VOLT - NASDAQ

Greetings, and welcome to Volt Information Sciences, Inc. Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Lasse Glassen, Investor Relations.

Good afternoon, and thank you for joining us today for Volt Information Sciences’ fiscal 2019 third quarter earnings conference call. On the call today are Linda Perneau, President and Chief Executive Officer; and Herb Mueller, Senior Vice President and Chief Financial Officer. A question-and-answer session will follow with their prepared remarks.By now, everyone should have access to the news release, which was issued after the market closed today. If you’ve not received the release, it’s available on Form 8-K filed with the SEC and in the investors section of Volt’s website at www.volt.com.Before beginning our prepared remarks, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Volt Information Sciences’ recent filings with the SEC for a more detailed discussion of the risks that could impact the company’s future operating results and financial condition.Also on today’s call, our speakers will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon.With that, it’s now my pleasure to turn the call over to Volt’s President and CEO, Linda Perneau. Linda?

Thank you, Lasse. Good afternoon, and thank you for joining us today for our fiscal 2019 third quarter earnings conference call. Before we begin today, on behalf of the entire Volt organization, I’d like to express our sincere appreciation to Paul Tomkins.As we announced several weeks ago, Paul stepped down from his position with the company as Senior Vice President and Chief Financial Officer. This was not a decision that was made lightly and not one made without extensive conversations between Paul and me.Over the past year, it has become apparent that the company needs this critical position closer to the heart of the business in California and our operations in corporate team. Due to personal reasons, relocating or commuting was not an option for Paul. We were sorry to see him go and recognize that his accomplishments over the past 4.5 years played an instrumental role at Volt.I personally want to thank Paul for supporting guidance during my transition into Volt. We wish Paul the best in his future endeavors and thank him for his thoughtful leadership and dedication and especially for ensuring a smooth transition of the CFO role.This development provided an opportunity to identify and accomplish public company, industry experienced CFO to add to our team, and we are pleased to welcome Herb Mueller as our new Senior Vice President and Chief Financial Officer. Herb brings a wealth of highly relevant industry experience in finance, accounting, treasury, planning and analysis and Investor Relations.Most recently, Herb served as Chief Financial Officer at RGP, a multinational provider of professional consulting services and the operating subsidiary of Resources Connection, a publicly traded NASDAQ-listed company. Herb is ideally suited to join our executive team as strong, talented industry veteran.We are fortunate to have found Herb. And the way I see it, this affirms that Volt is the place to be for top talent. Given his finance, business and operational acumen, his public company industry experience, along with his tremendous leadership skills, Herb will play an integral part in our transformation journey. I’m confident our stakeholders will recognize the value he brings, as each of you have the opportunity to work closely with him.Let’s now move to discuss our results. I will begin my remarks today with an overview of our Q3 financial performance. Additionally, as we are approaching in on the end of my first year as CEO, I will also highlight key operational and financial trends supporting and confirming that we are not the same company that I walked into last year.Now to the quarterly results. Our year-over-year total company revenue declined in the quarter approximately 7% on a same-store basis. North American Staffing segment revenues slipped in the third quarter, offset by positive growth improvement in both our North American MSP and International segment.Our North American MSP segment continues to outperform. And for the first time in eight quarters, the International segment experienced positive top line revenue growth. We benefited during the quarter from our focus on driving gross margin improvement with third quarter gross margins expanding by 120 basis points compared to prior year. We also continued to reduce costs and improve operational efficiency.Third quarter selling, administrative and other operating costs decreased over 9% compared with the third quarter last year. The improvements in these key metrics contributed to the year-on-year improvement in overall profitability. Third quarter adjusted EBITDA was 4.3 times better than a year ago, while non-GAAP net loss was nearly 50% better year-on-year.Let me now provide an overview on each of the segments. I will start with our North American MSP segment, which showed continued strong performance. During the third quarter, North American MSP revenue grew to $9.6 million, representing an increase of 37% year-over-year. Notably, this group contributed $1.1 million of operating income for the quarter.Similar to recent prior quarters, the payroll service solutions and the MSP business performed well. This strong performance is attributed to two key areas. First, the implementation of new wins from the third and fourth quarter of 2018. Keep in mind, it does take six to nine months to implement these complex programs, which are now running at full capacity allowing us to recognize the revenue uplift. There have also been multiple wins in 2019, and we will begin to realize the benefit of these in Q4 2019 and into 2020.And second, we are benefiting from the expansion of existing clients. Through the reorganization and realignment of resources within the team that we have spoken about on previous calls, we have captured additional expansion opportunities within several of our clients, particularly in the aerospace and defense sector. These expansion opportunities have also benefited our North American Staffing segment as well.We continue to invest in the North American MSP business as we look to propel its scope and size and then capture additional market share in this high-margin space. In early August, we added another VP of Regional Sales, also an industry veteran and former colleague of many of us on the executive team. We will continue to invest in sales and operations talent, both in the U.S. and in Europe to drive the ongoing expansion of this segment.Moving to our International segment during the quarter, revenues increased nearly 1% year-over-year, or more than 5% on a same-store basis, excluding the impact of foreign exchange. After eight quarters of declining performance, I’m very pleased to see this positive change. Growth in the quarter is attributed to a shift in culture, organizational structure and leadership. We are seeing positive momentum and a renewed energy under Ben Batten and Lori Schultz.Belgium continues to outperform. And for the first time since Q1 of 2017, the UK business is showing year-over-year growth and is on track to close out Q4 on a positive trajectory. With the renewed emphasis on new business growth and expansion, I believe the International Staffing segment will achieve consistent and sustainable growth.Now let’s turn to an update on the North American Staffing business. During the third quarter, our North American Staffing segment experienced a revenue decline of 10.2% on a year-over-year basis. There are two key driving factors.First, the impact of headwinds realized in Q2 from unexpected headcount reduction rolled forward into the third quarter. As you may recall, we were impacted in the second quarter by two clients in unrelated industries, both of whom experienced sizable workforce adjustments caused by their own lower business demand. One of these clients, a large transportation manufacturer, did not bounce back in the third quarter as had been anticipated.And second, we continue to be challenged by declines in a handful or so of large clients, including the transportation manufacturer. This particular group of clients, representing a small percentage of our overall revenue, accounted for 90% of our total revenue decline. So lower revenues from the majority of the clients were entirely due to issues specific to the client’s businesses.I want to stop here and say, I’m disappointed. My team is disappointed. We are not happy with the speed of the progress. It is frustrating that the hard work of our team, the new and expanded wins we have realized and the overall momentum and positive trajectories across all aspects of the business have not yet translated into consistent revenue growth.Our third quarter results continued to reaffirm the need for a more balanced portfolio. We continue to chip away at this and know that our ability to return to top line growth depends on it. I’ve been doing this for 26 years, and my team equally as long. The strategies that we are executing are tried and true and we are confident in them.Let me share some of the details of the financial and operational trends that support my confidence. Volt is a wholly revamped company as compared to a year ago. We are not only winning new business at increasing rate, but also delivering on these new wins.We continue to invest in additional field sales and delivery resources to ensure we achieve our goals. We expanded our business development manager population again in the third quarter and will continue to add to this team in the fourth quarter as well. These investments in sales talent for our brands teams are paying off. We realized yet another quarter of retail revenue growth, now our fourth consecutive quarter.Over 85% of our BDM population is bringing in new business with over 20% gross margin now aligned with the industry standards. We are seeing sharply improved performance levels, realizing a 43% sequential growth in gross margin dollars and a 47% sequential increase in total revenue produced by the BDM Team.Our Strategic Solutions team continues to expand their pipeline and have now exceeded $0.5 billion in opportunities that they are pursuing. This is more than double the size of the pipelines from one year ago. In the quarter, the team had several wins that will result in transitions revenue in Q4 and subsequent quarters. This team is also identifying additional opportunities within existing clients as well.In the quarter, we had three large expansion opportunities that will result in new onsite locations in three different markets. We also continue to invest in sales consultants for this team who will be strategically placed throughout the U.S. in markets, where we have strong delivery to drive additional local and regional onsite wins.Our enterprise account team also continues to grow and expand their portfolio. This team’s portfolio is made up of 41 enterprise clients with contractual program delivery expectations in place. In Q3, 62% of the accounts managed by this team showed growth. Additionally, this team also sold new business within their existing portfolio.We were awarded multiple expansion opportunities and we implemented several new onsite locations with several more going live in Q4. We are seeing increased momentum in the third quarter, as we generated approximately $36 million in new logos, expanded revenue and growth with existing clients. Third quarter was the first quarter in nearly two years, where new business outpaced losses. The teams are working incredibly hard and I’m so very grateful for their efforts.I do want to step back and look at the bigger picture before turning it over to Herb. It’s important to point out that for the first nine months of fiscal 2019, our total company revenues have declined 2.7% year-over-year on a same-store basis. This compares very favorably to an 8.2% same-store revenue decline for the same period a year ago. We recognize we still have a lot of work to do.If you remember, our strategy was a multi-pronged approach, drive top line growth, improve profitability, drive margins to industry standards, reduce SG&A, achieve a more balanced portfolio and automate and standardize the industry standards. Although our overall top line revenue decline has clearly improved from the same time period from last year, largely due to the ongoing wins and expansion opportunities, we acknowledge that it remains at a level that needs improvement.We have, however, accomplished a lot in a very short period of time. I’m pleased with the progress we have made in multiple aspects of the business over the last 14 months. Profitability has improved by 50% from the same time period last year, even on lower revenues and EBITDA margin has improved from a negative 4.4% in Q1 of 2018 to nearly break-even.Gross margins have improved every quarter for the last four quarters, growing nearly 120 basis points since last year. We are now seeing industry standard gross margins in the MSP segment and across our retail business in the North American Staffing segment.Year-to-date, we have reduced SG&A by $15 million, or 11% since last year. We have made notable progress on our automation and technological advancement effort. We have reduced manual processes across the organization and eliminated centralized function to drive closer visibility and accountability to this deal.We moved the Payroll Center from Washington State to Orange, California, along with creating a call center to handle payroll inquiries in order to remove that administrative tasks from our branch team, and we have integrated multiple recruiting and candidate engagement tools to enhance the field operation.Most importantly, we have welcomed Bob Houghton as our new CIO based in Orange, so we’ll continue to drive process improvement and technology enhancements across the organization. We are a different company. We are a new and revitalized Volt. This is not the same organization I walked into a year ago.We have the right teams in place and are well positioned to execute our determined sales strategy. We are winning more business than we have in quite sometime. And we are a much better run organization overall with what I believe is the strongest team of leaders in the industry.With that, I would now like to turn the call over to Herb Mueller to review our third quarter financial results in more detail. Herb?

Thank you, Linda, and good afternoon, everyone. I’m very pleased to be a part of the Volt team. While I have only been at Volt in a very short time in my week and a half year here, I’m already very impressed by the dedication and passion of the team members I’ve met. I look forward to helping contribute to Volt’s journey towards profitable growth.Before I dive into the financials, I want to take a minute to explain why I joined Volt. Linda is a proven leader in the Staffing industry. She has assembled a top team with proven industry veterans. Her strategic initiatives are already showing results, including cost reductions, gross margin improvement and improving adjusted EBITDA.The team has implemented fundamental changes in the bedrock of the business that has positioned Volt for a better future. And most importantly, I believe in the strategy and vision that Linda has articulated and is executed. I have over 30 years experience, including 10 years as a CFO.In my previous company in this industry, I had the advantage of spending four years in the field and three years as CFO, which allows me to add value from not only a financial perspective, but operational as well.Turning now to third quarter results. Overall, the third quarter showed progress in many areas. While our revenues were not as strong as we had anticipated, our strengthening gross margins and diligent focus on cost helped drive significantly improved year-over-year results to the bottom line.In the third quarter of 2019, total revenues were $233.2 million, down 9.6% year-over-year. On a same-store basis, which excludes business exited and the impact of foreign exchange, total company revenue declined 7.1% on a year-over-year basis.North American Staffing revenues were $193.6 million in the third quarter, down 10.2% on a year-over-year basis. As Linda noted, the primary driver of the year-over-year decline is attributed to just a few specific clients. Importantly, we were able to make up some of the revenue loss we experienced with new customer wins and growth in existing clients, the benefits of which we expect to experience in the fourth quarter and into fiscal 2020.Revenues in our International segment were $28.7 million. International revenues improved nearly 1% on a year-over-year basis and were negatively impacted by foreign exchange. On a same-store basis, excluding the impact of foreign exchange, International revenues improved by 5.4% year-over-year, primarily due to strengthening demand in Belgium and France. Of note, we have also experienced year-over-year growth in the UK for the first time since the first quarter of 2017.Revenue in the North American MSP segment was $9.6 million, an improvement of $2.6 million, or 37.3% year-over-year. The team has worked hard to continue to identify opportunities to provide managed services from new and existing clients, which is positively reflected in this quarter’s results.Finally, revenues in our corporate and other category were $1.9 million, down 75.1% year-over-year as a result of the decommissioning of our customer care solutions business unit, which was completed during the third quarter, allowing us to focus and align our resources on our core staffing business.On the same-store basis, excluding business exited, corporate and other revenues increased 3.7% year-over-year. While we’re working hard to improve top line revenue growth, we also remain focused on improving gross margins and expense reduction activities designed to drive down our overall SG&A towards industry standards. We continue to see positive results from these efforts in the third quarter.Our ongoing focus on pricing discipline and higher-margin business once again contributed to a year-over-year improvement in our gross margin. Consolidated gross margin increased to 15.3% and improved 120 basis points from last year. Volt has now generated higher year-over-year margins for four sequential quarters.Contributing to the gross margin expansion were our improved pricing discipline and lower payroll taxes in our North American segment. Specifically, we continue to realize improvements in our markups due to ongoing pay, bill and pricing efforts.Gross margin dollars under North American MSP segment increased $0.9 million, or 61% year-over-year as a result of new business and pricing, which yielded a 380 basis point improvement in this segment. These improvements to gross margins were partially offset by lower margins in our International segment, driven by the conclusion of higher-margin project completed last year.Our efforts to reduce cost throughout the business continue to bear fruit for selling, administrative and other operating costs improving $3.8 million, or 9.1% year-over-year to $38.4 million. These improvements continue to be driven by reduced headcount and facility costs.Turning to our total company operating results for the quarter. Adjusted EBITDA was negative $1.2 million in the third quarter, compared to negative $5 million in the year-ago period.Net loss was $6.1 million in the third quarter of fiscal 2019, compared to a loss of $11.4 million in the third quarter of fiscal 2018 and included $2.1 million of restructuring, severance and impairment costs. $1.4 million is attributed to lease termination costs related to the decommissioning of our customer care business, the remaining costs related to ongoing restructuring efforts throughout the company.Based on our continuing progress, we are very pleased to see our total net loss improved by almost 50%. On a segment basis, operating income in our North American Staffing segment was $4.4 million in the third quarter, an improvement of $1.4 million, or 47%, compared to $3 million in the year-ago period, resulting from improved gross margins and reduced operating expenses.Operating income in our International Staffing segment was $0.3 million, down $0.3 million compared to the year-ago period, driven mostly from lower gross margins. Operating income for our MSP business in the third quarter was $1.1 million, an increase of $1 million compared with the third quarter of fiscal 2018, primarily due to stronger margins from both managed and payroll service revenues.For the nine months ended July 28, 2019, our net loss was $14.4 million, a significant improvement of $15.4 million, or 51.6%, compared to the net loss of $29.8 million in the prior-year period.Shifting to our liquidity position. At the end of the quarter, we had a total of $41 million in global liquidity. Our global liquidity at the end of the third quarter was comprised of approximately $24 million in cash in banks and $17 million in borrowing availability.With that, I’d like to turn the call back over to Linda. Linda?

Thank you, Herb. Though we had mixed results in the third quarter, we experienced positive momentum and progress in key areas that we have been focused on, offset by sizable revenue declines in a very small percentage of our portfolio.As we look to Q4, we expect total company same-store revenues to be 4% to 6% below the fourth quarter of 2018, and we do expect sequential and year-over-year improvement at the EBITDA line. This reflects improving revenue on a sequential basis from Q3 2019 and continuing progress on the bottom line. We feel that the successes we are realizing will have a long-term impact that sets us up for a much improved fiscal year 2020.Now, I would like to open up the call for questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Josh Vogel with Sidoti & Company. Please proceed with your question.

Thank you. Good afternoon, Linda and Herb.

Hi, Josh.

I guess, first off, welcome aboard, Herb. I look forward to meeting you actually in a – in person at our conference in a few weeks. I’m hoping you could just share some commentary around your initial areas of focus, and even what you hope to achieve during your first 100 days as the CFO of Volt?

Josh, it’s great to talk to you as well, look forward to meeting you. First of all, I recognize the sense of urgency that we have to drive immediate shareholder value. And in order to do that, I’m going to be diving into all aspects of the business, including operations, back-office support functions, corporate teams and then, of course, liquidity. I’ll be looking for immediate short-term and long-term opportunities for improvement in all of these areas.

Okay, great. Thank you. Now, I know being fairly new there, so I guess I can direct this one more towards Linda. But as the months and quarters have gone by, I was just wondering if you could talk to any other areas that you’ve been able to target or opportunities to cut costs? And if so, where exactly?

Yes. So we have continued to identify areas to cut costs and we continue to do that in Q3. A lot of that was largely around some different restructuring of positions throughout the field. Many of it – much of it was some redundancy that we continue to have and positions that as a result of our automation, were naturally limited, which are things that you know, we have been focused on, some of those were some leased restructures that we took.So it’s been a combination of multiple things, Josh, in Q3. We recently went through a similar exercise for Q4. We’ll continue to see some of that as we move through the quarter. And all of this continues to be really part of our strategy that we have – we embarked on last year to really find these and drive operational efficiencies and reduce costs as necessary throughout the organization.

Okay, great. Thank you. And, Linda, you had a comment about integrated candidate engagement tools. And I was just curious, are you seeing – are there any pockets in the staffing operations, where demand is outpacing supply, given the tight labor market, notably in the U.S.? And I was just curious, maybe you can give a little bit more detail about those candidate engagement tools and how you’re driving more candidates into your supply?

Yes. So I’ll answer the first part of that. I think it would be easier to say where aren’t we seeing the tight labor supply, because we are seeing it everywhere. So candidate scarcity continues to be the biggest challenge that we are plagued with across the industry. It is not a Volt specific issue. It is an industry issue. It is – what we continue to see is a very tight labor market. We continue to see low jobless claims.And so I think I just saw August number came out. August jobs growth increased again. August unemployment and jobless claims did not significantly increase, so they’re staying relatively consistent to July. We’re seeing less and less layoffs. So, all of that tight labor market, less layoffs, less jobless claims, all really indicate that there is still – there – it’s a leading indicator for the strength of really the industry, but also the challenges that we’re faced with in finding that top talent.So our ability to cast our net far and wide, our ability to leverage every single job or that we could possibly leverage, our ability to use grassroots efforts in addition to technology, our ability to retain our employees longer and keep them longer are all critically important for us and things that we are focused on, not only with the enhancements to our technology, but just simply as part of our DNA every day.

Thank you. That’s helpful. Just a couple of questions around the guidance. I guess, I was a little bit surprised by the Q4 revenue number. And I was just wondering if you can maybe break down the approximate $13 million revenue decline you see from a year ago, because I know that doesn’t include VCCS. And if I believe I think Q4 of this year has an extra billing week. So I calculate there’s about a $30 million or so year-to-year revenue drag. And I was wondering if you can discuss that a little bit more?And then just a little bit on a tangent, you noted new wins at MSP that should come online in Q4 into 2020? And I know 2020 still a couple of months out. But if you could just give any sort of commentary around your visibility as we get into Q1 next year? And should we see a nice uplift from those new engagements coming online? That’d be helpful. Thank you.

All right. Josh, let me first say on the guidance of the 4% to 6%, that is on an apples-to-apples basis. So basically, 13 weeks was not factoring in the additional week in Q4. So when you put that in, that would push our guidance over to being slightly improved over the – over a year ago.

Okay.

And then I’ll take the MSP question that you asked and the new wins. The bottom line is that we are realizing more wins and more expansion opportunities than we have in quite sometime. Those opportunities are being implemented and we’re standing them up as quickly and as fast and furious as we possibly can. We do have MSP wins that we have had in 2019, that some of those will be live. As I referenced in Q4, some of those will be into 2020. We are still in the process, Josh, of really analyzing what 2020 is going to look like. We’re in the middle of our budget process.So I don’t have anything specific to share with you. What I will say is that, again, we are seeing the momentum. We’re seeing the momentum from multiple areas throughout the organization, both from a branch network, a retail perspective, the strategic solutions team, the enterprise team, MSP group. So we are seeing that momentum and we fully expect that we’re in a much better position to realize that improved results in 2020.

That’s great. Thank you. And just one last one, and I’ll hop off. Looking at the EBITDA line, you expect it to be up sequentially and year-over-year. I just want to make sure I’m looking at the right numbers here versus what you’re guiding for, because I show an adjusted EBITDA – a positive adjusted EBITDA of $4.7 million a year ago, which included $4.5 million in restructuring and severance. So I guess, based on this guidance, are you saying that you expect your adjusted EBITDA in Q4 of this year to be greater than last year’s $4.7 million number?

That is correct.

That’s great. Okay, thank you very much.

Thank you, Josh.

Our next question comes from the line of Ross Taylor with ARS. Please proceed with your question.

Thank you. Linda, it’s pretty clear that if you’d come onboard a couple of years ago, I – we wouldn’t be in the situation we’re in today, but unfortunately, you didn’t and we are. The action in the last few weeks and the stock is, to me, clearly indicated there’s a complete lack of confidence among your shareholders.And I think the number one thing I keep hearing people talk about is the inability to get the top line stabilized and turned. You talked about two primary clients, customers being drivers for a lot of the shortfall. If that one transportation manufacturer who might have been a former employer of mine were to get its primary project back in the air, would that by itself become a major positive turn or help drive a positive turn in the top line?

Yes. So first of all, hi, Ross. Thank you for the question. So let me just answer it a couple pieces of that, if I could. So yes, we have not yet gotten the top line stabilized. We have gotten – I’m sorry. We have not yet gotten the top line going in growth, positive growth. We have however, seen our revenue about three times better than last year, right?So I hear you, but I do want to say that it has gotten three times better. We have been able to stop the bleeding, so to speak, from multiple clients. At the year ago today or 16 months ago today, we were in a situation where this was a very – this is a situation across a broad group of clients. And what we’re talking about here is really eight clients, one of which is that transportation manufacturer, right?And while I’m not in the practice of really looking at the – just looking at the good and taking out the bad, at the end of the day, we’ve got to make up the declines of these eight clients. But what I will say is, if we had looked at this without these eight clients, one of those being that transportation manufacturer, I believe year-over-year revenues would have been essentially flat. But I don’t want to get sidetracked by that. At the end of the day, we recognize we have to make up the decline from the eight clients and that is exactly what we’re focused on every single day.

Okay. So the question that comes to mind, as I said, this is really kind of a hot button issue. And I think this is where a lot of your core investors have become very frustrated is every quarter, the headline number, revenue number is down. It’s moderated since you’ve come onboard, but it’s still a red print. What is it going to take? And when are we going to see that situation reversed? When do you think and when are you confident that we can actually turn these numbers to where we start to see not one quarter isolated, but a consistent return to green numbers on the top line? Because if you get green on the top line, everything else you’re doing is going to flow to the bottom line, I would think pretty aggressively?

Yes. I mean, I – look, I think that we have made tremendous strides for the last year. We have strong leadership team in place. We’ve got improving gross margins. We’ve divested of underperforming assets. We’ve improved the cost structure. We’ve got an improving future outlook. As you mentioned, the revenue has been moderated, but again, not great, but moderated.Getting us back to the top line growth is really a multi-pronged approach, and it’s a strategy that we started 14 months ago. We’ve got to get a more balanced portfolio. We absolutely have to balance our portfolio and not be so heavily reliant on the ebbs and flows of these larger clients. It doesn’t mean we’re not going to continue to maintain these larger clients. We just need a more balanced portfolio that allows us a little bit more flexibility to offset some of these declines when they occur.We need to continue our growth and retail that’s going to help in two ways. One, a balanced portfolio, but it’s also from a margin perspective. We need to continue to bring in those mid-market accounts and drive wins in those mid-market accounts. We need to continue the expansion of existing business, which is precisely what we’re doing. We’re seeing that momentum pickup.I mentioned in the call, the third quarter was the first quarter where we’ve seen wins outpaced losses. I can’t tell you today, I know you want to know exactly when that’s going to happen. I wish I can tell you. I could tell you, I can’t. All I can say is that is – we are laser-focused on that and we’ll continue to improve every single other aspect of the business up until the day that, that happens.

Okay. I’m going to get back in the queue to ask some other questions. But I’ll like to people talk. But I do think that the number one – job one is getting that top line turned if you can get that top line stabilized and actually advancing. I think you’ll get a lot more comfort out of your shareholder base and people might stop trading this company like it’s going to go out of business?

Our next question comes from the line of Richard Whitman with Benchmark Capital. Please proceed with your question.

Yes. Linda, could you expand a little bit on the marketing for new business? So when you’re going after an account, what is a good account? Is it annual revenues of $500,000? Is it $2 million? Is it $3 million? Where’s your sweet spot when you go to market to a new account?

Yes. So, we’ve got multiple sweet spots based on which group of individuals are targeting with specific prospect base. And let me explain what I mean by that. In the past, if you think about historically, what has happened here is as declined – as declines occurred, we did not have the sales strength in multiple different channels in order to make up those declines. Today, we do.So we’ve got multiple ways in which we are going out there to target new clients and new sweet spots. So, for example, our branch network, our branch network sweet spot is for those clients that are $1 million or less than spend, that retail business that allows us higher price points, higher margins. And those more transactional and quicker win opportunities, generally the five to 15 people working range.Our Strategic Solutions Group is out there selling opportunities from $1 million to generally $8 million. Those are still going to be better margins than what you’re going to see on some of the really heavy hitting accounts. That is that we’re going after those local and regional opportunities, where we can get transition revenue that brings us immediate revenue when we transition and allow us those opportunities to really be effective, because that’s how we – that’s really where we deliver best is in that local and regional opportunity.Then we’ve got our Global Solutions Group that are targeting multimillion-dollar opportunities from an MSP perspective. Those opportunities generally allow for North American Staffing to supply into, but those opportunities can run anywhere from $50 million to $350 million. So, again, it – we’ve got specialty, delivery and sales engine for each of those different prospect types, so that we can cover all bases and not miss any opportunity to bring in a new client to Volt.

Okay, fair enough. One other question, maybe I misheard Herb. In your release on the balance sheet, it shows cash of $36 million. I believe, Herb gave a number lower than that. Did I miss something there?

Let me double-check here. But that was the cash and cash equivalents of $36 million. And then we talked about the borrowing base of the…

We’re just clarifying for you, Richard. Hold on one second, please.

Yep.

Right. That included – we had actual cash in the banks of $24 million, and then we had borrowing availability of an additional $16 million.

So the cash number of $36 million, it’s not $36 million, that includes borrowing availability of $12 million. Is that what you’re saying?

Yes. And also – the – and that’s just a breakdown in between the cash and then the outstanding…

So let us…

Let me get back to you offline.

Yes. Let us get back to you, because we’re sitting here scurrying and given that, Herb has been here a week-and-a-half.

Oh, I’ve got it.

Oh, you’ve got it.

Yes. Sorry, that was the outstanding checks, the differential in that. And I can get you a full reconciliation of that later on, but…

That’s fine. All right. You can give me a call or send me an e-mail.

Yes.

Okay. Thanks, Richard.

Thanks.

Our next question comes from Ross Taylor with ARS. Please proceed with your question.

Okay. A little disappointed, it’s just Rich and I and you guys. A year ago or 10 months ago, the Board turned down a bit that was probably somewhere between $4 and $4.50. And at the time, they obviously had a reason for turning that down. Today, the stock went out at $2.90, which is meaningfully below that level.Can you give us the insight and confidence and comfort on why we’re going to look back in six months or a year and think that the Board was actually smart, instead of thinking that they must have been drinking heavily during that meeting when they said no, other than beyond, obviously, the fact that they saw you as bringing in a different kind of approach. But I mean, fundamentally, what – what’s it going to take to drive this business to where it’s the market recognizes it to be worth more than the deal would have been worth?

So, a couple of things that I’ll say to that. First of all, I simply don’t understand the way the stock has reacted. There is no doubt in my mind and through the way that I see it, that we are not a much stronger organization than we were a year ago. We have a stronger leadership team. We have improved gross margins. We’ve divested of underperforming assets.We have an improving cost structure. We do have an improving future outlook. Our revenue is three times better at the top line than we were a year ago. We continue to win more business than we’ve won in the past. We have isolated the declines to eight clients versus a broader base of clients. We are a much stronger and better run organization than we were a year ago, and I believe we’re undervalued.

Will we see insider buying? I mean this – we saw some earlier this year. I mean, right now the stock is back towards trading at a price meaningfully less than a happy meal. It would strike me as the biggest way and honestly, this goes for shareholders as well, the biggest way to state that you believe is to buy. And so the interesting, I would think we’d welcome, I think, shareholders would welcome seeing insider buying. And quite honestly, those shareholders who look at this and believe that you can turn this thing is we see the upside opportunity would be, I think, a very positive for people to put money to work instead of they keep running away?

Yes, I would certainly encourage everyone to buy shares at this current level.

Okay. Thank you. And good luck getting that top line turn, because I think if you can get that top line turned, I think, everything else falls into place pretty damn fast.

Yes. Thank you, Ross.

Thank you. Take care.

Our next question comes from the line of Evan Wax with Wax Asset Management. Please proceed with your question.

Hi. How’s everyone doing?

Hi, Evan.

I’m wondering, obviously, I know you haven’t wanted to talk too much into 2020. But we’re sitting here three months from there, from 2020 and the markets and start looking out if it hasn’t already. And I was trying to get a better understanding on the margin opportunity, I know, we’ve talked about this a lot. But everyone else in our space can talk somewhere between 3% to 5% EBITDA margin, even at this lower revenue rate, which hopefully will stop declining and increasing.That’s a lot of EBITDA potential we can just sort of glide path our way over the next 18 to 24 months to sort of the industry norms. And I’m curious to hear your thoughts about that as we enter into 2020. And then looking further out and kind of what needs to happen, even if we’re not able to turn the top line as quickly as we’d like to get the bottom line results?

Yes. So first of all, you’re right with regard to some of the industry standard. EBITDA margins, we believe that the – that is exactly and precisely where we should be headed as well. It’s consistent with the expectations we’re putting on ourselves. We believe that we are in a better position and in better shape in many ways to that – to achieve that and much more so than we’ve been in a very long time.We have seen improved margins, as I mentioned, on the retail side. We have seen improved – aligned now with industry standards. We have seen improved margins on the MSP side, aligned with industry standards. We recognize we still have opportunity and, again, improvements that we can realize for that, but certainly the numbers that you shared are very consistent with the expectations that we have for ourselves.

Understood. And in terms of the corporate costs, what are the opportunities there? And what are a lot of those corporate costs going to surface right now? If you look at the numbers and the underlying profitability in all the segments is pretty strong, and I’m trying to get a sense of where all the corporate costs are going to?

Yes. So the corporate costs would be things like, obviously, all of our costs that we incur as being a public organization, all of our back office support functions, all of our IT, all of our teams of executives, all of – I’m trying to think of what else that I haven’t already mentioned, our leases, corporate leases. So it is inclusive of all of those things.And to your point, we have been able to cover a large portion of that, and still be profitable in each of the business segments. We recognize there is still a portion of that, that we are not covering. And that is what we have been working on driving down, as you know, for the last 12 months.

Got it. And then lastly, on the opportunity from MSP to utilize the North American Staffing branches. If you just talk a little bit about the opportunity as we get wins in MSP and we’re – we could utilize more of our own branches. And what kind of opportunity is that as we look out six to 18 months?

Yes. So there’s huge opportunity there. And the really good news is that, under Lori’s leadership and under Janet Whitcomb’s leadership, who’s running VCG and our MSP business, they have – they are great collaborators. They work very, very closely with our VWS leadership teams to ensure that we’re driving and able to deliver to every single opportunity that we can. They enter every single opportunity with the intent of having North American Staffing segment be a part of the program to the extent that they can, in the programs where we are not participating today. They’re working to attempt to get North American Staffing segment in there.So there continues to be opportunity. There is collaboration that was not there before. There is collaboration in our clients and looking at potential MSP opportunities. So, dual selling that it’s happening between our Strategic Solutions Group and the VCG teams. So this is a significant opportunity for us, one that we’re going to continue to invest in because of the great programs that the team provides that’s first and foremost and the value that it provides to our clients, but secondly, due to the margins.

Got it. Okay. And then the last one, just in terms of visibility, obviously, last quarter, we thought we’d be somewhere and then we came in a lot worse. And it’s kind of hard to take what we see now, we’re stabilizing, we’re growing. What gives us the confidence sort of for the sequential growth and the uptake quarter-over-quarter versus where we were three months ago, it was only down 3% to 4%, I believe, same-store sales this quarter?

Yes. So great question, that there’s really two things that occurred. And again, this continues to affirm our need for a more balanced portfolio and also affirm some of the volatility that we still have in some of our larger clients. The first thing was that we did expect one of the two clients that impacted us in Q2 to bounce back in Q3, that was the transportation manufacturer that did not occur.Secondly, we did see a greater decline in a very small percentage of large clients, a very small percentage of our overall portfolio had more significant declines, representing 90% of that. We anticipated a portion of that. We did not anticipate the full decline that occurred from those clients. And that was really what happened in – from the Q2 to the Q3. And that is really the difference in what we provided and then what actually happened.

Got it. And do you think now with a broader customer base that your ability to forecast is improved, or we still have – how much more work we have to do to sort of give ourselves the ability to weather these chunky customers?

Yes. So the uncertainty has been built into the lower-end of the guidance. And we’re accounting for some of that uncertainty as we look at Q4.

Thank you. All right. Well, thank you. And hopefully, this will be the worst of it and more up and onwards from here.

Thanks, Evan.

Our next question comes from Ross Taylor with ARS. Please proceed with your question.

Yes, like a bad penny. Can you give us an idea of both the time that you see or projected takes you to get the industry average operating margins and the kind of revenue run rate you’re going to need, can you do that if you stabilize revenues? How strong can your – can the margins be with just a stabilization of revenues? And then moving forward, how big a bounce back in revenues do we need to get the industry average?And additionally, it would seem that if this transportation manufacturer is bringing on people and it’s going to be bringing up their operating rates and the like, both at the end of the year to bring perhaps if it’s who I think it is and we all think it is, it’s – bring aircraft and other things that are stored on the line, and then actually ramp up from 42 rate to a 57 rate over the course of the next nine months. Will that actually drive substantially better opportunities for you in that area, where we, in essence, a year from now be looking back and seeing that you’re making greater revenues from that customer than you were a year ago?

So let me take the first part first, and then I’ll answer the second part. So the first part of that is, there’s so many factors that go, obviously, that go into gross margins. What I will tell you is that, the expectations that we have for ourselves over the next year – over the next 24 months from an EBITDA growth perspective, also applied from a margin perspective, our goal has been and continues to be to get our margins to industry standard.That is going to require growth from our retail business. It is going to require growth from the mid-market clients. It’s going to continue to require even additional opportunities that we can find at existing clients at even higher price point. So, again, it’s a multi-pronged approach. We do have expectations for ourselves over the next 24, 36 months to drive to industry standards and that continues to be our plan.With regard to the transportation manufacturer, yes, clearly, should that customer bounce back, that would significantly boost our revenue numbers, but we are not planning on it. We are not waiting on it. Our plans are to drive past that if it happens, great. It would then be gravy. If it doesn’t, we’re not going to be sitting here having this same conversation a year from now.

Okay, cool, and good luck. And my hope is that you can accelerate that beyond 24 to 36 months, because quite honestly, you have an exceptionally tired shareholder base. And I think that would be nice to reward them in a meaningful way in the next 12 months, as opposed to making us wait even longer.

Understood. Thank you, Ross.

Thank you.

Ladies and gentlemen, we have reached all the time we have for questions. And I would like to turn the call back to Linda for closing remarks.

Somebody has to get it to me. I need it. Somebody has to get it to me the last page, guys. Thank you all for your support and for joining us on today’s call. I’d like to mention that later this month, we will presenting – be presenting at the Sidoti Fall Investor Conference in New York City on September 25. Later in the fall, we plan on attending the Southwest IDEAS Conference in Dallas, scheduled for November 20 and 21. We hope to see many of you there. Otherwise, we look forward to speaking with you again when we report our fiscal 2019 fourth quarter and full-year results in January.