Sypris Solutions Inc (SYPR) 2015 Q1 法說會逐字稿

Good day, and welcome to this 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, Noah, and welcome, everyone.

Tony, Allen, and I would like to welcome you to this call, the purpose of which is to review the trends reflected in the Company's financial results for the first quarter of 2015.

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 the result of several factors.

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

And in compliance with Regulation G, you can access our website, www.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 quarter, to be followed by a brief discussion of each of our two business segments.

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

Now let's begin with that overview on slide 4.

As we mentioned in our last call and in our annual report to stockholders for the year 2014, the discontinuation of the long-term supply agreement with Dana at year end was expected to have a material impact on the future outlook for our business since Dana represented approximately 59% of consolidated net revenue in 2014.

We noted that the brunt of the financial impact was expected to be felt during the first half of 2015, after which the combined contribution from reduced costs and new program launches was anticipated to have an increasingly positive impact on the Company's cash flow from operations and bottom-line results.

The first quarter met expectations and was in fact quite challenging from both an operational and financial standpoint, as Tony will review with you shortly in some detail.

In response to this outcome, the Company reduced headcount by an estimated 33% at Sypris Technologies, implemented a wage freeze, lowered executive compensation, reduced managerial salaries and scheduled hours at plants impacted by the change, and arranged for additional financing to support the Company's short-term needs as it transitions to life after Dana.

The team did an outstanding job managing manpower, working capital, and, most importantly, morale as we adjusted to the lower levels of demand.

We also made some decisions that were designed to protect the strategic core of Sypris Technologies by not reducing headcount to the extent current volumes would otherwise have dictated.

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

It was money well spent.

We made important progress during the quarter with regard to the acquisition of the Company that we had discussed during previous calls.

The transaction still remains subject to the closing of financing among other items, which Tony will review with you shortly.

But we are targeting the completion of both the financing and the acquisition by quarter end.

So to summarize, the first-quarter results met our expectations in terms of difficulty and challenge.

But with the cost reductions in place, new revenue in the process of coming online, and with the pending acquisition close at hand, the transition to our new future is well underway.

The changes clearly taxed our organization in many, many ways, but the outlook for the balance of the year is now much brighter as a result of the hard work and dedication of so many.

To those of you listening today who have been involved or who have lent a helping hand, thank you.

Much hard work certainly remains, and I am certain that there will be many bumps in the journey ahead.

But we have an excellent team, and we are off to a solid start.

Turning now to slide 5, revenue for Sypris Electronics increased 6% to $8.9 million from the same period in 2014, and increased 27% sequentially from the fourth quarter of last year.

Gross profit and gross margin increased materially on both a year-over-year and on a sequential basis as a result of the increased volume and improved mix.

The first quarter continued on a positive note for EMS sales to customers with applications in severe environments including Northrop Grumman, Lockheed Martin, and Exelis.

Business activity continued to grow in this area, supporting our expectations for strong double-digit growth in 2015.

We conducted multiple demonstrations and entered into advanced discussions during the quarter with a number of potential customers with the latest version of our Cyber Range.

Our team remains quite optimistic about the future prospects through this leading-edge capability and response training product.

The installation of the Cyber Range for the Ministry of Home Affairs in Singapore continues to progress on schedule, with the commissioning of this important installation scheduled for the second quarter of this year.

The Cyber Security Lab that we are constructing with NEC Asia-Pacific, of which the range is in an integral component, is quite impressive and has served as a key demonstration site for us as we discuss potential installations with prospective customers in Asia and Europe.

The quarter was also notable for the latest advancements that were made to our SIOMETRICS identity software, which is now fully plug-and-play and backward-compatible with existing public key identity systems that are currently used in most commercial security applications.

We continue to hold discussions with potential integrators of this unique software stack as well as with venture capital and other investment firms as a means for facilitating the early rollout and adoption of this new technology.

We have now filed more than a dozen patent applications to protect the unique features of this software, which we believe has the potential to dramatically reduce exposure to cyber attacks.

Turning to slide 6, as we have said on many occasions, we expect the impact of DOD funding-related issues to continue to affect our business until such time as new programs, products, and cyber-related services achieve sufficient traction to offset these issues.

The good news is we are making progress.

Our outlook for the second quarter of this year reflects this progress, with revenue, gross profit, and EBITDA each targeted to increase materially on both a year-over-year and on a sequential basis.

These improvements reflect the positive impact of the cost reduction initiatives that were implemented late last year, increased product shipments, and the commissioning of the Cyber Range in Singapore.

And perhaps just as importantly, we expect this progress to carry over into the balance of 2015 as we work to further improve our portfolio mix with additional Cyber Range commitments.

Now let's take a quick look at Sypris Technologies beginning with slide 7.

As I mentioned a few moments ago, the cessation of shipments to Dana after year end had a material effect on our business and negatively impacted all important financial measures.

As a result, we reduced headcount by an estimated 33%, implemented a wage freeze, lowered executive compensation, reduced managerial salaries and scheduled hours at the two plants impacted by the change.

The team did an excellent job managing the down-scoping of operations in both North Carolina and in Mexico, the two primary locations affected by the reduced levels of business.

Inventory levels were watched closely, but quality and delivery to customers remained at world-class levels, no mean feat during this period of change and disruption.

We made the decision to retain key technical and operational skills or capabilities that would prove to be essential to building our business on a go-forward basis.

During the quarter, we utilized many of these people to accelerate TPS and 5S projects as well as to perform preventative maintenance on key pieces of equipment, all in an effort to further improve our operations and prepare for new business.

Our investments in process improvements and the results from our partnering with Toyota are paying real dividends in terms of increasing manufacturing efficiencies and improving equipment uptime while simultaneously reducing cycle times in scrap.

We recently experienced yet another great milestone.

Set-up times for a machining cell in our energy business were reduced from an average of 105 minutes to one minute and 38 seconds.

New program launches are currently underway, with more to follow in each of our facilities.

As you will see on slide 8, we are in the process of ramping up and we will soon begin to ramp up the production of carriers, knuckles, I-beams, and axle shafts for use in the commercial vehicle market.

We will also be producing full-flow tubes for the light truck market and heavy industrial-use components for use in the off-highway market.

These programs are important for us since they serve as the foundation that will put our technical talent back to work and absorb the workforce that we preserved for the future.

[Boarding] activity is extremely active, and our team remains optimistic that the demand for high-quality reliable products from our customers will bode well for our future.

The Ultra Series lightweight axle shaft successfully completed testing with one customer during the quarter and is now undergoing tests with yet another.

We are preparing our plants in Kentucky and Mexico for the production of this breakthrough product, which is lighter, stronger, and less costly to produce then other axle shafts currently on the market.

We hope to be in production later this year.

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

We continue to make progress on the acquisition and joint venture front during the quarter.

We have substantially completed due diligence with regard to the purchase of the Company we have discussed on recent calls, with a closing targeted to take place at the end of the second quarter in conjunction with the completion of our new long-term credit facilities.

We also have a team in India this week with the objective to complete and enter into the definitive agreements required to form a joint venture for the production of axle shafts for the light-truck market in India.

We are very excited about this project, which will enable us to put to use some underutilized equipment with a very experienced partner.

Turning now to slide 9, the outlooks for the markets served by Sypris technology remain positive.

The commercial vehicle market with class V through VIII trucks continues to expand, with production expected to climb 9% in 2015, while the forecast for light-truck, trailer, off-highway, and agricultural markets remains silent.

Our outlook for the second quarter reflects in part the robust nature of our markets and the results that we expect to generate in the new program launches mentioned earlier.

More specifically, we expect to benefit from strong sequential top-line growth during the quarter, fueled by these program launches and the backlog of shipments scheduled for our energy customers.

The combination of higher revenue, lower cost, and improved product mix is targeted to have a very positive impact on margins going forward.

The outlook is for EBITDA to improve significantly during the quarter and return to profitability for the second half of 2015.

Turning now to slide 10, Tony will lead you through the balance of our presentation this morning.

Tony?

Thanks, Jeff.

Good morning, everyone.

I would like to take you through the highlights of our financial results for the first quarter of 2015, and I will begin with our consolidated results and ask you to advance to slide 11.

Q1 consolidated revenue totaled $37 million, down $47.2 million compared to the prior year.

The decline in revenue reflects the discontinuation of shipments to Dana effective January 1. Dana accounted for 59% of Q1 and full-year revenue in 2014.

And although we are currently shipping some small quantities of components to Dana, our outlook for the balance of 2015 does not include any significant volume from this customer.

Gross profit decreased to a loss of $3.2 million in the quarter from $10.6 million in the prior-year period.

The profit and cash flow metrics highlighted on this slide are primarily impacted by the Dana event, which outweighs the year-over-year comparison of metrics in both segments.

However, we are pleased to announce that Sypris Electronics reported gross profit of just under $1 million for the quarter on revenue of $8.9 million for a gross margin of 10.6%.

Workforce reductions by Sypris Technologies in response to the decline in revenue gave rise to severance costs of approximately $300,000, which has been classified as a separate line item in our income statement.

Legal fees incurred for litigation proceedings are included in selling, general, and administrative expense, and further impacted EBITDA during the quarter.

Our free cash flow for the first quarter includes a working capital reduction, which provided a source of cash in Q1 and lower spend on capital expenditures compared to the prior-year period.

The impact of these two items partially offset the year-over-year decline in EBITDA.

Please advance to slide 12, and I will discuss EBITDA for the comparable first-quarter periods.

The most significant item in the walk from Q1 of 2014 to the current-year quarter is again related to the decrease in revenue.

The occurrence of a cliff event associated with the loss of a single customer accounting for 59% of revenue touched every aspect of our business.

Although we took immediate strategic actions to adjust to the new reality, certain of our initiatives did not materially reduce costs during the quarter.

Additionally, as we look to the future, we recognize the importance of our employees in the achievement of our recovery plan.

So we have and will continue to balance our cost reduction initiatives between the short-term conditions we are facing today and our long-term objectives to rebuild the business.

Our labor productivity and fixed overhead absorption reflect the decline in revenue, but we anticipate these metrics will improve sequentially as we move into the second quarter and bring new programs online.

Effective December 31, 2014, the amortization of deferred revenue for a claim related to Dana's bankruptcy in 2006 ended.

The end of this revenue amortization would have occurred regardless of whether our relationship with Dana continued into 2015 or not, and therefore has been included in all of our internal projections as a component of our EBITDA walk for 2015.

Legal costs incurred on the arbitration and legal proceedings with Dana during the first quarter of 2015 increased over the prior year.

However, we anticipate that all subsequent quarters of 2015 will show significantly less legal expense than the prior-year periods.

The workforce reductions in Q1 accounted for severance expense of approximately $300,000, and we expect additional severance costs may be incurred in the second quarter, primarily subject to the timing and amount of new program launches within Cyprus Technologies.

And finally, the net impact of changes in SG&A, research and development, foreign currency translation, among other items net to a positive $100,000 in the walk for Q1.

The bottom line is negative EBITDA for the quarter of $10.5 million compared to $5.7 million in the prior year.

This result was in line with our expectations.

And, as we will discuss later, we are targeting a significant sequential improvement in this metric during the second quarter on our path towards achieving positive EBITDA again in the second half of 2015.

Please advance to slide 13, and I will discuss our free cash flow for the quarter.

We start with our net loss for Q1 of $13 million and add back net capital spend of $1.9 million.

Our depreciation and amortization of $2.2 million is partially offset by a CapEx of $300,000 for the quarter, resulting in the add-back of $1.9 million.

The ramp of a sizable EDMS program for Sypris Electronics in the first quarter generated a reduction in deferred revenue of $2.2 million.

You may remember prior discussions on this program, which had been delayed due to technical issues between our customer and the end user.

Due to the length of the delay and the fact that we had acquired the inventory for this program in accordance with the original delivery schedule, the customer agreed to pay us approximately $4 million for the inventory in late 2013 and early 2014 prior to our shipping the product.

The advanced payment was recorded as deferred revenue, part of which was recognized in Q1, with the balance to be recognized as we complete shipments of the related inventory, which is expected to occur in the second quarter.

Earlier, I mentioned the reduction in working capital which was a source of cash of $7.6 million in the first quarter primarily due to a reduction in accounts receivable.

Free cash flow was negative $5.6 million for the quarter, and our net debt increased to $16.5 million at the end of Q1, which represented 33% of total capital.

Related to our debt position, I would also like to note that we successfully amended our credit facility in the first quarter to provide our business with the liquidity needed to execute our recovery plan and bridge our business to the future.

Let me now shift to segment performance and ask you to please advance to slide 14.

Sypris Technologies reported $28.1 million in revenue, negative $4.1 million in gross profit, and negative $7.3 million in EBITDA.

To avoid repetition in this discussion, I will simply note that each of these metrics reflect the termination of the Dana contract and further note that our goal is to achieve steady, sequential improvement in each category as we progress through 2015.

Sypris Electronics reported $8.9 million in revenue, $0.9 million in gross profit, and negative $1.4 million in EBITDA.

The ramp of the EDMS program previously discussed and a favorable mix of product revenue compared to the first quarter of 2014 resulted in a $1.5 million improvement year over year in gross profit.

A slight reduction in SG&A expense was offset by an increased R&D spend resulting in a $1.4 million improvement in EBITDA for the comparable quarterly periods.

Please advance to slide 15, and I will preview our outlook for the second quarter of 2015.

As you know, we typically do not provide specific guidance on earnings metrics during these calls or in other disclosures.

However, given the extraordinary circumstances currently surrounding our business, we are making an exception to this practice which we hope will provide you with a directional sense of our goals and the improvement we anticipate as we move beyond the first quarter.

I will start by repeating just earlier reference to our Safe Harbor disclosure on slide 2 and emphasize that all forward-looking statements are subject to the risk factors and uncertainties disclosed in this presentation and in our filings with the SEC.

The revenue, gross profit, and EBITDA goals set forth on this slide are representative of our current forecast model and certain sensitivity analysis applied to that model.

While certain elements of our revenue stream are more consistent from period to period, we also have some significant programs and products that, from an accounting perspective, are discrete events and therefore give rise to specific revenue and profit recognition impacting monthly or quarterly results.

Therefore, delays or cancellations in projected shipments may occur which could materially impact the target set forth in this outlook.

And while these estimates reflect our current views, we do not plan to provide updates or corrections to these estimates, even when our internal assessments change significantly over time.

We are targeting a 15% to 30% sequential increase in revenue from Q1 to Q2, which would result in Q2 revenue in the range of $42 million to $48 million.

We anticipate both segments will contribute to this growth, with a strong commercial vehicle market and the ramp of new programs driving the top-line growth for Sypris Technologies.

For Sypris Electronics, we anticipate continued shipments on EDMS programs to be boosted by higher product sales and the commissioning of the Cyber Range in Singapore to contribute to sequential growth in Q2.

We anticipate our labor and overhead absorption will improve sequentially on the targeted revenue growth.

And, combined with other cost reduction actions, we are targeting gross profit in the range of 5% to 9% of revenue.

Together with anticipated reductions in SG&A spend and legal expense in the second quarter, we are targeting EBITDA for Q2 in the range of a negative $1.5 million to negative $4 million as compared to the negative $10.5 million reported for Q1.

If we prove to be successful in meeting these targets in Q2, we anticipate that this position -- that this will position us to return to positive EBITDA levels in the second half of 2015.

Let me now close with a brief summary and ask you to please advance to slide 16.

Our results of operations for the first quarter reflect our most challenging transition period, with sequential quarterly improvements targeted for the balance of 2015.

The variable cost reductions implemented for Sypris Technologies were appropriately timed but overshadowed by the immediate and significant drop in revenue from Dana.

We consider talent retention as a critical factor to our organic growth plan for new business, and we strive to be proactive and transparent in our communications with employees to protect this valuable resource.

The ramp of a key EDMS program in Q1 and prior-period cost reductions generated an improvement in Sypris Electronics' operating results, which we anticipate will continue into the second quarter.

The completion of the loan amendment in Q1 was an important milestone and provided us with necessary liquidity to manage through this transition.

The synergistic acquisition opportunity Jeff discussed earlier is anticipated to close in the second quarter and is expected to be immediately accretive to earnings.

We recently executed a proposal letter and term sheet with a prospective lender for a five-year credit agreement which would refinance our existing loan scheduled to mature in January 2016, fund the acquisition we discussed, and increase liquidity.

The diligence process with the prospective lender is anticipated to be completed in the second quarter, which would allow us to close and fund in Q2.

We look forward to discussing this in more detail on our next quarterly call.

As noted earlier, our outlook for Q2 improves when organic revenue growth, labor utilization, fixed overhead absorption, and cost reductions among other factors.

And finally, we will continue to dedicate all resources to deliver results and build profitability.

This concludes our call today.

And at this time, I would like to turn it back over to Noah so we can open it up for any questions you might have for us at this time.

Thank you.

(Operator Instructions) Brad Moss, Needham and Company.

This is Brad in for Jim.

Just first off, I think on the last call you guys talked about the release of some shipments to Northrup, and the Cyber Range to Singapore would generate about $8 million in the first half.

Just wondering if that's their expectation.

And then what amount that would be in Q2.

And then if you can provide any color on what you expect from the two of them in the second half.

Yes, we did commence shipments to Northrop in the first quarter.

And as Jeff discussed earlier and I think I mentioned as well, the Cyber Range is targeted for commissioning still in the second quarter.

So the large single program with Northrup -- and we have more than one program, but the large program we discussed would ship in ship in Q1 and Q2.

It's not expected to have significant volume at this point in the back half of the year.

Okay.

And then regarding the Cyber Range, I think you have talked about a potential pipeline in excess of $25 million.

I'm just wondering how many customers that would represent and then what some of the milestones that we could look for for some of these potential awards.

Brad, this is Jeff.

Yes.

We have a deep funnel on the business development side for the Cyber Range.

And I would say out of that $25 million, there are four or five customers that are more advanced in our discussions than others.

And, on average, I would say you would think of this as being in the neighborhood of ranging from $1.5 million to $2.5 million per range depending upon configuration and complexity and features.

Okay.

And then with regard to the EMS business in 2015, how should we think about seasonality going forward for the rest of the year?

Well, we expect the EMS business to continue to grow as we go through the year, and the activity there has been very positive.

And so we believe that by the time we get to the full year, we will see strong double-digit growth for that part of our business.

Okay.

And then switching gears, the joint venture in India, do you still expect it to start in Q2?

And then how should we think about the financial impact for the second half?

Okay.

We expect to hopefully finish the documentation, enter into the joint venture agreement and all of those things by the time we get to Q2.

Then my sense is, Brad, that it would take us probably in the neighborhood of 12 to 15 months for the venture to ramp up in terms of installing the equipment and doing those types of things.

Our major contribution to this venture is in taking some mothballed equipment that we have here in Kentucky and taking it over there.

It's profiled perfectly for what the Indian market could use.

And we think that once we get up and going that the potential will be to expand from the light truck market into the commercial vehicle market as well.

And so from a results standpoint on Sypris, I don't think we're going to see anything until certainly mid- to late 2016.

Okay.

And then staying on the industrial business, just wondering either quantitatively or qualitatively what the utilizations were in the quarter and how you see that in Q2 in the second half.

You are talking about capacity utilization?

Yes.

Okay.

Well, that is a difficult number to give you because the impact of the lost business affects two plants but not two other plants.

And so in the plants that were affected, the utilization rate for the quarter was very, very low.

It also reflects the fact that in Mexico in particular, we believe we will be able to bring that utilization rate back up as we go through the year because our operation in Mexico is extremely competitive, we have a great workforce, and it is situated I think in a really great geographic area.

So -- but as you can imagine, the utilization during the first quarter was very low.

Right.

Okay.

And then last one for me, just wondering if you can -- how you would characterize the demand from the commercial vehicle customers in heavy-duty and class IV through VII versus what you guys thought at the end of 2014.

Okay, Brad.

I'm sorry; I missed part of your question.

Just wondering how you would characterize the demand in the heavy heavy-duty and class IV through VII versus what you thought three months ago.

In the medium duty, it's remained steady from our standpoint.

It hasn't varied from expectations.

And then what about heavy duty?

Heavy, just as well.

The -- in talking with our customers, they are very bullish on the outlook for the heavy-duty market.

Even several of these customers feel that the market will remain strong well into 2016.

So we will see how that plays.

All right.

Great.

Thanks for taking my questions, guys.

Alan Weber, Robotti and Company.

I might have missed part of this.

But as you look out for the balance of the year, (technical difficulty) first, what is the acquisition -- what was the purchase price of the acquisition?

And then what do you expect the free cash flow or the cash flow to be -- to some kind of general range in terms of as revenues ramp up in the second half of the year, working capital required, (inaudible) additional investment.

Allen, this is Tony.

Good morning.

The acquisition hasn't closed.

And therefore we haven't announced publicly any details around the purchase price or any associated projections or historical performance of the business.

And not in a position today certainly to disclose anything related to the acquisition in terms of the quantitative aspects.

So -- and as we look -- the second-quarter numbers that we presented do not include any acquisition impact in our outlook.

Regarding free cash flow and CapEx in the back half of the year, we expect sequential improvement as we move through the year.

We expect to get -- anticipate achieving positive cash flow in the back half of the year.

Capital needs are less than the prior year, and we will monitor that and adjust that view as we move through the year based upon -- really based upon new program launches.

And we have modeled some of that as we look to the back half of the year on new business that we have either under contract or that we are close to awards.

And we think that the cap spend that we have is appropriate based upon those projections.

Okay, great.

Thank you very much.

Justin Putnam, Talanta Investment Group.

First question, so it sounds like in the back half of the year, your business is going to reach some kind of normalization.

And so does that mean that you feel like your cost structure is aligned with the new volume of business that you have in the back half of the year?

Or do you feel like there's a lot more work to be done even beyond 2015 as far as that's concerned?

Yes, I think there's more work to be done, Justin.

We have made appropriate adjustments to our cost structure.

But when you are trying to backfill 60% of your revenue, it doesn't happen in one quarter, two quarters, or three quarters.

So there is ongoing work as we move through the balance of the year.

Most of the significant adjustments that we will have to make on the variable side will have been made by the time we get the second half.

But there's still -- in the back half of the year, there's still plenty of work ahead to really drive the top-line improvements and improve the overhead absorption as we move through the year.

So as far as aligning your cost structure with your revenue levels, do you feel like that stabilization will be occurred -- will occur like in the first part of 2016 or toward the end or --?

When are we going to reach the stabilization period, I guess is what I'm asking.

Justin, this is Jeff.

We believe that our cost structure will be fundamentally in line by the end of Q2.

Okay.

That seemed to be a little different than what Tony was saying.

Well, I don't know that it's different, Justin.

What I think Jeff is communicating, which is consistent with what I said, is that from a variable cost side, most of the significant changes will have occurred by the time we enter the second half.

When I say there's more work to be done in driving top-line growth, obviously we're not -- our overhead structure -- fixed overhead structure is -- it's still absorbing a loss in revenue of $200 million annualized.

So that element of it in terms of overhead absorption will continue through 2015 and into 2016.

But the variable side -- Jeff is correct, and hope it was consistent with what I said, that the majority of those changes will have occurred by the end of Q2.

Okay.

So I appreciate you providing the outlook for the second quarter and some numbers around that.

That's very helpful as far as understanding your business.

Would you be willing to provide us a little bit more your commentary or maybe some numbers around where you see your business as you reach that stabilization point, whether it be in the back half the year or into 2016.

Maybe just -- and you were just talking about the industrial business from a gross margin standpoint.

We all know historically your business was low teens gross margin type business.

Do you see -- with the new business and the business that you have now, do you see once everything aligns -- operates, do you see something approaching that level?

Or where do you see the business as you reach a normalization phase?

Well -- Justin, this is Jeff.

We see the gross margin turning positive here shortly.

We won't get back to the low teens in 2015.

But I think you should expect us to be in the mid- to upper percentage -- single digits as we go through the second half of the year.

And that's a reasonable expectation for your business going forward 2016, 2017, so forth, this type of business that you have?

Well, I think that as we roll into 2016 that you should expect our margins to climb back to historical levels.

But we need -- as Tony indicated, we need to continue to bring in the volume that will support the absorption on that basis.

Okay, excellent.

That's my question.

Thank you very much.

(Operator Instructions) And we have no further questions at this time.

Thank you, Noah, and thank you, everyone.

Tony and I want to thank you for joining us on the call this morning.

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

So thank you, and have a great day.

And this does conclude today's conference.

Thank you for your participation.