Volt Information Sciences, Inc.
Q3 2016 Earnings Call Transcript

Published: 9 Sep 2016

[Operator:]

Greetings, and welcome to the Volt Information Sciences Third Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now hand over the conference over to your host, Lasse Glassen, Investor Relation. Please go ahead.

[Lasse Glassen:]

Good afternoon and thank you for joining us today for Volt Information Sciences fiscal 2016 third 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 statements 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 the today’s call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. A reconciliation of those measures to GAAP is included in the earnings release issued this afternoon, September 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 the results from this past quarter along with recent highlights of the progress we’re making towards our plan to improve both financial and operational performance. Paul Tomkins our CFO will then discuss additional details about our third quarter financial results, balance sheet and liquidity position. The question-and-answer session will follow after our prepared remarks. With continued measureable improvement this past quarter, I’m pleased with our overall success in executing our turnaround plan. While our progress is evident across most aspects of the enterprise, our improving revenue performance provides the most compelling signal that our plan is taking hold. After normalizing for fewer workdays during the fiscal third quarter, staffing segment revenue increased slightly on a sequential quarter basis. Importantly, we continue to add to our book of business with several recent new customer engagements and have slowed the rate of revenue decline in existing customers. In addition, initiatives to improve our cost structure helped reduce selling, administering and other operating costs by 14% compared to the third quarter last year. Looking at our third quarter results in more detail, net revenue of $330.5 million was down 1.5% when compared to prior quarter. Within our staffing services segment, revenue decreased by about $3.8 million or 1.2% compared to the prior quarter due primarily to a fewer work days in the third quarter compared to the second quarter. Normalizing for fewer work days, the third quarter staffing services revenue increased by nearly 2% sequentially. For our other segment, revenue decreased by $1.1 million or approximately 6% compared with the previous quarter. Over the past year we’ve made great progress on our plan aimed to get our business back on track. As I've mentioned on previous calls, we’re focused on three key elements

[Paul Tomkins:]

Thank you Michael, good afternoon, I will provide additional details on our third-quarter financial results as well as discuss our balance sheet and liquidity position. Our revenue in the third quarter was $330.5 million, down $4.9 million or 1.5% on a sequential quarter basis. Our sequential revenue decrease was primarily due to a 3% decrease in work days in the third quarter compared to the second quarter. When compared to the third quarter of fiscal 2015, total company revenues declined $34.2 million or 9.4% on a year-over-year basis. This was primarily attributable to a decline in our traditional staffing, project-based and managed services programs. As Michael mentioned we are pleased with the progress we've made on the path to achieving year-over-year revenue growth in our core traditional staffing business. The revenue decline in our staffing services segment which makes up over 80% of our revenue has continuously improved on a year-over-year basis from 14.3% a year ago to 4% during our most recent quarter. We’ve always stated that success in our turnaround plan relies on a health of our traditional staffing business and we are pleased to see this part of our business continue to show an improving trend. In the third quarter, our staffing services segment year-over-year revenue decline was driven by continued lower demand from our customers and our technical skill set as well as a change in the overall mix from technical to non-technical administrative and light industrial. Our project-based and managed services programs experienced decline on a year-over-year basis attributed to lower volume of a large customer in both our application testing and call center service offerings in our project-based programs, and our decision not to pursue continued business with certain customers in our managed services programs. As we’ve indicated we have a new management team in place for each of these businesses who are executing growth strategies and we expect we'll have a positive impact in future quarters. The overall staffing services segment was also affected this order by unprofitable businesses we sold or shipped in during the latter part of 2015 and in 2016. On a same-store basis excluding businesses we sold or shipped in, staffing services segment declined $24.3 million or 7.2% year-over-year. Loss from continuing operations in the third quarter of 2016 was $4.6 million compared to a loss of $1.8 million in the second quarter and a loss of $4.1 million in third quarter last year. Loss from continuing operations in the third quarter of 2016 including restructuring and severance costs of $1 million partially offset by $0.5 million related to the amortization of the gain on the sale of real estate. Excluding the impact of these special items loss from continuing operations for the third quarter would have been $4.1 million on a non-GAAP basis. Adjusted EBITDA as highlighted in our earnings press release was $0.7 million in the third quarter of fiscal 2016 compared to $2 million on a sequential quarter basis and $3.4 million in the third quarter of last year. Moving on to the profitability of our core staffing services segment, operating income in the third quarter of 2016 was $6.1 million compared to $7.9 million in the second quarter of 2016 and $8.2 million in the year ago period on a consistent basis. Overall, the staffing services segment direct margin percentage during the third quarter was 14.9%. On a year-over-year basis direct margin was down 85 basis points as compared to the third quarter last year. Despite an increase in our traditional staffing direct margin percentage from 2015, the decline in our direct margin percentage was primarily the result of our project-based programs. The staffing services segment’s selling, administrative and other operating cost in the third quarter decreased $1.5 million or 3.7% compared to the prior quarter. On a year-over-year basis selling, administrative and operating costs decreased $3.3 million or 7.6%. The year-over-year decline was primarily due to lower headcount across all businesses and 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 12.7% of staffing revenue in the third quarter this year versus 13.1% in the second quarter of 2016 and flat with the same period a year ago. Corporate, general and administrative costs decreased $2.8 million or 24.7% on a year-over-year basis driven by a decrease in stock-based compensation provided to our Board of Directors in 2015 and in professional fees. As Michael touched on earlier we incurred restructuring and severance costs of approximately $1 million as a result of our continued cost-cutting initiatives. We are improving efficiencies wherever possible evidenced by the 14% year-on-year decrease in total selling and administrative and other operating costs in the third quarter. Actions taken in the first nine months of fiscal 2016 will result in annual savings of approximately $13 million excluding Maintech. Our ongoing information technology improvements are progressing. As we have indicated the upgraded systems will simplify our systems and processes provide more straightforward reporting and a competitive advantage in new business generation while providing annual cost savings and significant operational efficiencies of approximately $5 million to $7 million. I now like to provide an update on our process to divest Maintech, our information technology infrastructure services business. Let me start off by saying that despite our best efforts we have not yet sold this business. Earlier in the year, we were exclusively engaged with the prospective buyer but the deal stalled as the buyer had some other strategic developments take precedence late in our process. We then decided to move forward with the second prospective buyer with whom we have reached an agreement in principle on key terms. That said, we expect to consummate an acceptable transaction with the buyer over the next several months or we will continue to operate the business as part of Volt. Maintech is an excellent business and is accretive to our overall net income, cash flow, and liquidity. Turning now to our balance sheet and liquidity position. Our total debt balance at the end of the third quarter was $92 million flat with the prior quarter and down from $132.5 million in the third quarter last year. Our total debt balance is classified as short-term on our third-quarter balance sheet since our $150 million financing program with PNC Bank matures within one year. We are currently working with our lenders on longer-term financing and will keep you updated on our progress. At the end of the quarter, we had $49.3 million of available liquidity for working capital requirements. We believe our cash flow from operation and planned liquidity will be sufficient to meet our projected cash needs for the next 12 months. In order to better align the covenants for the timing of certain liquidity events in July 2016, we further amended the financing program with PNC Bank to reduce the minimum liquidity level from $50 million to $35 million for the period beginning July 31, 2016 through the earlier of, one, the date of the sale of the company's subsidiary Maintech Incorporated if such is closed on or before September 30, 2016 and two, October 30, 2016. In addition as a result of our accounts receivable levels increasing we have exercised an accordion feature within our facility with PNC Bank to increase our facility limit from $150 million to $160 million. This has been approved by the lender and we’ll enable Volt to increase are available liquidity as our accounts receivable grows. In addition, as we’ve indicated we have significant tax assets including recoverable tax receivables of $16 million. We have fully completed the process and are waiting for the IRS to submit the results of the audits to their joint committee for approval. As we cannot control the IRS internal process, we cannot predict the timing of resolution. We expect to ramp up the process with the IRS in the next quarter or two. Entering into fiscal 2016, we also had federal net operating loss carry forwards which are fully reserved with evaluation allowance of $133.6 million, capital loss carryforwards of $82.3 million and federal tax credits of $41.3 million which we will be able to utilize when our profitability improves. These tax assets are a tremendous source of future value for Volt. Our capital allocation priorities remain constant. Our top priorities are to ensure that there is adequate liquidity for working capital focuses 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 also have been and will continue to derisk the business by deleveraging our balance sheet. In closing, I'm pleased with the continued advancement we have made this quarter towards returning Volt to profitable growth. I look forward to updating you on our 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:]

[Operator Instructions] Our first question comes from Joe Gomes from William Smith & Co.

[Joe Gomes:]

So, for the quarter, I mean was that kind of [indiscernible] these results in line with what you are expecting at the beginning of the quarter or where they are better or softer than what you were anticipating?

[Paul Tomkins:]

Yes, so Joe, we had - they are approximately where we anticipated the quarter would be. There are always puts and takes in terms of business unit performance. But we did have very good performance in terms of the largest traditional staffing business and as evidenced by a decline that really last year was 14.3% and this quarter, declined 4%. So that was a very good and there were puts and takes but I would say by and large was where we expected it to be.

[Joe Gomes:]

And the direct margin for the staffing business was down sequentially, in the second quarter it was 15.6, 14.9 this quarter, as you guys noted, what was behind that decline?

[Paul Tomkins:]

Yes, some of that is the mix of revenues, Joe, so you have both on the traditional staffing business the mix between light industrial and technical that’s one mix that that you have from quarter to quarter. The other aspect is some of our higher margin project-based and managed services programs which we said we had a little bit of softer quarter and so that’s going to affect this quarter as well. So it’s a miss.

[Michael Dean:]

I'll add one other thing to that is that fortunately we had some ramps in our staffing business that the cost in some of those cases precedes the revenue because you have to get ready for those ramps with recruiters and other things and in this quarter we had a number of those that actually had some impact on the margin in this quarter.

[Joe Gomes:]

You talked about some of the shift from technical to non-technical and the mix, is there anything behind that or just normal business in the quarter or they came in just more heavy on the non-technical side?

[Michael Dean:]

I think it’s that but I guess it’s a little more than that that our – the turn on our business is happening quicker on the non-technical side than it is technical side. Part of the fix on our technical side is to be more competitive, we need to really update our IT projects that get a much stronger front end client and applicant tracking system that we're pretty far behind where we like to be in sort of a competitive nature. So part of our technical turn will be enabled by that technical project that is underway and so that’s one of the couple of reasons why our light industrial rebound is starting to happen faster than the technical one and of course the technical has a slightly higher margin for us, so some of that mix we noticed in the margin…

[Joe Gomes:]

And where are we in the whole IT upgrade process. I know this is something we've been working on all year; I mean how close are we to having it completed?

[Paul Tomkins:]

Yes, we’re making progress Joe, as we indicated it’s a massive project both the frontend, the operational and the backend the financial suite. And so we’re continuing to make progress on it. We expect that the benefits from that we will be able to tap into in 2017. So, we’re continuing to work through a lot of the things we’re running into but it’s going well in many respects.

[Michael Dean:]

And we’re pretty far along; I mean it’s a complicated process because it is a front, middle and back end of our offer technical solution across the company. And so it is complicated as we expected but we are progressing and we’re actually pretty far along.

[Joe Gomes:]

And just on the restructuring, I think I asked this question last quarter how much more are we going to see and you guys said we would see some but it shouldn't be too significant and this quarter was 900 some odd thousand, what do we see for the fourth quarter and going forward in terms of restructuring expenses?

[Paul Tomkins:]

We are going to continue to look at the cost structure as we move forward Joe as we indicated. In the third quarter, we did take a charge for severance and reduced headcount. We will continue as we move forward, particularly after we have the new systems in place we think that will also be - that will bring some efficiencies for us but we are continuing to look at our cost structure.

[Operator:]

Thank you. Our next question comes from Brad Tirpak from Locke Partners.

[Brad Tirpak:]

It looks like you guys are making progress on turning the ship to growth, down 1%, it’s getting closer and closer, so congratulations. After that I’d like to ask a little bit about the sale of Maintech, not so much as how the process is going, but I’ve noted that you guys have noted that you have a capital loss tax asset. And I was wondering what the basis of Maintech is and when you sell it will it be taxable?

[Paul Tomkins:]

We do have significant tax attributes that will shield any federal and most state income tax from that sale, we have capital loss carryforwards that will exceed the basis of Maintech and be able to shield any federal tax and most state tax that we would incur on a sale.

[Brad Tirpak:]

Little technical follow-up question also, I know you guys had a FX hit or a foreign exchange hit, I was wondering how much of that was due to Brexit and how much of that was just due to normal puts and takes of currency movements?

[Paul Tomkins:]

So, there is of course - it’s very difficult to pin an exact amount of our FX loss on Brexit, but let me just indicate that the largest piece, the two pieces right, one is GDP to US dollar and then the other piece is Euro. Those are the largest pieces. We do have a Canadian impact as well, which is probably about a third of the impact that you saw this quarter.

[Michael Dean:]

I will add though that I do believe that the British pound devaluing [indiscernible] we have significant business there that that was a notable impact, especially in this quarter, it was a large piece of it, not all of it though.

[Brad Tirpak:]

I figured it was. And then it's a little hard for me, I’m newer to the story than most of the people on the call probably, but on an apples-to-apples basis, just on the growth that you guys went through some of the businesses that you saw, but can you remind me or if you’ve ever disclosed how big Uruguay was, that Uruguay business you divested and how much of that if you -- on an apples-to-apples basis, where you’d be, if you had excluded that last year, what was our growth looking like?

[Paul Tomkins:]

Yes. So we had, in the script, I actually went through some of that and it came to 7.2% for our traditional staffing business, but printing and publishing, I mean, there were two things, right. We had a printing and publishing business in Uruguay and we also had a staffing business in Uruguay. Uruguay was not advised, it was the business that was sold. There was a staffing business in Uruguay, it wasn't significant, it was low single-digits in terms of revenue for the quarter, but there were a number of businesses that we shut down or sold that all had a small impact. And if you add them together, they are not here in the third quarter of 2016. That drove.

[Michael Dean:]

A couple of percentage is the difference.

[Paul Tomkins:]

Yes, that's right. None of them were significant, but each one was about in that range, and contributed to the apples-to-apples change.

[Brad Tirpak:]

Okay. So it looks like you might be a little bit closer to growth and even in your commentary, your optimistic commentary stated. I guess one last thing, if you can just touch on our last two questions, one last thing was, on the app testing business, you mentioned that that, I don't know whether you said it has shrunk a little bit, I was wondering if you could talk about that business and what the drivers are and whether you said something about a large customer there, what are the drivers of that app testing business and then also what are the margins compared to your core business?

[Michael Dean:]

Okay. I'll take that one. It's actually a related staffing business, which is why we consider a core business. But it’s quite a few different things. It is really a technology connectivity sort of business unit, where we do development testing, QA testing, all the way through [indiscernible] support for connected devices in sort of the Internet of things world. But it is project based and contract staff based. So in fact it’s flatly intertwined with our staffing business, although it’s not technically a staffing business. And it is, we have a lot of, the clients are our technology clients usually or videogame companies and the sort of things where QA testing really matters in the sort of technology spec. And the margins really vary by project on that pretty greatly. So that margin of all of our businesses is sort of the least stable, because it really is at the whim of the type of project, because it’s such a broad-based and has certainly different types of projects really running that business. It's not strongly dissimilar to the staffing business in terms of gross margins or even direct margins. So I don't think it really drives that big of a difference between the staffing business and app business. There are times when it’s significantly more profitable and there’s times when it's not.

[Brad Tirpak:]

Okay, thanks. That's helpful, because I don't know that business that well. And I will finish with one last question, which is cash from operating activities, for the nine months, it’s negative 1.3 million versus call it 16 million last year, got a big benefit from working capital, and I haven't seen the Q yet, it isn’t filed, but what do we think about finishing up the year, are we going to finish in the positive?

[Paul Tomkins:]

Yes. I mean, we don’t generally give guidance, but we do have a –

[Brad Tirpak:]

Then, you can give a guestimate.

[Paul Tomkins:]

Yes. The fourth quarter is always our strongest quarter and so we do expect to have positive operating cash flow. We were very close, we were right around zero, 1.3 million negative and a lot of that has to do with the business that you end up, if you look at the, there is a change in receivables, so you can see that the decrease in receivables is not as great as last year. So part of the turnaround is going to impact this on cash from operations for that reason. So if you think about it, we’re -- as you begin to bring the declines smaller and smaller from period to period, you’re going to get your funding, you are actually funding some of the growth and some of the lower decline by paying contingent workers and funding those things upfront and then you get paid from customers, when you call it 30 or 45 days down the road. So that lag is going to affect you and that is some of what we see, but we expect the fourth quarter to be a good strong quarter and improve upon that.

[Brad Tirpak:]

Thanks, guys. I appreciate you taking the time and I’ll move to the back of the line.

[Operator:]

Thank you. Our next question comes from Richard Whitman from Benchmark Capital.

[Richard Whitman:]

How are you doing? There is a statement that you made on Maintech was, I guess, unenthusiastic at best, you say you have a deal in principle, but not at all sure about the timing and sounds as if you’re not even sure that the deal will come to fruition, am I reading something into this that isn’t there or what is the status of the talks?

[Michael Dean:]

Well, I wouldn't read too much into it, there wasn't much intended to be read into it. It is a process that is ongoing, which, like we said, we’ve reached an agreement in principle on key terms, but as with all M&A, I’m not waving a victory flag until it’s inked and a lots of things can happen before a process is done in M&A and we can't guarantee we are going to get across the finish line. We like to, and we think we have made real good progress with a good buyer, but until we ink it, I’m hesitant to say that we’re close to the deal.

[Richard Whitman:]

What was the date that you reached the agreement in principle? Was it two weeks ago, a months ago, six weeks ago?

[Michael Dean:]

Well, it’s an ongoing negotiation, but at this point, so there was no specific date, but at this point, virtually, all of the material terms we believe we have agreement on, but until we ink a complicated set of deal, it's always subject to either going forward or not.

[Richard Whitman:]

Right. Is the agreement, I assume there is a definitive price involved, is that price same, less or more and with the previous buyer?

[Michael Dean:]

We are not, since we are in the middle of trying to sell, we are very careful not to devote or even announce the price negotiation.

[Richard Whitman:]

Okay, thank you.

[Michael Dean:]

Thank you very much.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Mike Boroughs from Fortis Capital Management.

[Mike Boroughs:]

Hey, guys. Good afternoon and thanks for taking the question. It's good to see you guys hiring a bunch of new people and trying to get through the talent in there. One of the issues that the company has historically was an inappropriate compensation structure for the head of these business units, can you guys talk a little bit about what you are doing now with these new hires in terms of higher incentivizing them to grow the business?

[Michael Dean:]

Sure, great question. An important one I would argue. Yes. We have done quite a bit at this point of restructuring of both corporate and the business unit and that includes finding the many pieces of strong talent through the organization that already existed and making sure that they are in good places to enact good value for us. And we’ve added also, as we’ve noted, quite a bit of new strength to the team to add to that existing team. And it's been pretty significant and that’s only as good as the strategy and the direction and the motivation and the focus of that team. And as part of that, a critical piece is how you compensate them, right, you have to pay people in ways that they can be accountable and do well as they do well. And when we first got here, a lot of the compensation schemes, of which there were many, and different kind of across the company, or in most areas, not the way we think is conducive to generating sort of aggressive, new business. So obviously, our compensation schemes differ from a corporate employee of which there is no institute, a divisional employee to somebody who is actually on the frontline selling. And we’ve approached all of those sort of with a critical eye and have revamped a large majority of the compensation schemes, paying particular interest to sort of example on the new salespeople making sure that they are incentivized to the right kind of deals to aggressively be paid predominantly for the performance and prepaying the same way alongside their [indiscernible]. So, there is no, going to reach in these programs and they are not all the same, because it sort of depends on sort of what area of discipline you’re in, but we’ve done a great deal of work on those composition plans, we’re pretty far through it, there are some compensation plans and we’re still working through because there were still many to go through, but we’re pretty far along in that process and I think that helps align people up to row in the same direction against the objectives that we now have for the organization.

[Mike Boroughs:]

Great, thanks. And on the sales front, I mean historically, some of those guys were compensated just based on revenue and I know how much people are pressuring you on the revenue growth. I just want to make sure that the new contracts we’re getting are profitable contracts as well, the number not growing for the sake of growth, even with unprofitable contracts, have you factored that into the compensation scheme yet?

[Michael Dean:]

No, it's a good question. It's actually an important question as well, because when we sort of started this turnaround, there was so much pressure on revenue that I think that wasn't, it provided pressure against our margin for sure. And as we've discussed, that’s a challenge for us because a lot of this revenue is fairly long cycle, if not real long cycle revenue. In a business that’s still competitive, there are leverage to renegotiate contracts with large clients is very, very difficult. And so the best chance we have of improving our margins includes the piece of creating better deals as we go forward. If it's embedded in the business and we will always have pressure on margins, which is why it's a low margin business for pretty much every one of our competitors, but on the balance, we have instituted not only in the compensation schemes to make sure that it’s not just revenue for revenue sake, but there is a much more rigorous deal evaluation process that goes all the way up to me and Paul in many cases to make sure that sales guys are just writing revenue that has no profitability attached to it and that process is much more rigorous and it goes up to the top in any time.

[Paul Tomkins:]

Yes. Mike, we have a pretty disciplined process that we review margins on deals, we ensure that we are going back, it is a very rigorous process with the customers to ensure that we are maximizing the profitability, the margins on a deal. And in fact, there are situations where we will go back to the sales team, we’ll go back to the customer multiple times, it's a pretty fulsome process.

[Mike Boroughs:]

Great, thanks. And then just real quick on the, it looks like you guys signed a deal with Lenovo on the Maintech side recently, I may have missed that in the commentary, but can you talk a little bit about what that deal means to you guys, is that a big opportunity in terms of revenue for Maintech and whether that impacts the negotiations at all?

[Paul Tomkins:]

Yes. It's really a great opportunity for Maintech, they won a global RFP to provide Lenovo any number of core services. It's really based on global supply chain management, configuration, installation, break fix, help desk, the tier 2 technical support desk. So those are the four main services that they would provide to customers of Lenovo and it is very good win and it should provide strong opportunities as we move forward.

[Michael Dean:]

One other thing I'll add to that is that it's also an important deal for Maintech, because it is in sort of the growth area of the industry and then for Maintech, it's in a technical area that we think is part of the future of that business. So it’s not only a good global deal with a large brand-name, but it’s in an area that we think is part of the strategic direction of Maintech as it goes forward, so it’s good from that standpoint as well.

[Mike Boroughs:]

Okay. Thanks, guys.

[Operator:]

Thank you. Our next question comes from David Neuhauser from Livermore Partners.

[David Neuhauser:]

Hey, good afternoon, guys. So it seems like you are making steady progress on the turnaround at this point in time, how are you looking at things in terms of the go-forward basis. I know at this point it seems like 2017 is the point in which you would start to actually generate some free cash flow and to start to see some better margin improvement from all the adjustments and changes that you guys have put in to place here in the past year or so, is that how you’re setting things up. I mean, can you allude to that a bit?

[Michael Dean:]

Yes. I mean there is a number of fronts at how we evaluate our turnaround. One is, just remember the three pillars, stabilizing the balance sheet and the foundation of the company, we’re pretty far along with that. We saw some things, like the financing in Maintech and other things, but everything else, there is some list of something like 20 or 30 things that we’ve accomplished there. The stabilization of the company is pretty far along. Pillar 2, which is sort of rightsizing the organization for margin improvement and getting the right margins so that it sets us up to be able to invest in growth as we start getting there. We've talked a bit about that, there is real progress there, a run rate of more over $10 million of cost reduction over a couple of different quarters and we’ve made good progress there. So, those measures are good. So the real question is longer-term profitability and ultimately the big question of revenue growth, and I think we measure revenue growth the same way you do, and we knew it wasn't going to change overnight to profitable and positive revenue growth, it was going to take time. And if you look at the trend that I stated in the earlier part of the call, which is from a 14% decline to 12% to 9% to 4%, basically we need that to continue bending that curve and when we hit breakeven in what month, I can't tell you, but we are looking to do that sooner than later. And that's also bracketed by the fact that we have a number of different sort of pieces of business in our company where we have different sort of states of where the turnaround is. We probably invested most heavily in the core domestic staffing business as we’ve said, we called our traditional staffing business, which is over 80% of the whole company's revenue and that’s showing we put the earliest amount of attention and effort in that, although we’ve been working on all of them, and that's the one that’s shown, no surprise that the earliest turn in it that’s the one that’s turning pretty quickly and we hope that to continue. The other businesses, we had now put management in place that is new in most of our other businesses and some of them were as new as two to five months old, but even they are moving quickly, building their team and their comp plans and their strategies and so they will be a little bit from the behind, but as long as we have the big piece of domestic business that [indiscernible] 4% decline. This quarter, we hope to continue to bend that curve and not sort of stall there, but continue to bend that curve and it’s moving in all the right direction as we’ve described in the metrics.

[Paul Tomkins:]

Yes, David, a couple of other things too. Behind the scenes, we’ve been working on process efficiencies and of course the IT project, which we’ll see some benefits for sure in 2017, but we have been working on the cost structure as you can see as well. So at the same time that we are bending the revenue curve, our major businesses, we’ve been working on the cost structure and getting as Michael said, the right people in the right positions, the right leadership, leading those businesses and getting the cost structure more sized for the ongoing business.

[Michael Dean:]

Right. And sorry if I may add, the piece of that that's important we said before, but it’s important to note, especially in this quarter end, and following couple of quarters is that while we are pretty significantly streamlining processes and cost structure, it’s in part to create profitability, in large part to create profitability, but not to forget the other pieces so that we are not dipping into our capital but we are creating an ability to invest in the people to turn the revenue around, because once you turn the revenue around, our scale growth can drop a lot of profitability straight to the bottom line and cover our corporate expenses. So we’re cutting every three dollars to invest one back and put two back into profitability or whatever the actual numbers are, but we’re looking to both create profitability and alleviate some room so that we can invest in growing that topline because, as we said before, for example, the sales force was really not where we needed and we really had to invest in a lot of people in the sales force area to drive that revenue growth and I didn't want to drive our cost up, we had to tighten the belt pretty significantly wherever we could to not only have the profitability, but also invest in talent that will drive the top line eventually.

[David Neuhauser:]

Yes. And that's part of my second question is, are you attacking areas of growth in which you see higher margins in specific sectors, meaning, we’ve lost a lot of revenue in terms of the oil and gas business, and I don't see that business necessarily coming back. So are you focusing more in other areas that you’re actually winning businesses in that has higher margin in, can you tell us a bit more granular in terms of where, what type of sectors you’re winning business from in this past quarter or two?

[Michael Dean:]

Yes. So the answer is, yes, we are actively, it's not just industrial sectors or job families, there is a number of areas that we're trying to improve our margin. As stated earlier, it's driving better deals and saying no, where we hadn't in the past on revenue that isn’t going to be profitable. That obviously helps your margin pretty dramatically over time. I think, but to your question about sectors and lines of business, we have enough different areas of business that is not just one area, but we are not only trying to drive growth where we know how to play and we have capability, but on the fringes, there are places that we have some capability, but haven’t fortified enough and even sort of business units, somebody asked me the other day about, I mean a couple of minutes ago about BMC and there is growth in that area that can be notably higher margin than the traditional staffing business. So we are building the plan and have started actually executing on some of that to drive growth into some of those higher margin areas. In traditional staffing, we are doing things like driving more in to direct placement and RPO, which are smaller segments, but notably more profitable, in some ways, stickier and good business that our add-on business is the bulk of what we already do. We already do some of that business, but it hasn't been a focus in the past. So we have actual efforts and plans that we have been executing against to not just do traditional time and material staffing, but to find the other areas that we can help our clients that also help them and give us the higher margin and the balance.

[David Neuhauser:]

Yeah. Now, that all sounds good. I mean that's the key, you have to look at ways you can continue to differ yourselves and provide more value to current client base, I mean that's going on a number of different businesses today and I think what would be no exception. So, on that front of course, it looks like you are making headway, of course, this all takes time, it's not something that’s done in a quarter or two. I think at this point, we just truly understand that. The one thing in which you haven't been as obviously now transparent, but you haven't executed on is the earliest that in terms of executing non-core asset sales and doing the things that we discussed in terms of selling Maintech and being able to buy back shares and renegotiating your bank line, I mean on a go forward basis, you guys definitely need to do a better job with that, I mean you can't come out with your first-ever presentation in years and dictate when you expect things to happen and then come back and say, well, we have no control over this, so we can't give date, I mean that's what this business is all about, it's about your credibility and I think Michael and everyone on this call understands that. So on a go forward basis, you have to be crystal clear on what you are able to achieve and there is a timeframe you can achieve it and then in terms of the business, operating business to turn it, but that also is also regarding some of these non-core asset sales, which have now dragged on for several quarters. So that's something I just wanted to pay attention to on a go forward basis, so that we don't have this issue, because part of the reason why the equity is depressed is all things you described in terms of where the business was when you guys came in to management, and you’ve done a lot of good, but the other things that you have set out in terms of other goals in the non-core sector, you haven't achieved, and it’s taken longer. And those are things that you truly have to have a better handle on, or else no one is going to be going out there tomorrow and trying to get your shareholders is going to be very elusive for you.

[Michael Dean:]

Okay. So I appreciate the question. Let me answer that in a couple of ways. One is, it's just as bad to give you deadlines in this. Second of all, because that’s a faster way to lose shareholders and we are telling you what we know and I’ve done quite a bit, I’ve done $30 billion of M&A in my career and I’ve had, I don't remember a single deal I could peg the date on. And I can tell you more than half of them just bad left turns along the way. And so we're really careful to give you what we know and as for the non-delivering on all the non-core assets in sales, I can go down a pretty long list of the things we have executed, Maintech is literally the last one. And we sold VTG, we sold the Uruguayan publishing and printing, we dissolved CWS joint venture. We sold the Uruguayan staffing. We’ve amended the PMC deal three times I think. We’ve done -- completed an AIG collateral swap and we sold the San Diego real estate, we’ve sold the Orange real estate. The list goes on. There is a lot of things that we've done in a very short timeframe that’s over 12 months and so the Maintech is ultimately the last one, I know it's a big one, it’s an important one, we take that very seriously, but I think we have executed on quite a few things in the last 12 months and we're doing our best to sell Maintech as well.

[David Neuhauser:]

I understand, but just remember Maintech is the one that’s handcuffing you, meaning you have no ability to buy that shares and return capital because of Maintech and that's also due to your bank. So I mean, those are the two big factors here that need to be executed. So obviously that takes, that’s an extremely important aspect. Of course, operations are the most important aspect, and I know you're making good headway on that, but it’s just the things that are really handcuffing us today are the things that ultimately will have a greater effect on starting to raise the equity. So I just want again to reiterate that, and I don’t want to take up all the time in the call here. So I’ll go back in the queue if anyone else has further question.

[Michael Dean:]

Okay, thank you, David.

[Operator:]

Thank you. At this time, we have no further questions. I will turn the call back over to Michael Dean for closing comments.

[Michael Dean:]

Thank you, operator. And thank you, everybody who is on the call. As I’ve stated before, I just wanted to mention that this is a complicated turnaround that will take time, however, we are certainly seeing the turnaround starting to show and we remain on track with all the key operational improvements that we’ve set out to accomplish from the beginning. And so with that, I want to thank all of you for your support and for joining us on today's call. We look forward to speaking with many of you over the next coming months and as we report our next earnings call for the fiscal 2016 fourth quarter results in January. So with that, thank you very much.

[Operator:]

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