Volt Information Sciences, Inc.
Q2 2016 Earnings Call Transcript

Published: 9 Jun 2016

[Operator:]

Greetings, and welcome to the Volt Information Sciences, Inc. second quarter 2016 earnings conference call. At this time, all participants are in listen-only mode. And a question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Mr. Lasse Glassen. Thank you, Mr. Glassen, you may begin.

[Lasse Glassen:]

Good afternoon and thank you for joining us today for Volt Information Sciences fiscal 2016 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, 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 today’s future operating results and financial condition. Also on the call today, 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, June 8, 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 of 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 second quarter financial results, balance sheet and capital allocation priorities. A question-and-answer session will follow after our prepared remarks. Overall, it was a very productive quarter for Volt. During the quarter, we continued to make good progress on a previously stated finance, a straight line organization and improve our operation and financial performance. Today, the cost structure is minimum, we are significantly more focused on our core staffing businesses and a liquidity position continues to improve and we’re adding towards book a business with important new customer engagement. I’m now pleased to report that we continue to augment our already strong management team with the addition of several exceptional executives to head up our key leadership roles within the organization. Since embarking on our [indiscernible] last year, has maintained that it’ll take time to operation and address all of the issues we are dealing with. And even now were for the changes we are making to be reflective in our financial results. However, I can say with more confidence than ever that we remained on track to return in Volt to top and bottom line growth. Looking at our second quarter results in more detail, net revenue of $#335.4 million was up 2.6% compared to the prior quarter. Within our staffing services segment, revenue increased by about $8.5 million or 2.8% compared to the prior quarter, due primarily to an increase in work days in the second quarter compared to the first quarter, partially offset by lower demand from our customers in both our technical and non-technical administrative and light industrial skillsets. For our other segment, revenue increased slightly compared to the previous quarter. At the bottom line, we reported a net loss in the second quarter of $1.8 million or $0.09 per share compared with the loss with $11 million or $0.53 of share in the previous quarter. Net loss in the second quarter of 2016 included special items that increased income by $0.07 million which Paul will describe in more detail in a moment. Excluding the impact of these items, net loss for the second quarter of 2016 [indiscernible] $2.5 million or $0.12 per share on a non-GAAP basis. I’d now like to switch gears and provide an update on our previously stated plan, aimed to get our business back on track and return Volt to profitable growth. As you may recall, the foundation of this plan is built upon three key items that include balance sheet enhancements, cost structure and margin improvements and top line growth. With respect to balance sheet enhancements, I continue to be pleased with our ongoing progress. An important part of this objective has been the divestiture of non-core assets. The company has been quite active over the past year or so with the set up on Uruguayan staffing business, substantially all of the assets of Volt Telecommunications and Uruguayan publishing and printing business and our computer systems business. While the considerations 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. Volt’s remaining non-core business is Maintech, our information technology infrastructure services business which is included in our other reporting segment. 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 best positioned to create sustainable shareholder value. As we update on the Maintech sale process, diligence activities are proceeding forward. We initially stay active with a lead with strong strategic plans for the business. However, as a result of the slow progress, we continue to hold discussions with other finance and consider other bids in order to pull this transaction to a close. In terms of our anticipated timetable, as we are dealing with multiple dead ends advanced stages in the process, the time lines to complete this transaction could extend beyond the third quarter. As we reported on our last call, as a subsequent event, we also successfully monetize Volt-owned real estate assets during the second quarter, with the [indiscernible] transaction on our facility in Orange, California as well as the [indiscernible] store of our office facility in San Diego. We were then pleased to achieve the market-based products release real estate assets and the proceeds have further strengthened our liquidity position. In conjunction with our streamline business and singular focus on our staffing operations, we continue to make progress working to improve our margins. Due to headcount with actions during the first half of fiscal 2015, the implementation as other initiatives occur efficiencies and the sale of non-core business, we’ve significantly improved our cost structure. Total selling and administrative and other operating costs in second quarter are more than 14% lower on a year-over-year basis. On overall run rate for SG&A and other operating cost is approximately $18 million to $20 million or 8% less than it was a year ago. This is an ongoing process and we will continue to look for additional ways to improve our cost structure. A quality component of driving revenue growth is having the right talent in the right areas. I’m pleased to note that we continue to onboard world-class executives to fortify [indiscernible] strong team. I’d like to highlight several senior level hires that are important because their key executive charge with driving the future revenue growth. In April, Jorge Perez as President of Volt Workforce Solutions, and as well, Jorge is the top executive turning Volt’s North American Staffing business by building operational efficiencies, strengthening Volt services and relations with our enterprise customers, now driving revenue from new [indiscernible] acquisitions in key target markets. Jorge is a veteran staffing industry executive with more than 20 years of experience, leading successful business transformations resulting in significant top and bottom line growth. In support of Jorge, we have also brought Sue Tidswell on board in the units top revenue driving role of Senior Vice President Sales of Volt Workforce Solutions. Sue, with a long successful career building sales organizations in and out of the staffing business, will work with Jorge to drive our reinvestment in, and bring focus and discipline to our sales and client strategies which are essential to Volt’s top line growth. I’m also pleased to announce that Rhona Driggs has been promoted to President of Volt Consulting Group, Volt’s Managed Service Programs business, in addition to maintaining responsibilities as Executive Vice President, commercial operations, also known as A&I for Volt Workforce Solutions. Rhona’s career-long industry knowledge and experience, along with her ability to productively work across the various Volt businesses to drive results, makes her uniquely fit to drive growth once again in our MSP business and across the company. Another key addition to our executive lines is Chuck Sperazza who joined as Chief Information Officer months ago to lead the strategic transformation of all of Volt’s internal and external technology systems, processes and functions as Volt moves forward on the largest and most comprehensive IT transformation in the company’s history. In fact, the front end portion of this technology transformation will notably improve our competitive capabilities to acquire and price, quality, talent. Finally, in March 2016, we brought on Ann Hollins as our Chief Human Resource Officer. Ann in her broadly defined position brings over 25 years of world-class HR experience. She had took a senior role in leading our enterprise wide cultural change and will help us continue to build strength in our leadership team, develop organizational effectiveness in critical growth areas and aligning recognition and reward practices – all key components of Volt’s turnaround. With much of the Volt executive leadership team now in place coupled with excellent progress with the tangible results from our assets to show up our balance sheet and improve our cost structure. We are reemphasizing our management focus on driving top line growth. [indiscernible] we’ve accomplished over the last several quarters have made the ground work for bending our revenue decline into growth. Given the many changes we put in place in the long revenue cycle of this business, we’re starting to attack the very core of our top line turnaround. We are beginning to see results, however, it’s early in the process. As I’ve stated before, there are three things that need to be changed before our top line returns to growth. We need to stop the declining revenue on existing clients, two, increase our pipeline with new business and three, convert the pipeline into additional new revenue on the P&L. So I’d like to highlight a progress in each of these areas. As with the declining existing business, we’ve identified the driving value to our clients, and especially for the [indiscernible] business will require significantly more of best sales and client relationship management capability. We’ve executed many initiatives to do just that, including creating a strategic focus company-wide on the issue, hiring significantly more on the ground resources to interact with clients and being on board with senior vice president of sales, Sue Tidswell who as much in the floor brings world-class expertise in this area. In addition, I’m pleased to announce that we’ve engaged a leading consulting firm to help build our client relationship management capability. Our rate of loss of existing revenue is slow slightly but it’s not what we needed to be, and we expect a bigger impact from these efforts in future quarters. Now for the second imperatives of strengthening our pipeline, I want to mention that our pipeline of new business in our traditional staffing operations is now growing. By pipeline, it means the perspective clients doing process with and the expected revenue discounted by the probability of winning each client. I’m pleased to report due this pipeline has grown through each of the last three months and is significantly higher than last quarter. This is the good news, but of course, we have to convert it to actual business. And on this, the third revenue imperative, I’m pleased to report that we continue to win significant new business at an increasing rate. We have the number of large clients from which we won business within the last several months that have contributed to our second quarter results. For example, we have over $5 million of new revenue in the quarter from the large brand named Transportation Company. This customer could ultimately drive to an annual revenue run rate of about $30 million. We also have several other new clients in this quarter that are now contributing at around $5 million or more than the actual revenue. Furthermore, we signed six new large clients this quarter across the wide span of industries of job categories, including [indiscernible] contractor with whom we’re supporting engineers. We’re also supplying a large scale industrial workforce for our top retail distributor. While the revenue from these once that commencing the quarters ahead, these customers along represent nearly $20 million year ended revenue. In addition, many smaller clients and retail business wins are driving material growth. So while this quarter’s results are not acceptable, we’re at the beginning edge of the revenue face of Volt’s turnaround. And along with the imperatives that I just noticed, there is evidence of progress. Now if you look at our traditional staffing business, which is over 80% of the company’s growth rate revenue. In the last three quarters respectively, the revenue decline in the traditional staffing business has continuously improved on a year-over-year basis from 14.3% to 12.4% to now 9.4%, we’re leading in the right direction and bending the revenue decline toward growth. In summary, during the second quarter we need solid progress in all of the key initiatives made out of the past quarters to advance our plan to show up our financial and operational performance. Now it’s clear that we have a lot of work ahead of us, I’m confident that based on the team we have in place and the initiatives on the way across the entire organization [indiscernible] successfully our challenges. I’m proud of our team and the advancement we’ve made in every aspect as our turnaround plan. Our balance sheet is strengthening, we’re managing our business mix, driving efficiencies across organization and have new talent in place to build upon a world class sales and client relationship capabilities. These aspects are the foundation for returning Volt to profitable growth and I look forward to continuing to execute our strategy and driving significant enhanced value for all of our stake holders. Now, I’d 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 afternoon. I will provide additional details on our second quarter financial results as well as discuss our balance sheet and liquidity position. Our revenue in the second quarter was $335.4 million, up $8.6 million or 2.6% on a sequential quarter basis. Our second quarter sequential revenue improvement was primarily due to a 10% increase in workdays in the second quarter compared to the first quarter. When compared to the second quarter of fiscal 2015, total company revenues declined $49.8 million or 12.9% on a year-over-year basis, primarily attributable to the Staffing Services segment, where revenue decreased by $45 million or 12.4% from the same period last year. 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 skillsets and as well as a change in the overall mix from technical to A&I. Our sales compares this quarter continue to be impacted by our customers in the industrial and commercial manufacturing industries, customer supporting for oil and gas industries as well as utilities industries, partially offset by growth in our communications and transportation manufacturing industries. In addition, our project based and managed services programs experience declines on a year-over-year basis, primarily due to the exit of a large customer in both our application testing and call center services offering in our project-based programs, and the decision not to pursue continued business with certain customers in our managed services programs. As Michael mentioned, our traditional North American Staffing which represents more than 80% of overall staffing revenue has been showing improvement with the year-over-year decline of 9.4% as compared with down 14.3% on a year-over-year basis in the fourth quarter of fiscal 2015. Although these declines are clearly not acceptable to us, we’ve always stated that success in our turnaround plan will rise on the help of our traditional staffing business and we are pleased to see this part of our business continue to show an improving trend. The overall Staffing Services segment was also effective this quarter by unprofitable businesses we sold or shutdown and by uncapable foreign currency translation, totaling $8.1 million. Excluding these impacts, the overall staffing decline of 12.4%, would have been 10.4% on a year-over-year basis. At the total company level, the revenue decline of 12.9%, adjusted for businesses we sold or shutdown on a constant currency basis totaled $10.8 million would have also been 10.4%. As mentioned previously, 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 continues to impact the year-over-year comparisons in subsequent quarters, including the second quarter of 2016. We continue to make strides towards stabilizing our revenue base and winning new business, while at the same time, strengthening our existing customer relationships. All these efforts are key building blocks for Volt, completely bending the revenue curve and resuming to a growth trajectory is a goal that is skillset of quarters away. Loss from continuing operations in the second quarter of 2016 was $1.8 million compared to a loss of $11 million in the first quarter and a loss of $6.9 million in the second quarter last year. Loss from continuing operations in the second quarter of 2016 included restructuring and severance cost of $0.8 million, a $2 million gain on the sale of our facilities in San Diego and Orange, California and $0.3 million in other fees. Excluding the impact of this special item, loss from continuing operations in the second quarter would have been $2.5 million on a non-GAAP basis. Adjusted EBITDA, as highlighted in our earnings press release, was $2 million in the second quarter of fiscal 2016 compared to a loss of $5.3 million on a sequential quarter basis and income of $5 million in the second quarter of last year. Moving on to the profitability of our core Staffing Services segment. Operating income in the second quarter of 2016 was $7.9 million compared to $1.7 million in the first quarter of 2016, and $10.3 million in the year-ago period on a consistent basis. Overall, the Staffing Services segment direct margin percentage in the second quarter was 15.6%. On a year-over-year basis, the direct margin was down 55 basis points as compared to second quarter last year. Despite the slight increase in our traditional staffing margin percentage in 2016, the decline in the direct margin percentage was primarily driven by our higher margin, other related staffing businesses. The Staffing Services segment's selling, administrative and other operating cost in the second quarter decreased $0.2 million or 0.4% compared with the prior quarter. On a year-over-year basis, selling, administrative and operating cost decreased $5.4 million or 11.5%. The year-over-year decline was primarily due to lower headcount and facility costs 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 13.1% of staffing revenue in the second quarter this year versus 13.4% in the first quarter of 2016 and 12.9% in the same period a year ago. Corporate G&A cost decreased $0.7 million or 7.4% on a year-over-year basis, driven by lower non-recurring fees in the current quarter. We incurred restructuring and severance cost of approximately $0.8 million as a result of our cost cutting initiatives during the quarter. Our restructuring during the first half of this year will contribute to a significant portion of the $10 million in annual cost savings expected from this initiative. In addition, we continue to work diligently on our ongoing information technology improvements in order to simplify our systems and processes and provide more straight forward reporting and a competitive advantage in new business generation. As we have indicated, the upgraded systems will also provide annual cost savings and significant operational efficiencies of approximately $5 million to $7 million. Turning now to our balance sheet and liquidity position. Our total debt balance at the end of the second quarter was $98 million, down from a $107 million at the end of the prior quarter and down from a $137.7 million in the second quarter last year. Our total debt balance is classified as short-term on our second quarter balance sheet since our $150 million financing program with P&C Bank matures within one year. We are currently working with our vendors on longer term financing and will keep you updated on our progress. Also on the capital markets front, during the second 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. Also during the second quarter, 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. With respect to the sale leaseback on the Orange facility, we entered into a 15 year lease that will expire in March, 2031 with an annual base rent of $2.9 million for the first year with 3% annual rent increases. The Orange transaction is treated as a sale leaseback transaction under GAAP. Therefore, the gain on sale of $29.4 million will be differed and recognized as expense in proportion to the related gross rental charges over the lease term. The administration of the gain was $0.3 million in the second quarter. In addition, we’ve recognized the gain of $1.7 million from the sale of our San Diego property during the second quarter. The combined purchase price of the two transactions was $38.1 million and after the repayment of mortgage indebtedness on the Orange facility and transaction related expenses we net it cash proceeds of $28.7 million. The net proceeds from the sales with the use to ensure we had adequate levels of liquidity for working capital purposes as well as the fund investments in technology and sales and marketing activities in support of our growth objectives. Primarily, as a result of the property sales, our liquidity has further improved to $58.8 million at the end of the quarter. This has more than tripled from our liquidity at the same time last year. As of June 3, our global liquidity levels were $50 million. Although we have bank covenant restrictions with respect to this liquidity, this represents a significantly improved position as we continue to execute our strategy. In addition, as we have indicated, we have significant tax assets include recoverable tax $16 million. We have fully completed the process are waiting for the IRS to submit the results of the [indiscernible] to their joint committee. Since we cannot control the IRS internal process, we cannot predict the timing of resolution. Entering into fiscal 2016, 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 utilized when our profitability improves. These tax assets are a tremendous source of future value for Volt. As an example, the tax burden on the gain of the sale of our Orange County facility will be fully shielded through the use of our capital loss carryforwards. Our capital allocation priorities remain consistent. Our top priorities are to ensure that there is adequate liquidity for working capital purposes to effectively manage our business and to invest in growth, including tools and advanced technologies to support our staffing business. Our strategy also includes returning excess capital to shareholders. We anticipate we will have an opportunity to repurchase shares as we continue to execute our plan and upon completing the sale of Maintech. We also have been and will continue to de-risk the business by deleveraging our balance sheet. In closing, I’m pleased with the continued progress we have made this quarter. We remain focused on simplifying our corporate structure, reducing costs, and improving our operational effectiveness in our core staffing business. We are bringing in world-class talent to augment our team, reducing cost in key areas and driving operational efficiencies in systems and processes. Our team is strong, focused and has made significant strides in the direction of returning Volt to a growth trajectory. I look forward to updating you on our continued progress in the 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:]

Thank you. At this time, we will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Joe Gomes from William Smith. Please proceed with your question.

[Joe Gomes:]

Good afternoon, guys.

[Michael Dean:]

Hi, Joe.

[Paul Tomkins:]

Hi, Joe.

[Joe Gomes:]

I just wonder if you can talk a little bit more, just a little more detail here on your sales force improvement, and we’ve discussed a lot about that and how you’ve been hiring new people and in the pay for performance plan and now you’ve hired a new senior vice president here. I just wanted to get a little bit more detail in terms of maybe additions to the sales force, how you’re seeing the new pay for performance work through the ranks and how that’s all working?

[Michael Dean:]

Sure, of course. Yeah we’ve done quite to get there, I think that we’ve done all the things that you’ve noted and then some. I think the organization and strategy and the structure and the team and the incentives are all combined effort to significantly strengthen our sales efforts, where we’re becoming a much more sales oriented company than we have I guess at least in the recent past. And it’s been taking many months to accomplish sort of all those things in aggregate. And it takes – as we’ve stated, we’ve added quite a few number of sales people at the front lines but it takes time to train them, get them up and running and productive. The compensation work that we’ve done for our sales team was done months ago and so that’s completed and that has a fairly quick turnaround because it’s basically already in place and so it’s incentivizing our team in the right ways against the right things, it has them focus on exactly what we’ve been focused on. We’ve restructured or still in the process of completely restructuring our organization in a way that is more sales oriented and directly related to delivering stronger sort of not only on the feet of the ground sales team to all the way up to senior vice president of sales, where it’s a more integrated centralized function for not only sales per say but there is hunters, there is farmers and there is client relationship management people. So it’s sort of a center of excellence from the top to the bottom organization that we are riding. We not only done with that, but having new people on the ground with new compensation have already started to – and we’re in the early stages of we viewing some benefits from that.

[Joe Gomes:]

Okay, that sounds good. And you mentioned you want some more new customers here in the quarter. Just again wondering if you might be able to talk little bit more about that, were these mostly competitive bid situation, margins in line with existing business margins, if you could just drive us a little bit more detail about some of these new customers that you want?

[Michael Dean:]

Sure. Our contracts generally don’t allow us to name customers or talk too much about them. So we don’t dig too much into individual customer details but to answer your question, there was – what I was meaning was a – with some of the larger ones and we also have smaller ones at the retail level, many, many smaller ones at the retail level. But on the larger ones that I announced, we – there is really a mix. The good news I guess is the mix of winning some RFPs and some of the bigger ones actually were competitively getting out there and winning new business. In addition us, others were as expanding business with customers that had a broader sort of needs and as we were able to help them grow in new areas. So, it’s actually good mix of both because you’re going to want both. You can’t rely on just one of the other in this business, and in particularly in this quarter we actually had both – a number of both.

[Joe Gomes:]

Okay, that’s good. And again during the quarter you took a little bit more restructuring charges, do you foresee additional restructuring charges for the rest of this year, or do you think we’re done with those?

[Paul Tomkins:]

Hey Joe, it’s Paul. Yeah, we do anticipate that we will have some more structuring charges, we don’t think it’s going to be very significant but we continue – it’s a continuous process right, it isn’t once and done. And it is aligned with our strategy to make sure that as we get more efficient and as we get things processes and systems and structure of our organization in the right place that it makes sense. And we’ll likely have some more restructuring charges later in the year.

[Michael Dean:]

Well, if I might add to that, Paul. We are continuingly adding new talents, upgrading some positions, leaving people around and as we continue to strengthen this team there is opportunity to really bring in strong talent where we needed. And as a result that I imagine that there will be – I can’t anticipate how much, but there will probably be more restructuring cost as we continue to strengthen our team.

[Joe Gomes:]

Okay, great. Thanks guys, I appreciate it.

[Michael Dean:]

Thank you very much.

[Paul Tomkins:]

Thanks, Joe.

[Operator:]

And our next question comes from the line of Ross Taylor from Somerset Capital. Please proceed with your question.

[Ross Taylor:]

Okay. A couple of quick questions. One, you commented on the level of debt at $92 million, will you tell us what was cash at quarter end?

[Paul Tomkins:]

Yeah, the cash at quarter end we had – number one, you mean the liquidity or?

[Ross Taylor:]

No, no, just the cash on the balance sheet.

[Paul Tomkins:]

Yeah, the cash on the balance sheet was 23 – hang on a second, yeah $23.2 million.

[Ross Taylor:]

Okay, so obviously you’ve paid down debt during the quarter with some of the cash that you raised.

[Paul Tomkins:]

Yeah, exactly.

[Ross Taylor:]

It seems to me that it’s pretty clear that we need to get a new bank, the bank we’re working with is not really helping shareholders at this point in time. How far along that we take finding a new bank to work with as oppose to one who seems to want to basically belt on suspend or credit line where they have both accounts receivable and a rather sizable amount of cash, do you think they’re securing a loan that seems need to be more than redundant in their protection?

[Michael Dean:]

Yeah, so Joe we are…

[Paul Tomkins:]

Ross.

[Michael Dean:]

I’m sorry, Ross. We’re in active discussions with our lenders currently and as we indicated earlier, our interest is longer term facility where we can have more flexibility in terms of reinvesting in the business and doing the things we want to do in this turnaround that we’ve laid out in our capital allocation strategy. So we are – we have initiated the process, we are moving forward with it and we expect to have more information for you the next time we speak.

[Ross Taylor:]

Okay. Also, looking at the reported numbers it appears there is little over $18 million in the quarter in non-staffing revenues. Is it safe to assume that’s pretty much all Maintech?

[Paul Tomkins:]

Yes, at this point what’s included in other segment is Maintech. If you look at the prior year we also had Volt Telecom and the Uruguayan and printing business.

[Ross Taylor:]

Right, so this is basically one of the first times we’ve had pretty much a clear picture on what Maintech generates as far as revenue, not having to kind of guess what’s the other components were. So is this $18 million are still on the quarter, is that – is this a seasonal business that Maintech has or are we looking at something that generates $60 million to $70 million or so annually in revenues?

[Paul Tomkins:]

Yeah, I mean it is somewhat seasonal. It’s generally stronger towards the end of the year. So it is in a straight – exact amount each quarter. So, Ross, you have to kind of look at it as similar to our other business and staff part of the business it ramps at the year end.

[Ross Taylor:]

Okay, at the calendar year and that’s supposed to your fiscal year end?

[Paul Tomkins:]

No, our fiscal year end.

[Ross Taylor:]

Your fiscal year end, okay. So, is this a business that help us a little bit, because quite honestly I’m trying to value this company at this point in time, one of the main components to the value is what you’re going to generate in the sale of Maintech. Is Maintech a business that does north of $60 million in annual revenues?

[Paul Tomkins:]

Yeah we haven’t – Ross, we haven’t broken that out and we haven’t – we haven’t been disclosing units revenue levels or profitability levels. But let me just say that we’re also, as you know, involve in a process – a sale process where we can’t get into the discussion on the valuation at this time point but that’s something that we really haven’t disclosed.

[Ross Taylor:]

I understand but I also – I’ll just tell you what I told to the chairman of the board, you got – this company needs to work with and for its investors and one of the great frustrations here is this is not an inconsiderable asset, and in fact getting this asset sold will be instrumental and likely being able to put a substantial amount of cash to work in a buyback, you have a rather large short position, we have insiders who are bluntly not buying the stock. I think that’s a very frustrating situation to most every holder I speak to. And what I’m trying to get at is what the – I mean it’s hard to divide the value for this company what I’m literally guessing, I mean is Maintech worth $30 million or is it worth $60 million? I mean literally until you give us some ideas of what the revenue base is and perhaps some EBITDA margins it’s exceptionally hard to calculate that. And what strange to me is the guys you’re looking at buying it know it, the only people who don’t know it are your shareholders.

[Paul Tomkins:]

Yeah, what I would say Ross is, if you look at this quarter the second quarter it’s not a straight multiply by four to get the year. This is generally a softer quarter, first and second quarters are a little softer and third and fourth quarters generally pick up. So, I mean that should give you an indication of where…

[Michael Dean:]

It’s not an unreasonable quarter to base it off of, although it is a little bit softer than other quarters.

[Ross Taylor:]

Okay, so the idea is it’s an asset that’s worth of fair amount of money. It’s safe to assume.

[Michael Dean:]

So that’s how…

[Ross Taylor:]

And that – well let’s hope we realized. And so, and looking at that obviously the sooner or the more detail you can give to your shareholders I think the better would be for us and classily for the share price. I think the share price is wallowing in here and no small part, because last quarter when I think people excepted a buyback coming out of the sale of the California real estate we got nothing, here we are another quarter in we haven’t seen the sale of Maintech. It sounds like you’re talking about closing probably sometime around or after the end of July, given and I assume when you mentioned the third quarter you’re talking your fiscal third quarter?

[Michael Dean:]

We were.

[Ross Taylor:]

Yeah. And so in looking at that it seems to me that the stock has suffered substantially. It’s time for some bold action from the board, bold action from you guys as far as stepping out, I know you don’t like to step out and get wacked but the simple fact is it’s time to give investors something to hang their head on other than the platitude of we’re going to turn the business around and when we do we’re going to buyback or before we do when we get the sale we’re going to buy back stock. It’s just – I think a lot of people are really frustrated and I think you see that with the stock move from 8 to under 6.5 in the last few weeks, against a rather strong market for small cap names.

[Michael Dean:]

Okay.

[Operator:]

The next question comes from the line of David Neuhauser from Livermore Partners. Please proceed with your question.

[Michael Dean:]

Hi David.

[Paul Tomkins:]

Hi David.

[Operator:]

Mr. Neuhauser, your line is live. Mr. Neuhauser your device maybe on mute. Okay, moving on. Our next question is from Paul Misleh of Fortis Capital Management. Please proceed with your question.

[Paul Misleh:]

Hi guys. Thanks. Let me just – I guess for the first quarter, actually it’s kind of hard to tell from the cash flow but I think you basically [indiscernible] half a million though. Nice job with that. And the – just following up on the Maintech, if we look at the gross profit can you kind of help us understand, you made a couple of million bucks in the quarter gross profit on Maintech. And then when you get down to the actual segment level you made 200 grand. Can you just help us understand what is the G&A that’s actually going into that, and does that drove the marketing that a buyer has to replace or is that cost that can be stripped out, how should we think about that?

[Paul Tomkins:]

Yeah those are – hi Paul, this is Paul. We have – within Maintech they have their own structure because they manage the contracts that they have which they have a lot of very large procedures contracts and they have people that - you’re right, do marketing. They have the sales force and they also – they have a process around that business because it’s really different than the rest of our staffing business, right. So they have their own – their own general and administrative that just manage the Maintech business, and a lot of that is separated in aside from the rest of the staffing business or the corporate headquarters.

[Paul Misleh:]

Okay. So, you know where I’m getting at, I guess the question is, does that replaceable or is that going to go away but I guess you’re not going to [indiscernible] I’ll move on. On the corporate cost, basically $19 million for the six months each year, $6.6 million of non-recurring and last year $3.5 million this year, which means actually your corporate costs have gone up and I think you right sized it because you guys changed the way the corporate. Maybe just help us understand why is corporate actually going up, I mean net for the non-recurring reception type stuff?

[Paul Tomkins:]

Yeah, so a lot of puts and takes in there Paul. We also have – we are bringing in some other talent so there are fees associated with bringing folks in, but we also are looking at things – if you look on a year-over-year basis, year-to-date and also over the last two years, the corporate cost even though we have changed the methodology we’ve restated it s it’s consistent. We’ve brought down the overall corporate cost because some of those get allocated to the businesses and if you take the SG&A in total when you see 10-Q you can see that there has been a pretty significant drop of fin SG&A in total. So, overall indicated in the script as well, our SG&A is on an annualized basis about $18 million to $20 million lower. We’ve taken out about $18 million to $20 million in our overall SG&A, including the corporate cost.

[Paul Misleh:]

Right, okay. That means – okay, it has gone up though, the corporate has gone up and you right size it, but on CapEx you got $9 million, is that mostly just the IT spend?

[Paul Tomkins:]

Yeah, the big part of that Paul is the – we have normal maintenance that we run into but the bulk of that is the new IT infrastructure project.

[Paul Misleh:]

Okay. No, is that mainly done or should we expect [indiscernible] annualize that $18 million for the year or how should we think about that?

[Paul Tomkins:]

Yeah, no. Yeah, our estimate is that the system implementation will be at the end of the fiscal year. So we have more to go. We’re snacked right in the middle of that whole process and project.

[Paul Misleh:]

Okay, all right. And then just – well it might be helpful I guess going forward I think a lot of the shareholders would agree, if you just explain how liquidity – how you’re actually calculating the liquidity? Yeah, obviously it’s confusing, and we have to do – obviously we’re trying to do puts and takes on this going up and that going down. And that’s just be helpful if we could actually understand how liquidity is calculated, I’m sure it’s a [indiscernible] it might easy just to share that to the shareholders [indiscernible] but I’ll leave that for you to think about.

[Paul Tomkins:]

Sure, sure. We definitely will, in fact you see in the 10-Q that we filed we also take you through some of that.

[Paul Misleh:]

Okay, great.

[Paul Tomkins:]

And are there questions you wanted to answer now – I can quickly…

[Paul Misleh:]

No, I think I figured that [indiscernible] when your liquidity going up $13 million, you got $13 million of cash, firstly people are going to wonder what the heck is going on, you know what I mean. So it just requires a bit more words that it might be explain going forward, that’s all.

[Paul Tomkins:]

Okay, we’ll do.

[Michael Dean:]

Okay, good suggestion. We’ll figure that out.

[Paul Misleh:]

All right, thanks guys.

[Michael Dean:]

All right. Thank you very much.

[Operator:]

And our next question comes from the line of David Neuhauser from Livermore Partners. Please proceed.

[Michael Dean:]

Hi David.

[David Neuhauser:]

Hey guys, yeah good afternoon. Sorry about the technical difficulties. Yeah, most of my questions were answered, obviously people and shareholders on this call we’re kind of reiterating the same thing quarter-over-quarter as this turnaround and transition takes hold. So it obviously seems like you’re making a lot of headway on a number of thought having used, putting the right people in place, taking cost. Obviously looking like winning new business which is starting to actually gain a little bit of traction and that’s all really refreshing but at the end of the day I think a lot of the people are looking at some of the other processes like the non-core aspects of the business, things to help improve shareholder value in the near term until we wait to see sort of that revenue that maybe discussed and return of profitability. And as you know, it kind of gets being with a stake obviously in terms of when things close and when you’re going to get ability to buy back stock or do some other things to really show up not just the equity but just the whole story and the goals in the growth of the potential of the company sort of take the company back to where it used to be this some degree. But today it looks like you’re still in the early innings, it does seem like there has been some delay consistently on some of the non-core asset sales. And I’m just trying to get a sense as to what has been holding you off on a number of these processes over the past year, is it the market or is it the buyers or – and how you’re dealing with that to readjust so that we do see some closes on some of these transactions and we can’t move forward to, like you said return capital shareholder and return false equity on the higher ground.

[Michael Dean:]

Okay, I’ll take this Paul. Yes, I mean look, it’s always very hard to predict acquisitions and our divestitures and sales and businesses and real estate. On the real estate front it got very complicated based on where the company was and it’s sort of turnaround and the fact that we’re going to be 15 year tenant was made not a straight real estate [indiscernible] than a leaseback that we were a major credit consideration for any individual buyer which complicated the types of buyers you could get and how much does is there to do and a number of other things. And so, that was a much more complicated transaction that I think people thought a quick real estate transaction would entail. So, that caused longer process than we would have liked but it was full reasons that we understand. Same with Maintech, it’s a business that is actually turns out to be somewhat of a complicated business. We had lots of interest and finding the right buyer and I mean the right circumstance has taken time. And we are negotiating with a number of parties to make sure we get the right valuation and the right buyer for that asset. And no fault of our own, this is an acquisition that’s taken longer impart because of other parties slowness to move forward on this and we’re doing everything we can including working with multiple buyers that we can find the right one to move quickly at the right price to get across the finish line. And so while we would have liked to conclude this by now, we are very focused on it and we’re working hard to bring that across the line.

[David Neuhauser:]

Is it a sense of the valuation or is it the business itself that’s causing angst, is it – it looks – go ahead.

[Michael Dean:]

No, no I’m sorry. Go ahead and finish.

[David Neuhauser:]

I was going to say, it looks like a fully predictable revenue stream and profitable business in the past and so private equity or other strategic would be interested and I’m just trying to figure out some of the parties that came forward, again if it’s private equity to have more to do with the capital markets if it is strategic then I’m also trying to figure out what would start to worry them?

[Michael Dean:]

I’m not suggesting that the delay was worried, this is internal processes and diligence that’s taking quite a while, it’s not a simple asset. But I think you said the word angst, I wouldn’t characterize that’s the reason for the delay. And we have both strategic and non-strategic interest, so.

[David Neuhauser:]

And then – that’s fine. And then touching on what Paul discussed and I think what Ross Taylor described, I mean one of the thing that’s extremely frustrating, again you guys have made a lot of progress in terms of the balance sheet. I mean there is no doubt to that, and yet at the same time we have our equity which again has been cut in to half, and every time we have a conference call and as Ross said, the markets actually improve for small caps. And every time we have a conference call the equity is lower and it’s just – it’s amazing and I don’t think it should be this low obviously, even under the current environment. And I think the only way it’s ever going to rerate is going to get further interest of course in the company besides legacy holders but then also additionally for the company to step up. I mean again this is a very small flow to the company’s shares, the family owns a lot – you know all the holders, I’m sure you know them by name by now Michael, and the view is that it doesn’t take that much capital, it doesn’t take that much boldness to rerate the equity higher as you make consistent revenue gains like you’re starting to do. And I understand it looks like 2017 that’s when we really going to see some potential growth but it looks like you are stabilizing the business and therefore you guys should be being more aggressive. And if the banks causing any type of issue regarding that then I agree, we need a new bank, we cannot have the same lender who is out there handcuffing the company at this point. There is plenty of liquidity, there is no reason for the equity to be at the level it’s at. And this board should understand that and become much more aggressive and if the management – if we can’t get that out of our current lender and put a nice stronger long-term capacity in place for it, then let’s go find someone else. I think that needs to be a very – a topic in something that needs to be dealt with very quickly.

[Michael Dean:]

On everything you just said I think we agree. I think that we’re trying to find the best options that we can [forward] and all the fronts that you talked about. And I don’t think we disagree with the single one of those things and we’re working hard actually on every one of them. I will say that we also think the stock is undervalued and I said it before, and I think that we are hoping to reward the shareholders that we have in the stock right now as soon as possible and we’re looking for all the avenues that we can do that.

[David Neuhauser:]

Okay. And then my last question again goes along with, I know of course, you’re trying to execute this and that seems like the next driver in terms of Maintech and as we go towards summer and then fall with operations again. When do you think you’ll start to be comfortable enough or you can’t go out and we can’t look to get new coverage – since we really have zero coverage and I know I think it was Joseph who was on the call first. I mean we needed institution that cover small caps that can model the company, could model the progress, could model the growth and look at the valuation and say, this is where the stocks equity should be trading at. And we also have to get new investors involved with this company and I see some turnover in the shares and that’s going to take yourself and Paul going out and hitting the road essentially with the new presentation you have in hand and showing what the potential is. And of course, showing variable start to achieve some of that growth, I mean when do you think the timing to that could be Michael?

[Michael Dean:]

Well, first of all I agree. I think that in order to get new shareholders in who are sort of ready for the next phase of our turnaround. I think that it’s sort of an important thing to increase liquidity and to create stronger demand for our stock. And I think we are close, we have long planned this issue and the challenge is – the challenge is that you need to sort of go out at the right time, right, because if you go out a little bit early and if there is any choppiness you burn them. And you burn them once, you’ll never get them back. And so not only creating shareholder presentation, but we’ve behind the scenes have been working to sort of plan this out and I think we’re close. We’re probably – I think we need maybe one more quarter of positive momentum and I think we’re ready to start having those conversations.

[David Neuhauser:]

Okay. All right, that’s all I had. Keep up the good work guys, thank you.

[Paul Tomkins:]

Thanks, David.

[Michael Dean:]

All right, thank you David.

[Operator:]

There are no further questions at this time. I would like to turn the call over back to Mr. Dean for any closing remarks.

[Michael Dean:]

All right, thank you, operator. Thank you all for joining us today. It’s clear we’ve made a lot of progress in a short period of time. And we have good momentum heading into the second half of fiscal 2015 for which I’m very excited about. And I do continue to believe in what the team here is doing and I do believe that this is going to be a very good story hopefully soon. And so I want to – I just really want to say I appreciate your continued support and look forward to speaking with all of you again next quarter. With that, I’ll say thank you very much.

[Operator:]

Ladies and gentlemen, this does conclude our teleconference for today. You may disconnect your lines at this time. And we thank you for your participation. Have a wonderful rest of your day.