Volt Information Sciences, Inc.
Q3 2015 Earnings Call Transcript

Published: 11 Sep 2015

[Operator:]

Greetings and welcome to the Volt Information Sciences’ Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I’d now like to turn the conference over to your host Mr. Lasse Glassen from Addo Communications. Thank you. You may begin.

[Lasse Glassen:]

Good afternoon and thank you for joining us today for Volt Information Sciences’ third quarter of fiscal 2015 earnings conference call. On the call today is Michael Dean, Chairman and Interim 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 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 10, 2015. With that, it’s now my pleasure to turn the call over to Volt’s Chairman and Interim President and CEO, Michael Dean. Michael?

[Michael Dean:]

Good afternoon, and thank you for joining us today to discuss Volt Information Sciences third quarter fiscal 2015 results. I will begin by offering a few comments on the recent leadership transition at Volt and then provide an overview of our financial results from this past quarter along with our plan to get our business back on track. Paul Tomkins, our CFO, will then discuss additional details about our financial results, balance sheet, and capital allocation priority. A question-and-answer session will follow after our prepared remarks. I’m excited as I take on this new challenge leading Volt. We have in place a new leadership team with the track record of success throughout their careers, and active and knowledgeable Board of Directors, a strong book of current customers, and we’re operating in a growing market. I see great possibilities for Volt and look forward to building on the foundational strength of our business to achieve our long-term goal of returning the company to profitable growth. To this end, our leadership team is energized, excited, and working with a sense of urgency to address the challenges that face us and to focus on the opportunities that lie ahead. With the recent changes in Volt’s leadership, we are capitalizing on this opportunity to take a fresh look at how we operate, and by empowering all of our employees to make positive changes each and every day, and I believe these actions will lead us to significant improvement in our performance in the quarters and years ahead. Looking at our third quarter results, net revenue of $364.7 million decreased 13.7% from $422.6 million in the third quarter of fiscal 2014. The decrease in revenue was primarily the result of lower staffing services revenues of $55.6 million or 14%, primarily driven by a decline in demand for our higher margin generating technical skillset and to a lesser degree a decline in demand for our non-technical administrative and light industrial skill set. We reported a net loss for the third quarter of $4.1 million or $0.20 per share compared with a net loss of $0.5 million or $0.03 a share in the third quarter last year. Results from continuing operations for the third quarter of 2015 were a loss of $4.1 million compared to income of $3.4 million in the same quarter last year. The loss from continuing operations in the third quarter of 2015 included special items and reduced income by $3.4 million, which Paul will describe in more detail in a moment. Excluding the impact of these special items, the loss from continuing operations for the third quarter of 2015 would have been $0.7 million on a non-GAAP basis. To address the systemic issues that have hindered both financial and operational results over the last several years, we have been working with urgency to develop a detailed and time sensitive plan. I’m confident this plan will help showup our liquidity position and balance sheet over the next two to three quarters and provide a foundation for returning to a growth trajectory. This plan is comprised of three basic tenants that include; one, improving our balance sheet and simplifying our corporate structure; two, reducing costs and enhancing margin; and three, generating top line growth. Let me take a moment to discuss each of these in more detail along with our progress so far. To build a strong growing company, we need to start with a solid companywide foundation. To this end, we are looking to improve our balance sheet and simplify our corporate structure, and we continue to make excellent progress on a number of fronts. During the quarter, we improved and extended our short-term financing program with PNC Bank. The new agreement increases the capacity of the facility by at least $24 million, and extended the term through July 2016. I am pleased with the improved terms and added financial flexibility provided by this financing. As part of our attention to streamline our corporate structure and operational focus, we are also moving forward with the divestiture of non-core assets. First, during the third quarter, we completed the sale of our unprofitable Uruguayan publishing and printing businesses, and subsequent to the end of the quarter, we are proud to announce today that we’ve completed the sale of certain assets of Volt Telecommunications Group. Although the combined consideration Volt received in the sale was modest, these assets have been a significant drag on our profitability, working capital, and cash flow. Through the third quarter of 2015, our operating loss associated with these assets totaled $3.6 million, excluding impairment charges. Similar to the sale of our non-core computer systems business in the first quarter of fiscal 2015 and our vendor management software in the first quarter of 2014, these divestitures enable us to better focus management attention and resources on opportunities with our core staffing business where we believe we are better positioned to add value. Our plan to simplify and streamline our corporate structure, extend beyond operation, and also include the monetization of Volt owned estate assets, including our approximate 200,000 square foot Class A office facility in Orange, California. To this end, we are working with Cushman & Wakefield to market the property with the intent of entering into a sale lease back arrangement with a potential buyer. Our marketing activities to date have resulted in significant buyer interest in the property, and we expect to close the transaction within 2 to 3 months. Furthermore, we are in the process of selling our approximate 19,000 square foot office facility located in San Diego and expect this transaction to close in a similar time frame. The second pillar of our turnaround plan is reducing our cost structure and improving Volt’s margin. Industry operating margins currently average approximately 2% to 4%. While Volt is not yet at this level, our long-term goal is nothing short of achieving the industry standard. As a result, we will be implementing the following initiatives to improve margins going forward. After an in-depth review of our business unit operating costs, corporate overhead, and overall business processes, I believe there is significant room for improvement in each of these areas. We are restructuring our cost in order to redirect investment into key sales-supporting activities, while reducing investment in other areas. Over the next two months, we will be completing budget for fiscal 2016 for which every department within the company will be held accountable. I intend to create a culture of accountability within Volt that will be key to the company, executing against our budget and achieving the desired improvements to our cost structure. In addition to reducing operating expenses, we will also focus on managing our business mix towards verticals and job categories that have higher direct margins. We are bolstering our efforts to further our capability in the higher margin and technical job categories. Moreover, we will also be highly disciplined in our profitability requirements on new business as well as to renegotiate or exit current unfavorable customer contracts to drive improvements in direct margins. Part of our suboptimal cost structure is a result of inefficient and outdated business processes. We are currently evaluating our front, middle and back office business processes and IT tools. Over the last several years, Volt [felt a high] in this area as the company was focused on completing its financial restatement. We are now actively engaged in updating the business processes and IT tools that are critical to our success. Our goal is to reduce complexity, identify and address manual and redundant processes and simplify the organization, all with a focus on aligning our support infrastructure with the requirements of the business. We are actively pursuing advanced technologies to support our staffing business. We are also planning to upgrade the back-office financial suite which will provide more functionality to lower cost to the company. In fact, we’ve already taken the first step here and last month hired a world-class Chief Information Officer to lead this effort. The issues that led to Volt’s current inefficient cost structure were years in the making and will take time to solve. However, I’m convinced that we will achieve incremental improvement in the coming quarters and a material impact over the course of fiscal 2016. The third and final pillar of our strategy is to expand revenues by increasing market share and participating in the growth of the staffing industry. Volt’s marketing strength includes a strong brand and long-standing relationships with key customers and our contingent workforce. To date, we have a strong roster of Fortune 500 clients and we will be highly focused on building upon these relationships to hold and grow our book of business with these large enterprise clients. We will achieve this by improving service delivery, streamlining operations and accelerating time to fill orders. We will also need to make additional investments in our sales organization to develop such opportunities with our clients. Another area of focus to drive revenue growth is adding new clients and growing them as the staffing requirement increase. To achieve this objective, we will establish a pay for performance culture and align incentive structure with companywide strategy and metrics. Furthermore, we will focus our sales strategy on specific market segments and make sure we have a world-class team with expertise to address each segment. With our new plan in place, I believe the fundamentals of this company will be strong. Volt has a great deal of potential and a large and growing industry and I’m excited to be part of it. While it is clear that we have a lot of work ahead of us and significant growth to overcome, I am confident that Volt will emerge as a strong and vibrant company. I look forward to executing our strategy, improving our financial and operational performance and the opportunities to significantly enhance shareholder value in the quarters and years ahead. Now, I’d like to turn the call over to Paul to discuss our financial results in more detail. Paul?

[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 of $364.7 million declined $58 million or 13.7% on a year over year basis. The decline was mostly attributable to the staffing services segment where revenue decreased by $55.6 million or 14% from the same period last year. The staffing services segment revenue decline is primarily driven by lower demand from our customers in both our technical and non-technical administrative and light and industrial or A&I still sets. Declines were most prevalent in the manufacturing, oil and gas and utilities industries as they continue to experience a slowdown in demand. Our net loss for the third quarter of $4.1 million included special item charges of $3.4 million consistent primarily of restructuring charges, impairments, stock based compensation for grants provided to the new Board of Directors, partially offset by foreign exchange currency translation gains. Excluding the impact of these special items, the loss from continuing operations for the third quarter would have been $0.7 million on a non-GAAP basis. Adjusted EBITDA, which is also a non-GAAP measure, was $3.4 million in the third quarter of fiscal 2015. This compares to an adjusted EBITDA of $7.2 million for the same quarter last year. Adjusted EBITDA excludes the impact of interest expense, expense, depreciation expense, intangible asset amortization, stock based compensation expense and other special charges. For a reconciliation of GAAP to non-GAAP financial results, please see our third quarter earnings press release that was issued today which is available on our website. Moving on to our core staffing services segment results, operating income in the third quarter of 2015 of $3.4 million included $2.5 million of special items related to an impairment charge of $2.1 million and restructuring cost of $0.3 million. Excluding the impact of these special items, staffing services segment operating income would have been $5.9 million. While the company has been successful in shedding cost as revenue decline, we will continue to right size the business appropriately as we shift our structure and focus primarily towards staffing. For the staffing services segment in the third quarter, direct cost of staffing services decreased 14.4% to $288.7 million, compared to 14% reduction in staffing services revenue over the same period. This decrease was primarily the result of pure contingent staff with lower aggregate filling rate on assignment as well as our focus on higher margin contracts. As a result, staffing services segment direct margin percentage was 15.4% versus 15% for the same period in 2014. The increase in direct margin is attributable primarily to improvements in our project based and managed service programs during the quarter. The staffing services segment’s selling, administrative and other operating costs in the third quarter decreased $3.7 million or 7.2% primarily due to lower recruiting and delivery costs as well as lower information technology support cost. These costs were 13.7% of staffing revenue in the third quarter this year versus 12.7% in the same period a year ago. As Michael noted in his remarks, key to our ability to reduce costs, enhance operating efficiencies and ultimately drive top line growth is redesigning some outdated and inefficient business processes. In my short tenure at Volt, our team has identified many cumbersome legacy processes that require streamlining and simplification. We have tams currently addressing these issues and I hope to report on our success in improving our cost structure and operational efficiencies on future calls. Another important area of focus that I would like to discuss with you today is our liquidity position. As I noted on our call last quarter, we believe we need to continue to add liquidity for financial flexibility and to be in a position to invest in our business for growth. On August 1, we entered into a one-year $150 million short term financing program with PNC Bank. This program replaced our previous short term financing program with PNC and expires on July 28, 2016. In addition to extending our previous facility, the new financing program increases our borrowing capacity by at least $24 million resulting primarily from the inclusion of receivables in the UK and Canada. As of the end of the third quarter, we had $27 million in available liquidity for working capital requirements, which we define as cash in banks and borrowing availability, up from approximately $17 million at the end of the second quarter on a consistent basis. Since the end of the third quarter, our liquidity has further improved to $46 million as of September 4. This is almost tripled from our available liquidity at the end of the second quarter and is now at a level that we believe is adequate for the foreseeable future. In addition, a number of initiatives that Michael outlined in his prepared remarks including the monetization of our real estate in Orange and San Diego, California, along with proceeds from expected tax refunds we have noted previously, we expect to meaningfully strengthen our balance sheet, capital structure and add to our liquidity position in the next quarter or two. While we are on the subject of liquidity, I also think it is appropriate to highlight our management team’s capital allocation philosophy as we begin the process of executing our strategic plan. This philosophy is centered on our belief that we can best maximize Volt’s shareholder value through stock price appreciation resulting from improved financial and operational performance, coupled with prudently returning capital to shareholders. Our top priority is to ensure that there is adequate liquidity for working capital purposes to effectively manage our business. Based on our business requirements, we believe that our liquidity balance of $40 million to $50 million would be adequate to support our business requirements today. Excess liquidity beyond this level would likely be used to reinvest in the growth of our business. This would include tools and advanced technologies to support our staffing business, including an upgrade of our back office, financial suite which will provide more functionality at a lower cost to the company. And also high on our list is returning capital to shareholders through share repurchases or other potential options as well as deleveraging our balance sheet by reducing our net debt levels. In closing, I’d like to recap some key points. Although the company is challenged on a number of fronts, Volt has a strong brand and excellent book of blue chip customers and is operating in a growing industry that the company helped to pioneer. We are thoughtfully developing a plan that builds on the foundational strength of our business and will put Volt in a position of returning to profitable growth. With the new management team and Board of Directors in place, we are highly confident in the future success of Volt and working with a sense of urgency to make this happen. 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 the line of with Joe Gomes from William Smith.

[Joe Gomes:]

First, I’d just like to kind of get a little more update and detail on the CEO search, where are we in that process?

[Michael Dean:]

The departing CEO transition happened pretty quickly, and given my skill set and background, it was natural for me to step in. And the Board is actively pursuing whether or not it would make sense to maintain a CEO over the long term, and we expect to have an answer in the near future. In the meantime, it’s worth noting that we are operating first in hand in my role, there is no decision or action that has been delayed by this process. We are moving forward with urgency on everything. So until that time, it is [indiscernible].

[Joe Gomes:]

I’m assuming from your remarks today that this would be something if offered to you, you would be excited about accepting the role as the full-time CEO?

[Michael Dean:]

Yes.

[Joe Gomes:]

And then in your prepared remarks and in the press release, you guys talked about the great deal of potential with Volt and now you are taking a fresh look at how the company operates, and I understand and recognize that both of you are relatively new to the company, but we’ve heard this before, we’ve heard this for a long time and as we look at the results, especially in the staffing business, not a whole lot has really changed there especially on the top line, what is different this time that from an investor standpoint that we are actually going to see change here, we are going to see top line growth? You talked about the strong book of customers, but in reality, revenues in the staffing business are down significantly year over year in a segment that your competitors are showing nice top line growth?

[Michael Dean:]

Couple of things. One, as we move forward, there is a number of activities we are doing and revenue growth [indiscernible] talking about strengthening the corporate foundation and we are making a lot of progress there. The margin improvement and we are doing [indiscernible] and as well as revenue growth, we are actively pursuing activities and improvements there. I think all three of those we’re working on today, I think of the three of them, the first two actually showed improvement quicker than the revenue line. I think that this is a good business, it’s a growing business, but it’s also a competitive business, and I think on the revenue line, that’s the one that takes time to turn around. It takes time to get new customers; the process from going from growing from sales to a contract to actually generating revenue in some instances can take six to nine 9 months. And so, I don’t know specifically to be much quicker than that, but I think the terms, our large book of revenue into a growing business will take time and I think of the three tenants that’s going to take long.

[Joe Gomes:]

I’m just trying to figure out what’s different, because again, we’ve heard this now for a while, and on the top line we haven’t seen any of that materialize, we just see – again I know this wasn’t you, but last year in the fourth quarter, was talking about a flat first half and improvement in the second half of this year, and we are nowhere close to that, and again it’s a business, it’s an industry that’s been growing. So why do you have confidence that the customers – you will be able to win business from both existing and new customers?

[Michael Dean:]

To the first part of your question, what’s different, it’s new management and a new Board, which I think has a pretty significantly different sense of what needs to be done in a different sense of urgency. I think that combined with the fact with the new management and new Board, and a new sense of urgency, we are building a plan to do things differently and focus our attention on growth and invest in growth where in the past there was little investment in growth. And I think in order to grow, you have to be very focused, you have to invest in areas that will generate positive return to shareholders. And I think in the past there wasn’t the urgency around that and there was much less investment. There was a restatement and other things that caused us to be in that mode back then, but it’s a new day for us now and we are very focused on not doing things the same way that we’ve done in the past and focusing our efforts very seriously on growth and urgency to get there.

[Joe Gomes:]

And you talked a little bit about the restructuring and taking out cost and also some of the plans in investing in some of these advanced technologies. On the restructuring, are we expecting additional restructuring charges to be taken here going forward, so can you give us some type of range of what they would be and then what do you think in terms of what the cost is going to be as you invest in some of these advanced technologies to get the company up to what the industry standards are?

[Paul Tomkins:]

First, let me take the restructuring cost. Clearly, we are filling in to a position where we’ve exited a number of non-core businesses and we’re clearly focused on the staffing business. So we are looking to – look across the entire organization as we build our 2016 plan that we are in the middle of, and we will likely be rightsizing the business in those spots that we think are very intelligent to right size. We think that the IT spending is also going to be a very critical part of where we are going. We have some outdated systems and processes and it is critical both on the front end and the back end to update those systems and processes and we also think that there is going to be some additional cost that we will have to put into that, but we think it’s also going to help on the cost side and we also think it’s going to help on the revenue generation site.

[Operator:]

Our next question comes from the line of Richard Whitman from Benchmark Capital.

[Richard Whitman:]

Mike, I didn’t hear anything in the comments or in the release about the tax rebate, don’t you have a pretty substantial tax rebate due to you?

[Paul Tomkins:]

We do have – as you look on our balance sheet, we have a $16 million tax receivable which is resulting from refiling some of our tax returns from prior years as a result of some impacts of the restatement. And so, we’ve been in very close contact with the IRS, the bulk of it is Federal, so it’s IRS, and they had to complete an entire audit those years that were refiled and. And so those are finalized, nearly finalized and then they extend to the joint committee. And we expect that to come in within two to six months after it goes to the joint committee. So it’s anywhere from two to six months from this point. But we’re pretty confident that we are going to get that in a timely manner.

[Richard Whitman:]

My next question has to do with the sale leaseback. Obviously, the positive is that you are taking cash on appreciated asset, which isn’t doing anything for the business, but on the other hand you go from paying no rent to paying rent. So is it your intent for the people obviously to stay in that location, what do the numbers look like in terms of the rent that you’re going to have to pay going forward and how that will affect future earnings?

[Paul Tomkins:]

One of the things that we believe is that we really don’t want to have our capital tied up in real estate. So obviously that’s one of the reasons we want to monetize that asset and also the one in San Diego that we mentioned. It’s a very good question, we think that we can reinvest, use those funds for our capital allocation process that we laid out in our remarks. In addition, we are looking to stay in the facility for sure. So we’re looking to do a sale leaseback as you mentioned. And those employees would stay in that location and we are looking to be as efficient as we can within the four buildings that we have there. So we are looking to occupy roughly half of that whole facility and sublease the rest. And so we know that will increase the rent expense for sure; we are in the process of a very competitive sale process with many interested parties and so we are not – we don’t know actually what the sale price would be, but we do have a good sense for what the net impact would be. And so we think it’s a very, very smart move for the company.

[Operator:]

Our next question comes from the line of Ross Taylor from Somerset Capital.

[Ross Taylor:]

Mike, first, we’d like to congratulate you on the assumption of the CEO duties and we would be someone who would support you taking over the job full-term. I don’t think the company needs to see another transition. It sounds like you have a plan and are well on the way to executing that plan and the idea of transitioning to get another CEO, what we believe, be kind of productive to where we need to go. Away from that, how long do you think it takes until you are rightsizing and your other efforts can return the company to profitability?

[Michael Dean:]

I think we are at the level where we are roughly breakeven, depending on how we calculate that on a go forward basis. We are not materially positive or negative. So returning to profitability really stipulates when we can start getting the revenue line growing and when we can get some of these cost efficiencies in place, which like we said, the cost efficiency [indiscernible] we will start hitting probably in the revenue. So I think the cost efficiency will probably take a quarter or two to hit and so when we see us start seeing improvement, my best guess is starting in the first or second quarter next fiscal year.

[Ross Taylor:]

So then you would expect that fiscal 2016 to be one where we actually – the company generates an operating profit?

[Michael Dean:]

We are not...

[Ross Taylor:]

Reported profit, GAAP profit?

[Michael Dean:]

We don’t give guidance at this point. So I couldn’t make that statement yet.

[Ross Taylor:]

Second, the last conference call and the release around it were a disaster really for shareholders, the tone of that was very negative, the concerns about liquidity obviously help create a panic in the stock in spite of the very poor performance in the stock, you have a substantial amount of the share short. At the same time, there has been significant changes in the leadership level of this company, someone who we also wanted to see gone is now gone and we are very pleased to see the changes at the CEO level and the Board level. But we also note that you have a long way to go to rebuild that confidence with investors and I heard you talk about, I heard the reference made to the idea that you have the adequate liquidity to run the business at this point in time. So should we assume that as you monetize these assets, real estate and others, that you will get back into the return of capital to shareholders which was so rudely and surprisingly stopped last quarter?

[Paul Tomkins:]

Very clearly, first of all, returning capital to shareholders is a priority, clearly. We are just starting to build some of the strength back into our balance sheet and we certainly have activities where that are continuing internally to make sure that we get as efficient as we can, but we also know that we’re going to be reinvesting in the business, some of the antiquated systems. So that returning capital to shareholders is clearly a priority. That is in our capital allocation as we’ve indicated and so it is maintaining a good level of liquidity to make sure we can manage the business effectively.

[Michael Dean:]

I think once we capture that, I think like Paul was to point, where we are building the strength in our capital structure, but our capital structure is changing almost daily at this point as we improve it. So in the next few quarters, our capital structure may look very different with some of the non-core stuff that we are doing in the real estate, et cetera, and once we get to that point, we will know what our balance sheet – a much better idea of what our balance sheet looks like and we can have a better discussion around all of our capital allocation priorities.

[Ross Taylor:]

What would you anticipate the need for systems to be economic dollars device, how much do we need to invest in those?

[Paul Tomkins:]

We actually have – we are in the process right now of making that very assessment. And we are looking to begin investment in the fall and it’s on both the front end and the back end, so the front end is really where we – the cusp of the organizational system infrastructure where all our contingent workers reside, our CRM systems resides. And also the backend of the financial suite is outdated and needs to be upgraded. And actually both of those will have a meaningful improvement both in the cost side and front end will also help us generate revenue more effectively. In terms of an actual number, we are not final – we are very close to finalizing that and it seems we have a good sense for what that will be then we will disclose that.

[Ross Taylor:]

Can you even give us a ballpark, is it $10 million, $5 million, $20 million?

[Paul Tomkins:]

I would say the next call we will be able to give you pinpoint information on that.

[Operator:]

The next question comes from the line of [Paul] from Fortis Capital.

[Unverified Analyst:]

The first is probably for Paul, I think you said that on the other segment, if I look at three months, which is around $600,000 loss if I back out the negative impairment, you have $3.6 million loss Uruguay/telecom business, does that mean – I just take the $3.6 million versus the fixed loss, the other asset produced around $3 million operating profit this quarter?

[Paul Tomkins:]

I’m not sure I understood your question, are you talking about the other segment in our reportable segment?

[Unverified Analyst:]

Yes. So regarding other, when you back out the negative impact, the loss of about $600,000 – and then you said one you got rid of which already discussed this area, where $3.6 million loss for the quarter. So if we just take the $600,000 loss and add back $3.6 million what will be discount, I get to $3 million operating profit in the other segment in the quarter?

[Paul Tomkins:]

I think if you’re looking at last year, desktops, the only thing we have in here is computer systems that we sold last year.

[Unverified Analyst:]

No, no, I’m not talking last year. I’m talking this year.

[Paul Tomkins:]

So in the other segment, we have three businesses, so we have Uruguay, Volt Telecom, both of which at this time point have been sold, the results reside in the third quarter. They were both in the quarter results at the end of the third quarter. And we also have Mentek. So those are the three businesses. There was an impairment charge adjustment that took place in Uruguay in the current results and we’ve highlighted that in the materials, in the press release and in the Q. So that was an offset of about $1.5 million. So that will show up in Uruguay in our other segment in the current quarter.

[Unverified Analyst:]

I’m with you on all the numbers, but earlier you said that Uruguay– I think the exact comment was the Uruguay and telecom produced a loss of $3.6 million for the quarter, exclusive of the impairment. So does that mean basically Mentek was the only one remaining, did about $3 million of operating income, just back out the $3.6 million net of the $600,000 loss for the other segment?

[Paul Tomkins:]

Yes. That is correct. So the $3.6 million relates to both businesses.

[Unverified Analyst:]

So Mentek made $3 million and Uruguay and telecom raised a loss of $3.6 million. So as we look at this going forward, Mentek made $3 million in the quarter which is going to be the only thing [indiscernible].

[Paul Tomkins:]

Yes, it’s not as the $3 million level, but we don’t – we haven’t released results on specific businesses within the other segment. So at this time, it’s – the three businesses are in here, but we are not breaking them down between Mentek, VTG and Uruguay.

[Unverified Analyst:]

I’m just [indiscernible] I think if you just do the math, that’s the number you get. But okay, so along the – is it reasonable to expect – so if I just look at the liquidity three to six months out, as you are thinking about it Paul, with $46 million now is going to be a significant draw back onto to 2016 and then I’m guessing somewhere around on, whatever, $30 million or so for the building [indiscernible] $90 million of liquidity, is that kind of a ballpark of where you guys are looking at it three to six months out?

[Paul Tomkins:]

It’s going to be significantly tens of millions higher than where we are today, if we execute which we believe we will, of course on both the tax refunds as well as the Orange facility. I would say that – we are not forecasting cash, but we feel we are in decent shape right now, significant improvement from where we were and we are looking – we are right in the middle of the competitive process on the Orange facility with many interested parties. So we’re hoping we will be getting into a bidding work on this and we do well.

[Unverified Analyst:]

And then just a couple of on the staffing, on the G&A, within the staffing, down about 7% or $3.5 million that you guys called out in the press release, how much of that in the [indiscernible] revenues coming up $13 million, how should we think about that?

[Paul Tomkins:]

Can you repeat that, we didn’t quite get that?

[Unverified Analyst:]

On the G&A within staffing, it went from $50.4 million to $46.7 million, which I think is around 7% decrease, I just want to get a feel for how do you think about the variable here, that’s down 7%, revenues down say 14%, how should we be thinking about that number?

[Paul Tomkins:]

So a lot of that selling and administrative within staffing has been a focal point for us. We are continuing to evaluate cost and we have been over the last several quarters. So most of that, I would say, some of it is variable, but there is a fair amount of marketing cost in there that is fixed, but we’re evaluating our cost structure completely to head to toe in the administrative and sales area.

[Michael Dean:]

And to add to that, while a lot of it is not directly variable, I think it’s a bucket of cost and the work that we do that I think is subject to creating better processes and better focus on delivering the shared services, if you will, for them. And so while it’s not directly variable, it certainly something that is part of our process to be ensuring in ways that gets more focus and alleviate some of the margin pressure.

[Unverified Analyst:]

And then just a last one is on the corporate, I think we saw that go from $3 million to around $5.9 million, I’m sure that there is [indiscernible] what’s going on with the corporate, how should we be thinking about?

[Paul Tomkins:]

The first piece of that is noncash stock comp that I mentioned in our prepared remarks, which went to the new Board of Directors. We also have some higher outside legal costs which pertain to a lot of transactions that we just completed. So the sale of Uruguay, the sale of VTG and also the PNC facility.

[Unverified Analyst:]

The stock comp was about $700,000 quarter to quarter and then legal may be is the majority of that additional $2 million variance?

[Paul Tomkins:]

Yes, it’s a combination of the stock comp and outside legal.

[Unverified Analyst:]

And then just my last one, we are wondering if you guys had any plans connected out there to a road show and talk about [indiscernible] business, but just your thoughts around, any potential presentations and whatnot, you guys are concentrated?

[Michael Dean:]

I think that’s coming soon. I think we are pretty new and we wanted to make sure that when we get out to the shareholder community, the investor community that we have a good story to tell, I think we are getting pretty close to that point. We want to come out with some stuff that is concrete enough that is not just – to a question earlier, it’s more of the same promises. We are getting pretty concrete points around our plan and we are doing that pretty quickly. So I think fairly still and we think we will be ready to start talking to investors.

[Operator:]

Our next question comes from the line of Matt Sherwood from Cooper Creek.

[Matt Sherwood:]

A quick question, one of the other calls was trying to get at this, can you just give us a little color around the Mentek business, how it fits into the portfolio and what – just the level of profitability of without some of these money?

[Michael Dean:]

Mentek is a good business for us. It makes money, although we don’t disclose exactly how much it’s a profitable business, it’s a growing business. And we like the business, we got a good team and a good product and a good book of customers. That being said, as we gone through the strategic process of determining what’s core, that’s one of the businesses like a number of others that we’ve tried to figure out whether it’s core to Volt as a whole or not and we are in the process and we will be able to speak to you that soon.

[Matt Sherwood:]

And then I guess within the staffing business, I know there is different pieces outside of just light industrial and administrative versus technical, can you may be talk about some of the other pieces of the staffing business and whether there is opportunity in some of them that you think was untapped in the past?

[Michael Dean:]

I want to make sure I understand the question. So light industrial and technical covers quite a bit and it is actually a way defined as pretty broad in our business, because light industrial is both administrative and light industrial and technical is both IT and engineering. Beyond that, there is accounting and finance and direct hire business, but the light industrial and technical the way we define it is pretty broad and covers a large portion of the industry. So I’m trying to understand...

[Matt Sherwood:]

I’m just trying to understand you have a game business, vis-a-vis within that business, a number of different business lines within staffing, is there anything within that [indiscernible] ancillary businesses that you think the potential that’s untapped?

[Michael Dean:]

I’m sorry, I understand now. I would take this and Paul you can add. We have a couple of other businesses that are core and related to our staffing business, that’s not directly in staffing business. One is VCG, which is our MSP business and that is a strategic piece of our staffing business while it doesn’t provide staffing, it provides staffing management, services to clients. It’s related to our staffing business, but sometimes the conjunction with our staffing business and that’s strategic, while it is not a large percentage of our revenue, that’s definitely core and something that I think we need to strengthen and grow as a strategic asset. VMC is also another business that is related to it, we use contingent workers [indiscernible], basically all the way from the development phase through the whole life cycle of the product. And I think it is often staffed by our staffing business and/or related to our staffing business and so that is core. Then I think that’s actually a very good business for us and one that we will look to see if there is opportunity to grow it as well, because that business has the possibility to grow in a number of different categories beyond just gaming.

[Matt Sherwood:]

Another one on the balance sheet, you did a phenomenal job improving the liquidity in a short period of time and you also will be financed the credit facility and sort of new features like letter of credit, is some of this features allow you to bring back cash, I know in the last Q, you are referenced $27 million that was on deposit within insurance provider and not something that we see a lot and maybe 10% of your market, just wanted to understand what were the flexibility in the new credit agreement?

[Paul Tomkins:]

We have a letter of credit facility as part of the PNC deal we just closed. So we certainly could use a letter of credit to replace some cash deposit that we have with insurance carriers. It is a significant amount, but we would use some of our borrowings capacity. So it’s a trade off, but it’s certainly an option for us. So yes, you are correct, the new facility gave us the opportunity to do that, we think it makes sense. And that’s an evaluation we are undertaking.

[Matt Sherwood:]

And how does the new facility give you the ability to lapse up and down or does it if you were to achieve some of these one-off liquidity events like sale lease back and tax refund and some if the other things?

[Paul Tomkins:]

We certainly have an opportunity to delever. And that’s part of our capital allocation philosophy. We have a floor in the deal, however, we do have the opportunity to grow meaningfully, reduce the outstanding debt. So that’s certainly a consideration as we get into that position.

[Matt Sherwood:]

And I would just reiterate with some of the other callers that we think the balance between deleveraging and returning capital to shareholders is really [indiscernible]?

[Michael Dean:]

Right. We wouldn’t disagree with that; I think there is a lot of priorities that I think – like we said in the – returning capital to shareholders is a priority.

[Operator:]

Our next question comes from the line of David Neuhauser from Livermore Partners.

[David Neuhauser:]

Most of my questions were answered, so I really wanted to touch on what 1some of those other callers were saying in terms of how you look at Volt on a go forward basis, you touched on the tax several years have been essentially a disaster, given the previous – I’d say, but going forward we have this fresh perspective in mind and I know Michael you are looking at the business both top-down, how you are looking at rebranding Volt, it has a long history, are you looking at focusing more on as you look to win your business, focus on higher margin business so that we essentially don’t have to see big revenue gains in order to achieve great profitability, maybe if you could talk a little bit about that.

[Michael Dean:]

I don’t think you meant exactly rebranding in the most broader sense, the branded stuff is 50-year-old brand and I think it’s going to be – I think we can strength it and I think it’s taken a little bit of hit over the recent years because of the restatement issues, I think it’s a good brand. But to your point about how you use that brand going forward and getting higher margin businesses, that’s definitely part of – one of the ways – I talked about my tenure – revenue growth, it’s profitable. And I think in the past we’ve done some of that where we have exited out of the business [indiscernible] margin business as we would have liked and we’re setting better targets for the right kind of margins business and [indiscernible] requirements in the business. I think there is a specific effort to – when I talk about going forward and focusing on target segments and markets, I think there is going to be a specific effort to it. I’ll give you an example of going into – further strengthening our ability to attract and build our technical and IT segment, whereas some of the highest growth in that segment, some of the highest growth in the business is one of the biggest segment, very profitable. And so I think we have room for growth in that area by strengthening how we do it and we think our brand going forward by building strong capability there and going specifically after it.

[David Neuhauser:]

I know this is going to take time, this is not a one quarter, or even two quarters type of event, but again as long as you can – and I know you have hit the ground running here and trying to really evaluate the company as a whole and then breaking down the segment in pieces and on where you are going to you improve and how you are going to make the company much more efficient, it obviously looks very promising. As you look at it again, I know people that just describing the balance sheet and the operating potential of the company, I mean the one good thing it seems like we have in mind as we do have a very low shareholder account today, shares outstanding I should stay, and it doesn’t take a whole lot when you talk about the company that’s close to $1 billion of revenues to start to really generate meaningful earnings per share. So I am not of course holding anything, but as you look out and even develop a strategy and an outline that can go to investors and you could potentially look to start to get on the road here and talk to new investors since probably everyone on the call, the legacy investors been involved here for the past few years, how are you approaching that as far as who you are targeting and what type of guidance you could even provide as far as how you are envisioning the company, not so much in the next one year, but even over the next 2 to 4 years per say?

[Michael Dean:]

I think that we are not at that point yet, I will be honest. I think we are hitting the ground running and we’re [indiscernible]. I don’t think we built the investor plan far out here, we’re building the operating plan so that we can then take to the investors. I think over the long run, I think what you said is the right thing, is that we are looking to build meaningful revenue growth and margin so that when anybody looks at this investment they see the profitability and the growth and if you look at industry standard PEs and any other ways you want to value the business, it’s a much more valuable business as we go forward and if you do that.

[David Neuhauser:]

And as far the big benefit here, right, I mean you look at any other sectors in the global economy, staffing is one that assumes to just like the first caller suggested, it’s growing. You have big bold competitors and they are all growing, again we know what we dealt with here, on a go forward basis this industry, this sector looks to see continued growth also there is been tremendous consolidation also. So a company of Volt size and again piling to really focus on the growth and higher margin business and writing the balance sheet, obviously those were all the right things that are – that you are focused on today. So I’m going to continue to watch and I wish you luck with everything.

[Michael Dean:]

Thank you.

[Operator:]

Our next question comes from the line of [indiscernible].

[Unverified Analyst:]

Most of your targeted people are very old and known in the story; I am new to your story. How much SG&A are you going to eliminate with the divestitures you’ve just made post Q3?

[Paul Tomkins:]

It’s not a significant amount, it’s real [indiscernible] within the SG&A total that the company has. And we are actually looking across the entire business as these non-core businesses and evaluating all the administrative, all the selling and general expenses as well.

[Unverified Analyst:]

And a lot of it was not eliminated with the divestitures?

[Paul Tomkins:]

Not a significant amount.

[Unverified Analyst:]

Can you remind me of the strike price that the options the Directors receive, what’s the strike price on that please?

[Paul Tomkins:]

I don’t have the exact number in front of me, it was in the low nines.

[Unverified Analyst:]

You obviously talked a lot about revenue growth and margin improvement, what revenue number do you need to achieve to get to 1% margin, given the bills you’re making in sales and other efforts? And what revenue number who you believe you need to get to for a 2% margin?

[Paul Tomkins:]

I think your question is ultimately how much is variable and how much is fixed, because then you can back into that number, right? So what I would say is we are attacking both problems, we are looking at updating some of the sales processes and we are really looking at other industries and verticals on the revenue side, but at the same time we are looking at cost across the business as we’ve indicated. And so it’s not only getting to a certain revenue number to achieve with a 1% or 2%, it’s still going to be a combination of both cost and revenue.

[Michael Dean:]

And frankly like we said earlier, I think the earlier part of the margin improvement [indiscernible].

[Unverified Analyst:]

And many of the callers or speakers on this call talked about maximizing shareholder value as due, but staffing, in my former firm we followed small staffing companies, you may be a lot better served trying to find a consolidation, particularly if your underlying revenue trends are favorable and appeal to another entity, they can leverage, do probably much more than you can, is that also part of your plan?

[Michael Dean:]

Our plan is to strengthen the business. There is a lot of work to be done here. And so I think we are not focused right now on getting us ready to be purchased by somebody else, I think right now the focus is on strengthening the business that really needs help. And we have a new management, new Board, and a pretty strong effort to go do that. I think that’s where the focus right now, should we get to that point in the future, that certainly one of the options.

[Unverified Analyst:]

In an answer to a previous caller’s question, you spoke about a multitude of business processes opportunities, maybe just give us one example of low hanging fruit that you’re implementing currently?

[Michael Dean:]

Sure. Number one, I will just get – we have five purchasing systems, one example across the company, merging them into one and getting the buying power that of the total Volt enterprise would be one example of a process and system that really can be simplified. We have multiple [indiscernible] so there is a list that we are working on. We have teams addressing these things.

[Operator:]

It appears there are no further questions at this time. Would you like to make any closing remarks?

[Michael Dean:]

Thank you for your support and for joining us on today’s call. We look forward to speaking with you again when we report our fourth quarter 2015 results. Thanks again and have a great day.

[Operator:]

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