Volt Information Sciences, Inc.
Q1 2017 Earnings Call Transcript

Published: 9 Mar 2017

[Operator:]

Greetings, and welcome to the Volt Information Sciences' First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d like to turn the conference over to your host, Mr. Lasse Glassen, Investor Relations. Thank you. You may begin.

[Lasse Glassen:]

Good afternoon and thank you for joining us today for Volt Information Sciences' fiscal 2017 first quarter earnings conference call. On the call today is Michael Dean, President and Chief Executive Officer; and Paul Tomkins, Senior Vice President and Chief Financial Officer. Before beginning today’s call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Volt’s recent filings with the SEC for a more detailed discussion of the risks that could impact the Company’s future operating results and financial condition. Also on the today’s call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. A reconciliation of those measures to GAAP is included in the earnings release issued this afternoon, March 8, 2017. With that, it’s now my pleasure to turn the call over to Volt’s President and Chief Executive Officer, Michael Dean. Michael?

[Michael Dean:]

Thank you, Lasse. Good afternoon and thank you for joining us today for our fiscal 2017 first quarter earnings conference call. I’ll begin today’s call with an overview of our results from this past quarter along with recent highlights we’re making towards our plan to improve both financial and operational performance. Paul Tomkins our CFO will then discuss additional details about our first quarter financial results, including an update on our balance sheet and liquidity position. A question-and-answer session will follow after our prepared remarks. Volt is off to a good start in fiscal 2017 with strong year-over-year improvement in our financial results and the recent completion of several key initiatives that significantly improved our balance sheet. At the topline we continue to make progress in stabilizing revenue from our existing book of business while establishing new client relationships. We're also benefitting from our ongoing focus on higher margin business as evidenced by the 110 basis point increase in gross margin compared to the prior year. As a result, we generated the best bottom line results for Volt in a first quarter in five years. In addition to improving our operational results we also achieved key milestones that will further shore-up our balance sheet and improve our financial flexibility. During the quarter, we completed the amendment and extension of our 160 million financing program with PNC Bank. More recently we completed the sale of Maintech and we also received approval from IRS regarding the federal tax refund and we're awaiting the payment. Looking ahead I remain confident in our ability to execute our turnaround strategy enhancing our financial and operational performance and driving shareholder value in fiscal 2017 and beyond. Turning to results in more detail, during the first quarter we continue the successful bend the revenue curve. In the past five quarters, respectively our net revenue has continuously improved on a year-over-year basis from a 15% decline in the first quarter of fiscal 2016 to down 13%, down 9%, down 6% and finally to down 4% in the most recent quarter. Within our North American staffing segment which comprises nearly 75% of consolidated revenue we saw revenue decreased by only 6.7 million or about 2.8% compared the prior year's quarter. And within our international staffing segment revenue increased 6.3% year-over-year on a constant-currency and same country basis. Paul will provide additional details on the first quarter performance later in his remarks. But it's clear that the results of our turnaround efforts are gaining traction. In addition, we reported a net loss in the first quarter of 4.6 million or $0.22 a share, this is a significant improvement from a year ago where we reported net loss of 11 million or $0.53 a share. It's important to remember that our first quarters traditionally unprofitable. As I mentioned earlier at the bottom line, this is the best first quarter in five years. While our profit growing improvements need to continue, this is clearly evidence of our ongoing progress. I’d now like to switch gears and discuss several noteworthy accomplishments all of which are contributing to our efforts to improve the financial and operational performance of the company. So far fiscal 2017 has been an extremely productive period for Volt particularly with respect strengthening our balance sheet and further streamlining the organization. Over the past year and a half the current management has stabilized both balance sheet and solidified our liquidity position due in parts of the monetization of non-strategic company owned real-estate and the divestiture of non-core legacy asset. Volt's only remaining non-core business was Maintech, our information technology infrastructure services businesses, which was included in our corporate and other category. As we announced yesterday subsequent to the end of the first quarter we completed the sale of this business in an all cash transaction for an aggregate purchase price of $18.3 million after closing costs and other another transaction related expenses net proceeds to Volt were approximately 13.9 million. The process we undertook to sell this business over the past year was extremely through and included initial outreach to approximately 140 potential buyers that included a wide range of both strategic and financial sponsors. As a result of price we received at 5.4 times trailing 12 month adjusted EBITDA was a fair market based price and was in-line with the recent [indiscernible] business sales in this specific industry segment. We believe that at this sales price the opportunity cost of this capital is better utilized being invested in our staffing business. Similar to our previous asset sales the divestiture of Maintech will enable us to better focus management attention and resources on opportunities within our core staffing business, where we believe we are in best positioned to create sustainable shareholder value. Next, I’d like to briefly comment on our ongoing efforts to increase Volt's cost structure and overall operational efficiency. We are making investments in our business that will not only result in lower overall cost, but improve deficiencies going forward. I’m pleased to report that we remain on track to live in the first half of 2017 with our new IT system, which we have discussed in detail on previous calls. This new information technology is vital our business and will improve our time-to-market and competitiveness in sales delivery to support Volt's future growth. In addition to the improved functionality we expect this project will yield additional and annual cost savings of approximately $5 million to $7 million to be realized some later this year and more fully in 2018. With the structural aspects of our turnaround in place, namely the completion of all non-core asset sales has strengthened balance sheet and improved cost structure, our main emphasis for the remainder of fiscal 2017 is driving revenue growth. The key to driving top line growth will come from a combination of existing and new clients, while the declines still outpace areas of new business growth, we continue to see progress on both fronts. With respect to existing clients, the number of clients lost outright in our traditional staffing business has decreased every quarter for the last eight quarters, cutting nutrition [ph] by nearly one third over that period of time. And the amount of revenue lost from declining accounts is also the expense since the turnaround started. We are also seeing solid business generation for the new customer engagement, within our traditional staffing operation our pipeline of new business has grown for the last eight consecutive months and with respect to converting this pipeline into firm business we continue to win significant new clients. For example during the first quarter we won a contract to provide call center support for a large support outsourcing company that we estimate will generate over $10 million annually. Also we signed a significant contract for manufacturing support in consumer durables that is expected to drive approximately $3 million of annual revenue. Furthermore we signed a new agreement for manufacturing, assembly and administrative support for a top lifestyle brand expected to generate annual revenue of approximately 3 million. While these are some of the recent key highlights in total we signed 10 new customers each with annual revenue in the millions of dollars during the first quarter alone. Before turning it over to Paul I'd like to mention recent changes to our Board of Directors, last month we announced the retirement of directors John Rudolf and Jim Bird. John retired from the board effective February 23rd and Bill Grubbs President and CEO of Cross Country Healthcare has been appointed to fill the vacancy. In addition Jim will be stepping down in June. Bill Grubbs and Arnie Ursaner the founder of the independent securities research firm CJS Securities are standing for election at the 2017 annual meeting of shareholders to replace them. Bill Grubbs is a seasoned executive with a proven track record of success in the staffing services industry. I'm very confident that his insight leadership and deep industry knowledge will prove to be invaluable as we focus intensely on growth opportunities in 2017 and beyond. In addition, Arnie Ursaner has enjoyed a successful 35 year career on Wall Street as in investor and business services industry research analyst and will bring investor and market perspective as well as strong financial expertise. With these two additions the collective skill set of Volt's Board has been further enhanced and we look forward to capitalizing on this as we continue to position the businesses for growth. At the same time we say goodbye to John and Jim who have been positive catalysts for change and tireless advocates for Volt shareholders. On behalf of my fellow directors I offer sincere gratitude to both John and Jim for their outstanding service and wish them all the very best in the future. With that I'd now like to turn the call over to Paul to discuss our first quarter financial results in more detail. Paul?

[Paul Tomkins:]

Thank you, Michael. Good afternoon. Today I will provide additional details on our first quarter financial results as well as discuss our balance sheet and liquidity position. Let's begin with our first quarter performance. Our revenue for the first quarter was $313 million and in-line with our expectations. As Michael mentioned our first quarter is traditionally unprofitable for Volt due to the combination of fewer workdays as well as a higher percentage of payroll taxes incurred in January as we begin the new calendar year. In fact North American staffing payroll taxes were 11.5% of direct labor in the first quarter of fiscal 2017 compared to 10.2% of labor in the prior quarter. When compared to the first quarter of fiscal 2016 total company revenues declined 13.9 million or 4.3% on a year over year basis. This is an improvement from a year over year decline of 22.4 million or 6.2% in the prior quarter and marks the fifth consecutive quarter of year over year revenue improvement. Of note our fiscal 2016 first quarter included non-core businesses which have since been sold or shutdown. In addition, the first quarter of fiscal 2016 included a favorable foreign exchange impact to revenue compared to a first quarter of fiscal 2017. Excluding non-core businesses and the impact of foreign exchange, the year-over-year revenue decline would have only been 2.5% on a same-store basis. Turning now to the revenues by segment. Revenue for our North American Staffing segment, which provides a broad spectrum of contingent staffing, direct placement, recruitment process outsourcing and other employment services was 231.9 million, down 6.7 million, or 2.8% on a year-over-year basis, primarily driven by a decrease in subcontractor revenue. We placed a significant amount of our time towards our turnaround efforts in the North American Staffing segment, and the year-over-year revenue decreased of 2.8% compared to an 11.9% year-over-year revenue decrease in the first quarter of last year reflects significant progress. Revenue for our International Staffing segment, which includes the company’s contingent staffing, direct placement and managed program businesses in Europe and Asia was 30.4 million in the first quarter, down 3.6 million, or 10.6% from the year ago. The year-over-year decrease was primarily driven by the impact of foreign exchange rate fluctuations of 4.5 million as well as a 0.9 million impact of no longer conducting business in certain unprofitable countries. Excluding this impact international revenues actually increased 6.3% year-over-year. Our Technology Outsourcing Services and Solutions segment revenue, which includes quality assurance, business intelligence and analytics and customer service support for companies in a variety of industries was 25.7 million in the first quarter, down year-over-year by 1.5 million or 5.7%, as a result of lower volume from our quality assurance services partially offset by an increase in the customer care services. And finally, looking at our corporate and other businesses, which is primarily comprised of BCG, our North American managed service programs business and Maintech; revenues were 26.3 million in the first quarter, down 4.1 million or 13.5% versus last year. The year-over-year revenue decline was primarily attributable to lower volume and a decision not to pursue continued business with a certain customer having unfavorable contractual terms. Turning back to our total company results, net loss in the first quarter of 2017 was 4.6 million compared to a loss of 11 million in the first quarter last year. Net loss in the first quarter include restructuring and severance costs of 0.6 million, this was mostly offset by 0.5 million related to the amortization of the gain on the sale of real estate. Excluding the impact of these special items, net loss for the first quarter would have been 4.5 million on a non-GAAP basis. As Michael mentioned we're pleased with the outcome of our first quarter which had the best bottom line results for the first quarter since fiscal 2012. Adjusted EBITDA as highlighted in our earnings press release was a loss of 0.5 million in the first quarter of fiscal 2017, which improved 4.3 million or 90%, compared to a loss of 4.8 million in the year ago period. Moving onto the profitability of our core segments, operating income in our North American Staffing segment was 2.8 million in the first quarter of 2017 compared to a loss of 0.2 million a year ago. We are pleased with the year-over-year improvements in our North American segment and remain focused on the health of this business. We believe we are in an improved position to continue to execute our growth plan in the North American Staffing segment this year. Looking at the other segments technology outsourcing services and solutions business generated operating income of 1.6 million while our International Staffing segment generated operating income of 0.6 million. Overall, gross margin percentage during the first quarter was 15%. On a year-over-year basis gross margin improved by 110 basis points, the year-over-year increase in gross margin percentage was primarily the result of improved margins in the North American Staffing segment due in part the reduction in lower margin sub-contractor revenue and improved margins in our information technology, infrastructure services businesses as a result of cost cutting initiatives. Selling administrative and other operating costs in the first quarter decreased $3.7 million or 7.1% versus last year. The year-over-year improvement was primarily a result of more favorable experience in the company's self-insured medical program as well as cost saving initiatives implemented during fiscal 2016. We incurred restructuring and severance costs of approximately 0.6 million in the first quarter as a result of the cost cutting initiatives we implemented beginning in the first quarter last year. We continue to expect these initiatives will result in savings of approximately 13 million annually excluding Maintech beginning this fiscal year. Turning now to our balance sheet and liquidity position. Our total debt balance at the end of the first quarter was 97.1 million, unchanged from the prior quarter, but down 9.9 million from the first quarter last year. The year-over-year decrease was primarily due to repayment of the mortgage with the sale of the Orange California building in fiscal 2016 and the subsequent pay down of short term borrowings. As Michael noted, during the quarter we successfully amended and extended our $160 million financing program with PNC through January 31, 2018 and reduce the minimum liquidity covenant level. This amendment also included a minimum EBIT covenant. Our decision to continue working with PNC Bank followed multiple discussions with a number of banks. We are pleased to have completed this extension with PNC which enables us to continue moving forward where their turnaround plan. Subsequent to the end of the quarter we completed the sale of Maintech and received notice that the IRS had approved our amended tax -- federal tax returns for fiscal years 2004 through 2010. This will result in a tax refund totaling approximately 13 million which we expect to receive shortly. They remaining receivable balance of approximately 3 million primarily related to stated refunds is expected to be received over the next several quarters. Clearly we are very pleased to have this matter almost completely behind this. This was a culmination of nearly four years of significant effort and I want to thank our tax team for their very hard work on this tedious and protracted process. At the end of the first quarter, we had a total of $44 million in global liquidity for working capital requirements and as Michael mentioned, subsequent to the end of the quarter, the sale of Maintech and the impending IRS tax refund will improve our liquidity position by a combined total of approximately 25 million net of fees, but will also trigger an increase in the minimum liquidity covenant under the PNC Bank agreement to 25 million from the previous minimum level of 20 million. With this additional liquidity I'd like to take a moment to review our capital allocation plan. In fiscal 2017 our top priorities are to ensure that there is adequate liquidity for working capital purposes to effectively manage our business as well as to invest in the necessary tools and technology that are required to support our growth plan. Due to the nature of our business our liquidity position is very dynamic and can fluctuate as much as 10 million on a weekly basis. In addition as I mentioned earlier, we are currently subject to a minimum liquidity covenant of 25 million which increases to 35 million upon any share repurchases or dividends. This minimum liquidity threshold is based on a weekly test and must accommodate the weekly working capital fluctuations in cash that are typical in our business. The sale of Maintech and the IRS refund will certainly be positive sources of liquidity for Volt and returning excess capital to shareholders remains a priority and will be an ongoing consideration for our Board. In closing our results this quarter continue to evidence the progress of our turnaround plans and continue to point towards the long-term health of the business. I'd like to thank the entire Volt team for their very hard work and commitment and I remain confident we are taking the right steps towards returning Volt to profitable growth. Thank you for joining the call and at this time I’d like to open it up to questions. Operator?

[Operator:]

Thank you, [Operator Instructions] our first question comes from Gregg Hillman from First Wilshire Securities, please go ahead.

[Gregg Hillman:]

Can you talk about what's the minimum EBITDA covenant is?

[Paul Tomkins:]

Sure, this is Paul, Gregg. Minimum EBIT covenant is based on our plan plus we have a set cushions that we've negotiated with PNC, so we have -- based on our, where is our plan is and spreads out by quarter, we have a very specific EBIT that we need to hit each quarter based on our plan plus the cushion. So we haven't -- obviously we haven't released what our plan is for this year or guidance so we don’t release that but it's very tightly tied to our plan.

[Gregg Hillman:]

Okay, and you know in terms of I guess M&A activity, I mean is that on the plate right now or is that further out in terms of strategy for the company?

[Michael Dean:]

Hi Gregg, it’s Michael. I think you know there's a lot of M&A activity in this business that is fragmented in lots of opportunity there and a lot of our competitors are growing through organic and inorganic growth. I think that over time that will, should we have the ability to do so that would be a component of our longer-term growth. I think right now we're focused sort of getting work right now on unlocking and what we need to lock down internally and I think at some point it will get to the point where we would like to have the capital and the wherewithal and the ability to go do acquisitions small or otherwise, and certainly areas to strength in our business but it's not an immediate issue for us.

[Gregg Hillman:]

And then finally you have the skill set that you want in IT to be able to address certain types of coders or verticals within IT or do you need to expand their, and to be more successful in IT, as you improve your computer system?

[Michael Dean:]

Yes, I think sort of the answer is both. I think that we are looking to strengthen our position in IT. We have a pretty sizeable business in IT, but it's a very competitive business and I think that through a number of efforts really three, one internal strengthening to I think our IT upgrade is going to significantly help our competitiveness there and our time-to-market and our strategy within IT. That's probably an area that's going to have some of the best upgrade for our business and then lastly and overtime if we do transactions and M&A activity I think IT would be an area that we'll be really interested in qualifying [ph] our efforts with some bolt-on additions there.

[Gregg Hillman:]

And have you been able to get on anybody else's -- for other vendor management systems, other companies that are -- for other managed service providers are you -- have you been able to get on their approved list of vendors in a way that you weren't before, if you get my gest?

[Michael Dean:]

I think I do, yes. I think we are earning our way in to those vendor lists more everyday as you know it's a hard, slow sort of process and the client world and staffing there is a lot of complication and edging and battling for those approved vendors is really a big part of what we do and we're finding a little bit more success in that every day, but we're certainly finding that we're edging on more of those approved vendor lists than we have in the past.

[Operator:]

[Operator Instructions] And our next question comes from Joshua Harwood from Palm Global. Please go ahead.

[Joshua Harwood:]

Can you talk a little bit about the technology outsourcing services as it relates to some of the faster growth items that you guys have been working on like QA and apps and do you see that continuing at a strong pace of growth going forward?

[Michael Dean:]

Sure, this is Michael. That is a business that I think has in the long term good potential for us. It is -- that business has a number of segments to it like you said if you like that being, it's got everything from call center support to pre and post live support for all kinds of technologies. I think that a number of years ago or -- a year and half two years ago when the new management and the board came in, we identified that as the one that might be a bit of a longer play to get big growth, but I think it has potential predominantly for couple of things; one, it’s a higher margin business for us during the traditional staffing, because it’s more project based deliverables, and that often carries a higher margin with it and this business certainly does. Other than some of the phone support stuff that is akin to staffing is margin. But that business itself has higher margins to it and the more we can grow that not only does is sort of grow the top line, but it helps in our bottom line. So we are keen to -- we are doing some -- since we got here, we certainly invested like we did in the staffing, we’ve invested in that business for growth. And again in the longer term, not just higher margin, but there is a pretty significant addressable market or a number of large addressable markets that we can expand into. We are in a lot of strong businesses like gaming and mobile apps, but the whole Internet-of-Things is a very large addressable market and our capabilities that ultimately can could expand pretty nicely into some of those big addressable markets and therefore I think there is growth, but we are rebuilding from two years ago, it had been sort of not been invested in the way that it could for that kind of a growth business. And so as we're rebuilding we’ll see how fast we can turn that to a growth vehicle, but I can’t tell you how quickly that happens, but I think in the longer term and even in the medium term that continuing good margins to add some growth.

[Joshua Harwood:]

Thank you for that. Could you remind us again on the level of net operating loss carry forward, you expect to have post [indiscernible] and quarter and all that, if that number is going to firm up?

[Paul Tomkins:]

Yeah at the end of the quarter, we had NOLs carry -- net operating loss carry forwards on the federal side, Joshua, of $146 million capital loss carry forwards of about 55 and other federal tax credits and other potential credits. That is prior to -- that’s at the end of the quarter. We’ll have a gain on the sale of Maintech and from a federal perspective that gain will be sheltered by the credits we have in the tax attributes that we have.

[Joshua Harwood:]

Anything you can see even after sales Maintech that will have pretty significant assets that will continuing even after that?

[Paul Tomkins:]

There won’t be a significant, it won’t eat into these tax attributes significantly.

[Joshua Harwood:]

Very helpful. Thank you very much, keep up the good work and I’m hopeful that we get somewhere 2%, 3%, 4% net margin rate.

[Michael Dean:]

Yeah, I appreciate it very much. Thank you.

[Operator:]

Our next question comes from Mike Boroughs from Fortis Capital Management. Please go ahead.

[Mike Boroughs:]

So now that you guys are done with Maintech and that's out of here, what are the -- from an accounting perspective, is there a number of corporate costs that were being allocated to Maintech that are now going to be hitting the corporate line?

[Paul Tomkins:]

Yeah, so Mike we have a shared services group that provides services for the whole company. So Maintech was a piece of that, but relatively small piece of that, so it was fairly contained, they had their own sales force, they had their own indirect business and a lot of the SG&A within Maintech, we will go with the company. Any of the corporate costs that we had that supported Maintech, you know we're obviously taking a look at that and making sure that we have the most efficient cost structure for the ongoing business. But you know Maintech was a relatively small piece of the total business.

[Mike Boroughs:]

Got it, okay, so there's potential actually, even though over the next quarter you could have some corporate costs come back over time, you're looking at potentially cutting that down to make sure it’s in line with the new business strategy.

[Paul Tomkins:]

Yeah, that's right. We're always doing that Mike, you know again this won't be any different as we look at the structure of the company going forward.

[Mike Boroughs:]

Right, okay, and then in regards to the new IT system, I know you guys have talked a lot about kind of the cost cutting portion of that. Can you tell us anything about your projections in terms of how much revenue are you guys missing out on currently by having the old systems, you know what kind of opportunity does the implementation of this new system give you guys going forward?

[Michael Dean:]

Mike this is Michael, on that point I think that it’s really hard for us to tell because we're just working to implement it. We haven't been able to quantify because it's pretty intangible, but it’s very real, we just -- it's hard to quantify. What will happen is that currently -- and I think we mentioned this before but in short, especially on the professional side IT and engineering we get job orders across the transom that automatically comes in and currently our competitors that go straight into their front-end systems and they can match this applicant without any even human involvement in some cases and certainly very quickly. Whereas under our old system and processes it was very manual and it could take even up to a day for us to match, even a recruiter with a job order and basically took us out of the competitive landscape. It is part of the reason that we are less competitive I think in the IT area than we like to be and I think it's an important thing. So when you get the new systems [indiscernible] automates that, but then we still have to update our processes around it once we get that going live. And so it'll take a little while before we can see if our fill rates on job positions, how much more competitive did it get and then once we start getting some experience we could probably get a little bit better handle on how much better it's going to drive the business. There's no doubt it will help us, we just can't quantify yet until we go live.

[Paul Tomkins:]

We just know that right now, as Michael said it's more of a manual process, and this will really automate the order fill process which after some period of time after we implement it and we get our processes around it we do think it's going to help us. But it's not easily quantifiable, it's hard to say what business you're losing.

[Michael Dean:]

Mike, we can see the improvement over time once we start measuring it, but we haven't even gone live yet so.

[Mike Boroughs:]

Right, okay, sounds good, thanks guys.

[Operator:]

The next question comes from Gregg Hillman from First Wiltshire Securities, please go ahead.

[Gregg Hillman:]

Hi Michael, could you talk about some macros affecting the staffing industry, I think it’s slowing down, but maybe not turned down yet, but can you talk about that and also temporary workforce -- the potential workforce in the United States, whether that will go up, and talk about those two larger trends where we're at, where you think we're going to be one or two years from now?

[Michael Dean:]

Happy to think that Gregg. I'm actually optimistic still about the business and the industry; I think -- and what we're finding in our business we're also I think as the macro trends that are happening, I actually expect them to continue. Obviously, we're -- our industry is very closely tied to the economy and I can't predict that, but on a macro trend basis and particularly you mentioned something I think is important which is, so the percentage of temporary workforce as a total of -- the total workforce in United States. This year the percentage -- that percentage of workforce is the highest it's ever been. And that trend has been increasing for quite some time and the reason is, in my view and there's both anecdotal and empirical evidence to this, is that more and more of corporate America is not just using temporary staffing for cyclical or seasonal business fill, but it is continuing to increase on average in its sophistication learn how to manage a more mobile, agile workforce and temporary staffing every year becoming more large piece of a strategic view of managing, if you will, capital versus in the past, only a few enlightened companies use to do that, and more and more every year companies are seeing that as a big strategic piece of their overall human capital management. And so that is why the penetration of temporary staffing is going up and continues to rise and it's still not a large percentage. So I'm optimistic with that trend, because I believe I wouldn't be here if I didn't, I believe that we provide value beyond holiday staffing for example and the macro trends for millennials and the workforce are higher more mobile than they have ever been and more fickle and providing that flexibility to the workforce that looks for that flexibility is as learning to be -- the companies are learning the definitive advantage if they do it right and so what we work to do is, not just fill jobs, but how our clients understands human capital and temporary staffing is part of that strategy. So that they can use that in a value-added way, not just going sort of open position. And that trend is a positive one and on the macro basis the things that are driving that are positive and I don't see a near term slowdown of those things.

[Gregg Hillman:]

Do you what temps are as a percentage to year guys workforce currently?

[Michael Dean:]

Yes, there's a bunch of different specifics around it because it depends on the numerator and denominator and have they're measured, a common one is for 2016 was 2.04%, if I'm not mistaken, I don’t have it in front of me. Gregg, that the debt averages in all company -- all public companies and it's more important to measure the relative, the same statistics over time then the individual statistic, but sufficed to say it's a small number although that has been growing. So, under that specific encoding that is from the SIA, the Industry Association, that number is if it's 2%, I don't understand why it can't get to 10%, or some large number. I think the fractionalization of workforce I think is a positive for us and so 2% shows how much potential there still is. I don't know what the cap to that percentage could be, but it's certainly much higher than 2% overtime, in my view.

[Gregg Hillman:]

Okay, okay. Thanks. I think one time I think you said France was at 3% maybe? France?

[Michael Dean:]

I can’t remember what France is, I’m sorry.

[Gregg Hillman:]

Okay. Okay, that’s fine. Thanks for the comments Mike.

[Operator:]

Our next question comes from Paul Misleh from Fortis Capital Management. Please go ahead.

[Paul Misleh:]

Question for you on the international staffing, is there a lot of overlap with selling projects with the U.S. staffing, because they kind of operate independently of each other?

[Michael Dean:]

A little bit more of the lateral, although since we’ve sort of started working to turn the company around, we've started an initiative that’s called One Volt and where we are starting to see more cross borders and more across the various pieces of business both internationally and domestically. It’s a pretty different work force in our international business provides a difference focus just because the markets are actually difference is a lot, a more direct higher business and there is traditional contract staffing, the countries in Europe and we do more -- there’s a less sort of commercial business that we do over there and more here. That being said, that sort of the One Vault project has been focusing on, we’ve traditionally sold them almost, not totally but quite a bit separately, and we have started to work with clients that domestic business with them, but we don’t have [indiscernible] businesses vice versa, and trying to work out a more globalized plan for the work that we do with our clients and in the last couple of quarters there has been a number of clients, when you pitch business, we don’t know if we're going to get it yet, but we've pitch business on a global basis, we're on the path to only pitch domestically. So I think that that's something that we are moving toward. It hasn't been priority in the past this company and as we get better at that I think there is opportunity to expand our geographic locations, but it’s not the biggest of our core strategy won’t be getting into countries, but as we need to be with our clients we could start selling more globally, there might be some opportunity there.

[Paul Misleh:]

Great. Thank you. And then on the liquidity Paul, does that -- is that around 70 million? Say roughly.

[Paul Tomkins:]

Yeah, I think at this stage it’s not just additive. So the last view we had which was from earlier today is in the $45 million range Paul and when we get fluctuations as we go from week-to-week and also quarter to quarter. So at this point, in the second quarter, as you know we've spoken about the first quarter being the softest quarter that we have and generally what happens is in the second quarter we always hit a dip as we're heading into the middle part of the second quarter and into the third quarter then it picks up, but we're sort of in a period where right after the first quarter, which is soft, we are collecting the cash and are -- we're pretty flat with the end of the first quarter right now.

[Paul Misleh:]

Okay. Does that include if you -- have you gotten the net-net $25 million for Maintech and I know you haven’t got the refund, [Multiple Speakers] for Maintech?

[Paul Tomkins:]

Yeah, we haven’t received the IRS refund yet that we, that does include the sale of Maintech.

[Paul Misleh:]

Okay alright and then the covenant around jumping it from 25 million to 35 million with a dividend or a buyback, has that always been in there, it that a new one with a new one year extension?

[Paul Tomkins:]

Yes that was in the extension, that's always been there. That's -- the provisions were that we started with a liquidity covenant of 20 million and you know that jumped up to 25 million with either the sale of Maintech or the IRS refund and then upon any dividend or repurchases of shares that will go up to 35 million, that's all been part of this last extension to January of 2018.

[Paul Misleh:]

Was it in there in the January of 20 -- was that added in the 2018 one, did PNC extract that from you and that one.

[Paul Tomkins:]

Yes.

[Paul Misleh:]

Got it, alright guys thank you very much.

[Operator:]

The next question comes from Gregg Hillman from First Wiltshire Securities, please go ahead.

[Gregg Hillman:]

Yes, you know Paul, the 13 million of savings you were talking about in the future, is that going to be in this fiscal year or that might be realized in the next two years, those SG&A savings you were referring to I think.

[Paul Tomkins:]

Those are estimated annual savings on a gross basis based on the restructuring and severance costs that we incurred and the people that left the business. So we have -- we also -- so yes the answer is in 2017 we will begin to see that. We'll get a full impact of that in 2018 and beyond, and again that's on a gross basis, so we are seeing this year some increases due to the increase in the sales force, once we go fully live with the new IT program we're going to have software license fees that kick in and start to hit SG&A even though we've paid for those, depreciation and amortization on the capitalized cost with that. So that will all feed into the expenses as well in 2017 and beyond so that will definitely offset some of those savings. But the gross savings from the actions we've taken will be 13 million on an annual basis.

[Gregg Hillman:]

How much will be offset, will be like half, so half of that will be offset, something like that was the thing you just alluded to?

[Paul Tomkins:]

Yes, it's a meaningful enough element. Clearly we had to get the growth plans back on track, bring in the right sales people and the right recruiters, we're trying to build that part of the business up and so it will be somewhat of an offset, but directly related to growing revenue.

[Gregg Hillman:]

Okay and then Paul in general what percentage of SG&A is [indiscernible], would you say?

[Paul Tomkins:]

Well I mean over the longer term everything is variable for the most part but in the short term you know it's a pretty high percentage.

[Michael Dean:]

High percentage that is fixed.

[Paul Tomkins:]

That is fixed. So you know between 80% and 90% is fixed, but again you know taking actions on SG&A, we continue to look at that and in the near term, medium term some of those you know fixed costs can also drive into a variable because again you can make changes in the cost structure and we continue to look at that.

[Gregg Hillman:]

Okay, so there is a lot of operating levers in the business if you can grow it again?

[Paul Tomkins:]

Yes.

[Gregg Hillman:]

Okay thanks.

[Operator:]

Thank you. This does conclude the question-and-answer session. I'd like to turn the floor back over to Mr. Dean for any closing comments.

[Michael Dean:]

Thank you, Operator. Thanks again for your support and for joining us on today's call. I'd like to also mention that starting this year we'll be initiating a more aggressive investor and marketing campaign which will start in earnest next week with our Company presentation and Investor Meeting at the 29th Annual ROTH Investor Conference in Southern California, on Monday, March 13th. We hope to see many of you there. Otherwise we look forward to speaking with you again when we report our fiscal 2017 second quarter results in June. Thank you very much.

[Operator:]

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.