Volt Information Sciences, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Jun 2017

[Operator:]

Greetings, and welcome to the Volt Information Sciences' Second Quarter Fiscal 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 now like to turn the conference over to your host, Mr. Lasse Glassen, Investor Relations. Thank you. You may begin.

[Lasse Glassen:]

Good morning and thank you for joining us today for Volt Information Sciences' fiscal 2017 second 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 Information Sciences 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 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 press release issued this morning, June 9, 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 morning and thank you for joining us today for our fiscal 2017 second quarter earnings conference call. I’ll begin today’s call with an overview of our results from this past quarter along with advancements we are making with our plan to improve Volt's financial and operational performance. Paul Tomkins our CFO will then discuss additional details about our second quarter financial results, including an update on our balance sheet and liquidity position. A question-and-answer session will follow after our prepared remarks. Overall, Volt had a productive second quarter with progress in several key aspects of our turnaround strategy. I am pleased with our ongoing efforts to strengthen our balance sheet as evidenced by further reductions in total debt and improvements in our liquidity position. During the quarter, we completed the previously announced sale of our last remaining non-core business Maintech and also received payment from the IRS on our longstanding tax refund. We also continued to benefit from our ongoing focus on higher margin business with second quarter gross margins expanding on both a sequential quarter and year-over-year basis. In addition, in future quarters, we expect to improve our competitive position and operational efficiencies with new information technology that we successfully deployed during the second quarter. While the completion of large projects with several customers and other factors impacted our second quarter revenue growth, we added to our book of business with important new client relationships established in the quarter and grew our pipeline of new opportunities as we look ahead to the second half of fiscal 2017. Based on our steady progress, I remain highly confident in our ability to return Volt to sustainable profitable growth. Turning to our results in more detail, total revenues of $303 million declined 9.7% compared with the second quarter last year. On a same-store basis, excluding the impact from fluctuations in foreign currency exchange rate and businesses exited or divested over the prior 12 months, year-over-year revenues declined by 5.6%. However, within the business segments, our International Staffing segment grew nearly 1% year-over-year after adjusting for FX and businesses sold or exited. And our Technology Outsourcing Services and Solutions segment was down only 1.9%. For the first six months of fiscal 2017, same-store revenues are down only 3.8%, a significant improvement compared with the 11.2% year-over-year decline we experienced during the first six months last year. With almost all business turnaround, progress is nonlinear. While Volt was fortunate to generate five consecutive quarters of bending the revenue curve, our second quarter results are evidence of this not unexpected choppiness. As I’ll discuss in more detail in a moment, during the second quarter we completed the launch of an enterprise-wide information technology platform, a significant undertaking that involved nearly all growth functional areas and levels of management. Although it is difficult to quantify, I believe this major and critical IT deployment diverted our operational focus and impacted our second quarter. In addition, our second quarter results also highlighted aspects of our North American staffing operations that I believe will require a change. Effective today, Jorge Perez has resigned his position as President of Volt Workforce Solutions. We have commenced a search for his permanent replacement, and I will be assuming his role on an interim basis. With much of our corporate foundational work complete, turning my focus to our largest business that is most critical to our turnaround will be an excellent use of my time and energy and I believe will help expedite the pace of Volt's operational progress. With that, I'd now like to move on to an overview of the financial and operational highlights from this past quarter. During the second quarter, we achieved a number of important milestones, particularly with respect to streamlining our operations and strengthening our balance sheet. As you know, over the past two years, the current management team has showed both liquidity position and improved our focus on our core staffing business due in part to the divestiture of non-core legacy assets and monetization of non-strategic, company-owned real estate. Heading into the second quarter, Volt's lone remaining non-core business was Maintech, our information technology infrastructure services business. As previously announced during the second quarter, we completed the sale of this business in an all-cash transaction for an aggregate purchase price of $18.3 million with net proceeds of approximately $13.1 million. Also during the second quarter, the IRS approved our amended federal tax returns for our fiscal years 2004 through 2010 resulting in a cash income tax refund of $13.8 million, which we received in March. The remaining receivable balance of approximately $3 million primarily related to state refunds is expected to be received sometime over the next several quarters. Next, I'd like to highlight progress on our ongoing efforts to improve Volt's competitive position, operational efficiency, and cost structure. As I noted earlier, I'm pleased to report that we successfully deployed and have gone live with new information technology. The deployment is a testament to the incredible work and execution by our cross functional team that included representation from all corporate and business unit areas. The deployment was enterprise-wide and included all North American systems and hardware. This new technology includes the complete back-office financial suite as well as front end of the business IT tools that are critical to our success and offer more functionality at a lower cost to the company. This deployment will reduce complexity, automate, and address manual and redundant processes, improve our time-to-market, and enhance our competitiveness in sales delivery to support Volt's future growth. Along with the improved functionality, we expect this project will yield additional annual cost savings of approximately $5 million to $7 million to be realized partially this year and more fully in 2018. In addition, I'd also like to highlight our improving gross margin. Second quarter gross margin of 15.6% was up 30 basis points compared to the second quarter last year and up in every segment. In fact, this is the third quarter in a row that we generated year-over-year increase in gross margins. With the foundation of our turnaround in place, our fundamental objective for the remainder of fiscal 2017 is improving the topline. As I stated, the key to driving revenue growth will come from a combination of a greater expansion of existing customers’ business coupled with the addition of more new customer engagements. Currently, while decline still outpace areas of growth, we continue seeing progress on improving Volt. We again this quarter generated solid new customer engagements. Within our traditional staffing operations, our pipeline of new business has grown for the last 10 consecutive months. And with respect to converting this pipeline to firm business, we continue to win significant new clients and grow some key existing ones. For example, during the second quarter we won a contract to provide light industrial positions with the world leading provider for advanced and precise filtration solutions that we estimate will generate about $5 million annually. We also signed a significant contract with a regional financial services company with hundreds of offices in the Western United States. We are supporting them with IT and administrative positions that are expected to drive a couple of million as annual revenue. Furthermore, we expanded our relationship with a large business in marketing and technology services consulting company to provide them marketing staff that will generate an additional $10 million to $30 million of annual revenue. We also expanded our relationship with a global engineering, repair and logistics company to provide them with light industrial positions generating an estimated $10 million of additional annual revenue. While these are some of the key recent highlights, in total we signed five new customers and expanded six existing customers each with an annual revenue in the millions of dollars during the quarter alone. In fact in our North American Staffing segment, revenues from our light industrial engagement which represents more than half of that segment had healthy year-over-year revenue growth this quarter driven by both new and existing customers. However, this growth is more than offset by decline in our IT and engineering engagements. In these areas revenue from lost customers outstripped revenue from new customers and revenue declines outpaced revenue growth from existing customers. This underscores our focused efforts for the second half of fiscal 2017 to further address the need for stronger new sales generation and improved client relationship effort. We will continue to expand the efforts we initiated last year with an ongoing focus on a pay-for-performance culture by aligning incentive structure with companywide strategy and metrics. In summary while we have more work ahead of us we made good headway during the second quarter in advancing our plan to improve Volt's financial and operational performance. I remain confident that we will successfully meet the challenges ahead. I look forward to continuing to execute our strategy returning the company to profitable growth and driving significantly enhanced value for all our stakeholders. With that, I'd now like to turn the call over to Paul to discuss our second quarter financial results in more detail. Paul?

[Paul Tomkins:]

Thank you, Michael. Good morning. Today, I will provide additional details on our second quarter financial results as well as discuss our balance sheet and liquidity position. As Michael indicated, the second quarter was a productive quarter for Volt as we completed the sale of Maintech and received the IRS refund, both of which were important initiatives that substantially improved our overall liquidity position. With the launch of the IT upgrade this quarter, the all encompassing effort of the company will yield meaningful benefits in both operations and finance in future quarters as we incorporate the new functionality into our processes. Turning now to our second quarter performance, our revenue in the second quarter was $303 million lower by $32.6 million or 9.7% on a year-over-year basis. Excluding the impact of non-core businesses sold or shutdown during the past year as well as normalizing for the impact of foreign exchange, the year-over-year revenue decline would have been 5.6% on a same-store basis. Turning now to our revenues by segment, revenue for the North American Staffing segment, which provides a broad spectrum of contingent staffing, direct placement, recruitment process outsourcing and other employment services was $233.8 million down 6.8% on a year-over-year basis, primarily driven by a $12.6 million decrease in contract revenue and a $4.2 million decrease in subcontractor revenue. Revenue was primarily impacted by a lower demand from customers in our professional job families during the quarter including IT and engineering job categories. As Michael indicated, our light industrial job categories had slight year-over-year growth. However, our professional business continues to show attrition. We remain firmly dedicated to our turnaround efforts in the North American Staffing segment which had a slight improvement from a decline of 7.9% in the second quarter last year. As we go forward, we will have increased focus on improving topline performance in this segment. Revenue for International Staffing segment which includes the company’s contingent staffing, direct placement and managed program businesses in Europe and Asia was $30.2 million in the second quarter, down 9.1% from a year ago. The year-over-year decline was primarily driven by the impact of foreign exchange rate fluctuations of $3.3 million. Excluding this impact, on an operational basis, international revenues actually increased 0.9% 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 $24.5 million in the second quarter down 1.9% year-over-year as a result of lower volume from our quality assurance services partially offset by an increase in customer care services. And finally, looking at our corporate and other businesses which are primarily comprised of BCG, our North American managed service programs business and Maintech which we just sold in March. Revenues were $16 million in the second quarter down 45.8% versus last year. The year-over-year revenue decline was primarily driven by the impact from the sale of Maintech which occurred in the second quarter. Excluding businesses sold or exited including Maintech, the year-over-year revenue decline in the corporate and other category would have been 15.4% on a same-store basis. Turning to our total company profitability for the quarter, net loss in the second quarter of 2017 was $0.9 million compared to a loss of $1.8 million in the second quarter last year. This included restructuring and severance costs of $0.2 million and impairment charges of $0.3 million. This was offset by the amortization on the gain on the sale of Orange of $0.5 million, the release of a $1.3million discrete cash reserve that was related to the IRS approval of our amended federal tax returns and a gain of $3.9 million related to the sale of Maintech. Excluding the impact of these special items, net loss for the second quarter would have been $6.1 million on a non-GAAP basis. Adjusted EBITDA as highlighted in our earnings press release was a loss of $1.9 million in the second quarter of fiscal 2017 compared to earnings of $2 million in the year ago period. Moving on to the profitability of our core segments, operating income in our North American Staffing segment was $3.1 million in the second quarter of this year compared to $6 million a year ago which we expect to improve upon going forward through a combination of topline growth and further cost discipline. This will be a major focus for Volt in the second half of fiscal 2017. Looking at the other segments, Technology Outsourcing Services and Solutions business generated operating income of $1.1 million while our International Staffing segment generated operating income of $0.5 million. Overall gross margin percentage during the second quarter was 15.6%, a 30 basis point increase year-over-year primarily due to the sale of our non-core businesses that carried lower gross margins than our core staffing business. Excluding the businesses sold or exited gross margin in the second quarter of this year increased 10 basis points compared to 15.5% in the prior year period on an apples-to-apples basis. Selling, administrative and other operating costs in the second quarter increased $0.1 million or less than 1% versus last year. The year-over-year increase was primarily due to higher depreciation expense as well as IT support fees and software license fees related to the completion of the first phase of the upgrade of the back office financial suit and information technology tools. Selling, administrative and other operating costs were partially offset by the sale of Maintech which positively impacted SG&A by $1 million in the quarter. We incurred restructuring and severance costs of approximately about $2 million in the second quarter as a result of 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 in this fiscal year. Turning now to our balance sheet and liquidity position, our total debt balance at the end of the second quarter was $90 million down $7 million from the prior quarter and down $2 million from the second quarter last year. The reduction in debt was primarily due to specific pay downs on our securitization facility as a result of proceeds from the two liquidity events this quarter. As of the end of the second quarter we had a total of $55.9 million in global liquidity for working capital requirements. In fiscal 2017 in terms of managing our liquidity our top priorities remain consistent. We’re focused on ensuring there is adequate liquidity for working capital purposes to effectively manage our business on an ongoing basis as well as investing in the necessary tools and technology that are required to support our growth plan. The sale of Maintech and IRS refund are certainly positive sources of liquidity for Volt and have helped stabilize our liquidity position. As we’ve indicated in the past our minimum liquidity threshold of $25 million is a weekly test and must accommodate the weekly working capital fluctuations in cash that are typical in our business. In addition returning excess capital to shareholders remains a priority and will be an ongoing consideration by our Board. In closing, I'd like to thank the entire Volt team for their very hard work and commitment in many areas including the rigorous and at times very challenging IT upgrade process. We continue to invest in our future and towards returning Volt to profitable growth. Thank you for joining the call and at this time I'd like to open it up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Joe Gomes from William Smith. Please go ahead.

[Joe Gomes:]

Good morning guys.

[Michael Dean:]

Good morning Joe.

[Paul Tomkins:]

Good morning Joe.

[Joe Gomes:]

Just trying to wrap my arms a little bit better around the revenue decline, I mean typically the first quarter is the weakest of the year, and then we start to see some improvement, but even if I add back the revenue from Maintech, it was kind of similar sequentially to the first quarter revenue basis, but there were six additional working days in the quarter compared to last quarter. And just trying to get a better idea of understanding, you know how much of this is due to just contracts ending versus how much of this is versus the loss of business. Mike you talked about bending the revenue curve and we gotten so close down there you stated about the fourth quarter of last year. And then it seemed to have – now we seem to be going back in the wrong direction again in terms of getting actual revenue growth.

[Michael Dean:]

Okay Paul, I’ll take this one, so Joe there’s a lot of factors here and I think that couple things; one, as we’ve stated I think every quarter progress is nonlinear, it’s been sort of yearly linear to-date, but we didn’t bend the revenue curve quite as much this quarter but still a lot of progress that has happened in pretty much all areas of the company, so while it wasn’t growth yet I don't think we’re not overly concerned about it. And I think the second issue here is that there is a lot going on in terms of the topline of this company. I think as Paul noted a minute ago, international is growing if you consider, if you back out FX and same-store sales doing on a same-store sales basis. And VMC, which is our technology solutions business, which ended last year something like I think it was minus 22% growth. We just finished the quarter at 1.9% decline, and so that's turning really nicely. In our North American staffing which I think you were talking about, there is actually quite a bit of things that we’re happy about there. Our commercial business which is mostly our light industrial business, in North American staffing our light industrial business is more than half of the overall company's revenue, and that business is growing healthily. And so, really even in the North American staffing, it's really the IT and engineering piece that continues to be challenged and that we’re working on pretty significantly. And that is the engineering and IT business is going to hurt and particularly by the engineering piece because of our quite a bit of business in the aerospace industry which has just generally been hit pretty hard and generally I say that's hard because not only do we have a couple aerospace clients that really dropped their demand for all staffing services which hit us as well, but we have I think at least three large clients that are related to that engineering firm, those engineering firms, and so downstream those clients hurt us as well with the decreased demand. So, one area that was by far the biggest pain point there, but all other areas including the rest of North American staffing which is majority of light industrial has actually had healthy growth to itself. I think that we’re not at full growth yet across the top line, but I think we like the progress we’ve made in a number of the areas.

[Paul Tomkins:]

And the only thing I’d add to that Joe is the sale of Maintech was the factor that we only had - in the quarter we had one month compared to three months in the second quarter of last year.

[Joe Gomes:]

Right, I understand that. I mean Mike in part I hate to do this to you, but I have to ask this question. You guys have been there now for basically two years, over those two years I think you’ve done, made great progress in restructuring the sale of non-core assets. Again, as we just touched on the bending of the revenue curve has taken longer than we all expected I think, but you’ve gotten no credit for it. I’m looking at a chart here, the stock price basically has been cut in half or close to cut in half since you’ve took over as Interim Michael. And so it starts to beg the question how much longer before we look at other alternatives, like I said I think you guys have done a great job, but the stock just -- the market just has not given you any credit for it, and I know the whole – there's not a whole lot of people that follow you guys and the stock doesn’t trade -- historic has trade much, but is it time or getting close to that time where maybe we should start looking at other strategic options here?

[Michael Dean:]

Well I’ll start and Paul if you chime in that’s fine. So, I agree, I think everybody on this call is disappointed in the stock appreciation. We do our very best to direct shareholder value everywhere we can primarily through turning operations around, but that doesn't mean that we also consider all alternatives including M&A activity or all kinds of actions including whether or not the price is appropriate, whether we buy shares back whether we – if we ever get to the point of looking alternatives being sold, I mean these are things that our Board discusses regularly and certainly our does and we’re an active Board and we look at those. I think on a day to day basis though, Paul and I and the team here work hard at driving value everywhere we can.

[Paul Tomkins:]

Yes, and you know Joe, our goal right now is to we're trying to make a lot of change inside the business in many, many ways as you know and that's our first goal. Our first goal is to build this business, give it a great foundation and we think there's a lot of promise in this business and so we're - that's our goal is to drive profitable growth in this business and that’s our primary goal and to get the stock price up. We think that's sustainable. It doesn't mean we wouldn’t look at other alternatives, but that's our main trust.

[Joe Gomes:]

Okay, I appreciated the answer guys. Thank you very much.

[Michael Dean:]

Thanks Joe.

[Operator:]

Our next question is from Richard Whitman from Benchmark Capital. Please go ahead.

[Richard Whitman:]

Question about Jorge, I remember when he was hired it was with some excitement on management's part and now he hasn't been there that long and he's gone, could you flesh that out for us please?

[Michael Dean:]

Sure, well I think that over the last year a lot of great work has been done and VWS which is our North American Staffing business has made good strides and we've laid a lot of ground work. I think at this point in time we have an opportunity to, number one for me to step in and to help resource this area of the company now that we have done a lot of it sort of corporate foundational work at the company whether it's the debt restructuring or the asset sales or the hundred other things we've done at the sort of the corporate level. I think, I have - really good use of my time right now is to take our staffing segment toward growth and I think I had - I'm expected that pretty deep in really help to energize that effort there and I think we also have an opportunity to bring in somebody to, that has real strong growth background to take staffing business into the growth territory and we're looking forward to I think it's a good opportunity right now.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from David Neuhauser from Livermore Partners. Please go ahead.

[Michael Dean:]

Hi, David.

[Paul Tomkins:]

Hi, David.

[David Neuhauser:]

Hey, good morning guys. Most of my questions I think were also from shareholders and institutions were answered regarding Jorge as well as the revenue drop for the quarter. Where do you guys see yourself here on this turnaround? I mean you guys have been there. You’ve done some very good things in terms of stabilizing the business. I think the biggest question is on a go forward basis and we’ve already discussed this, can you see an increase in revenue or are you just cutting off the attrition and improving margins and then how that looks ultimately what is the strategic direction of the company, and look through see the growth avenue where you are going to have profitability and share price appreciation or is it a stabilization at this point and then look for sale of the company?

[Michael Dean:]

I’m going to answer that in reverse sort of if that's okay David. I think that our strategic direction is as Paul said just a second ago is to drive value and the first way to do that is to turn the operations around, which in turn whether or not you sell the company or you just get stock price appreciation both are better off if you turn the company around. And so, we're very focused strategically on just doing that. You know the last thing you'd want to do anyway is sell a company when it's not turned around yet because you're not going to get any kind of a price appreciation for it. And you won't get paid for the good work that's done you know. In order to - even if you were to sell this company you'd want to do it after you've had enough traction that it is it is going to get valued appropriately. So, we are right now very focused on continuing the turnaround so that you get that stock price appreciation and you get that shareholder value. In terms of the revenue, I think that where do we go from here is, like I said we're aiming for profitable growth. We’re not aiming just to stop the decline in lost customers that I talked about. And again if you think about what I always the way I think about is the leaky bucket. In terms of our top line, we have and we analyze this in pretty good detail and we are putting – continuing to put effort and action plans against each of the pieces of the leaky bucket. And how much attrition do you have? And we still have more attrition than I think we should, meaning and by attrition I mean it's a temporary business and we lose customers or customers shrink in terms of share or what have you, and I think the losses are split, the lost attrition still outweighs the new growth. That doesn't mean we don't have, we have actually a lot of new growth and in fact we measure that more and watch it very carefully. We were selling new client delivery and new clients. So obviously I think we need to bring in more new clients and grow our existing clients more and that's what we’re working pretty hard on with our client relationship management. But you're right David, I think it's not, if you slow the attrition and you lose less customers, it doesn't just get you flat that alone could get you to growth if we could do that really well. So we're actually pretty focused on how we can slow that attrition, how we can drive better client relationships where instead of projects rolling off and as they do in this business, we transition from rolling off to one to having that client love us enough and then we were smart enough to talk about their business, we can roll it into new projects. And I think that we still haven't hit our stride yet on and I think that's going to be one of the focuses. Actually there's really two focuses, one is to continue to try and increase the amount of new business that we get even though we have fairly healthy new growth I want to see that higher. And then particularly the second piece is our client relationships where we are sort of not just having a relationship, but we're selling that relationship where it work. Joint solutions with our clients to go get more business done instead of declines as things roll off, as projects roll off with a client, new ones will roll on and don’t think we're doing that well enough. We're going to focus on that. And that won't just get us to flat, if we do those two things well we should become a growth company.

[Paul Tomkins:]

Yes and David, I know I can speak for Michael as well on this, this quarter hasn't impacted our enthusiasm to turn this business around. And you know we know where the issues are and we're very focused on addressing them.

[David Neuhauser:]

Yes, I think the issue though is you pointed out earlier from one analyst is that there is no enthusiasm from shareholders. Right? There we’re seeing the stock price get cut in half as you have been turning the business around. I think the view or the goal is of course to show that growth and also show stock price appreciation. We have yet to see even with a stock price where it is and some new board members we get to see one insider step up meaningfully at all, by sure is if they truly believe in the turnaround. We have yet to see after all these asset sales, the company would be in a position to buy back their own shares. And I think until we see that and until we see some actual growth come out of this company, you’re going to be in trouble here from shareholders and I think you’re going to have more pressure from people like myself to continually look to drive shareholder equity value in the short run. So I'd like to see some more initiatives already management and board and doing things to stabilize the stock price until you get to the point where you can turn this into a growth vehicle.

[Paul Tomkins:]

I agree. So we are trying to turn into a growth we have discussed. Until then, I also agree that anything we can do to support the stock we should and are trying to. An example of that is that as discussed, last quarter and I think the quarter before it we finally made enough progress in the turnaround although we're not there yet by a fair amount. We definitely made good progress over the last year and a half and as such we think we have a good story to start telling the Street to start generating interest in the stock from new investment and as such, we have previously announced that we’ve launched an effort for Investor Relations to actually get out to the market. After subsequent to last earnings call, we presented at the ROTH Conference in March and had good attendance to not only our presentation, but had a full sort of dance card if you will of potential interest and invested a whole day's worth of meetings with potential investors. And we have a slate of upcoming conferences that we can talk about as well over the course of the rest of the year to, and potentially other activities that is going to help start reaching out to the market, so that I think in the past we have been fairly quiet on the market front and I think we’re ready to sort of do a full core press to help people start understanding our story, particularly in the new investment community.

[David Neuhauser:]

And when would be the timing that you would be in a position to start to buy shares back? I know your covenants don’t allow it, when you know this is a question for Paul, when are you expecting to see that be alleviated?

[Paul Tomkins:]

Yes, so as we've said David, I think we clearly think that that is, we have interest in doing that for sure, we understand that stock price is lower, it’s good, it’s a good level to do that for sure. We have to make sure as we have said before that we have got, it is going to be excess capital that we would use and right now we’re not quite at that point. We have, as you know what would happen, our facility currently allows a very small amount of buyback each quarter, but as soon as you do any kind of buyback activity, our minimum liquidity goes up to $35 million from $25 million to $35 million. So we would be effectively losing facility $10 million of capacity in our facility and buying back up to $0.5 million a quarter. And it is just we’re not at that point. We still have volatility each week as we have indicated, it’s not a straight line. So we had $55 million in liquidity at the end of the quarter, but that can vacillate $10 million to $15 million within a week as you know. And so, when we get to that point and we have $35 million as a minimum it just isn’t - we are not quite at a point where that we can consider that excess.

[David Neuhauser:]

Okay, I understand all that Paul. I think the key here is if the company is not yet in a position to do so and the management and board feels that the path forward is to achieve your goals, then we should see more from that avenue at this time until the company is in the position to do so. And if the company isn’t in a position to do so over the next few quarters, I think the board must take a very hard look at whether or not this company should be independent or not.

[Michael Dean:]

Okay.

[David Neuhauser:]

I'll leave it there guys. Thank you.

[Paul Tomkins:]

Great, thanks David.

[Michael Dean:]

Thanks David.

[Operator:]

Our next question is from Richard Whitman from Benchmark Capital. Please go ahead.

[Michael Dean:]

Hi, Richard.

[Richard Whitman:]

Hi, understanding the restrictions from the bank regarding the company buying back stock, there are no restrictions on management and/or board members buying stock and despite a dramatic decline in the price of the stock and despite your optimism about the future, not one insider has bought stock. That speaks volumes.

[Michael Dean:]

Well that, first of all that's not one, not recently, but every insider has both stock, not recently though you're right and currently I can - all I'm allowed to say is that I'm not allowed to right now nor is the board or management. Legally I'm not allowed to right now, so but you are right, every insider has bought stock, it's just not recently.

[Richard Whitman:]

That the last time I saw any insider activity it was options granted to the insiders not open market purchases.

[Michael Dean:]

No every single insider has bought open market as well at some point.

[Richard Whitman:]

At some point?

[Michael Dean:]

Yes and like I said, I'm not able to right now and I can speak for myself. I'd like to and when I am able to there is a possibility that we'll buy more. I believe that the value of the price of the stock right now does not fairly value. The work that we're doing in the value of this company, so I agree that it's undervalued and when I'm able to it is likely that I will buy more.

[Richard Whitman:]

Okay.

[Michael Dean:]

Thank you.

[Operator:]

Thank you. This concludes 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 everybody for your support and for joining us on today's call. Next month we will be for stating in Singular Research's Summer Solstice Conference in Boston. We hope to see many of you there. Otherwise we look forward to speaking with you when we report our third quarter results in September. Thank you very much.

[Operator:]

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