SMTC Corp
Q3 2013 Earnings Call Transcript

Published: 13 Nov 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the SMTC Corporation Q3 2013 financial results conference call. At this time, all participants are in the listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Larry Silber. You may begin, Sir.

[Larry Silber:]

Thank you. Welcome and good morning. I’m Larry Silber SMTC’s Interim President and Chief Executive Officer. On this call with me today on this call is Clarke Bailey, SMTC’s Executive Chairman and Principal Accounting Officer; and Greg Gaba, our newly appointed Vice President of Finance. I’d like to remind everybody before we begin today that this presentation includes statements about expected future events and financial results that are forward-looking in nature and subject to risks and uncertainties. The company cautions that actual performance will be affected by a number of factors, many of which are beyond the company’s control and that future events and results may vary substantially from what the company currently foresees. Discussions of the various factors that may affect future results is contained in the company’s annual report on Form 10-K, on Form 10-Q and subsequent reports on Form 8-K and other filings with the Securities and Exchange Commission. As you may know, this is the first full quarter since Clarke and I joined the company in May of 2013, and today marks the full six months that we've been in place. We are pleased to report that we have continued to make good progress in eliminating many legacy issues, improving the operations and positioning the company for growth. As Interim President and CEO, I'm responsible for the operations, customer facing functions and vendor relations. As Executive Chairman and Principal Accounting Officer, Clarke is responsible for the financial organizations within the company, as well as the relationship with the bank, auditors and other third-party lenders. We are engaged in an active search for a permanent a CEO, and Clarke will provide you with an update on the status of our search later in this call. We will devote this call to providing you with an update on progress we've made in the financial performance of the company during the third quarter. In the third quarter, we grew our sales by 12% from the prior quarter, achieved positive adjusted EBITDA of $2.1 million, continued our focus on reducing working capital and we've complied with our banking covenants. If you recall, we recorded a $6.6 million in unusual items in the second quarter. I am pleased to report that we only recorded $658,000 of non-recurring charges in the third quarter, two of which were legacy issues. We have reduced the legacy issues from 13 in Q2 to two in Q3. We remain committed and diligent in correcting prior management decisions and are hopeful any new issues will be limited in the future. Our early and open communications program has improved coordination across departments and sites and has led to improved relationships with our banks and our auditors. I have met with more of our customers and I'm pleased to report that the relationships are strong and we've not experienced a customer defection other than those we've disengaged with related to the Markham restructuring. In fact, we have transitioned a significant new customer SpiderCloud from start up to full production in the recent quarter. We've added resources in our sales organization and are developing a meaningful pipeline of new potential customers. Some of our legacy customers have indicated and/or committed to increase volume in 2014, based on anticipated growth of their end markets, as well as vendor consolidation. Our focus going forward is to improve the operating efficiency of all of our sites, leading to improved margins, substantially reducing inventories by better matching purchases with the order book and strengthening the senior management team, which Clarke will address later. I will now hand it over to Clarke to provide more details on the financial results and elaborate on some of the areas that I have mentioned.

[Clarke Bailey:]

Thanks, Larry. We remain committed to identifying and addressing issues, and aggressively managing our working capital. Our objective is to significantly improve the financial condition and operations of the company so that the new CEO can focus on developing and implementing a strategic plan with growth as a core element. Q3 results are easier to understand and analyze, as we have substantially reduced the legacy non-recurring items to two, totaling $510,000. The items involved a reserve for accounts receivable and inventory relating to a company we should never have accepted as a customer, along with a litigation reserve. Greg will once again present the results with and without these two charges. With regard to working capital, we have made good progress but work remains. Accounts receivable increased in the third quarter from the second quarter primarily due to increase in sales and the timing of those receipts. On a positive note, past due receivables declined by $1.7 million or 24.2% from the prior quarter. Inventories – our biggest challenge – were relatively unchanged from the prior quarter. Once again, however on a positive note, excess and obsolete inventory declined by $1 million or 9.4% from the prior quarter. We've directed a lot of energy and resources in the reduction of inventories and we have a plan to achieving much, much lower levels by the end of this year. As you know, in the prior three quarters, we've violated our bank covenant. I'm very pleased to report that we've achieved compliance in this quarter. As you can see from our press release issued yesterday, the third quarter was a marked improvement over the second quarter with increased revenue, positive adjusted EBITDA and reduced non-recurring charges, which Greg will outline in more detail. As mentioned earlier, our relationship with PNC, our bank, is solid and we are grateful to have such a good partner. Finally, we are very advanced in our search for a qualified CEO. We started the search in June. We've reviewed numerous qualified candidates and we've interviewed several of those candidates. We hope to announce positive results on this front in the coming months. I'll now hand it over to Greg to review the financial results.

[Greg Gaba:]

Thanks, Clarke. As Clarke mentioned, we have reported various improvements over the second quarter results, including increased revenue, improved gross margin, positive EBITDA and net earnings. We reported revenues of $72.9 million, which represented an increase of 12.3%, compared to the prior quarter, however represented a 3.6% drop compared to the third quarter of 2012. The increased revenue of $7.9 million, compared to the prior quarter was primarily the result of increased volumes with two long-standing customers, partially offset by reduced volumes from other customers, and one customer disengagement. The decrease over the third quarter of 2012 was due to decreased revenues, primarily related to two customers, in addition to two customer disengagements partially offset by increased volume with a number of customers. Gross margin was $5.8 million, or 8%, compared to 1.9% last quarter and 7.9% from the third quarter of 2012. The margins were consistent with the third quarter of 2012, improving slightly due to the closure of the Markham production facility, which incurred a loss in the prior year, and improved margins earned in the Asian operations, which are partially offset by lower margins in Mexico. The increased margin over last quarter was the result of reducing the legacy issues affecting gross margin from $2.5 million in the prior quarter to $342,000 in Q3, and more favorable unrealized foreign exchange rates on forward contracts, resulting in an unrealized gain of $140,000, compared to an unrealized loss of $2.1 million in Q2. When removing the effect of the unrealized foreign exchange on derivatives, the negative gross margins from the closed Markham manufacturing facility and all non-recurring expenses, the gross margins were 8.6% in the third quarter, compared to 9.1% in the prior quarter and 7.7% in the third quarter of 2012. Adjusted EBITDA was $2.1 million in the third quarter, compared to a loss of $1.3 million in the prior quarter and $1.4 million in the third quarter of 2012. However, again when removing the gross margin from the Markham production facility and non-recurring expenses, adjusted EBITDA was $2.7 million in the third quarter, compared to $2.2 million in the prior quarter and $2.3 million in the third quarter of 2012. I will now hand it over to Larry for closing remarks.

[Larry Silber:]

Thank you, Greg. As you can see, we've made much progress in the second quarter and we are confident that the new processes will lead to additional improvements in our operating results in the near term. Our short-term goals includes, as Clarke mentioned, successfully completing the CEO search and implementing a smooth transition plan, substantially reducing inventories, improving the efficiency and profitability of our sites, continuing to expand our business with existing customers and the pipeline for new customers, and continue with our strong order book to make sure that our work is efficient and timely delivery of the order book in hand. We will now open the meeting to questions.

[Operator:]

(Operator Instructions) Our first question comes from Fang Li with Baleen Capital.

[Fang Li:]

Hi, Larry. Hi, Clarke.

[Larry Silber:]

Good morning, Fang. How are you?

[Fang Li:]

I'm wonderful. How are you, guys?

[Clarke Bailey:]

Good. Very well. Thanks.

[Fang Li:]

Thank you so much for doing a great job so far with the company and also just wonderful detail on the quarter as well. Thanks for reporting.

[Larry Silber:]

Thanks for your comment. Appreciate it.

[Fang Li:]

Of course. So, I had a couple of questions and maybe I'll just dive in. The first question – I guess the first on revenue, the two customers that grew this quarter, what drove their growth? Was it kind of new programs that you were winning or was it just on existing programs that were ramping up?

[Larry Silber:]

It was primarily existing programs on increased demand on certain products within their portfolio. It wasn't necessarily new awards from those customers, although, with both customers, we are currently in the process of quoting and entertaining new awards for next year.

[Fang Li:]

That's wonderful. And how does the pipeline look today, where you're sitting versus like maybe this time last quarter?

[Larry Silber:]

Well, we have a pipeline today, whereas last quarter I would tell you we didn't really have a pipeline of new viable customers that we can consider would become reality in the future. So, we believe we have what we call – we've created a three-tiered pipeline, in terms of readiness so we have some in early stages of development, some mid-way along and some – we're actually at the quoting stage, so we have a pipeline and we're optimistic.

[Clarke Bailey:]

I think the other thing – two things – this is Clarke. We – Larry and team have spent a lot of time in developing the idea of profile of the customers that we want to go after so we now are targeting customers that are best fitted for us. And then secondly, a lot of times have been spent on the quoting system to make sure that we sharpen up that quoting system so that it’s accurate and sound going forward.

[Fang Li:]

That's wonderful. I guess how long does – do these things usually take to convert into actual revenue because –these things have to ramp-up I imagine, right?

[Larry Silber:]

Well, I would tell it varies depending upon the complexity and the size of the project but you're probably looking at a year long gestation period for the most part. That's plus or minus three months. Some might start in nine months, to where you start producing product and then it would take a little while or longer for full ramp-up but if you use the year and you went plus or minus three months, that's the gestation period.

[Fang Li:]

Got you. So for revenue growth, so far then none of it’s really been from new customer, the new pipeline – everything is just your existing organic base?

[Larry Silber:]

Well, not quite accurate. As an example, we put out a press release a few weeks ago relative to a new customer called SpiderCloud and we've actually done a fair amount of business with them already this year and that's been a new ramp-up and a nice development for us. And going into 2014, it's going to be a significant customer for us.

[Fang Li:]

That's wonderful. Any declining customers or [tests] [ph] that you're worried about?

[Larry Silber:]

You know not at this point in time. I mean we're always in the process of requoting for new projects and we have a number of those that are up. But I would tell you that I think we are fairly stable, at least for the 2014 campaign and we're optimistic that we're going to win some additional business from some of our long-time key customers.

[Fang Li:]

Wonderful. Margins of – after you adjust for all the kind of one-time in currency impacts, the gross margin was 8.6 versus 9.1 last quarter, what drove the decline on a sequential basis?

[Clarke Bailey:]

Yes, I’d have to say we still - as we mentioned in – as Greg mentioned in his section of the script that the profitability of the margins decreased in Mexico. We still have work to do in Mexico. And that's really one of our big focuses right now is ensuring that the Mexico operation become much more efficient than they've been in the past. We – Larry brought on board, a Senior Vice President of Operations, a guy named Chris Christiani, who's just done a wonderful job down there so far and putting in the processes that we think will yield some very good results going forward. We've also been looking at our labor, both indirect and direct, and we become much more efficient with the labor base that we have and we've actually been reducing that labor base. So there's some good things that we're doing in Mexico. We think that as their margins come up you'll see the gross margin come up.

[Fang Li:]

Wonderful. Last quarter you mentioned on the call, a number of initiatives that improved margin. How are you progressing on those initiatives?

[Larry Silber:]

Pretty good, quite frankly. You know we've done a number of things, relative to our supply chain base, to improve our relationship and our ability in terms of how we buy. We've worked significantly in terms of throughput and productivity and lean initiatives in plant, and those are taking hold now. We've got a fair amount of upgrading of our software systems to make them easier to use and more compatible, which will improve our efficiency and our ability to manage our flow of material through the factory. We've done a lot of work on our routings and bill of materials to make sure that they process through the plants in a more effective way and then quite frankly, we've worked with a lot of third-party suppliers, like logistics companies to reduce our cost and our logistics basis, as well as focusing on some of the other basics around the business – simple things like insurance and related things to make sure we're getting – we have the appropriate coverage. We're getting the best possible cost to the various types of things that are necessary. It could be [phones] [ph], it could be insurance, it could be a whole host of things that we're focused on reducing cost but ensuring the proper type of services are being provided. So, good progress.

[Clarke Bailey:]

I think the things that Larry addressed are – will certainly contribute to improved margins as we go forward in 2014. The things that I'm very excited about – a couple of things he mentioned was the processes that have been put in place to better manage our inventories. As you could tell over the course of the last three or four quarters, our inventories continue to grow, while our sales didn't, wrong relationships. And what we've discovered over the course of the six months that we've been here is that we've just have not had an effective systems in place to be able to do that. Chris had done a wonderful job, Chris and – both Larry with Larry's coaching, to ensure that we have those systems in place and we're very hopeful and optimistic that the working capital is going to – we’re going to show some good improvement in the near term and the margins will kick in over the longer term.

[Fang Li:]

That's actually wonderful. Thank you for the color. And so it sounds like really the only things that didn't work out as well was really Mexico quarter-over-quarter, everything else seems to have been like a tailwind instead of headwind.

[Clarke Bailey:]

Yes, we hope to have working capital down a little bit more than where we were or where we are or what we reported but we still think that by year-end we've got an opportunity to catch up there. And then I think you're right. Mexico was in fact the challenge and the opportunity for us as we go forward.

[Fang Li:]

You guys have been – I think you've been working with Mexico to improve the operations there for a little bit now. And in fact I guess from Q1 to Q2– from Q4 to Q1 and Q1 to Q2, so I think there's sequential improvement. Did anything happen this particular quarter that caused – was there like a hiccup in the change or…?

[Clarke Bailey:]

No, no. This is basic – normal operating issues across the…

[Larry Silber:]

Right.

[Clarke Bailey:]

…systems that need to be changed and so forth.

[Larry Silber:]

Yes. And we still have some clean-ups to do during the quarter in Mexico, relative to some legacy issues, which are mostly behind us now and now there's been nothing unusual.

[Fang Li:]

Okay.

[Clarke Bailey:]

I think the thing that we're focusing on there now is the labor of initially four number of bodies. And overtime, that we've been utilizing, as well as scrap that we've [inaudible]. You put in some very good, in fact Larry you can kind of comment on the individual that we've hired. We have tried on our quality programs here.

[Larry Silber:]

Well, we actually hired two key individuals in Mexico. One person that's responsible for our engineering and one person that's responsible for quality in Mexico – two senior level people that we brought in to the organization through our new Corporate VP of Engineering and Quality, Steve Brown. He recruited and hired two very senior people into our Mexico operations that have been focused on improvement processes, improving training the throughput and output of material.

[Clarke Bailey:]

And reducing scrap and…

[Larry Silber:]

Right.

[Clarke Bailey:]

In the process.

[Fang Li:]

Wonderful. The – just generally, what do you seeing in the market, in terms of the – just pricing and competition?

[Larry Silber:]

Well, you know we continue to see a fair amount of what I'd call a movement down the channel, if you will, or the train, more of our competitors that are larger than us coming down and looking at the type of business we have and therefore creating some margin pressures of the business. That said, we have a unique niche where we're primarily a medium to low volume, high mix with a lot of flexibility, in terms of what we do. Therefore, there's not a lot of the bigger competitors that are capable of doing what we're doing. They may be willing to do it but once the experience it, it may become a little problematic for them. So, there's always pressure to reduce our cost in manufacturing but for the most part, we think we have a good niche in our business.

[Fang Li:]

And I mean its sound like – I knew you're best in the case for as long as you can remember so there's no real change in kind of either more combination or kind of... (CROSSTALKING)

[Larry Silber:]

No, no, not that we've seen any more or any less, to be honest with you.

[Fang Li:]

Got you, got you. Thank you that's helpful. The one-time cost – the two issues that you guys took in the quarter, what were they?

[Clarke Bailey:]

One was reserved for an accounts receivable and inventory labor – one customer that was a start-up that we should never have taken on as a customer and the second one was litigation reserve.

[Fang Li:]

Great. All right. Do you guys have that setting litigation today?

[Clarke Bailey:]

We – you know you always have things going on, if we're – significantly needed to be disclosed in our Qs and Ks but just normal things.

[Fang Li:]

Got you, got you. Any – going forward, do you have any – at the last quarter, we talked about the Markham, you have this big empty space you might be able to...

[Clarke Bailey:]

You know we've been working on that. Actually, we've been working on that. There's been a couple of goose [ph] that have come in here. One was interested in turning this into a different use of a building. We continue to working with real estate brokers to figure out what's best for us. Obviously, we've got facility in the back that we're not utilizing. And so, we – it's on our weekly, my weekly staff call in our next week's person responsible for that project. We don't have anything at hand at this point. But we've had activities. We've had two or three groups coming here, potentially looking to buy the building because we had an auction on the building's purchase and then we would move out to a much smaller space. We probably need no more than 20,000 square feet. So, it's a good opportunity for savings but the first thing we have to do is extricate ourselves from this building. (CROSSTALK)

[Clarke Bailey:]

One the issues – I'm sorry is that just recently part of management signed a new – I think it was seven-year lease before – about a year or two before it closed down the facility. So we got probably five years left on that lease.

[Fang Li:]

Gosh, OK.

[Clarke Bailey:]

That's the issue we're faced with exactly.

[Fang Li:]

If you kind of did where you able to extricate yourself from the lease? With the – I mean how much savings did you do on the rent side?

[Clarke Bailey:]

It's significant.

[Larry Silber:]

It's significant. Yes.

[Clarke Bailey:]

It's on – well, on those six figures.

[Larry Bailey:]

Look, we can get back to you on that. We just don't have it on hand but...

[Fang Li:]

Got you.

[Larry Silber:]

But it's significant.

[Fang Li:]

Thank you. (CROSSTALKING)

[Clarke Bailey:]

Should take up in moving costs associate with it but...

[Fang Li:]

Yes, let me trans... (CROSSTALK)

[Clarke Bailey:]

Net on.

[Fang Li:]

So the working capital obviously – I think in the press release, you said that there was a timing issue that was partially responsible for why it wasn't done more or done about in the quarter? But I guess if you look at where you're heading today like I mean what's – if – what's your capital like today or?

[Clarke Bailey:]

Well, the big opportunity – if you look at the two major components, you've got to receivables and you've inventories. Receivables, we've done a really good job of bringing the past due down and it's – right now, it's probably 3%, 4% of sales so I'm not sure there's a lot of opportunity in the past few just some but there's not a lot of opportunity because we've done a really job of bringing it down from, I think, it was up around 47[ph], 48[ph] when we came in. We got it down below – it's in the mid I think right around that. It's about 1.5 in the mid – maybe between 1 and 2, so it's not a lot of opportunity to get that down much further. The big opportunity exist and then also that fluctuates to sales so sales went up to the quarter obviously. The receivables went up. And a lot of the shipments went out at the end of the quarter, so that's – it was for the timing of receipts because these shipments went out at the end of the quarter, we weren't able to collect those during the quarter. But the inventory is where the real opportunity exists and there's what the – there's – as I mentioned earlier, there just weren't good systems here in terms of what was being purchased and we are purchasing a lot more than we needed, so we've definitely come in and we've really put in some very good effective systems to slow that down and that's why – we're pretty optimistic that we're going to see some improvements on the inventory side.

[Larry Silber:]

Well, not only slow it down max purchasing to what the production is going do to our... (CROSSTALKING)

[Clarke Bailey:]

That's exactly right.

[Larry Silber:]

We were – our systems were driving the purchase and receipt of excess inventory above and beyond what was actually needed to match the production's schedule. We now have that under control and turning off inventory and matching future purchases to future production schedules.

[Clarke Bailey:]

So, by way of example for us if the – we have slowed down a lot of purchase orders for inventory that hope we need until the first quarter. In the past, that would have been purchase from the scores. No need to do that right now. You always should match it with the production order when you need it. So, it's a little thing that – basic blocking and tackling that we're addressing.

[Fang Li:]

Yes, I mean if you look at from your company granted that they’re a little bigger, that their inventory days are I mean, gosh like, half of what you guys have been running historically so I think like there should be like pretty good opportunities with what you're looking for.

[Clarke Bailey:]

That has not been lost there. That's fine. (LAUGHING)

[Larry Silber:]

You're absolutely right. Yes.

[Fang Li:]

Excellent. That's excellent to hear. I think my last question – I know you guys don't give credit but I have to ask you. Just big picture – if we think about the - yes, to me the three major drivers of your business financially are going to be revenues, margins and your working capital, which really – I should say you meant debt. As you look forward just towards this quarter, not specifically but big picture. Is it going to be the same, higher or lower for those three, you think?

[Larry Silber:]

We don't give guidance, Fang. (CROSSTALKIN)

[Larry Silber:]

We believe – we expect.. (CROSSTALKING)

[Clarke Bailey:]

The fact that yes – the question but that's something we'll be looking at as we get the new CEO in place and we start developing the strategic plan, we'll determine what the policy is going forward. But right now, our focus has been basically just coming in fixing, improving, and basically solidifying this business so that the new CEO I think a good platform fortunately there.

[Fang Li:]

Yes, I... (CROSSTALKING)

[Larry Silber:]

Yes, our objective is to make sure that when the CEO comes in, he's focused on growth of building of business and not on fixing broken processes or bad decisions. We'll have that for the most part but the time new CEO takes over.

[Fang Li:]

Right. I appreciate the responses. Of course, I had to ask... (CROSSTALKING)

[Larry Silber:]

We would expect nothing less. (Laughter)

[Fang Li:]

Well, I mean thank you guys so much. Just to let you know from where I'm sitting I'm in no hurry to have you guys find somebody new so what a great job you've done. Thank you. Thank you. Thank you.

[Larry Silber:]

Appreciate that.

[Fang Li:]

And wish you guys the best of luck as you actually keep the rest of the year.

[Larry Silber:]

Terrific. Thanks so much.

[Clarke Bailey:]

Thanks for your question.

[Larry Silber:]

Appreciate your comments and questions.

[Fang Li:]

Of course, thank you, guys.

[Operator:]

Our next question comes from Jeremy Hellman with Avenue T Fund.

[Larry Silber:]

That's right.

[Jeremy Hellman:]

Do you guys hear me OK?

[Clarke Bailey:]

We sure can.

[Jeremy Hellman:]

Just a couple from me after – prior of caller had a lot of good topics and points so thanks to him for that. He mentioned a lot of efficiency steps you've taken such as software upgrades and the like. Are there any non-recurring SG&A cost that might have been baked into that maybe use of tech consultants or anything like that that could be dropped in the way going forward?

[Clarke Bailey:]

Not really.

[Larry Silber:]

Not really. We – most of the – what we've done have been with the benefit of the software provider has provided. There are people to do the training for us so minimal cost associated with that cost of upgrading to current versions of software and implementing that software and updating the licenses on certain fees in the software. So that will actually – some of those will be a recurring cost going forward, keeping everything current in the business.

[Clarke Bailey:]

Hey, Jeremy, if you – and I understand we try to d everything in house. We don't like the current costs, where we don't need to so we've not brought on a lot of very few with any outside consultants, professionals to assist us in this process.

[Jeremy Hellman:]

OK. Very good. And then going back to working capital. You guys have spoken a lot qualitative – sorry, qualitatively about that. If I can find – take it from a qualitative perspective, what kind of level in terms of days can we think about both receivables and inventory getting to?

[Clarke Bailey:]

Well, we're – one thing that's kind of guidance question but I think the last phone call or the last time that about our competitors being close to half of where we are. That shows you the potential. And we – we're right in the mist of it right now and we're trying to better understand how far we can take it but we're optimistic that we're going to be moving to much closer to that now that we are today.

[Jeremy Hellman:]

Okay, great. And then last one to me. Just a question on SpiderCloud. Can I make the assumptions since you issued that press release specific to that customer that they fall into that greater than 10% bucket going forward?

[Larry Silber:]

Not in – not next year and it will depend upon there and customer acceptance of their product beyond but they will be a significant customer. I don't see them falling into into the – greater than 10% next year though.

[Clarke Bailey:]

Very exciting segment of the marketplace and lot of potential with their products so we're excited about their potential.

[Jeremy Hellman:]

Great. Okay. That's it for me and I'll just echo thanks comments there but thanks and great job, guys. Keep it up.

[Clarke Bailey:]

Appreciate it.

[Larry Silber:]

Thank you so much.

[Operator:]

And the next question comes from Eric Rojas – is a private investor.

[Larry Silber:]

Good morning.

[Unidentified Participant:]

Good morning. Can you hear me okay?

[Clarke Bailey:]

We hear you fine. Thanks.

[Unidentified Participant:]

Okay, yes - and again I have a question where the prior gentlemen mentioned in terms of the excellent execution and the aggressive move that you gentlemen made in the last few months. I'm relatively new with CNTC[ph], I mean – investment for the last six to eight months or so but I'm very happy to see here all the changes that you've made cleaned up really nicely and it looks like you' can enter 2014 with great momentum, in terms of prospects and also in terms of efficiencies that you're going to keep gaining in the next few weeks, so I'm very happy about that but I'm also very interested about this new developments that you – a couple o the gentlemen asked the about SpiderCloud company. I saw in our call that's mentioned that the companies really growing very fast and it's a leader in that growing market, so it looks like you were the customer for years to come. And also, you made an announcement recently, a few months ago about a Spanish company that's also kind of high tech and where you’re going to be doing some mobile – equipment for them while it's equipment for monitoring heart and other things. Now, these two opportunities that came in, you're going to be doing more than just manufacturing the products, you've got to be doing some engineering, design and other things. Are these half the things that you actually actively look for? Or this happen to kind of roll – they land on your lap I guess as you have a reputation – have any good engineering expertise and execution reputation. Can you elaborate on that? And are you going to be looking for something like that a little bit more so in the future so that you can augment your basic revenue with your older legacy type customers and have more and more of this high growth opportunities?

[Clarke Bailey:]

Well, to answer your question sort of both. We are actively engaged in seeking that type of customer and we believe that customers come to us because of our expertise and our capability primarily in doing process engineering and throughput technology and capability in our factories, and the fact that particularly when it comes to ramping up a new product we are fairly flexible, in terms of our manufacturing process and we can manage that type of activity very well in our various plants. And then as they reach full production capability or volumes, we could move them to some of our larger higher volume plants and move their material through. But to your point specifically, we've gone through a great deal of effort over the last six months in identifying what is the appropriate profile of the customer that we can handle, most effectively within our manufacturing facilities and within our capability in our engineering group. We – SMTC has had a strong engineering group and we've enhanced that strength with some very key strategic hires in that group to support this type of activity. So to answer your question – it comes to us and we're looking for it.

[Larry Silber:]

Aggressively.

[Unidentified Participant:]

Okay. Yes, great. And again, I don't want to make it that long. I think your first gentlemen cover all the – most of the questions I've had to ask anyway. But this is the tier – the last question that I asked about the growth and the new type of customers and the profile that you're looking for is really what this – makes it even more interesting about our investment with the company because it shows that it has a niche opportunity and it's a leader so as a leader it's more tied to a market where you can separate yourself from your competition, and so that is great. Anyway, congratulations and keep doing a great job in executing your plan.

[Larry Silber:]

Thank you so much.

[Clarke Bailey:]

Appreciate there.

[Operator:]

Thank you. (Operator Instructions). And I'm not showing any further questions at this time, I will turn the conference back over to our host.

[Larry Silber:]

Thank you so much. Well, once again we appreciate your interest and your time that you spent with us here this morning and we are certainly available after the call should you have any desire to make contact with us. Thanks again, everybody, and have a great day.

[Clarke Bailey:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.