Jeffrey Gill – President and Chief Executive Officer Tony Allen – Vice President and Chief Financial Officer.

Jim Ricchiuti – Needham & Company.

Good day everyone and welcome to the Sypris Solutions Second Quarter 2017 Earnings 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, Kim 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 second quarter of 2017. 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. And in compliance with Regulation G, you can access our website at 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 business discussion. Please advance to Slide 3.

I will lead you to the first half of our presentation this morning, starting with an overview of the highlights for the quarter, to be followed by an update on the status of our transition plan implementation and our new business awards.

Tony will then provide you with a more detailed review of our financial results for the quarter as well as to walk you through the significant savings we expect to realize in 2017 and 2018, when compared to the year just completed. Now let's begin with the overview on Slide 4.

We are pleased to report that revenue for the quarter came in at the higher end of our expectations, increasing by almost 17% sequentially to $21.2 million, up from $18.2 million in the first quarter of this year.

Sypris Electronics led the way with shipments increasing almost 33% sequentially, while shipments for Sypris Technologies also increased by double-digits, rising 10.2% sequentially for the quarter.

Gross margin increased to 7.5% during the period, up from a loss of 3.8% in the first quarter of 2017, driven by significant margin expansion in both business segments.

Gross margin for Sypris Electronics increased to 18.1%, up from just under 2% for the first quarter, while gross margin for Sypris Technologies improved to 2.1%, up from a loss of 6.2% in the prior period. Both businesses benefited from higher revenue, improved mix and lower cost.

In addition to gross margin, the Company's improved cost profile was also evident in SG&A, where our expenses were almost 32% lower than the prior year period, reflecting the divestiture of the CSS business and the results of our cost-improvement initiatives.

Subsequent to quarter-end, we announced the receipt of four new contracts with Harris Corporation for the manufacture of mission-critical electronic assemblies for two weather satellite programs, a missile warning system and the U.S. Military Weapons System.

These contracts were follow-on awards, which, as you may recall, representing an important component of our business model. Our new contract wins, including anticipated follow-on awards, are expected to contribute an estimated $21 million to our top line in 2018 and close to $25 million in sales for 2019.

With the recent receipt of the Harris awards, we now have $15.8 million or 76% of the anticipated $21 million for 2018. We expect to remain $4.9 million the follow-on business to be awarded by year-end. Advancing to Slide 5.

We are also pleased to report that all major actions required to achieve our two year $26.3 million cost improvement target have been completed as of this month. Some of you may recall that our original objective is to complete this program by the end of May.

But as the date neared, we made the decision to build additional inventory, and rebuilt some equipment to further protect customer deliveries, both of which required additional time. Needless to say, the completion of these activities represents a significant accomplishment for the company.

And we have many people to thank, our teammates at the Broadway Plant have done a fantastic job under very challenging circumstances. Year-to-date, quality stands at just 3.5 PPMs, while on-time delivery exceeds 98%. And as you might imagine, our customers are extremely pleased with this result.

Our team in Toluca has been working around the clock to install equipment and otherwise prepare for production, both for the work being transferred from the Broadway Plant, but also for those programs that we will discuss later this morning.

Even with this extra work burden, however, year-to-date metrics for quality and delivery for Toluca mirror those of the Broadway Plant. We can now look forward to reaping the benefits of this hard work in the form of expanding margins through the balance of 2017 and into 2018 as the full year impact of these savings are realized.

Thank you, one and all. As a result of the strength of our new business wins, we are raising our revenue guidance for the second half of 2017, increasing our outlook to $42 million to $44 million, up 5% at the midpoint from our prior guidance.

And with the completion of our cost-improvement initiatives, we are pleased to confirm our margin outlook for the balance of the year with a gross margin forecasted to be in the range of 15% to 17% while EBITDA is expected to approximate 7% to 9% of sales.

In summary, the combination of revenue growth, improved mix, and the significant reduction in our expense profile is expected to open up a new, very positive chapter in our journey here at Sypris with a return to profitability during the latter part of this year.

Now let's turn to Slide 6 and take a moment to review the purpose and components of our transition plan for one last time. As we discussed during previous calls, we established a clear set of objectives for ourselves when we first embarked upon the plan.

We wanted to significantly improve our cost competitiveness on a sustained basis, which meant that we needed to address both capacity utilization and fixed and variable cost. It also meant that we need to make a decision with regard to the direction and concentration of our business.

We wanted to establish and maintain a highly liquid balance sheet so that we can fund the completion of our transition out of internally generated funds. We wanted to diversify the Company's book of business both in terms of customers and markets served.

This would help to reduce the impacts of cyclicality and the risk associated with the completion of a program and/or the loss of a customer in the future. And finally, we wanted to build shareholder value through a focus on innovation, growth and a culture based upon continuous improvement. Turning to Slide 7.

Many of you may recall that during 2016, we generated $12 million of proceeds through the sale and lease back of our campus in Toluca, Mexico, which was less than 50% occupied.

We divested our CSS business for $42 million, which shown some very interesting, groundbreaking technology, but we clearly did not have the resources to realize its potential in a timely manner.

We used the proceeds from this transactions to eliminate 100% of our high cost commercial debt, which has resulted in a $5.5 million savings on interest expense and other debt-related costs incurred during 2016.

We relocated the operations of Sypris Electronics, less the CSS portion of the business, into a modern, 50,000 square foot facility, thereby reducing the overall footprint by over 250,000 square feet and saving $1.7 million in annual operating costs.

We reduce salary headcount by $2.7 million and initiated the transfer of certain foraging and machining operations from the Broadway Plant to others Sypris locations. As I mentioned a moment ago, we were successful in securing new orders to boost shipments for 2018 and beyond. During our last call, I mentioned that we had more yet to do.

Turning to Slide 8. I'm pleased to report that we're currently on plan with regard to each of the remaining initiatives that we need to finish. We have received the required approvals from Daimler and have launched production for this important customers.

We are substantially through the approval process with Volvo/Mack and expect to launch production during the upcoming months. We are on plan with regard to the implementation of our new ERP platform, which will ensure that each of our operations will be on the same system for the first time in the history of our company.

The transition from the Broadway Plant is now substantially complete. We will continue producing product for delivery in the U.S. on a limited scale for the foreseeable future if only to make certain that we are dual-sourced for customers and have plenty of capacity, should there be an unexpected increase in demand.

We will continue the orderly liquidation of idle and underutilized non-core assets as we proceed through the balance of the year. We will also continue to relocate certain production assets to our Toluca plant to support future growth opportunities. We must also continue to operate effectively.

We have several large orders in backlog that must be shipped on time and under budget, so that we can continue to please our customers. The upcoming quarters will serve us the measure of our progress and performance in this area. In summary, the transition plan is both ambitious and necessary.

We now look forward to growing the business further and with this in mind, please advance to Slide 9. I had mentioned during previous calls that our orders in backlog at the year-end had increased substantially on a year-over-year basis.

In fact, during the past 12 months, we’ve received a number of new multi-year awards that in the aggregate are expected to generate new revenue of $15.8 million in 2018 and $12.9 million in 2019 based upon current market conditions. The terms of the awards range from two to seven years, with an average term of four plus years.

In addition, certain of these awards are for government programs, which tend to fund on an annual basis due to federal budgeting parameters. With each new budget cycle, follow-on orders are then placed for the coming year for many of these programs that will otherwise have a seven to 10 year life and sometimes much longer.

In our case, the anticipated follow-on orders from our new government contracts are expected to contribute an additional $4.9 million of revenue in 2018 and $11.9 million in 2019 based upon current market conditions. As an illustration, please note the three different colors of shading in the bar chart for 2018.

The middle section reflects the recent award of the Harris work, which is now under contract, is no longer reflected as an anticipated follow-on award. In total then, we expect to benefit from an estimated $20.7 million of new sales in 2018 and $24.8 million of new sales in 2019, based upon the awards we’ve received to-date.

The good news is that we believe that we can do even better since we have the time and opportunity to build further upon the 2018 and 2019 sales backlogs. Advancing to Slide 10, let’s take a look at the breakdown for some of these new awards.

For Sypris Technologies, we’ve been awarded new business for the production of transmission shafts for a large European heavy truck OEM, axle shafts for U.S. automobile production and gear sets for an ATV program.

We also received a significant order for 168 closures and related components for a large oilfield project in Kazakhstan, which is not represented here on this table. The balance of these awards across many market segments is important to us, as are the varying durations of the specific programs.

Our objective is to make certain that we avoid the concentration of customers, markets and program maturities that we experienced in the past. With some programs extending through 2024 and 2025, we’re off to a very good start with a solid opportunity to do much more. Turning now to Slide 11.

For Sypris Electronics, we have been awarded a development contract to manufacture and test electronic hardware for new radar system, a contract for the production of circuit card assemblies for a major missile program and orders for the production and assembly of medical devices, among others.

The lines highlighted in blue, denote the change from our last call. With these line items now under firm contract, they were previously labeled as anticipated follow-on business. With the exception of the medical devices, each of these awards is for programs that are large, strategic, long term platforms for our nation's armed services.

The work is complex and requires a high degree of traceability, since the cost of failure is immeasurable. Our backlog remains strong and the outlook remains quite positive. Advancing to Slide 12. I'd like to conclude this portion of our presentation this morning with the following observations.

At Sypris Technologies, we now have a globally competitive platform from which to serve our customers. We have lowered our variable cost, eliminated redundant fixed overhead and capital requirements, and increased capacity utilization.

We have retained important human talent and reassign these individuals to new locations to accelerate product development, improve production processes and drive continuous improvement activities. Moving to Slide 13. At Sypris Electronics, we now have a singular strategic vision.

We manufactured complex, high-cost-of-failure electronic hardware where certifications, registrations, and traceability standards are important elements of our customer's requirements. In this instance, we've also greatly reduce fixed overhead and SG&A, thereby substantially improving our margins, overhead rates and competitiveness.

And on a consolidated basis, we now have a cost competitive platform is positioned for profitable growth. Our major actions required to achieve over $26 million of savings have been completed.

Recent multiyear program awards and the anticipated follow-on business to those awards are expected to provide over $20 million of new sales in 2018 and close to $25 million of sales in 2019, with the opportunity yet remaining to build further upon these figures.

Our balance sheet is solid and our margins are expected to expand materially in both 2017 and 2018, as a result of all the activities we have discussed here today.

The combination of the much improved expense profile with expected growth in future revenue provides an important support for the meaningful increase in the Company's profitability during the coming years. Much work clearly remains, but we have a solid footing from which to further build the business going forward. Turning now to Slide 14.

Tony Allen will lead you to the balance of our presentation this morning.

Tony?.

Thanks, Jeff. Good morning, everyone. I'd like to discuss with you some of the highlights of our second quarter financial results and provide an update on the transition plan and related cost-reduction initiatives, we discussed earlier this year. Please advance to Slide 15.

Q2 consolidated revenue closed at $21.2 million, an increase of $3 million or 16.8% from the first quarter. This resulted in total first half revenue of $39.4 million, which was in line with our outlook.

The revenue split between Sypris Technologies and Sypris Electronics was $14.1 million and $7.2 million, respectively as both segments reported an increase in revenue.

Our gross profit for Q2 increased $2.3 million over Q1 on the sequential revenue increase of $3 million, primarily reflecting the contribution margin on program ramps for Sypris Electronics, improved mix at Sypris Technologies and a favorable impact of cost reduction actions in both segments, beginning to drive improved profitability.

Consolidated gross margins for the quarter of 7.5%, increased 1,130 basis points from the first quarter and represents the highest gross margin performance for the Company since Q4 of 2014.

Our second quarter results include the impact of additional investments for labor and equipment rebuilds by Sypris Technologies to support customer deliveries and the transition of production from the Broadway Plant.

We made the decision to extend production beyond the end of the second quarter at this facility, which will impact our cost targets for 2017 but it doesn't change our two-year goal, as we have now completed the actions necessary to continue with limited production at Broadway until remaining equipment relocations are complete.

Our SG&A expense in Q2 was $3.6 million or 16.9% of revenue, down from 18.8% of revenue in the first quarter. We reduced our adjusted operating loss on a sequential basis by $2.1 million or over 50% compared – reporting a $2 million loss for Q2 as compared to a $4.1 million loss for the first quarter.

We incurred $900,000 in the second quarter for severance and equipment relocation cost, which was a slight decrease from the $1 million incurred in Q1. The equipment relocation efforts will continue in the second half of 2017 and into 2018.

However, our severance actions are now complete as the last planned headcount reduction occurred in early August. As we summarize the results for the quarter, we are very pleased with our ability to convert a $3 million sequential revenue increase into a significant improvement in profitability.

We believe this demonstrates the type of impact, the changes in our revenue mix and cost reduction actions can have on our future financial performance and provides further evidence that we are on the right path. Please advance to Slide 16 for second quarter highlights of Sypris Electronics.

Revenue for Sypris Electronics increased by $1.8 million, or 33% to $7.2 million in the second quarter, as compared to $5.4 million in the first quarter. One of the key factors for the revenue growth was the production ramp on one of our larger defense programs.

We work closely with our customer during the first quarter to troubleshoot and resolve certain technical issues associated with the integration of our product into the end users assembly and was able to increase production to a stable run rate by the end of the second quarter.

This program will continue to shift over the second half of 2017 and into 2018 with additional follow-on business expected for 2019. Gross margin for Sypris Electronics improved 18.1% for the second quarter compared to 1.8% in Q1, an increase of 1,630 basis points.

Increasing gross margins to this level in Q2 was a significant milestone for the business and reflects the renewed focus by management on targeted markets following the sale of the CSS business one year ago.

The margin performance also reflects the significant change to the cost structure of the business, including the fixed overhead reductions driven by the relocation to a new facility as of the beginning of 2017. The SG&A structure for Sypris Electronics also changed considerably over the past year following the CSS sale.

In the first half of 2017, SG&A expense was $1.2 million or 9.7% of revenue as compared to $4.2 million or 23.4% revenue for the first half of 2016, a year-over-year decrease of nearly 71%. The Q2 performance also brings Sypris Electronics into a positive operating income position on a year-to-date basis, another important milestone for the business.

We enter the second half of 2017 with a strong backlog to support expected shipments and our team is energized by the improving trend in its financial performance and the opportunities to profitably grow the business. Please advance to Slide 17 for second quarter highlights of Sypris Technologies.

Revenue for Sypris Technologies increased by $1.3 million, or 10% to $14.1 million in the second quarter, as compared to $12.8 million in the first quarter. The revenue growth was accompanied by an improvement in gross margin of 830 basis points, advancing to 2.1% for the second quarter.

The key story for Sypris Technologies continues to be the transition of operations from the Broadway Plant. As mentioned earlier, we extended production at this facility beyond the end of the second quarter to support customer deliveries.

Throughout the first half of 2017 and continuing through the extended production date in early August, our employees continue to support the activities in spite of the announced transition.

Our employee retention rate exceeded our initial expectations and contributed greatly to maintaining on-time delivery and quality metrics at high levels during the period.

We were able to accelerate the rebuild of certain equipment during the second quarter to improve our readiness to meet the volume demand associated with production ramps at our Toluca facility.

We are also well underway with obtaining the required customer approvals related to the transfer of production and have commenced shipments of certain component families from Toluca. On Slide 18, we provide an update to the cost-reduction goals, we disclosed earlier this year.

Our two-year reduction goal is $26.3 million for 2018, as compared to the actual results of 2016. In the pie chart, we showed the key elements of the cost reduction goal allocated in the amounts of $11.8 million for cost of sales, $9 million for SG&A and $5.5 million for interest and charges for the extinguishment of debt.

The additional headcount associated with higher-than-expected employee retention rates and the extension of production in our Broadway Plant through early August will impact our cost of sales target for 2017, but with those operations now reduced to align with a limited production schedule, we expect to return to our targeted cost – labor cost levels in 2018.

The acceleration of the equipment rebuilds at our Toluca facility will also impact cost of sales for 2017 but with the completion of the rebuilds as of mid-August, we expect cost performance for this category in 2018 to be consistent with the previously announced goal.

The investments in labor and equipment rebuilds during 2017 were both made to protect our customers and continue to meet or exceed their expectations of Sypris during this transition phase. We value the long-term relationships with our customer base and we'll continue to invest where and when appropriate to support their requirements.

The majority of the $9 million SG&A goal was expected in 2017 and we are achieving the year-over-year reductions through the first half of the year.

Following the repayment of our senior credit facilities a year ago, our only debt obligation is the related party no payable and is the primary driver for the reduction in interest expense, as compared to 2016.

All of the planned severance expense has been fully recognized as of the end of the second quarter and we expect to continue to incur equipment relocation costs through the balance of this year and into 2018.

The major actions necessary to drive our cost improvement goals are now behind us, which leaves us well positioned to meet the two-year cost reduction target for our business. On Slide 19, we provide a summary of our performance against our outlook for the first half of 2017 and an update to our second half outlook.

Revenue for the first half was $39.4 million, finishing above the midpoint of the $38 million to $40 million outlook. Gross margin for the first half ended up below our range at 2.3%, primarily reflecting the labor and equipment investments discussed earlier.

We are pleased with the sequential improvement from Q1 to Q2 in gross margin given the increased spend for these initiatives and feel that the long-term benefits to be realized from protecting customer deliveries outweigh the short-term costs incurred in 2017.

Consistent with our overall objective of protecting customer deliveries, we also increased our inventory levels during the second quarter. The short-term impact of this is an increase in our working capital investment as of the end of Q2.

The inventory build, combined with the payment of severance and equipment relocation expense, contributed to a reduction in our cash balance from the end of Q1. However, we expect to reduce inventory balances in the second half of the year as Toluca obtains customer approvals and ramps production.

Our SG&A expense as a percent of revenue for the first half was $17.8 million, which was below the midpoint of the outlook range. We are raising the range for our revenue outlook for the second half about $2 million with revenue now expected in the range of $42 million to $44 million.

The increase reflects the solid backlog we have in place and the mix of new business is expected to contribute to the margin expansion we anticipate in the second half of 2017. We are maintaining our expectation from gross margin in the range of 15% to 17% for the second half.

The sequential improvement in gross margin from negative 3.8% in Q1 to 7.5% in Q2 provides the solid base from which we can expand margins to reach our goal as we move through the second half of the year.

With the expected increase in revenue for the second half and the solid performance in SG&A spend in the first half, we are dropping our range for SG&A during the second half to 15% to 16% of revenue. And we'll continue to pursue opportunities to provide upside to this target.

We believe our team is well-positioned to meet these targets and report a return to profitability on a consolidated basis during the second half of 2017. On Slide 20, we show the significant improvement that is incurred since 2014 in customer concentration. In 2014, our two largest customers accounted for 75% of our consolidated revenue.

In 2017, we expect our two largest customers account for only a quarter of consolidated revenue. No single customer is expected to account for more than 15% of revenue and the diversification of our customer base has improved in both segments of our business.

As Jeff noted in his comments on new program awards, we are pursuing and adding customers across our markets and look forward to proving to these customers they made the right choice in partnering with Sypris and to building long-term relationships that benefit both parties.

On Slide 21, we show the impact of our diversification efforts are having on revenue mix. In 2014, approximately 83% of our revenue was from our top three markets served, but only 70% – but nearly 70% of revenue was attributable to the heavy truck market, primarily with the two large customers noted on the previous slide.

In 2017, we expect the same top three markets to account for 84% of revenue, but there isn't a significant change in the total, but please note the distribution of revenue is now more evenly balanced between the heavy truck, energy and aerospace and defense markets.

With less dependence on the heavy truck market, we expect less volatility in our top line as the market cycles in heavy truck will not have the significant impact in future years that they've had in the past.

Similar to the comments made regarding growing our customer base, we are looking to grow markets such as the all terrain and off highway markets in Sypris Technologies, and the communication, navigation, medical device markets in Sypris Electronics.

We will continue support and grow our primary markets that are eager to expand in new markets to further grow our business. We believe our cost reduction programs align with our growth objectives. And that we can be very competitive as we expand or enter these markets.

Please advance to Slide 22, this chart provides an overview of the journey we started in 2015 by looking at gross margin over the past three years, as compared to our results for the first two quarters of 2017 and our expected performance in the second half.

Our annual revenue in 2014 was over $350 million with approximately 70% generated from sales to the heavy truck market. We were able to generate gross margin in 2014 of just under 11% with a cost structure and footprint that were significantly greater than today's levels.

During 2015 and 2016, we completed a number of transition activities including the divestiture of assets and the consolidation of operations for both segments into smaller, more cost competitive footprints. During the first half of 2017, we continued these activities with actions related to the transfer of production from the Broadway Plant.

Gross margin improved considerably from the first quarter to the second quarter of 2017, as revenue mix and a lower cost structure contributed to drive gross margin up to 7.5%.

As we move to the second half of 2017, following the completion of the Broadway Plant transition, we are expecting to generate gross margins in the range of 15% to 17% representing an increase in gross margin of nearly 50% as compared to 2014.

While revenue on an annualized basis is expected to be nearly 75% less than it was in 2014, our lower cost profile in a more balanced revenue mix is expected to drive the increased margin performance.

As we look beyond 2017, we expect to leverage our lower cost profile with the new business awards across various markets and follow-on business opportunities to create further margin expansion opportunities. Please advance to Slide 23, and I’ll offer a few takeaways.

Our revenue for the second quarter increased 16.8% sequentially from the first quarter to $21.2 million and our gross margin improved to 7.5%. The major actions that were identified to drive our two-year $26.3 million cost improvement target have been completed as of August.

We are raising our revenue guidance and confirming the gross margin outlook for the second half of 2017. Revenue in the second half of the year is now projected to be in the range of $42 million to $44 million with gross margin in the range of 15% to 17% and EBITDA in the range of 7% to 9% of revenue.

The gross margin target for the second half is nearly 50% above the full year 2014 results on significantly lower volume. Our SG&A expense in the second quarter was down 32% year-over-year with first half SG&A down 40% in 2017, as compared to the first half of 2016.

The diversification of our customers, markets and products continues to improve resulting in a more balanced portfolio for the company. We plan to leverage our lower cost structure to improve our competitive position as we pursue new business awards and we expect this to yield margin expansion opportunities in the future.

We expect growth in 2018 and 2019 to be driven by our pipeline of business opportunities, excluding new programs awarded to Sypris and follow-on business on existing programs. The potential revenue from these opportunities totals over $20 million in 2018 and nearly $25 million in 2019.

We believe we now have a cost competitive platform in both segments of our business that is well positioned for profitable growth and we look forward to capitalizing on this opportunity. And finally, we expect to reach another milestone in a journey we started in 2015 and return to profitability in the second half of the year.

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

Thank you. [Operator Instructions] Our first question today comes from Jim Ricchiuti from Needham & Company..

Hi, good morning..

Good morning, Jim..

Question on the gross margins, still you're looking for a fairly significant step up in the second half and presumably it's coming mainly from the industrial business.

But I was wondering, is there much improvement that you would anticipate coming from the electronic side of the business?.

Jim, not so much improvement from Q2, we had the big bump from Q1 to Q2 for the electronics business. So I think what you noted regarding the improvement in Sypris Technologies driving a big piece of the second half is correct..

Got it. And with respect to the outlook you bumped up your revenue estimate modestly for the second half of the year.

Is that coming from both sides of the business? Or are you anticipating more of an increase on that versus where you were coming perhaps from the electronics side?.

It's really both segments are contributing as you noted, it is a relatively modest increase, but with the strength that we had in Q2 in electronics with the backlog we have on both sides of the business, there each contributing to that gain..

And on the slide where you talk about returning to profitability in the second half that seems to leave the door open to possibly getting to profitability as early as Q3 and I’m wondering is that a function of just the timing of shipments..

That will drive the measure – the metric as we move between Q3 and Q4. As we look at it in the aggregate, we believe that – we can get there for the second half. The key part will be the timing of shipments really on both sides of the business..

And Tony, just want to be clear, is that include any type of potential gains from any equipment sales. Or is that strictly just an operating number that you’re looking at, in terms of….

We're looking at I guess what we call the adjusted operating income, Jim, which is operating income you'll see it in our non-GAAP measures. It's the operating income excluding the severance and relo..

Got it. And then last question for me and I'll jump back in the queue. You guys have done a real nice job in terms of diversifying not only the customer base, but the end markets and so as I look at that pie chart on 21. That has the vertical market exposure.

Wanted to get your sense is to what you're seeing in any energy related portion of the business and just given all the portion of the business and just given all the volatility in that market. Is that a case where you just winning new business and you're somewhat – you don't have quite that kind of exposure to price volatility..

Yes Jim, that's correct. And without knowing exactly, how much of our business comes from MRO. We think it is in the neighborhood of 40% to 50% of our ongoing businesses from maintenance and repairing operations. And so our backlog in the energy side is probably as high as it's ever been. And so we've been very fortunate..

Okay, thanks very much..

[Operator Instructions] And it appears there are no further questions today. Speakers I'll turn the conference back to you for additional or closing remarks..

Thank you, Kim. Tony and I would like to thank you for joining us on this call. We certainly welcome your continued interest and of course your questions about our business. Thank you and hope you have a great day..

And that concludes our conference today. Thank you for your participation. You may now disconnect..