseline manufacturing efficiencies and improved equipment uptime, while simultaneously reducing cycle times and increasing capacity.

During 2015 we plan to further increase Toyota's involvement in our operations, expanding TPS activities into other component manufacturing cells.

We remain optimistic that the Company will realize substantial additional benefits as we continue to implement the tools and the culture of TPS throughout our organization.

In summary, 2014 marked an important improvement in performance for the Company when compared to the prior year, but still fell short of our plans and expectations, primarily because of the continued headwinds in Sypris Electronics.

Turning to slide 5, the continuing impacts of sequestration, program delays, and other DoD funding-related issues turned out to be longer-lasting than we had expected.

Uncertainty became our new norm during the year, with the turning point seemingly only a quarter or two away.

As a result, the team made some changes at year-end, closing facilities in California and Colorado, and reducing headcount and other expenses to conform with more conservative expectations going forward.

On the positive side, we successfully completed demonstration of our new SIOMETRICs software, which we now believe to be a potential game-changer in the development of security architecture, where we believe that SIOMETRICS eliminates many of the vulnerabilities inherent in existing public-key infrastructure systems, the architecture used today for the majority of commercial security applications.

The technology is less costly, highly scalable -- we have demonstrated its ability to successfully scale to 1 million endpoints -- and we believe that it is capable of being integrated seamlessly with existing systems across industrial, financial, commercial, healthcare, and government sectors.

The technology can be used in a wide variety of applications ranging from securing mobile payments, enterprise computing and social networking infrastructures, to missile-defense systems.

We received two patents to date, with nine additional patent applications pending.

Another technology platform that benefited from continued investment in 2014 was the Sypris Cyber Range, which is now in Version 3.2.

The Range has been developed into a critical platform for organizations to train their personnel to expertly identify, prioritize, and respond to the inevitable breach from today's increasingly complex cyber attacks.

Turning to slide 6, interest in the Range continued to develop during the year, with plans to commission a Range for the Ministry of Home Affairs in Singapore in the second quarter of this year.

The team is looking forward to even more success in 2015, with sales discussions now exceeding $25 million of potential business.

2014 also closed out on a positive note for EMS sales to customers with applications in severe environments, including Northrop Grumman, ITT, Lockheed Martin, L-3, and TE SubCom.

Business activity continued to grow in this area during the year, thereby positioning this business for further potential expansion in 2015.

Turning now to slide 7. Our task moving forward is to generate positive financial results in return for the time and investments we have made over the past couple of years.

We believe that there are four items worth noting as we look forward to different results in 2015 from what we have achieved in the past.

Number one, newly released shipments to Northrop Grumman and the commissioning of the Cyber Range in Singapore are expected to provide over $8 million of revenue lift in the first half of 2015.

Number two, the reduction of fixed overhead and SG&A savings implemented late last year are targeted to provide $5 million of benefit to our P&L during the year.

Number three, we anticipate strong year-over-year growth in both EMS and Cyber, reflecting the current maturity of our business development pipeline.

Four, we are meeting with potential customers and venture capital firms, including Kleiner Perkins, Khosla Ventures, and Madrone Capital, among others, to explore avenues to accelerate the introduction of SIOMETRICS into commercial markets.

Time-to-market will be critical; but if we can find the right venue and partners, the results could be quite rewarding.

We will keep you posted.

Now let's take a quick look at Sypris Technologies, beginning with slide 8. Revenue increased 17% to $322 million from the prior year, reflecting increased demand across most of our markets.

Gross profit for the year increased 33% to $42 million, reflecting a 150 basis point improvement in gross margin.

The increase in gross margin to 13% provides ample testimony to the impact of the investments made in process improvements and TPS during the year, as well as a growing mix of shipments to new markets.

The strength of this segment's performance during 2014 is evident in a wide range of metrics.

EBITDA was $36 million or just over 11% of sales, while free cash flow increased 19% from the prior year to $19 million.

Return on net assets was 49%, which is impressive -- and important, I might add -- for a capital-intensive business.

2014 experienced the continued expansion of our shipments to customers serving the global natural gas, oil, and petrochemical markets, where demand for the Company's branded closures, joints, and other products continue to be quite positive.

We also expanded safety training at all our locations using the DuPont STOP behavior safety program.

Turning to slide 9, the segment continued to perform at world-class levels in terms of customer performance, with quality and delivery metrics for the year reaching all-time bests.

We continued to make investments during the year in production technology and product engineering, resulting in patent applications for new drivetrain component designs that are expected to reduce the weight of certain parts by as much as 16% when compared to current customer designs.

We hope to introduce these parts to the marketplace later this year.

The potential benefits are meaningful in terms of material savings for the customer and weight savings for the end user, who will benefit from fuel savings and/or greater load capacity.

With all the operational progress that has been made in recent years, it should be no surprise that our quoting activity for new business with both existing customers and with new potential customers is quite active.

At year-end, we reached an agreement in principle to form a joint venture in India to serve the light truck market with a well-respected partner.

We are very excited about the future prospects for this initiative and look forward to formalizing this new partnership during the second quarter of 2015.

During the fourth quarter, we announced the execution of a nonbinding Letter of Intent for the purchase of a business that we plan to merge with our existing operations.

The transaction remains subject to the satisfactory completion of due diligence, among other items.

If all continues to go well, we would plan to complete the transaction during the second quarter of this year, with the expectation that it would be accretive to earnings in 2015.

Turning now to slide 10.

The year was not without its disappointments, however, and by year-end it became apparent that our contractual dispute with Dana was not likely to be resolved or settled through the continuation of our long-term supply agreement.

Our discussions continued through the holidays and spilled over into 2015, but have been ultimately unsuccessful.

As a result, we have not had demand from nor have we shipped product to Dana since December of 2014.

In response to this development, we have taken a number of actions to reduce costs and provide support for the transition from Dana.

We have also made decisions that are designed to protect the strategic core of Sypris Technologies by not reducing headcount to the extent current volume would otherwise dictate.

In the short term, we are deploying these valuable people to prepare our plants for new programs, expand our TPS and 5S initiatives and perform preventive maintenance on all material pieces of equipment.

Our objective is for these people to become fully utilized by new business as additional programs are launched.

We expect the brunt of the financial impact to be felt during the first half of 2015, after which the combined contribution from reduced costs and new program launches is anticipated to have an increasingly positive impact on the Company's financial results.

We are fortunate in that our markets for our products remain strong.

Several of our continuing customers also appear to be gaining market share, which has led to opportunities for the Company to land new business for many of the product families that we formerly produced for Dana.

With regard to our dispute with Dana, we believe that the lawsuit is likely to take years to resolve, with any potential outcome in favor of the Company to be of a financial nature.

Now let's wrap up on slide 11.

As we mentioned a moment ago, the outlooks for the markets served by Sypris technologies appear to be in good shape for the coming year, with orders for new heavy-duty commercial vehicles forecast to reach levels not seen since 2006.

Demand for Class 4 through 7 medium-duty trucks continues to recover along with the housing markets, while the outlooks for light truck and trailer markets as well as for our off-highway and agricultural markets also appear to be in good shape for the coming year.

We are looking forward to another solid year from our natural gas, oil, and petrochemical markets despite the recent uncertainties in the energy field.

Most of our products are used for transmission, processing, and storage, which we hope will be less subject to the pressures emanating from recent events.

We are also introducing several new products in 2015 which we believe will further increase our book of business with existing customers.

Our priorities for 2015 are clear.

We must successfully ramp up the new programs that we have been awarded in recent months.

We must close on those additional programs that are close to the boat and that can utilize our productive capacity effectively.

Now that the ultra series lightweight axle shaft has passed testing, we must launch this product successfully so that we can benefit from its cost efficiencies and broad market appeal.

We will strive to complete the remaining tasks associated with the successful consummation of our joint venture in India and the acquisition of the business here in North America, each of which will provide another important building block for us as we move forward.

Finally, we will continue to invest to increase productivity and efficiency, driving process improvements through the use of TPS techniques to reduce cycle times and increase reliability.

In summary, the wonderful performance turned in by our team at Sypris Technologies during 2014 was unfortunately marred by our inability to successfully find a common ground for moving forward with our largest customer.

The door is still open; and the possibility, though remote, remains that we may yet find ways in which to work together.

But we have moved forward and implemented plans that assume this will not be the case.

We are fortunate that we have vibrant markets and outstanding operations, the results of which will enable us to recover as we move through the year with new customers and business, some of which we will be launching as early as Q2.

The transition is underway, and with any luck we will have a more diversified, stronger business by the time we are finished.

Turning now to slide 12, Tony Allen will lead you through the balance of our presentation this morning.

Tony?

Thanks, Jeff, and good morning, everyone.

I'd like to discuss with you some of the highlights of our fourth-quarter and full-year 2014 financial results.

I'll start with our consolidated fourth-quarter results and ask you to advance to slide 13.

Q4 consolidated revenues totaled $87.2 million, up $13.4 million or 18.1% from the prior year, driven by a 25% increase for Sypris Technologies.

We generated $9.2 million of gross profit, up $2.9 million from the prior-year quarter, primarily reflecting the increase in revenue for Sypris Technologies.

Gross margin for Q4 came in at 10.6%, an increase of 200 basis points over 8.6% for the prior year, led by Sypris Technologies, reporting gross margin of 12.7% in the current period.

EPS came in at negative $0.11 per share versus breakeven in Q4 2013; the prior year included a $2.4 million non-cash tax benefit that did not repeat this year.

Let me now shift to our consolidated 2014 full-year financial results and ask you to please advance to slide 14.

2014 full-year consolidated revenues totaled $354.8 million, an increase of $44 million or 14.2% from 2013, driven by Sypris Technologies, which increased 16.7% from the prior year.

Gross profit increased $8.8 million to $38.8 million, primarily from the increase in volume for Sypris Technologies.

Full-year gross margin came in at 10.9%, up from 9.7% as Sypris Technologies improved its gross margin by 150 basis points over 2013.

Earnings per share for the year came in at a loss of $0.06 per share compared to a loss of $0.51 per share in 2013.

The loss in 2013 included a $6.9 million non-cash impairment of goodwill that was partially offset by the $2.4 million non-cash income tax benefit previously discussed for Q4.

Let me now shift our attention to our segments and start with Sypris Electronics on slide 15.

Revenue decreased 29% to $7.1 million for the quarter, down from $10 million for the fourth-quarter 2013.

Revenue for the full year decreased 6% to $32.5 million compared to $34.6 million in 2013.

The fourth quarter and full year were negatively impacted by lower sales of certain secure communication products to foreign customers in 2014.

Revenue from data systems products also declined during 2014, as one of our larger foreign customers for this product offering deferred certain orders into 2015.

Although we successfully onboarded new EDMS customers for commercial and defense applications during 2014, our sales in the severe applications market declined from 2013.

Q4 gross margin performance came in at a negative 13.5%, primarily reflecting the impact of the decline in revenue.

Full-year 2014 gross margin dropped to a negative 9.8%, reflecting the decline in revenue from the prior year and the impact of having less product and severe EDMS volume in our revenue mix in the current year.

Although Sypris Electronics began consolidating work from two leased facilities into its main plant in Tampa in the fourth quarter to reduce fixed operating costs, the benefit from this transition will not be recognized until 2015.

We also incurred engineering charges in 2014 for software enhancements to two of our more profitable product offerings, which is expected to benefit margin performance in future periods on sales of these upgraded products.

Moving on to Sypris Technologies, please advance to slide 16.

Fourth-quarter revenue came in at $80.2 million, up $16.3 million or 25% from the prior-year quarter.

Full-year 2014 revenue was $322.3 million, an increase of 16.7% from 2013.

The revenue growth primarily reflects the current strength of the commercial vehicle market.

Industry reports indicate production in the Class 8 market increased nearly 21% in 2014 over 2013 and further suggests that the Class 8 market will grow almost 15% in 2015 over 2014.

Although Sypris is not anticipating any shipments to Dana in 2015, we are pursuing several opportunities to win new business that will be sourced from the facilities formerly dedicated to Dana.

We expect our capacity and capabilities will be utilized to support the strong market conditions and the demand we are seeing from our current and potential customers.

Shifting to the right side of the page, Q4 gross margin expanded 140 basis points on the 25% revenue increase.

For the full-year 2014, the industrial group's gross margin expanded 150 basis points to 13%.

Gross profit was $10.2 million for the fourth quarter and $42 million for the full-year 2014, which is the highest gross profit in the segment's history, reflecting the benefits of our continuous improvement, Lean, and the deployment of Toyota Production Systems' tools and problem-solving, among other things.

Following up on Jeff's comments regarding the events taking place after year-end, I ask you to please advance to slide 17.

We have taken a number of actions in response to the termination of shipments to Dana at the end of 2014.

We made the difficult but necessary decision to reduce our workforce in January at two of our facilities.

In addition to the headcount reductions, we also reduced the scheduled work week for our salaried and hourly employees at those facilities.

On a broader scale, we made adjustments to our compensation and benefit plans that reduce costs and defer the timing of certain payments to improve short-term cash flow.

We also implemented strict controls over all variable operating expenses on the plant floor as well as in our administrative departments.

We have retained as much of our skilled workforce as possible to support our business going forward.

We are using this talent to prepare our facilities and equipment for the new customer opportunities we are pursuing.

We have extended the deployment of the Toyota Production System and the related 5S initiatives, and we are taking the opportunity to increase our preventive maintenance program on our equipment while the utilization rate is below historical levels.

The impact on our financial performance from the absence of Dana volume will be felt most significantly during the first half of 2015 and in particular during the first quarter.

We will incur severance and certain other nonrecurring charges in Q1, with additional costs to be incurred in the second quarter at levels that will reflect our success rate in winning and ramping production on new programs.

One of our facilities was not impacted at all by the drop in revenue and a second facility felt a modest impact, therefore limiting the significant impact to two of our existing facilities.

Recent awards for new business and the pipeline of opportunities in various stages of proposal and negotiation provide the foundation for our recovery plan for the two facilities impacted by this event.

Our progress toward recovery will build as we move through the first half of the year; however, the time required to win and launch new programs is expected to result in most of the benefit from new business as well as the cost-reduction actions to be recognized in the second half of 2015.

We expect our labor and equipment utilization rates will improve sequentially throughout 2015 as programs begin to ramp, with the backdrop of a very strong commercial vehicle market in need of capacity.

On the next slide I will highlight certain items in our capital structure and ask that you please advance to slide 18.

The events just discussed required us to revise our forecast for 2015 and to work with our lender to align the terms of our credit facility with the updated view of the business.

We ended 2014 with a net debt position of $10 million and equity of nearly $47 million.

We successfully completed two amendments to our credit facility in the first quarter of 2015, the most recent of which was executed on March 12.

Our financial covenants were revised to reflect our updated forecast for 2015, which includes no volume with Dana during the year.

We also agreed to suspend the payment of dividends to our shareholders, to maintain cash to support our operations during this period of recovery.

We issued $4 million in subordinated debt to provide additional capital and boost liquidity.

And we will continue to evaluate options to improve our capital structure as we move forward, including but not limited to additional subordinated debt.

We are taking additional steps to ensure that we have ample liquidity, including the potential sale of a portion of the real estate we own in Mexico, which is currently unoccupied and is located in a very attractive area for industrial manufacturing operations in Toluca.

This property was formerly leased to Dana through December 2014.

We also met with potential partners to discuss the opportunity to accelerate the introduction of our SIOMETRICS technology into commercial market applications.

We expect cash flow from operations will be negative during the first and second quarters of 2015, following the flow of revenue and costs discussed on the previous slide, as we execute the actions to preserve the long-term potential of our business.

As we move through the year, we anticipate cash flow from operations will show sequential quarterly improvement.

Let me now wrap up with a brief summary of 2014 and ask you to please advance to slide 19.

Sypris made important progress during 2014 that is reflected in our operational and financial metrics.

Revenue increased $44 million; gross profit increased $8.8 million; EBITDA increased $11 million; and earnings per share improved from a loss of $0.51 per share in 2013 to a loss of $0.06 per share in 2014.

Appropriate adjustments were made to the fixed overhead structure and SG&A expenses for Sypris Electronics that will benefit future periods.

We have the building blocks in place for both segments to achieve our targeted results for 2015.

Sypris Electronics will benefit from the launch of a sizable EDMS program in the first quarter of 2015 that had been delayed due to technical issues between our customer and the end-user.

The issues were resolved in Q1, clearing the way for Sypris Electronics to begin production and shipment starting in February.

This EDMS program will continue into the second quarter, during which we also anticipate the commissioning of our Cyber Lab for the Ministry of Home Affairs in Singapore will occur and generate revenue recognition in the second quarter.

We reduced overhead in this segment of the business by consolidating off-site operations into our main facility.

Combined with targeted shifts in the revenue mix in 2015 compared to 2014, the gross margin and cash flow from this segment is anticipated to improve during 2015.

We are exploring opportunities to develop partnerships to commercialize our SIOMETRICS technology that Jeff described earlier.

In Sypris Technologies we are focused on managing the transition of our business as we proceed without any volume projected from Dana in 2015.

We must successfully launch the new business we have under contract, and remain competitive in price, and remain at best-of-class levels in our quality and delivery metrics, which will improve our probability of winning the new contracts we are pursuing.

The launch of our internally developed ultra series, lightweight axle shafts, during 2015 is anticipated to generate interest from a number of our existing customers and also appeal to potential customers.

We also have the opportunity to expand the business externally through the joint venture and acquisition opportunities Jeff discussed.

We are pursuing multiple strategies targeted at maintaining the financial elasticity needed to respond to the opportunities we have for both segments of our business, and we are dedicating all of our resources to deliver results that will enable us to build the profitability of the Company.

This concludes our call today, and at this point I'd like to turn it back over to Doug to answer any questions you might have for us at this time.

Thank you.

(Operator Instructions) Jim Ricchiuti, Needham & Company.

Hi, good morning.

I wonder if we could start with Sypris Technologies and maybe talk about how we might think about the potential for you to replace some of the Dana revenues.

First of all, can you say what Dana represented in Q4 and when the shipments stopped?

Was it early December?

It was at the end of December, Jim; actually December 30.

And the aggregate revenue from Dana in Q4 was just over $50 million.

Okay.

So if we think about the second half of 2015, just given what you're working on in terms of new programs, is there any way for you to provide some range of revenues that you might see as replacing some of this Dana business in the second half?

Yes, and it is going to be more of a second-half replacement as compared to the first half.

We do -- obviously the contract with Meritor that was announced at the end of the year gives us some opportunity in the first half, but it's not as material.

So as we look to the second half of the year, we've modeled a number of different scenarios, obviously; and we have some very real opportunities in front of us.

I think what is a reasonable range, Jim, would be to look at something in the back half of the year where we are in the -- where we're replacing let's call it 15% to 30% of the Dana volume on a quarterly basis as we move through the back part of the year.

Okay.

Does that assume completion of this acquisition that you're (multiple speakers)?

No.

Anything external would be incremental to those numbers.

Okay.

Great.

And --

If you want to size the acquisition, Jim, it's -- you are looking at a $40 million run rate on an annual basis.

Right, okay; and I believe that you alluded to that in the last call.

Is there much -- can you talk a little bit about the customer overlap with this acquisition or the end-market overlap?

And again, it's a little early.

You haven't completed it, and I don't know what the timeline is as to when you think you could, if you move forward with it.

Sure.

Jim, this is Jeff.

The customer concentration is very similar to the customers we currently have in the commercial vehicle industry.

As part of our due diligence we've been meeting with the major customers on that side, and they are very excited about the prospect of our completing this transaction.

From a timeline standpoint, if the remaining elements of due diligence go well, we would anticipate bringing this to a close in Q2.

Okay.

Just to switch gears for a second, looking at the electronics business, I may have misheard.

I wasn't sure if you're anticipating -- to what extent you might be anticipating growth in this business.

It sounds like you see some areas that are going to be up in 2015 versus 2014.

At this point do you think the business is going to be up?

Yes.

Certainly as we move sequentially from Q4 to Q1 and with the program that Jeff and I mentioned on the EDMS side -- it's one that you probably recall hearing us talk about throughout 2014, where we had the delays and we finally launched that in Q1; so it will contribute in Q1 and Q2, certainly.

And we expect that to provide some sequential lift as we execute forward.

Then in Q2, with the commissioning of the Cyber Range as incremental revenue and the other opportunities that we're pursuing, we expect to see sequential improvement there as well.

Okay.

Is it possible for you to size the Cyber business right now and the potential for that business in 2015?

Well, let's see, Jim, there would be two pieces to it.

Right.

The existing government piece, right?

Well, yes, and more particularly the Cyber Range, for example.

The Cyber Range is what we're installing as part of the Cyber Lab in Singapore.

So our current funnel on additional Ranges to a variety of agencies and countries is in the $25 million to $30 million range.

And depending upon the specification and how the Range is put together, you can figure on a price that runs as low as $750,000 for a particular application that's very basic and simple to in excess of $3 million for an installation that's much more complex.

On the SIOMETRICS side, we don't have I think a good way to size that at this point, because it's truly a -- let's call it a technology that we've now demonstrated and we've taken it to different locations such as MIT, Purdue.

As I mentioned in the prepared part of our speech, we've been out and visited with Kleiner Perkins and Khosla and others, and it's a technology that has the opportunity to be very disruptive.

What we are trying to figure out is what is the best way to get it to market, because we don't have in our organization either the knowledge or the channels of distribution into many of the end-markets that everyone sees as being highly applicable for this technology.

So, I guess that is a long-winded way of saying with that one we don't have the ability to size it for you in terms of, let's call it revenue; but we see the opportunity intrinsically as being substantial.

Jeff, do you see a point this year where you're going to have more to say about how you're going to proceed in terms of commercializing this technology?

It sounds like you are investigating a number of different options and avenues.

Is there a timeline?

Jim, I would certainly say by the time we get to the middle of this year we would hope to have a plan and a process in place to bring it to market.

In part because everyone we have talked to agrees it's disruptive, and so it's time to market.

And in order for us to be able to become the thought leader, if you will, in this area, we need to get it to market and get it established with some broad users.

So yes; the answer to your question, by the middle of the year.

Got it.

One final question, Tony.

Anyway of sizing the charges that we would expect -- you expect in Q1, Q2?

No.

It's difficult to -- certainly the Q2 number is more difficult than Q1 at this point.

But we're still rolling those numbers up as we execute 1.

Okay, thank you.

Alan Weber, Robotti & Company.

Good morning.

Can you talk about in the quarter and the year SG&A was quite a bit higher, and why that was in the fourth quarter?

Yes.

The SG&A, Alan, includes our professional fees, legal and otherwise, associated with our Dana matters.

So that is the single largest factor in the variance.

Okay.

For the first quarter, since it basically completed, what do you think the cash charges will be related to the whole Dana contract and like that?

Yes.

That kind of follows Jim's question -- just Jim's previous question, regarding the Q1 charges.

We -- as I said to Jim, we're in the process of rolling those numbers up.

There is a component of that that you would consider nonrecurring, as well as a component of that cost that reflects the activities that we're doing to preserve our skilled workforce that won't be classified as nonrecurring.

So there are two elements to that at the end of the day, and we're in the process, Alan, of analyzing those numbers and not in a position to disclose that today.

Okay.

Does the getting out of Dana, the contract, does it open you up to some of their competitors?

Alan, this is Jeff.

Yes, it certainly has.

Okay.

I think the first -- I think you covered most of my other questions.

Thank you very much.

(Operator Instructions) Justyn Putnam, Talanta Investment.

Good morning.

Thank you for taking my questions.

I just want to follow up on a couple of the other questions that have already been asked this morning, particularly regarding the loss of the Dana business.

I guess, just trying to figure out how this is all going to layer in, is the existing business that you have now, including the Dana business, is that going to be profitable going forward, even including the additional overhead that you have to absorb?

As we execute forward, it's certainly going to have an impact because of the fixed-cost structure that we have, Justyn.

So as we -- in our presentation as we talked about the sequential improvement that we see from bringing on new contracts and the timing of those layering in during 2015, we expect that business to be profitable in the second half of the year.

But it's going to take us the time to rebuild and replace the volume as we move forward.

Okay, I was just trying to look at the business before you layered on the new business.

So excluding one-time costs that you are going to have during the transition, the existing business is just not enough to cover the overhead that you have.

You really are dependent on the pickup of new business in the second half.

Is that correct?

That's correct.

It also reflects what we are doing, Justyn, to really build for the future.

Because our strategy, as we discussed, is to retain the workforce, to retain the talent, to rebuild.

And our guys have done a remarkable job at the locations that have been impacted by the Dana volume.

They've done a remarkable job to put themselves in the best possible position to be successful.

Their plants are a showpiece.

The equipment is in as good a shape as it's ever been.

It's received the extra TLC that you might expect during a period like this.

So we really are in a position to grow out of this, and we think that as we ramped through the first half of the year we will see the results.

Okay, thank you.

Then just changing gears too real quick on the electronics business, certainly have a lot going on in that business, a lot of potential there.

But I think we talked in the last couple of calls anticipating that business to become profitable in 2015.

Is that still on track?

Yes, it is.

Yes, it is.

Okay.

That's all my questions.

Thank you.

It appears we have no further questions at this time.

Well, thank you, Doug; and thank you, everyone.

Tony and I would like to thank you for joining us on this call this morning.

We welcome your continued interest and of course your questions about our business.

Thank you and have a great day.

This concludes today's conference.

Thank you for your participation.