Good day, everyone, and welcome to the TrueBlue's conference call. Today's call is being recorded. Joining us today is TrueBlue's CEO, Steve Cooper; and CFO, Derrek Gafford. They will discuss TrueBlue's 2012 Third Quarter Earnings Results, which were announced today. At this time, I would like to hand the call over to Ms. Stacey Burke for the reading of the Safe Harbor. Please go ahead, Ms. Burke.

Thank you. Here with me today is TrueBlue's CEO and President, Steve Cooper; and CFO, Derrek Gafford. They will be discussing TrueBlue's 2012 Q3 earnings results, which were announced after market closed today. Please note that slides providing additional background on our Q3 results were included in our 8-K filing today and that the slides, press release and accompanying financial statements are now available on our website at www.trueblueinc.com Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note that on this conference call, management will reiterate forward-looking statements contained in today's press release and may make or refer to additional forward-looking statements relating to the company's financial results and the operations in the future. Although we believe the expectations reflected in these statements are reasonable, actual results may be materially different. Additional information concerning factors that could cause results to differ materially is contained in the press release and in the company's filings with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K. I'll hand this call over to Steve Cooper.

Thank you, Stacey, and good afternoon, everyone. Today, we reported 2012 third quarter revenue grew 2% to $379 million, which produced $0.36 per share of net income. Although net income per share for the quarter was in line with our earlier guidance, revenue for the quarter came in approximately $10 million lower than had been expected. The shortfall on expected revenue was primarily due to 2 factors. First, revenue from Boeing came in at $13 million versus the $18 million we had expected. And second, a shortfall in revenue from manufacturing clients of more than $5 million compared to expectations. Let me address the revenue trends for Boeing. We've been fortunate to serve Boeing over the past 2 years on several projects in various locations as they prepare to deliver a new airline. As we've disclosed each quarter, we knew these various projects would ultimately level off and some projects would come to an end. Predicting the exact timing of each project has been challenging. One of the most significant remaining projects started to wind down in the past quarter and we moved the majority of our work force off that project. Our current outlook for the fourth quarter reflects the impact of these adjustments in the workforce. We are now estimating our quarterly revenue from this account to be $5 million compared to the fourth quarter revenue a year ago of $30 million, a continuation of the revenue trend as more projects wind down. I also mentioned the shortfall we experienced in the third quarter related to manufacturing. The additional shortfall in estimated revenue, which was broad-based across several accounts and most geographies, most notably in manufacturing. Overall, our manufacturing business declined by about 3% in the third quarter, the first decline in this category since 2009. Generally speaking,…

Thanks, Steve. I'll start off today with a high level discussion of this quarter's results and our fourth quarter expectations. Then we'll walk through the operational and financial trends along with our Q4 assumptions for these items. We'll finish up on cash flows and then open the call for questions. Any reference to our performance is based on a comparison with the same period a year ago, unless stated otherwise. Also included in our 8-K filing today is a slide deck providing a summary of this quarter's results. Diluted net income per share was $0.36 for the quarter, which was within our expected range of $0.34 to $0.39. Revenue of $379 million was lower than our expectation of $390 million. Despite the lower revenue, gross profit came in at expectation due to higher gross margin. For the fourth quarter, we expect revenue of $332 million to $342 million and diluted net income per share of $0.11 to $0.16. Now let's review some of the key financial trends in this quarter's results starting with revenue. Revenue growth for the quarter of 2% was less than our 5% growth expectation. In comparison with our expectation, total revenue growth was 2 percentage points lower as a result of the larger decline in Boeing revenue and 1 percentage point lower from less manufacturing revenue. For the fourth quarter, we expect a revenue decline of about 4%, which is a decrease of 6 percentage points in comparison with Q3's revenue growth of 2%. 3 percentage points of this difference is related to further decline in our Q4 run rate with Boeing and 3 percentage points related to our energy business. As Steve mentioned, while we expect a healthy run rate in our energy-related revenue during Q4 and anniversaries are more challenging prior-year comparison. Now let's…

Thank you, Derrek. As I mentioned earlier, I would like to expand on our approach to growing the revenue and aligning our cost structure to continue improving our operating leverage. Our sales and service strategy has expanded over the past few years to bring more focus to our customer's industry specialization. We will remain focused on growing our expertise in several industry markets as this is exactly what our customers are asking for today. Our sales and service approach uses a blend of centralized teams focused on national accounts, along with our heritage of selling and serving in local markets. Our strategy to be more diverse in relation to our overall industry has helped us produce more consistent and sustainable results. As I have previously shared with you, the past year, we began implementing technology that is focused on recruitment, communication and assignment of our workforce to customers. In the past, most of our workers have been recruited through our neighborhood branch locations, which have been investing in 2 key areas that we remain committed to and believe will drive further efficiencies in our business starting in 2013. First is centralizing common operations to a higher degree. And second, furthering our implementation of mobile solutions. Let me speak to centralizing our common operations. We have been successful in several areas of our business to recruit, dispatch, pay and communicate with workers from a central location. We've already done this successfully for aviation mechanics, truck drivers and skilled construction workers and now we are seeing opportunities to expand these functions across more areas. Mobile recruitment solutions continues to show great results and promise, particularly texting, recruiting and filling customer job openings in a very efficient manner. We are seeing more opportunity to recruit, communicate with and place candidates via mobile solutions. We see a huge opportunity using text messages to identify and reach the right candidates and get them to work faster. I believe that a combination of using more centralized operations and using mobile solutions will continue to lessen our reliance on having several branches in local neighborhoods. With these strategies, we will be able to drive our productivity from employee up, along with operating less branch locations. These are the most significant drivers of our operating leverage. In the first half of 2013, we will be in a position to better estimate the longer-term positive impact of these 2 opportunities, expanded centralized operations and mobile solutions. I strongly believe by sticking to our sales and service strategy in being specialized for our customers, along with our focus on driving our internal productivity, we will continue our drive to be the leading provider of blue-collar staffing and continue to provide outstanding returns for our shareholders. I will now open up the call for any questions you may have.

[Operator Instructions] And our first question comes from the line of Paul Ginocchio with Deutsche Bank.

Just first on construction. Could you just talk about what all in construction grew in the third quarter including the green energy projects?

Yes, we'll grab that number for you, Paul.

No. So, Derrek, I was just wondering about worker's comp in the quarter and if there is any true-ups or reversals also.

So the all-in construction growth was -- for the quarter was about 15%. Just keep in mind that the vast majority of what's driving that is the energy business. There was some work comp adjustment for the quarter and that was about 120 basis points.

And what was worker's comp overall?

Worker's comp overall was 3.9%.

Great. And just back on the construction. You said there was outside of housing and remodeling, it was construction overall spotty. Can you remind us what percentage of your business is housing-related?

Yes. About 5% or so.

In those comments, I got those comments right on the overall construction market outside of green energy.

Yes. Paul, we've surely had some head fakes here and good head fakes because there have been some significant remodel projects that we have worked on over the last couple of years and that they'll go on for a quarter or 2 and we've actually had some new remodels that we're starting that are significant both in commercial and residential. I think our comments and our little bit of hesitation into giving too many positive signs in construction is they haven't been consistent enough for us to build the confident forecast off of. We still have teams nationwide in the right markets that know how to sell and service construction accounts and as we've stated in the past, we do believe this will return and remodel work seems to return quicker than new starts. But there's good signals going on, but this isn't going to go on forever. And we've shown that we're still able to jump on these projects as they come up. We're most pleased with our approach to working on the green energy projects and many of these same internal experts that we have on our teams that followed these projects and learned how to service them--these teams are still available and we still have our ties into construction markets all around. So -- but your callout or your question about the consistency or use the word "spotty" is about where we see it right now. Just not a solid enough trend to offer solid forecast there.

And our next question comes from the line of Sara Gubins with Bank of America.

Could you give us the current branch count and do you think this will go down by the end of the year 2013?

The current branch count is 692 branches. And we've got a track record here right now, Sara, of 5 to 10 a quarter as we continue to consolidate and look for just efficiencies in the branch footprint. I don't see us accelerating that beyond that trend before the end of the year. So I think that what you've seen from us you over the last 2 or 3 quarters is what you'll see from us here in the next quarter.

Okay. And as you think about next year, how are you contemplating the branches?

Yes, this is where some of my comments about the process, the technology that we've been putting in play is starting to take hold. And we see -- we really need the first quarter to see some of it be rolled out and implemented. There's various portions of it and we've spoken a bit about this, trying to become less reliant on neighborhood branches, not leaving any markets by any means and doing the consolidation of our teams to pull this together. We need to -- we've been working on the full impact where we recruit and come in contact with the applicant, how we communicate with them, how we assign them to a job and ultimately at the end of the day, how we pay them. And there have been various aspects of that entire process that have been streamlined and we've become less reliant on the branch network already. So we are making good headway here, Sara. We just needed -- we need the first quarter of 2013 to really be on this before we can put our foot forward to give you a better impact of how many branches we believe will be impacted by the time we finish 2013. But we do believe that it's going to be a significant number.

Okay. And as I think about the various segments that you have, it sounds like you're thinking that there's some opportunity for centralization and fewer branches in Labor Ready and Spartan. Is that right? I mean are those really models that can be more centralized?

Yes. As we brought these companies together through acquisitions and we had the Labor Ready first and we brought the others in, we definitely centralized all of this to support functions like accounting and IT and HR and we brought all that to Tacoma, Washington. And what we really didn't do much work on is what is considered customer-facing support services whether that be billing or interacting with the customers on a risk basis, contracts. And even then -- we went up to the most sensitive and that's selling to the customer and how we go to market. We've kept most of those functions fairly separate and we are definitely in full swing here of selling together and servicing together. And as we do that, along with this other technology implementation that we've talked about, it gives us the opportunity to first start centralizing some of the administrative duties. The things that go on inside of a branch, the way we pay workers and we've streamlined that and we've put their pay on electronic pay cards so we're not reliant on having the branches in the neighborhoods for them to come by and get a check. Those types of duties can start to be centralized whether it's inside the market or inside the state or the region or even nationally. We're testing that and pushing the envelope really hard there, Sara. So when it gets to centralizing, recruiting and that's probably your main question is in a branch network, how do you reach out and recruit and interact with the candidates? We're having some great success there too. That even the fact on these energy projects, a large portion of those workers are found from centralized recruiting that the way we reach out and interact with them and then start communicating with them and bring them into the process. Now they're still 40% or so that are reliant on coming through their branch network. But anything that can be centralized is going to gain -- we're going to gain efficiencies off of it. So we're not looking at anything. Any gain that we can get to bring process efficiency together, we're working on it.

Okay, great. And then just last question on gross margins. Could you talk about what's happening both within pricing and mix that's helping drive those up? And I'm wondering if the lower revenue coming from Boeing is helping the gross margin improvement?

Yes, we're getting about, in our result this quarter, about 30 basis points of improvement that's just standard pricing. So we're talking bill rates, outpacing pay rates and covering any other statutory increases we've had in unemployment or things of that nature. We've also got about 30 basis points of sales mix impact that's benefiting our gross margin this quarter, which is exactly what you just pointed out, Sara. It's really all about the drop in revenue at Boeing, which carries a lower gross margin than our blended average and we're getting some mix impact benefit there.

And our next question comes from the line of Kevin McVeigh with Macquarie.

I wonder if you just give a little more color on -- it seems like the operating environment has become a little more challenging. Is that particularly the Boeing run off in manufacturing or is it just any other areas?

Yes, I think. It's a blend. So we separated our comments here today into 3 buckets. First being the Boeing impact, which is significant on a year-over-year basis for the fourth quarter. It's $25 million of less revenue related to that. So as we mentioned here, without that impact, revenue would be growing 4%. With that impact, revenue is shrinking 4%. So that's the first and largest impact. The second is manufacturing clients across the board across geographies, we're noticing some pullback. And for the first time since 2009, that grouping of customers we saw declined in the third quarter. And we forecast in the fourth quarter a decline. It's not large. It's in single digits, low single digits. But nonetheless, it's in a decline state. And so that's a tough category of what's going on. It falls right in line with what we've seen with full-time positions as announced by the BOS numbers each month that month after month, there'd been manufacturing layoffs and where that's headed. No we have a lot of other service lines that we work in. And the services in transportation and across the board, we're seeing low single-digit growth in most of these categories. So the largest would be in Boeing. Manufacturing not doing so well. Everything else kind of hanging in there. And then we have this large group or bundle of revenues, $30 million that's not growing. It's $30 million last year and it's $30 million this year. It showed great growth over the last 4 quarters because it really hit $30 million a year ago. It provided some of our growth and now it's not going forward but at least in the next quarter. Long term, we believe in these energy projects. We see the pipeline coming and there's been great news coming from the accounts that are putting up solar, either building solar plants or putting solar panels or actually both on commercial buildings. So our baseline is holding pretty strong, except that one category of manufacturing and it's a bit spotty right now. Actually, not spotty, it's declining in 2 or 3 percentage -- 2, 3 or 4 percentage points. So...

And Steve, not asking to be economist, but what do you think is driving that slowdown on the manufacturing side?

I only can look at my own numbers and see. Honestly, half of our impact is or a large portion of our impact is in the food manufacturing business. And that's a choice we made to not service some low-margin accounts. So some of it is there. Another large chunk is so widespread. It's hard for me to put my finger on it. It's just a little bit of slowdown, a little bit of pullback across a lot of categories, so it's not one big thing. And about a year ago, 1.5 years ago, we talked a lot about the auto manufacturing industry and the slowdown related to the Japanese disaster that happened and that's bounced back and that's holding really strong and our teams servicing the auto manufacturing business are holding up pretty well. So it's not that category. I think it's just general textiles and other manufacturing across the board.

Understood. And if I could one last one. Of the $30 million in revenue, it sounds like, obviously, the Boeing little less profitable. But what was the operating margin impact the $30 million of runoff in revenue in Q3?

You're talking about the Boeing account?

The Boeing. It sounds like -- if I heard you right, I thought you missed by -- I'm sorry, $10 million rather, half Boeing, half manufacturing, what was kind of the blended margin impact of that $10 million in revenue?

On the EBITDA line or the net operating income margins?

Either one would be fine.

They're about the same. The Boeing business was slightly more profitable than our standard business, the manufacturing is about the same. So Derrek mentioned that a large piece of -- the challenge that we have with this in the first -- in this quarter and the next is the cost structure that supported the Boeing account, where we have made a strategic decision to leave it in play, to expand it and use it and leverage other aspects of our business and grow other service lines. And we're seeing some inroads that we're going to watch that carefully trust us. But right now, we see there's a better play to leverage that team and drive more revenue. And so, we'll have a lot more to say on that in the next 3 or 4 quarters.

Okay. And again, you said you're modeling $5 million of Boeing -- from Boeing in Q4 if I heard you right?

Yes. That's correct.

And our next question comes from the line of Jeff Silber with BMO Capital Markets.

Can you guys kind of step back and review the different end markets just in terms of the percentage of your revenue either for the third quarter on a trailing 12-month basis just so we're all up to speed?

Sure. I'll go ahead and give it to you, Paul, and this is -- or excuse me, Jeff. I'll go ahead and give it to you and this is going to be on a TPM basis and I'll just kind of round this out. Overall, construction runs about 30% of our business and the 10 points or so of that is energy-related; manufacturing, about 20%; transportation, about 10%; wholesale, about 10%; retail, between 5% and 10%; aviation, which is our PlaneTechs business, is running around 10% on TPM basis; and services and others, around between 10% or 15%.

That's great. And then you mentioned that housing is running about 5% of the total. Can you remind us roughly what that was last time at the peak?

I think that was about at our past peak construction was almost 40%. So I'm talking total construction was almost 40% of the total and residential got up to be about a third of that percentage.

Okay, great. All right, that's very helpful. So just kind of stepping back and maybe focusing on the manufacturing area since that's the one that seems to be slowing down a bit. Did this slowdown feel like the ones you've incurred before prior downturns or is it just something different?

Yes, it's different. Some of it is pricing-based, as I mentioned, that we're not willing to chase some of that business down, the margins down with it. So some of it is choice and we're not going to go there. Some of it is just demand has stopped. And you probably in a weird way, it feels somewhat like the 2001 recession. Back then, construction didn't slow down and manufacturing did. This time, it's still not related to construction because construction what isn't involved in this slowdown is surely manufacturer-driven, so very close to what it felt like then that it was just kind of a hard thing to put your finger on. It was broad-based. We see it start in one geographic area. It starts spreading and spreading and sure enough, it spreads to a large geographic area that you definitely know that it's economic climate-driven and not just one customer or one of our teams. So -- and that feels very similar to the 2001 recession.

It is a lot different than 2008-- slowing signs, some danger signs, but nothing nearly as imminent or rapid that we saw towards the end -- middle or the end of 2008.

Okay. That's great to hear. And then you called out in the past your business with your large customer, Boeing. Are there any other relatively large customers where you have some big projects that we might have to be concerned about those coming to an end?

Well, I think categorically that, the energy, the clean energy projects, we've been fairly open about that. We've actually over the last few quarters, I think we've been more uncertain than we are now. I think we've developed some better feeling about where that's going with our customer over the next 18 to 24 months that it feels a little stronger and it's not as uncertain as the Boeing was. It's a larger category. It's more projects. There's a pipeline you can actually see as we signaled with the Boeing account. It was meant to be short-term and it lasted a lot longer than we thought it was going to. We were appreciative of that. We served them well. And we remained ready to serve and then we still have that structure available. So, yes, Jeff, I think that the risk category if you want to put it like that is energy.

All right, great. And then just one quick numbers question. What share account is embedded in your earnings guidance for the fourth quarter?

About $40 million.

[Operator Instructions] And our next question comes from the line of John Healy with North Coast Research.

I wanted to ask a little bit more about the Boeing expectations going forward. I know you mentioned $5 million for the fourth quarter. Is that a decent run rate to stay in the business because I thought Boeing was a PlaneTech's customer even before this project got ramped up. And I was trying to understand maybe what we should try to embed in our expectations for 2013?

I think $5 million is a pretty reasonable run rate and represents our best estimate of a go-forward run rate beyond the fourth quarter.

Okay, great. And I guess I wanted to ask just hypothetically, how you see maybe things setting up for 2013. I know it's too much uncertainty and probably too far to look out. But when you're planning and managing the business and I hear your comments, it sounds like they were keeping the Boeing infrastructure in place because we think there's opportunity to leverage it across the other areas of the business. You sound very bullish about the pipeline of opportunity in the clean energy. So as I think about 2013 and think about the revenue headwind of Boeing into next year, is it realistic to think that if we continue to stay in this low-growth environment or maybe you guys continue the core organic growth rates in a similar level with the opportunities in clean energy that you could still produce year-on-year type revenue growth in 2013 over 2012, is that sound reasonable or is that too far of a stretch?

I appreciate your insight there, John. It'll have to look different in the fourth quarter. So we'll just go that far. We're forecasting a decline in the fourth quarter. We had a strong fourth quarter in our branch-based business outside of Boeing and outside of energy last year. And so that's driving a bit of it. That dissipates a bit, we get more to a consistent level by the time we get to the spring. It doesn't take a lot of pressure off in what we're doing. To get 5%, 6%, 7% growth in this business. So heavens, we're not throwing the towel and by any means on 2013 at this point. The trends change quickly and we know what we're up against right now. And I think there's a lot of fundamental reasons why companies will continue to turn to temporary staffing and we stand ready and we stand as a strong leader in this industry. So yes, I don't think there's a long term issue here. I just think this is working through in the next couple of quarters. Now things are changing. We recognize that. The way we interact with the candidates, the way we interact with our customers is changing. We've acknowledged that here on this call several times. We work on that internally a lot on how we're approaching the markets, how we're approaching clients, how we're interacting on a large customer basis versus the local markets and that's going to continue to change. Technology impacts this and the availability of information changes the way we do business. I believe we're pushing our envelope really hard there. And we're preparing our teams to absorb that change. That will make us more efficient. As we succeed on this centralized business and this mobile solution, we can continue to take cost out of our system. The more cost we take out of our system, the more opportunity we have to service accounts that don't require as high a gross margins. We don't need to be playing enough in the 30% and 25% margin-only business. We can play better in the 20% margin business and there's more work there. So that gives us an opportunity to grow and to focus and to grow that category. So we can only do that, though, as we focus and bring our own efficiencies into play. We're well aware of that. So I know you're asking specifically about 2013. I'm giving you more signal of let's work through a couple of quarters here. We're not throwing in the towel. We know specifically where we are. It doesn't take much to turn that manufacturing number around. Or better yet, let's turn this construction number around. It's on the verge. And we have several other things we're working on, several things we haven't talked to you about here that are getting to be pretty exciting.

And our next question comes from the line of Mark Marcon with Robert W. Baird.

I can't let you say, "We're working on several things that we haven't talked about," without asking what those are. That was a heck of a lead in.

Makes your job easy, will I?

Yes, what a surprise somebody else didn't follow up on that, but...

You'll just have to be next on the queue. We're working on other verticals. And so the way that we approach the hospitality business and the way we interact with large accounts in the hospitality business whether that be large companies that deal with the cafeterias of hospitals, of colleges, universities, the way we interact with some of the larger hotel chains, the way we interact with events that are going on around United States and the teams that organize those events. We're increasing our stature there. We're bringing on the right expertise to guide us on our own teams. And this technology that we're talking about helps us succeed in those categories. So it's things like that, Mark, that the strategy of being specialized for the customer, yet with blue-collar jobs, gives us the opportunity to look across a larger spectrum than we have been looking and succeed. So...

How large did you say hospitality was right now?

It's in that camp of 15% of the services.

15% of the services?

Oh, no. Derrek said services now there's 15% of our revenues in there.

Okay. In terms of the energy projects, what percentage of those are alternative?

Alternative to what?

Alternative or clean energy as opposed to more conventional fossil fuel-type projects?

The bulk of it, yes. I mean when we got -- we first got our toe started in this a few years ago, it was tearing down oil refineries and helping reset them. And -- but now it shifted mostly to -- a year ago, it was a lot of wind and this year, it's a lot of solar.

And our team has gotten really good at this area, Mark, of not just the industry knowledge, but just bringing some great productivity to the table for customers. So they're really built up a great competency in this area, a great niche here in the clean energy area. We think there's more runway here too.

How long did those projects typically go for because I think most...

Mark, there's various categories. So if you're putting up a solar plant and depends on how large it is could take anywhere from 6 months to 18 months and there's several of them. And we've been working on the largest one for several months. So it's a -- those are -- there's a lot of tail on them. Another aspect to that business though is putting solar panels up on commercial buildings and that's kind of a long tail to it. That's across a lot of geographies and a lot of clients and a lot of situations that looks it's right in our sweet spot because we're in so many markets and be able to recruit those skills.

You don't have a concern that some of those projects could go away with certain tax credits?

Yes, I have a concern that all of that, yes, but it's not in our -- we were more concerned a year ago than we are right now.

What have you seen over the last year that's changed your concern? Is there anything specific other than...

I think it's the better relationship with our client and we see their insight and they're including us on their project planning, not only the planning, but the bidding of projects. They're relying on our expertise. We're actually part of the process to show that we can bring the labor to the project as they're being bid. So we have a lot better insights to the project flow and the pipeline that exists out in front of us. We didn't have that insight a year ago. We were on a couple of projects and serving well, but our teams have really become experts in helping this industry grow its way out.

We've got 3 or 4 projects there, Mark, that are winding down that do have these tax credits. And I think what you're referring is Federal tax credits. We've also got 3 or 4 that are on an equivalent scale that are starting up that have none. And there's a couple of other dynamics here that have come into play and that's the states are bringing their own incentives and there's been more states coming on over here over the last year, which gives us some confidence. And then there's the price for kilowatt on energy. It's only running about 25% above where oil is and coal right now, which is the closest it's ever been and that's without tax credits. So there's more technology out there doing the work on the battery side to store this energy. So I think there's a lot of dynamics in place that are seeing the trajectory of this alternative energy. It's getting pretty close to other comparable fossil fuels.

Great. That's terrific color. And then with regards to Boeing, you guys have been warning for years that it would fall off and you've been saying it for so long that it never came. And what -- do you know what happened or can you say what happened just in terms of the suddenness of the drop-off?

Yes, it was...

I mean relative to your expectations or...

The largest driving factor that's caused it and caused us even to warn and talk about it is most of our work has been as the 787 was produced and made it through the production lines yet it hadn't made through full testing and flying, any plane that have made it through production, anytime there was a change order to the process, it had to be pushed through the planes that were already through the production and on the ground. So a large part of our work was pushing those change orders through for Boeing partners, not necessarily just Boeing. So we lumped all that business together because it was related around that one production. As time goes on, they've improved their production facility and that's the #1 driving thing is they're getting spot on in what they're producing and there's less change orders. Secondary to that is anything that was a little bit more lasting. In certain given states, the union says this isn't going to play out well. These look like permanent jobs or this project's lasting too long and so that applied a little pressure and I think some of these positions Boeing turn into a full-time jobs the ones that were lasting a little bit longer. So those are the 2 driving factors and we respect both of them.

Great. And you had mentioned in the past that maybe there might be some other projects coming along on the aerospace side. How is that looking?

Well, we're pushing hard. We have the right teams with the right account relationships, both in military and other manufacturers. These are a lot longer sales cycles than anything, we're used to around here. So being project-oriented business, we know how to dive on projects. We know how to dive on disasters. We know how to dive in, in situations that are out of control and bringing organization to chaos. But sales process that takes 2 years or 3 years, we're not very familiar with those. And so we're going to have to be patient in those military processes and looking down the road longer. I mean if you look at a lot of these clients have a 7-year pipelines on back orders and they plan their business a lot longer than over a lot longer period. We're getting good indications and we've won some projects in some other areas that we feel good about. A year ago, I couldn't have said that we had much military base manufacturing business and that number is going to approach $10 million next year. We weren't putting diesel mechanics that worked on trucks to work very long ago and that's going to be a $10 million line of business for us. Those sound small on our large thing, but they're start-ups and it's what the teams focused and it's a good blue sky for to know when to start a product line and drive it. But it's really about a larger pipeline of how large military could be. It could be a $500 million business. And so our hope and our desire and focus in the right teams and investing on a strategy there, it's worth it to hang in there and keep that cost structure in play and actually even add to it to ensure we have the right sales people in the right categories, and it takes a little bit of investment right now, a little bit of patience.

And our next question comes from the line of Randy Weise with Avondale Partners.

Pretty much my question has been answered.

And our next question comes from the line of Sara Gubins from Bank of America.

I don't know if you're able to characterize this. But I'm wondering what percent of SG&A is in the branches today versus currently centralized?

It's not an exact number because there's so much sharing that goes on and there's the customer that's at the national level, yet all -- most all placements here at the local -- go through a local branch, especially in that branch-based business. About 70% of our business I would say goes through our branch-based business. The energy business is a mix of the 2 and it may change that by 5% so maybe 65% or something like that.

[indiscernible]

Yes. So it's about 1/3 right now.

Ladies and gentlemen, we have no further questions. This concludes today's question-and-answer session. I would now like to turn the call back over to Mr. Steve Cooper for closing remarks.

Great, thank you. We sure appreciate your attention today on the call and the questions you've asked, and we look forward to updating you as we move forward. Have a good day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day.