Volt Information Sciences, Inc.
Q1 2016 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

Greetings, and welcome to the Volt Information Sciences first quarter 2016 earnings conference call. [Operator Instructions] I would now turn the conference over to Mr. Lasse Glassen of Addo Communications. Thank you, Mr. Glassen. You may now begin.

[Lasse Glassen:]

Good afternoon, and thank you for joining us today for Volt Information Sciences fiscal 2016 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 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 release issued this afternoon, March 9, 2016. With that, it's now my pleasure to turn the call over to Volt's President and CEO, Michael Dean. Michael?

[Michael Dean:]

Thank you, Lasse. Good afternoon, and thank you for joining us today. I'll begin today's call with an overview of our results from this past quarter along with recent highlights, and the progress we're making towards our plan to improve Volt's financial and operational performance. Paul Tomkins, our CFO, will then discuss additional details about our first quarter financial results, balance sheet and capital allocation priority. A question-and-answer session will follow after our prepared remarks. First, let me start up by saying that Volt is already healthier than it was when the new Board and I embarked on our turnaround plan a few quarters ago. I remain optimistic that the hard work from our Board, management team and the entire staff will enable Volt to return to top and bottomline growth. Our fiscal first quarter results reflect our ongoing effort to stabilize the financial performance of Volt's core staffing business and solidify the company's book of business with key customers. After normalizing for seasonal factors during the first quarter, staffing revenue was down only slightly on a sequential quarter basis. In addition, we also saw the initial benefit to our cost structure from the workforce reduction we announced early in the quarter, with total selling, administrative and other operating cost declining 5% compared on a sequential quarter basis. While much of the first quarter benefit was offset by higher restructuring cost related to severance, we anticipate our cost reduction initiative will result in cost savings of approximately $10 million for the full year. And finally, as we continue to build the foundation for returning to a growth trajectory, we made significant progress on key initiatives aimed at divesting non-core assets, improving operational efficiency and improving our liquidity position. I'll discuss our efforts here in more detail in a moment. Looking at our first quarter results in more detail. Net revenue of $326.8 million was down 10.2% compared to the prior quarter. Within our Staffing Services segment, revenue declined by about $34 million or 9.8% compared to the prior quarter, driven by continued lower demand from our customers in both our technical and non-technical administrative and light industrial skillset. For our other segment, we also had a $3.5 million sequential quarter decrease in revenue, mainly attributable to our sale of telecommunications infrastructure and services business in 2015. At the bottomline, we reported a net loss in the first quarter of $11 million or $0.53 per share compared with a net loss of $0.2 million or $0.01 per share in the previous quarter. Loss from continuing operations for the first quarter of 2016 was $11 million compared to income from continuing operations of $0.1 million in the immediately preceding quarter. It's important to remember that the first quarter is traditionally the least profitable quarter of the year, primarily related to seasonal factors associated with fewer work days that result in lower revenue to cover fixed cost, as well as a higher percentage of payroll taxes incurred in January as we begin the new calendar year. In fact, total payroll taxes increased $1.6 million in the first quarter of 2016 compared to the fourth quarter of 2015, despite having lower revenue and direct labor in the first quarter of 2016. Loss from continuing operations in the first quarter of 2016 included restructuring charges that reduced income by $2.8 million, which Paul will describe in more detail in a moment. Excluding the impact of these charges, loss from continuing operations for the first quarter of 2016 would have been $8.2 million or $0.39 per share on a non-GAAP basis. On recent earnings calls, I've outlined our detailed and time-sensitive plan aimed to get our business back on track and return Volt to profitable growth. Since the update I shared with you just eight weeks ago on our fourth quarter call back in mid-January, we've made meaningful progress. With respect to improving our balance sheet and simplifying our corporate structure, we continue to progress on a number of fronts. As part of our goal to simply our corporate structure and improve operational focus on our staffing business, we've made significant advancements in divesting non-core assets. As previously announced, during the first quarter we completed the sale of our Uruguayan staffing business. This, in addition to several non-core divestitures completed last year included the sale of substantially all of the assets of Volt Telecommunications Group in the fourth quarter of 2015. Prior to this, in the third quarter of 2015, we also sold our Uruguayan publishing and printing business. And early in 2015 we sold our computer systems business. While the considerations Volt received in the sale of each of these assets has been modest, these businesses have been a significant drag on our profitability, working capital and cash flow. In fact, the divestiture of these businesses is expected to eliminate approximately $3 million in operating loss in 2016. Volt's last remaining non-core business is Maintech, our information technology infrastructure services business, which is included in our other reporting segment. Maintech is an independent service organization or ISO, serving the global corporate IT marketplace with solid roster of multinational blue chip enterprise customer. Unlike our recent divestitures, Maintech has a strong track record of profitability. However, we've come to the conclusion that Maintech is not a strategic complement to our staffing operations. Similar to our previous asset sales, we are confident 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 better positioned to add value. I am pleased to report that the Maintech sale process generated significant interest from a number of parties. We intend to select one buyer and enter into an exclusive non-binding agreement in principal very soon. Although, we're not in a position to disclose interested parties or comment on expected proceeds from the sale at this time, the process is moving forward. In terms of our anticipated timetable, we remain on track to complete the transaction by the end of the second quarter of fiscal 2016 or some time in the third quarter. As we've discussed in prior calls, our objective to simplify our corporate structure and monetize assets also includes Volt-owned real estate, including our approximate of 191,000 square foot Class A office facility in Orange, California. After narrowing the field of potential buyers to two finalist earlier in the year, I am pleased to report that last week we closed the current transaction with Glassell Acquisitions Partners LLC for sale and long-term leaseback of the property. Glassell Acquisitions Partners is a limited liability company formed by Hines, a global real estate investment and management firm, and funds managed by Oaktree Capital Management L.P. Terms of the transaction included a $35.9 million purchase price and a concurrent leaseback agreement with an initial term of 15 years, plus multiple renewal options. After the repayment of mortgage indebtedness on the properties along with transaction-related expenses and fees, Volt received net cash proceeds of approximately $27.1 million for the sale of the property. The Orange facility will continue to house approximately 400 employees. While market conditions caused this transaction to take longer to complete than expected, we were able to gain a market-based price for this asset and couldn't be more pleased with the outcome. We look forward to partnering with our new landlord at the Orange facility as we go forward. In addition to the sale leaseback of the Orange, California property, this week we completed the sale of our approximate 19,000 square foot idle office facility located in San Diego to a private commercial real estate investor. There was no mortgage on the Sand Diego property and the total proceeds involve net of transaction-related expenses and fees of approximately $2 million. We've also made significant progress in rightsizing our administrative support function to better reflect our streamline business and singular focus on our core staffing operation. During the first quarter, we announced the implementation of cost reduction action as part of our overall initiative to improve efficiency, competitiveness and profitability. Now that we're seeing tangible results from our efforts to strengthen the company's foundation and improve our cost structure, our focus on topline growth becomes increasingly important. As we've noted before, improving revenue will take time to achieve, as new client engagements tend to start slowly and ramp overtime. However, we are making progress. Given the somewhat recurring nature of our revenue as well as the seasonality of our business, one of the ways in which we are looking to benchmark our efforts, to bend our revenue curve towards growth, is to look at sequential quarterly revenue adjusted for the difference in the number of work days. Normalizing for the 8% fewer total work days this quarter related to the holiday season, staffing revenue was down only about 2% versus the prior quarter, which may be early progress of some of our programs to stem our revenue decline. That said, turnarounds are often two steps forward and one step back. But I believe that returning Volt to growth is not a matter of if, but a matter of when. Not only we slowed a sequential quarterly revenue decline this quarter, but I am pleased to report several noteworthy new customers in the first quarter. These included, a leading national athletic apparel and accessories company engaged Volt mid-quarter to replace an incumbent vendor. We currently have 50 contractors on assignment and this account has significant potential for growth. We also won an important contract with an American automotive company, with approximately 200 contractors currently on assignment, which can generate approximately $9 million in annual revenue. And we were also selected by a leading healthcare insurer as primary supplier of IT contingent labor. We are one of four primary suppliers for this client, who has a projected IT contingent labor spend of $55 million per year. The good news is that these client wins come from a stable pipeline of potential revenue. However, we still have work to do to overcome our current pace of attrition in order to return to growth. Additionally, in an effort to drive revenue growth, we have developed and implemented in this quarter, a company-wide compensation strategy and plan that aligns our workforce to be fully accountable and pays for performance. Furthermore, in the first quarter, we have already met our fiscal 2016 yearend goal of growing our staffing sales force by 25% and we still plan to add more. Lastly, we have already and continue to bring in a significant number of world-class executives to fortifying already strong team, to make sure that we have the right talent in the right areas focused on the right thing. This contributes to an ever-growing culture of performance and believe in our success, as we will reward not just people, but whole team to drive our success together. In summary, during the first quarter, we made solid progress, advancing our plan to show up our financial and operational performance and return both to profitable growth. Based on our ongoing progress, I remain confident that our actions will lead to a significant improvement in our financial performance in the quarters and years ahead. Now, I'd 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. I will provide additional details on our first quarter financial results as well as discuss our balance sheet and liquidity position. Our revenue in the first quarter was $326.8 million, down $37.1 million or 10.2% on a sequential quarter basis. Revenues declined $56.2 million or 14.7% on a year-over-year basis, primarily attributable to the Staffing Services segment, where revenue decreased by $52.1 million or 14.5% from the same period last year. Although we are not happy with the year-over-year decline, total revenue was in line with our expectations for the first quarter. The Staffing Services segment revenue decline was driven by continued lower demand from our customers in both our technical and non-technical administrative and light industrial or A&I skillset and as well as a change in the overall mix from technical to A&I. In terms of customer demand, our softer sales this quarter were primarily a result of our customers in the manufacturing, oil and gas, and utilities industries, who continued to experience a slowdown due to macro factors. When compared with the fourth quarter, our first quarter revenues were also impacted by seasonality. As many of our customers close down for the Thanksgiving, Christmas and New Year's holidays, resulting in five less working days in the first quarter were 8% fewer work days than the prior quarter. In addition, certain calendar year project-related customer contracts expired at December 31 and are renewed and extended in February, after our first quarter end, negatively impacting our revenues in the first quarter. Furthermore, we also had a $3.5 million sequential quarter decrease in the other segment revenue. This decrease was mainly attributable to the sale of our telecommunications infrastructure and services business in 2015, and to a lesser extent Maintech, our information technology infrastructure services business, which experienced lower volume from one of our aeronautical defense contractor customers as a result of decreased federal funding. As I mentioned on our last earnings call, in the first half of fiscal 2015, our Staffing Services segment experienced a significant drop in revenue with several of our large customers. Due to the recurring nature of our revenue, this decline continued to impact our year-over-year comparisons in subsequent quarters, including the first quarter of 2016. As Michael noted in his remarks, we believe we are making progress in stabilizing our revenue base and winning new business. This coupled with our ongoing efforts to strengthen our customer relationship and enhance our sales team should produce tangible results overtime. That being said, I want to make it clear that resuming to a growth trajectory is a goal that will take time to achieve. Loss from continuing operations in the first quarter of 2016 was $11 million compared to income of $0.1 million in the fourth quarter and a loss of $8.8 million in the first quarter last year. Loss from continuing operations in the first quarter of 2016 included restructuring charges of $2.8 million. Excluding the impact of this special item, loss from continuing operations in the first quarter would have been $8.2 million on a non-GAAP basis. Adjusted EBITDA, as highlighted in our earnings press release, was a loss of $5.3 million in the first quarter of fiscal 2016 compared to income of $5.3 million in the fourth quarter of fiscal 2015 and a loss of $3.5 million in the first quarter of last year. Moving on to our core Staffing Services segment results. Operating income for the first quarter of 2016 was $1.7 million compared to $10.4 million in the fourth quarter of 2015, and $3.6 million in the year-ago period on a consistent basis. Staffing Services segment operating income in the first quarter of 2016 included $1.5 million of special item related to restructuring costs. Excluding the impact of the special item, Staffing Services segment operating income would have been $3.2 million on a non-GAAP basis. Staffing Services segment direct margin percentage during the first quarter was 14.4%. On a year-over-year basis Staffing Services direct margin increased slightly, up 20 basis points as compared with direct margin percentage of 14.2% in the first quarter last year, primarily due to improvements in our traditional staffing and project-based staffing businesses. The Staffing Services segment's selling, administrative and other operating cost in the first quarter decreased $2.3 million or 5.3% compared to the prior quarter. On a year-over-year basis, selling, administrative and operating cost decreased $6.4 million or 13.4%. The year-over-year decline was primarily due to lower headcount resulting from our overall cost reduction plan as well as the impact of the sale of our Uruguayan staffing business during the first quarter. Staffing Services segment's selling, administrative and other operating costs were 13.4% of staffing revenue in the first quarter this year versus 12.7% in the fourth quarter of 2015 and 13.2% in the same period a year ago. As previously announced, during the first quarter we implemented a cost reduction plan, as part of this we incurred first quarter restructuring charges of approximately $2.8 million related to severance, facility consolidation and lease termination costs. Our restructuring effort during the quarter will contribute to a significant portion of the $10 million in annual cost savings expected from our cost reduction plan. Turning now to the balance sheet and liquidity position. Our total debt balance at the end of the first quarter was $107 million, consistent with the $107.3 million at the end of the prior quarter and down from $123 million in the first quarter last year. Subsequent to the end of the quarter, we entered into a $10 million short-term credit facility with Bank of America, which supplemented our existing financing program and provided additional liquidity for working capital and general corporate purposes. As this facility is collateralized by Maintech assets, we expect to terminate this credit facility on or before the sale of Maintech. In conjunction with previously announced plan, subsequent to the quarter end, we completed a sale and leaseback transaction of our office properties in Orange, California and the outright sale of our San Diego, California office facility. After the repayment of mortgage indebtedness on our Orange property, along with transaction-related expenses and fees, we received net cash proceeds of approximately $27 million and $2 million from the sale of the Orange and San Diego properties, respectively. Primarily, as a result of the property sales, our liquidity has further improved to $60.4 million as of March 4. This has nearly doubled from our available liquidity at the same time last year. As Michael noted, we are also making substantial progress with respect to the sale of Maintech, which is on track to be completed by the end of the second quarter of fiscal 2016 or some time in the third quarter. In addition, we have significant tax benefits, including recoverable tax receivables of $16 million, which although the timing is dependent on the IRS, we expect to collect this within the next four to six months. We also have federal net operating loss carryforwards, which are fully reserved with a valuation allowance of $133.6 million, capital loss carryforwards of $82.3 million and federal tax credit of $41.3 million, which we'll be able utilize when our profitability improves. Our capital allocation priorities remain consistent. As we solidify our liquidity position, our top priority is to ensure that there is adequate liquidity for working capital purposes to effectively manage our business. Our next priority is to invest in growth of the business, including tools and advanced technologies to support our staffing business. Our strategy also includes returning excess capital to shareholders. As we continue to execute our plan and upon the completing of the sale of Maintech, we anticipate we will have an opportunity to repurchase shares. We also have been and will continue to de-risk the business by deleveraging our balance sheet. In closing, I continue to be encouraged by the ongoing efforts that build on the foundational strength of our business. I agree with Michael, that the company is healthier than it was a year ago. The sale of our real estate assets and the progress we've made on the sale of Maintech are significant milestones toward our goal of improving our liquidity position. We are also making progress on simplifying our corporate structure and improving operational focus on our core staffing business. While we're making significant headway on these fronts, we still have a lot of work to do. We continue to focus on reducing cost and improving operational efficiencies, and importantly we are making progress in stabilizing our revenue base with a longer-term goal of resuming to a growth trajectory. We are confident that the combination of these efforts should produce tangible results over time. And I look forward to updating you on our progress in coming quarters. That concludes our prepared remarks. Thank you for your attention. And at this time, I'd like to open the call up to questions. Operator?

[Operator:]

[Operator Instructions] And our first question is from Joe Gomes of William Smith.

[Joe Gomes:]

Just on the staffing operating margin. Was that also in line with what you guys were internally projecting, because I know you said the revenues were in line? I'm just wondering about the staffing margins.

[Paul Tomkins:]

Yes, the answer is yes. On the staffing side, they were within our expectations.

[Joe Gomes:]

And congratulations big time on some of the new customers that you spoke about, hopefully, again, for saying these are the early days of seeing this growth improvement here. Are those contracts, would you say the margins in them, are they kind of above or below or are they same as your typical companywide average in the staffing business?

[Paul Tomkins:]

They are pretty much in line. Joe, as we've indicated before. We are focusing on every single contract that we sign, in terms of getting the best margin we possibly can. And these contracts pretty much fall within the area of the overall average.

[Michael Dean:]

One other thing, Joe, is that as we stated before, increasing margin takes a while given the recurring nature of a lot of our revenue. And so as we replace revenue over time, it gives us an opportunity to increase margins. But it does take time as we do that.

[Joe Gomes:]

And again, it was nice to hear you talk about, on the sequentially quarterly revenue run rate here. I know you've normalized for the 8% less days. The staffing revenues were only down 2% in the first quarter versus the fourth quarter. I was wondering, have you done that same analysis going back for some of the other quarters? Is there a, kind of, a little chart, so to speak, that we can see this number improving quarter-over-quarter or sequentially over the past, say, a year of so?

[Michael Dean:]

We don't have a chart prepared, but we've done that analysis and we're happy to share with you the number of days by quarter. And it's fairly simple math. I'll tell you that, as we discussed in prior quarters, there was a pretty significant drop in revenue in the early part of last fiscal year. And since we're comparing year-over-years, we even noticed that this quarter was also going to be a tough comparison versus last year. But over the last couple of quarters, there has been similar sort of results, not as good as 2%, but it's been less sequential decline over the last couple of quarters than the year-over-year comparisons show. And I can happily give you the number of work days offline by quarter or anybody else who needs those, we can --

[Joe Gomes:]

I apologize for my poorly worded question, but you answered what I was looking for is how was that improving here, are we seeing some of that improvement sequentially, and you answered that and I appreciate that. And last one for me here, the sales force improved, increased in staffing, up 25%. You said, in the first quarter you already met your goals for the year. Just wondering kind of you might give us a little more color or detail on where you're getting the sales people from? How are you attracting them to Volt? What's the sales pitch to the sales people?

[Michael Dean:]

Well, come be part of the success story, I guess. I think we're in the people business anyway and we recruit all kinds of talent from all over the globe. So the good news is its right in our bailiwick, right. Our wheelhouse is actually bringing good quality people on, not only for our clients, but for ourselves. And so no surprise, we're able to find and build and that's why we're able to do it so quickly, a good team of strong recruits. There are levels, and a lot of them are junior levels, so it will take time to ramp up their productivity and everything else, but we were able to do it quickly because we're actually in the business of doing that and we're pretty good at, especially I've said it before on the recruiting side, that's one of our better talent.

[Operator:]

The next question is from David Neuhauser of Livermore Partners.

[David Neuhauser:]

I know we'll talk tomorrow, so I didn't want to go into too much detail. But it looks like you obviously are following through on some of the initiatives that you laid out. Obviously, you realize that this quarter was going to be the most challenging, as I think you guys previously described. Now that that quarter is done and you're in the next, how are you looking at things? Are you starting to see sort of the [ph] darker line for you as you tend to build some momentum here?

[Michael Dean:]

I think I had stated in my prepared remarks, it's two step forward and one step back often and these kinds of things. And we're seeing -- its choppy waters. We make progress on something and then the other thing pops up, but as we continue to do all the right things, you start getting critical mass, and I think we're starting to get to that point. Our success is froth with all kinds of ongoing things that we thought to improve, but yes, I think we're starting to get make enough progress on all three of our pillars that I laid out in prior calls, we're pretty far along on pillar one of stabilizing our balance sheet and then creating a good strong foundation for the company to then do some of this other good work. We're pretty far along on that, as evidenced by some of the progress we've talked about, selling real estate, et cetera. Second pillar of increasing margins, Paul talked a bit about it in the prepared remarks. And we've done pretty good progress already in relieving some margin pressure by doing some cost reduction and investment in IT and other process. Reorganization is going to provide some small amount of margin improvement, upwards of $20 million on a run rate over time. And which is getting us to the point of pillar three, which is, I've already said the harder point, which is really growing the topline and we're doing a significant number of things to that effect on whether its sales people, whether its compensation programs, whether its bringing in talent and putting people the right places, there's literally hundreds things we're doing there. And I think we're getting some critical mass on it. I will caution that the early success is not indicative of great success, and I think we're going in the right direction and we'll see in coming quarters how much more we can do, but I think at least we're encouraged by what we've seen so far.

[David Neuhauser:]

I don't think anyone is placing in a great success here yet, Michael, so I wouldn't worry about that. I think the key is, like you touched on stabilization, strengthening the balance sheet, putting the tools in place, and then what I think a lot of people are waiting on is to see if some of those things can actually start to manifest and where you actually start to win client and grow revenue, or worst case, be able to stabilize the attrition. And if you're able to do that, further laid out your cost reduction initiative, you can obviously see the building blocks to have a pretty, I don't want to use the work robust yet, but I would say a robust run rate at a go forward basis, even though again this will take some time.

[Michael Dean:]

I agree. You're right, the revenue is effect of two things, its slowing attrition and increasing the client wins. And we made progress on both, not enough. But in this quarter we had some good client wins that we've outlined and there is more that we didn't outlined. And we continue to have too much attrition, but less so than in some of the prior quarters, and that's where you start.

[Paul Tomkins:]

I'll point out, David, also that if you know as I indicated we weren't happy with the year-over-year reduction in revenue for sure, it was within our expectations for this quarter.

[David Neuhauser:]

But in terms of returning capital and further strengthening the business at this point, I know you touched on when you expect that your -- it looks like you're going to be under contract with Maintech and have a close, and are working on some other things to bring in further capital. You see the share price, of course, at this point. I know most investors on this call are focused on it. And in the past call you described the fact that you feel it's very undervalued. And I know management went out, of course, in the board and bought some shares, but we also know that that's not going to truly move the needle here. So on one hand we're going to need to see obviously the business operate it on itself and the valuations have it own merits, but as we talk about returning that capital and kind of stabilizing the equity and returning capital, I mean, are you still focused on that and if so what type of timeline are you envisioning that?

[Paul Tomkins:]

As we've stated before, based on the valuations today, we do think it is a good investment and clearly buying back shares is in our capital allocation strategy. Once we have the capital to do so and we'll have the opportunity to do so after the Maintech sale. We're looking forward to that.

[Operator:]

Our next question is from Ross Taylor of Somerset Capital.

[Ross Taylor:]

On your comments about that you're getting to critical mass, you announced the number of new wins and the like. Should we see in the next quarter or two particularly going against what were really some pretty significant drop, some pretty poor operating topline quarters, so over the last year, should we see the topline actually stabilize almost no matter what, I mean not almost no matter what you do, because obviously things can go wrong, but given the steps you've taken, it would seem to me that you should have pretty much reached a kind of crushed up there and you should be able to get that flat lining year-over-year?

[Michael Dean:]

So I think the answer is that we don't know. And I'm not trying to be coy, we really don't know. I mean, at the point we're at in the turnaround, every quarter is sort of a unique animal. And like I said, we're doing the right things and it's starting to have some progress. But there is still attrition. We have a lot of clients, I mean, you never can sort of pick where that attrition is going to come and when. And we're doing many things on the client front to stabilize that attrition. But all it takes is a couple more or a couple less and it really can change a quarter. And so we're not at the point where we're giving guidance on the revenue line in future quarters, and mostly in part, because we can't give that guidance. Its still choppy enough waters that we like to believe we're seeing some progress, but we're far from being confident in it yet.

[Ross Taylor:]

And that lack of confidence from your statement you just made basically goes both ways, because obviously while you're not confident that you can hold the line, you're also not confident that you can't start to show tangible improvement on the topline in the near future as well?

[Michael Dean:]

Absolutely, true. That's correct.

[Ross Taylor:]

Also, at the end of the quarter, what was the cash on the balance sheet or what is it now after the closure of the real estate deal?

[Paul Tomkins:]

So Ross, as of Friday, March 4, we had a little north of $60 million in overall availability, so not cash, but a combination of cash and availability.

[Ross Taylor:]

But what I'm looking is just the cash. I'm trying get an idea on the cash number, because I want look back because I assume you had about an $8 million mortgage, you had $107 million in debt, so I would assume that you're now down to around, what, $99 million in debt?

[Paul Tomkins:]

Yes. So we have debt. At the end of the quarter is a little bit different. We still have the mortgage in there of $7 million right from Orange. So taking that out, we had $100 million in the PNC facility at the end of the quarter. And subsequent to the quarter, we've disclosed couple of other events. One, we sold Orange and we paid the mortgage off. And also we had a new Bank of America facility, which is really just a proactive move to ensure we had insurance in terms of liquidity during the period before Orange. So that has a minimum of $2 million outstanding. So at that point, it's a [ph] $110 million.

[Ross Taylor:]

And then last, prior quarter you had about what $10 million in cash on the balance sheet?

[Paul Tomkins:]

Yes.

[Ross Taylor:]

Did you burn cash during the quarter?

[Paul Tomkins:]

No, we didn't. At the end of the quarter, it was $16 million in cash.

[Ross Taylor:]

It was $16 million in cash. And then, so if we look at this and we figure that you basically then netted out. So basically right now we should see with about $45 million, $46 million in cash on the balance sheet adjusted?

[Paul Tomkins:]

Yes. It's a little bit less than that, right, because we took some actions subsequent to the quarter and also subsequent to the Orange sale, which we paid down $10 million of debt on the PNC facility, and so effectively that took $10 million of cash.

[Michael Dean:]

It's worth noting the cash didn't leave the company. For the time being, our global liquidity didn't change. We just moved some of the cash for the time being into reducing our interest rate that we're paying on the debt facility.

[Paul Tomkins:]

The debt on the balance sheet, so we can always access in the end.

[Ross Taylor:]

What I'm trying to get at and it's a little hard, because I haven't seen a Q yet is, in fact, what is the level of debt you feel this company should carry? My assumption is that when you guys get all said and done with the tax rebate, with the sale of the real estate, with the sale on Maintech, we should be looking at something that generates in net-net, you could see it generating $75 million to $90 million and all told on the cash side net of the pay down of the mortgage. You have roughly $100 million in debt. Obviously, it makes no sense to be debt free. But when you're looking at this and debt is a competitor for return of capital to shareholders. And to me, unfortunately, my experience says that basically you get about $0.10 to $0.20 on $1, for every dollar of debt you pay down. So from an investor standpoint, it's not a very effective use of capital, but I can understand what a nervous Board might feel a lot better paying down debt than they would be buying back stock. I'm trying to get at what level of -- if we achieve all these steps, if you sale Maintech and you get something in the neighborhood of what I think is worth, if you get the tax-free fund, which you're saying you should get in four to six months, you're going to be sitting with a lot of cash on balance sheet. Some of that's going to go to pay down debt, some is going to go to fund your expansion strategy, but the bulk of it's going to be sitting on the balance sheet. And therefore, the question really is how much -- do you pay down $20 in debt or would you be comfortable carrying $80 million? Do you feel you need to pay down more than that in debt?

[Paul Tomkins:]

I mean, we have a plan. We really don't give guidance on what our debt levels are. But we're actually thinking that in our capital allocation plan, we're going to delever the balance sheet. So we're clearly planning on paying down some additional debt. We are reinvesting in the business. We have the IT infrastructure program, which you know about, we talked about, which is upgrading our systems from front to back. And we're also looking for the opportunity to buyback shares.

[Michael Dean:]

I'll add to that. To be specific, there is a lot of ifs there, but if we get to that point, we have that much cash on our balance sheet, we are looking forward to be buying back shares. That is clearly -- we're not going to pay down debt and not consider share buybacks. We do believe that the stock price is low. We do believe it's undervalued. We would like to delever, we think it's prudent. But if we get to the point that you're talking about, there's a lot of things that has to happen. And we'll see when we get to that point, the actual split between all of our capital allocation priorities, but there will be lots of opportunities to buyback shares at that point.

[Ross Taylor:]

And then, when you do buyback shares, and we've had this conversation. I think the only viable way for a number of reasons, both technical and quite oftenly from a street spread standpoint, the only viable way for this company to buyback stock after that fiasco over the last buyback, which was started up and then stopped is to engaging a Dutch auction and to take the shares out and honestly let those who want out of this name, if they still want to get out, and let those of us who believe in the story long run, increase our ownership interest through the process of doing that. I think that there is tremendous argument in favor of that. And given a lot of other technical factors, there're not many arguments in favor of our traditional buyback plan. And obviously, I think that given what you're talking about happening, this is a sooner rather than later, this is a 2016 out of 2017 type of situation. And it could even be a midyear 2016 type situation we're talking about, because of the timeline you've alluded to, although not laid out.

[Michael Dean:]

Okay, understood.

[Ross Taylor:]

Okay.

[Michael Dean:]

No, but we're not committing to any program that we haven't committed to yet. But that's certainly -- we've heard you, and it's certainly will be one of the options that we consider all the way to Board levels.

[Ross Taylor:]

I just don't think -- I mean the stock doesn't have the liquidity that really predicatively bears a traditional buyback. And I think that the stock is significantly undervalued. As David said, no one is pricing in much of anything here. In fact, you could make an argument, they're not even pricing in viability at this current price, given the ability to generate cash from the other assets, and the like there's really the market is giving very little credibility to the company, to its management team. The stock is down 20% from where it was 12 or 14, 15 months ago after you guys came on. It might have been ahead of itself then, but you've accomplished a tremendous amount. And it seems logical to be aggressive when you can to take advantage of the market dislocation.

[Michael Dean:]

Okay, agreed.

[Operator:]

The next question is from Mike Boroughs of Fortis Capital.

[Mike Boroughs:]

Can you just comment on the overhead side? As you think about the business run rating $1.2 billion, $1.3 billion, if we're still sitting here at $20 million of overhead a couple of percent margin before that, just wondering how we should be thinking about it going forward? I know, we've been told for a long time by most of the management team that that number should come down. And I like your take on how that should come down or is it that part of the $10 million that you guys are referencing compared to the cost savings this year?

[Paul Tomkins:]

Mike, so that is part of it. Clearly, the common support functions for the business are part of that activity on the restructuring side. And so over time, you will see that come down. One of the things that we're focused on is the total incurred cost we have this quarter. In 2016, we a made in change in the amount of allocations that we send out to the business units, and the reason we did that was we found that there were cost being allocated out to the businesses, and we've disclosed this. And they couldn't actually influence that cost. And so it didn't make sense to drive it out, we're driving out cost that they actually can influence and can reduce. And then we're setting very tough target on our corporate center as well. So you will see that come down over time.

[Michael Dean:]

Mike, some of it came down this quarter, but it wasn't a full quarter of reduction, so you'll see a higher level in following quarters.

[Mike Boroughs:]

So we should expect corporate to be a bit higher from now on, just because of the way that you're allocating some of the cost?

[Michael Dean:]

Correct. Those were part of the targets for cost reductions. So it's sort of the allocations will drive them up, but total cost of the company will be going down as we've already started.

[Paul Tomkins:]

And Mike, we also restated prior periods, so this is consistent. So if you look on a period-over-period basis, year-over-year even just in the Staffing Services business, it was down $6.4 million on a year-over-year basis.

[Mike Boroughs:]

And then just on the staffing, the hiring of the 25% or whatever percent it was that you guys had already done, I think when sometimes when we hear this, the first thing we think is additional cost and revenue isn't growing, I know that they're there. But how do you juggle cost of all these people versus actually -- there isn't candidly a lot of operating income to go around, but how do you juggle that I guess internally?

[Michael Dean:]

No, it's an important thing, and part of our efforts when we see it, we're not just reducing cost, we're restructuring, we talk about all the time. And it's moving people under places that have the most impactful revenue. So when we're doing all these cost reductions, when we talk about it, it is net of adding cost too. We're adding a lot of staff in a lot of places, but we're trying to focus more people on driving revenue growth that in sort of shared services functions or sort of non-topline driving, right. And so when we add this additional 25%, the savings that we're talking about is net of that. Second of all those are the sort of the best kind of people to add in this kind of a business for a couple of reasons; one, that they're driving revenue; two, they're the kind of people that you have sort of lower fixed cost and higher commissions based, so the only cost, when they're actually driving revenue, so they only cost a lot. And we want paper performance model, and they fit perfectly in that.

[Operator:]

We have no further questions at this time. I would like to turn the conference back over to management for any closing comments. End of Q&A

[Michael Dean:]

Thank you, operator, appreciate it. Again, I'll just state that this quarter represents progress for us, and we were executing against the plan that we've laid out and talked to the investors about. And we are on track to do the things that we said we were going to do. We're executing against them and we're seeing a little bit of progress. And we hope in the coming quarters ahead we have continued discussions about the progress that continues to get made. So in the meantime, we thank everybody for their shareholdership and their interest in the company and we look forward to next quarter's call. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.