Harte Hanks Inc (HHS) 2016 Q1 法說會逐字稿

Good day, everyone and welcome to the Harte Hanks first quarter 2016 earnings conference call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Robert Munden, General Counsel. Please go ahead, sir.

Thank you, operator.

Our call will include forward-looking statements, such as statements about our strategies, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, anticipated performance and outcomes, the future effects of leadership changes, acquisitions, litigation and regulatory changes, economic forecasts for the markets we serve, and other statements that are not historical facts. Actual results may differ materially from those projected or implied in these statements because of various risks and uncertainties, including those described in our most recent Form 10-K and other filings with the SEC, and in the cautionary statement in today's earnings release.

Our call may also reference non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the Investors tab at our website at hartehanks.com.

I'll now turn the call over to our CEO, Karen Puckett.

Thank you, Robert and good morning, everyone. Thank you for joining our earnings call this morning. By now, you've had a chance to review our first quarter results in the earnings release we issued earlier today.

We delivered first quarter adjusted revenues of $111 million compared to $117 million in the first quarter of 2015 after adjusting for our 2015 B2B divestitures. Our first quarter revenue rate decline slowed to 5% on a constant currency basis. While first quarter demonstrates progress towards our goal of stabilizing revenue and continuation of improving the rate of decline from prior quarters, there is still work in front of us. As I mentioned on the last earnings call, we really are in a turnaround situation.

In the first quarter, we made a number of changes within the organization in order to stabilize revenue and drive consistent performance. We are seeing improvement based on our actions, but we are also well aware we need to continue to drive growth in sales pipelines, convert those sales to revenue quicker and change our delivery approach and cost structure as we continue to refine our go-to-market. Coming out of first quarter however, we have taken expense actions to improve our cost structure.

At the beginning of the year, I said we were going to focus on four things. One was around establishing our platforms' core success. This included aligning our sales, marketing and client services function on driving growth that are core market segments and increasing market awareness throughout the leadership and competitive positioning in the market. Secondly, to capture new growth by capitalizing on client and prospect needs to shift and transition in this changing marketplace. For us, that means helping our CMO clients achieve a customer-centric view of the customer journey. Thirdly, refining our operating model to differentiate Harte Hanks in the marketplace and fourth, improve on our cost structure. So, I'm going to give you a quick update on some of the accomplishments in first quarter and go forward.

So on the platform for success, we have been reorganizing the client service. So that's been done now and sales under one leader and we've aligned our marketing organization to focus their efforts to see fit to the same goal, so they are very aligned. Our sales and marketing teams are aligned by vertical and are focused on delivering associated sales and revenue targets. The teams have implemented cross-functional go-to-market plans, lead generation and the pipeline revenue opportunity.

We also presented our brand story and marketing position into the market, and meeting with current clients, existing clients, new prospects and industry analysts, our position of defining, executing and optimizing customer journey across an omni-channel delivery platform has been very well received. Validating our focus on the customer journey is a key differentiator in a competitive marketplace. We have seen a significant reduction in customer revenues decline versus the same period last year, and are beginning to see growth in existing accounts, new businesses, and we're also seeing growth in not only our new services, but the stabilization of our traditional services. We really attribute this to our higher tech engagement model with our clients that we began to implement in fourth quarter of 2015.

Our work to establish Harte Hanks as a thought leader has continued with our Marketing Advisory Board that we launched earlier this year, and the launch of our MarketingJournal.org, our new partner site for marketing thought leadership. In addition, the Marketing Advisory members, we have them all lined up now and we're very happy with our members that are all at the C-level and current clients. We are excited to bring the group together; it's really an impressive group of academic and professional thinkers to address some of the most complex challenges facing marketers today. Some of the important topics that they plan to work through are how to change landscape of marketing and how companies should be using it, how the role of a CMO change and what is important today, and so we're looking forward to this Marketing Advisory and helping guide them and then guide Harte Hanks in terms of the thought leadership in the marketplace.

Also in terms of driving growth, we are seeing positive activity from new sales and marketing efforts resulting in existing client wins in two of our largest companies in B2B, and one leading consumer technology brands and a new logo win from one of the most recognized cruise companies from a leading insurance -- and also a new logo of a leading US insurance company.

Our digital business also continues to grow with our 3Q Digital creating new business with existing Harte Hanks customers and bringing in new client opportunity. We actually closed two large deals in B2B -- one in B2B and one in B2C this quarter. Our pipeline continues to grow and will drive more scale as we further integrate the 3Q Digital capability into our go-to-market. We also saw an increase in our agency and traditional service opportunities as I mentioned. We feel this really reflects the end-to-end multi-channel marketing services and how we change that in our go-to-market. In addition, we are in discussion with some major brands on ways we can take the customer experience to new a level with contact center capability. These are really very innovative discussion allowing us to bring our strengths to bear and establish a competitive differentiation for these potential clients as they begin to realize the need to connect with their customers in ways that are relevant and drive business growth. We believe we're very uniquely positioned to help with this.

So, here is how our first quarter wins are impacting our overall performance. In the retail segment, we renewed one of our largest retail clients as well as a new logo from really a trending luxury consignment e-commerce business. Interesting, this is a digital company, but they wanted the expertise of direct marketing. So this was actually one of our 3Q clients, who had the need for some direct marketing and that is magic when those two things come together. In the financial service segment, we have stabilized and are seeing increased performance. The new logo win of a large insurance company that I mentioned earlier is our strong statement to our ability to pursue and win strategic, integrated, multi-channel engagements with leading financial institutions. We're also seeing an increased performance with several of our strategic accounts, including our largest US-based retail bank and our largest insurance client. We are confident that this trend will continue as we move into Q2, and we continue to drive new business. We have initiated focus on demand creation activities in both banking and investment segment, and have initiated specific cross-sell action plans in our strategic accounts.

In the pharmaceutical segment, we extended our relationship with a major pharmaceutical company by securing a campaign in database support for additional brands. Our work includes database hosting in a secured environment, reporting and analytics, and digital execution of campaigns. We have extended the work we do with another pharmaceutical company's European operations by enhancing the functionality of their portals when patients seek information about their condition. So these are just some proof points that we believe are accelerating in the Company and opportunity. And while we think these are really positive activities, we do recognize the velocity must increase for us to get to revenue stability.

And a quick update on our operating model. We continue to work on aligning the organization around a cohesive approach to sales and delivery. And we have several cross-functional initiatives that have put in place a holistic approach to delivering to the needs of our clients. New business development demand generation activities across Harte Hanks include 3Q Digital and Trillium Software, so it's not just sales and delivery, it's making sure that we're bringing the entire capability with 3Q and Trillium into the play.

We announced Shirish Lal has joined us as our COO and CTO. I'm very excited about Shirish's leadership here. We expect Shirish's background in marketing, technology and high performing process execution to really be a significant benefit to our clients and to Harte Hanks. Shirish possesses a unique ability to assess market and industry trend and translates those into opportunities and action. He has been a Chief Marketing Officer, so this really gives him a unique perspective of the challenges. It's great when you sit in the seat of a client, you understand their challenges and how really to help them out.

As we reflect on our operating model, the acquisition of Aleutian Consulting that we announced earlier this year gives us an immediate transition to Harte Hanks consulting, so they are now called Harte Hanks Consulting and the acquisition is a key step towards being able to deliver on strategic needs of our clients to offer that end-to-end marketing services, beginning with strategic assessment, business consulting and marketing research. This expertise we knew we needed to strengthen in order to stay competitive as we continue to grow our end-to-end marketing services capabilities.

The Harte Hanks Consulting focuses on revenue growth through enhanced marketing technology, advanced pricing and sales enablement capability, as we believe will drive meaningful top line and bottom line growth for our clients and we've gotten a very good response from the marketplace. We already have one new logo as a result of Aleutian with a leading basically alarm consumer Monitronics, which we announced home security, and they are utilizing our digital capabilities. So we're excited about that and the pipeline is very -- we're very excited and enthused about the pipeline there.

On the cost structure, during this first quarter, we did incur some additional non-recurring expenses due to a delivery issue for a client. Going forward, we are changing our approach to more of an offshore capability and we will leverage the data skills that come with the Aleutian team and we also believe that Shirish Lal, the new COO that I spoke about, is driving change to our delivery approach. And we're really focused on improving the productivity overall. The second area of cost structure is looking at our distribution. We've been expanding our distribution and it really is around ramping up reps and making sure they're productive and where we're not productive, we plan on reducing cost as we redefine our distribution and our go-to-market model. Coming out of the first quarter, we have already initiated labor reductions in targeted areas.

Now, I want to move to Trillium. Trillium continues to be recognized as a leader in data quality. Our software-as-a-service offering launched in 2015 has been well received by the market and has performed above expectation. However, at this point, the software-as-a-service over-performance is not enough to overcome declines in our traditional license sales and maintenance renewals. To improve our sales and marketing execution, we're really focused on increasing the pipeline velocity and growing in the -- and really more so in the late-stage of our funnel. In addition, we are re-launching our channel partner program and looking forward to increased contribution from these partners in the coming months.

During the first quarter in Trillium, we announced the Trillium Refine, which is really excited about this. We're getting good response from the marketplace. It's a new solution that integrates self-service data preparation and industry-leading data quality capabilities to optimize Big Data analytics. Trillium Refine enables business analysts, so this is really more in the line of business even outside of an IT organization, to gain previous hidden insights into consumer behavior, market opportunities, risk exposure and the vast amounts of just dealing with complex data and transforming it into meaningful insights for businesses.

We believe that Trillium Refine represents something new and unique to the market. It really is an integrated best-in-class data preparation and data quality solution that again enables businesses to rapidly uncover the right information from Big Data. This is through a partnership with UNIFi Software. Trillium Refine reduces the time and complexity of preparing data for analysts and accelerate the process of exploring and transferring Big Data to valuable information. We also believe that with the roadmap that was accomplished in 2015 and our roadmap in 2016, that Trillium is well-positioned in the marketplace and that will allow us to continue - enhance standing as a top provider of data quality.

So with that, I'm going to let Doug walk a little bit more through the first quarter results and then we'll open it up for Q&A.

Thank you, Karen and good morning.

We continued to make progress in stemming our revenue declines and our efforts to stabilize the top line are taking hold. Simultaneously, we remain focused on expense management. During the first quarter, we incurred some additional expenses primarily related to non-recurring delivery problems for a client. We believe we are moving past this issue, but believe there are some additional steps we need to take to better manage our expenses to our revenue run rate. I will expand on this in a moment.

Turning to our first quarter results, our consolidated adjusted revenues were $111 million, compared to $121 million of adjusted revenues in the same quarter last year. This represents a decline of 5% year-over-year. First quarter 2016 adjusted diluted loss per share was $0.03 excluding the B2B research business sale and normalized effective tax rates compared to income of $0.03 for the same quarter in 2015. While we expected Q1 to be a seasonally weak revenue and profit quarter, we strive to do better.

Customer interaction revenue declined 5% on a constant currency basis and after adjusting for the sale of our B2B research businesses. One of our goals continues to be to reduce our clients in revenue churn and we have been able to slow the amount of revenue lost from existing accounts compared to the first quarter of 2015. Let me walk through the results of this business segment by industry vertical.

Our auto and consumer brands benefited from the implementation of a new entertainment client engaging us to provide multi-channel contact center support along with expansion of services with an existing client. Our select markets vertical benefited from new business with a new grocery store chain, and a real estate marketing company using our mail supply chain services. These were offset by declines in contact center for an entertainment client. Our financial vertical was impacted by mail clients moving their business including a regional bank moving its mail services to a printer. This was partially offset by the expansion of lead generation mail work for a bank.

The retail vertical continues to be our largest vertical in terms of revenue and is something we are watching closely in 2016. We were impacted during the quarter by two large retailers delaying programs and reducing mail volumes. Our healthcare vertical declined during the quarter from the loss of outsourced fulfillment work for a pharmaceutical company. The decline in our technology vertical was primarily driven by the sale of our B2B research businesses.

Turning to Trillium, Trillium Software adjusted revenues were $11.2 million compared to $11.9 million in the first quarter 2015, driven by decreased software licenses and the related professional services and maintenance fees associated with those license sales. Software-as-a-service revenue more than doubled compared to the first quarter last year and continues to grow as a part of Trillium's revenue mix. We formally introduced our SaaS offering in early 2015, building a more predictable revenue stream and replacing the lumpiness of licensed software sales. Our clients now have the choice to elect to purchase a perpetual software license or a SaaS arrangement and we do see clients increasing adoption of SaaS arrangements.

Moving down the income statement, adjusted operating loss was $3.6 million, compared to income of $3.2 million for the same quarter last year. We had higher than expected expenses during the quarter, primarily related to delivery issues with a client that resulted in increased labor costs. We are focused on protecting cash flow and profit for the remainder of the year and are taking expense actions, including offshoring additional personnel, reducing overall headcounts and streamlining our delivery capabilities.

Customer interaction adjusted operating loss, excluding operating income from the previously mentioned B2B research business, new credit facility expenses, severance and other compensation expenses, and non-recurring database development charges, was $5.3 million, compared to income of $1.8 million in the same period last year. Reductions in production expenses from outsourced costs and mail supply chain expenses were offset by an increase in sales and marketing expense related to employment of additional sales personnel.

Trillium Software operating income was $2.2 million compared to $3 million in the same period last year. The decrease was due to decline in software license revenues and related maintenance services as this business transitions more towards software-as-a-service, as most of our costs in this business are fixed.

Our effective tax rate was 26.3% for the first quarter, decreasing from 42.6% in the first quarter of 2015.

While this was a difficult quarter from an operating income standpoint, we believe we are taking the steps to improve our expense management. We continue to strive to stabilize our revenue performance and refine our revenue delivery model. We are pushing to deliver quarterly revenue and income growth by the end of the year.

With that, I'll turn the call back to the operator for Q&A.

(Operator Instructions)

Michael Kupinski, Noble Financial.

So in Trillium, it looks like the Company had a step back, we saw some progression in revenues in the third and fourth quarters of last year, I think even the second quarter saw some progression. And this looks like it's a step back. Can you add a little bit more color on why we're seeing a little bit further weakness in Trillium at this point? Are we seeing some cannibalization of some of the business -- as some of these customers may move to a SaaS model, which might be a little bit lower revenues in some ways? Can you just kind of add some color on what's going on there?

Yes, Mike. I don't know that we consider it a worse performance; it's been somewhat consistent with what we delivered throughout 2015 where we had essentially one growth quarter in the second quarter of last year and everything else was various declines. We are working through the transition as we've discussed, we see our SaaS revenues in our monthly recurring revenue that comes out of those contracts are continuing to grow that base of business and that revenue mix is continuing to aggressively move, be a larger piece of what we sell and what we do, but there's also no doubt as you said that and we're seeing some of this where customers -- essentially new customers who are about to buy Trillium make a decision upfront that they want to pay for a perpetual license or do they want to enter into a SaaS arrangement. And I think that's in the technology industry and everything that's going on in corporate America, most companies these days are choosing for that three-year monthly SaaS arrangement as opposed to a perpetual license.

At this point, I know that you may have lost customers in their customer interaction business last year. Are we seeing any sequential decline in the number of customers or is it just the volume of business in the customer interaction business that is affecting you at this point?

No, we are seeing a decline in the number of customers. We are also seeing a decline from existing customers who have cut back and those are great to see. And we've talked about it, we talked about it at the end of last year, we've got some of those that resigned middle of last year, etcetera that we're working through, which is why we anticipated this revenue performance right now. But you are correct from a number of clients standpoint and from existing clients who are cutting back in spending, we are seeing reductions in those areas.

Doug, I understand that, that to be year-over-year, but the question is are you seeing a sequential decline from the fourth quarter as well.

Yes, I think that's fair to say. I'm going to take you back about two quarters and say from second, third, fourth to this first quarter, yes.

Both the sequential decline and year-over-year decline in customers?

Yes.

Okay. And in terms of the number, I know that you guys have increased the number of sales people and so forth. Where do you stand on that right now in terms of the number of sales people that you have?

We are significantly above where we were this point last year and where we were several years ago. And that from a headcount standpoint is stabilized, is flattening and we have to get more productivity, we want to have some revenue results etcetera, before we commit to further expansion and get production out of the investment that we've made so far before we make any additional investment in more sales and marketing personnel.

So going back to your thoughts on the year, what gives you confidence that you're able to deliver the prospect of having improved revenues and cash flows and earnings as you get through the balance of this year, given that we're still in that mode of losing customers and so forth?

The confidence comes from we're losing less customer, we've addressed the churn rate, we can see from our existing sales folks what they're working on and the opportunities that are out there that there is an increase in that type of work and the opportunities that they're bringing in for us to address. So from those standpoints, we still remain optimistic that we're addressing our revenue decline and that by the end of the year, we're hoping that we will have turned the Company back to revenue growth.

And Mike, this is Karen, (inaudible) that is right. I think we talk about these initiatives and there is a lot of work going on to that work ultimately hopefully become you monetize that. But to Doug's point, the pipeline and the mix of services is very different. It's increasing the velocity of getting through the pipeline and once we have a contract getting that back to revenue. So it's not just the pipeline, it really is that sales to revenue conversion and that's what I believe that with Shirish in the seat now, we'll get some acceleration there. And then the quality of our delivery because as you know, last year we had issues and we've been very open about that. I think he'll bring that improvement to the quality of the delivery of services that we're in a more economical way. So there is quite a few levers there, we just got to get them pulled in the right way at the right time.

In terms of the pipeline, wouldn't you have to have these customers onboard kind of like in the second quarter, so that by the fourth quarter, they become profitable, because I understand there's are usually some investment spend that needs to happen when you once -- when you first bring a client on. Can you just kind of give me the progression of that pipeline and why you're -- why you would have to have some visibility into the second quarter in order for that -- for the fourth quarter to show some profit contribution? So, can you talk a little bit about that?

Yes, Mike, all of that has to do with the solution that we sell to the client. What the client -- because remember, part of our go-to-market strategy and what we do when we talk to clients and we sell our services, we have to address what their problem is, and obviously it comes back to who is the client's demographics, who are they targeting, all those type of things. And our product line, we're not selling a product line forcing the product on the customer, it's solving their problem first, and then deciding what channels will address what the client's problem is. So, when you then get into the different solutions and channels that we have, that's where you get into revenue timing and how long it takes onboard a client.

A lot of the traditional type channels and work that we do, call center, mail type activities, can be very quick from that. And when I say quick, 60 to 90 days from when we talk to a customer to when we start delivering services. You may have to train contact center personnel, you may have to design, set up mail pieces something of that nature, but at least in our industry and in our product lines that depending on how quickly the client wants to move, their sense of urgency, things of that nature that could be relatively quick.

You get into some of the professional services, where we're doing campaign strategy, digital programs, building a database that can vary widely, again, doing a creative campaign or maybe even a campaign strategy that might only be 60 to 75 days, but actually implementing that into an active campaign can be anywhere from three to six months. If they need us to build a database and then they want us to provide the analytics and the actions based off of what's going on in the trends, and what we see within that database, that can be a six to nine month process. So it's a hard thing, and I understand what you're looking for in trying to get some comfort on, but as we look out over call it the next 6 to 12 months, the mix of services in the types of channels that we deliver to customers can greatly influence the speed to revenue for us.

Yes, I would say the further deep you get into a year as, CMOs are maybe missing their numbers. To Doug's point, sometimes the tactical kinds of services become a sense of urgency for a company or a client's CMO who didn't have it on their radar because they are not making their numbers, so they are -- I'd say they are panic that they are willing to get going as soon as possible. So I think the closer you get towards year-end and numbers are off that that requires some urgency on both sides.

Greg Eisen, Singular Research.

You said earlier that the number of sales people has increased year-over-year from this time last year. Can you describe what the time frame is for those people to ramp up to some level of efficiency? Is it a quick ramp, immediate, three months, whatever?

They are on a ramp, quota ramp, but typically you're looking for proof points in three months, six months and then nine months. But at six months you ramp and hopefully you are over-performing in the 9 to 12 month category, but that's an area of key focus and refining our what we call sales motion is critical and that's because the most efficient way to use the hunter sales resource versus other resources in the organization and I can tell you from prior experience in a prior life, that can make a big difference. So we have a specific focus around this concept of the sales motion which drives the economic, who plays when, who should be involved in what discussion and we believe that will help us even ramp our reps sooner.

Okay. And if I could expand upon, maybe ask a simple question that maybe you tried to answer for the previous questioner in a more detailed manner, if you could describe how long is the sales cycle for the customer interaction business in total? Is there a single range of six to nine months that you could say is that's the sales cycle in total or is it really there is no one answer?

It's really the service that they are wanting to purchase. I mean we have some that are less than 30 days, more likely 60, 90 and then some that fall into a three, six month category. Now recognize what we are trying to do here is make sure that you have a pipeline at certain time, what's your year will be, but clearly we have some things going on at our analyst clients that are going to be delivered very quickly, because they have that sense of urgency, given their condition of their numbers.

Okay. Turning again into the customer interaction business. You've had a decline in the number of customers, you've lost some business, but you mentioned in your prepared remarks that you have resigned some accounts. When you resigned accounts in the customer interaction business, how long is that normally for?

It depends on the contract, it's typically they're longer term contracts. It's over a year I would say kind of on average a three-year -- two- to three-year contract.

Okay. I get that. Turning to the Trillium business, can you describe how far along the shift has gone? Let's see, you were selling perpetual licenses, so all those licenses there, the horse is out of the barn. Now you've got starting this quarter, you're giving customers a choice of perpetual license or buying SaaS where they pay monthly. Can you describe what percentage of new sales have gone to the SaaS model versus the perpetual? Or is this not a good quarter to describe that, because you just started it up?

I would say -- I'd just let Doug add on. But it really is around what the customers are attempting to do, what the application for the data quality problem they are solving for, and is it enterprise-wide or not. I think as you'll see, the great thing about UNIFi and this Trillium Refine is that you will see that this tool be used, the point is outside of IT, so that now business - business lines of businesses and companies, business analysts can grab this tool and have a way to do analytics, get insights like they never have before. So, unlike saying that, I'd just say that that's probably likely more software-as-a-service, but the good news is the market broadens, it's not just in IT, but it broadens to line of businesses within companies.

So I think as you see us changing how we market, how we're going to market and the messaging, you'll see that shift over to software-as-a-service. Doug, you want to add to that?

Yes. I'll just about -- because there appears to be some question or confusion, about a year ago is when we introduced the product to the market and sales started kicking in roughly third quarter, some in the second quarter obviously, second, third, fourth quarter. And from a sales and revenue standpoint, it has been ramping up since then and as you get, obviously more and more activity and things that are going on, you're seeing more and more where -- and we've got more proof points where clients, new clients make that decision, do they want a monthly SaaS arrangement under a three-year agreement or do they want a perpetual license.

Okay. You anticipate at a certain point you will reach kind of a saturation level in terms of the percentage of SaaS clients versus perpetual license clients, where it just becomes a steady state of -- you've already gotten the SaaS penetrated as far as it will penetrate?

I think that, yes, we have determined, only because I do feel that these tools and this capability going outside of IT is a big deal. And so therefore -- let's get a little time under our belt with -- working with line of businesses, (inaudible) kind of concept to better answer that question, because I do think the market is widening.

When you say going outside of IT, if someone buys perpetual license, it has to go to the IT department of the firm, which can get to be a black hole at times, but the SaaS product essentially is web based, am I correct?

Essentially, yes, but what we're really getting at and we've talked about it in the past that, over the last 10 years, Trillium was sold primarily to the IT department. It was an IT decision maker, it was involved in a stack implementation, something of that nature and it was pretty much an IT buy. We have seen in the last year or two, and it is a new industry trend also, that more and more of our sales pitches, more and more of our inquiries either go directly to a line of business manager, somebody at a retailer trying to deal with a merchandise issue or whatever the data quality is, somebody in the marketing department trying to deal with their loyalty database.

Five years ago, you rarely saw that line of business manager in the room or initiating the contact. That is happening more and more today. IT is still involved, because they're going to install it and it's got to work nicely with everything else that that company has and is operating, and procurement will be involved, but the new trend, I hate to call -- hesitating to call it new because it's been going on for a couple years now, is that there is an increasing visibility, increasing involvement from a line of business decision maker.

Okay. Got it. When you're selling the SaaS service on a three-year contract, I think you said. Is that generally is the length of time?

Generally, yes.

Would you expect given that software changes so much and IT products change so much, do you expect that you would actually recover the same equivalent amount of revenue over a three-year contract as you would over a perpetual license?

Yes. I mean they're close, but that is correct.

Okay. Moving on, you acquired the Aleutian business this quarter. Was the contribution meaningful that you could call it out as part of this quarter's revenue and can you disclose that?

No, we wouldn't and it is from a total company standpoint, very small.

Okay. Going to the cost side of the business, you are targeting reducing essentially your fixed cost or variable costs that are fixed in any quarter. What kind of run rate are you targeting for your quarterly overhead, let's call it, it was $117 million this quarter, some of those -- some of that $117 million in the P&L was non-recurring, I get that. But is there a run rate that you're targeting and how long would it take for you to get there?

We are working through that right now and we definitely have some internal goals and are working through those, but we will push that and describe and disclose that more in our second quarter earnings call.

Okay, so next quarter. Okay. Your tax rate was much lower this quarter than last year. Was there anything -- having not looked at the 10-Q yet, anything special that we should know about, and does it say anything for an annual rate?

No, we still -- nothing special. We still expect an annual rate in, call it the 38% to 40% range.

Ladies and gentlemen, this does conclude today's question-and-answer session. I'd like to turn the conference back to today's presenters for any additional or closing remarks.

Thank you. I've got a few closing remarks, just appreciate everyone's participation today. And again with all turn-around situations the work must continue and the team must stay focused, I'm confident that we have the right areas of focus. Yes, sometimes progress may be uneven. But I do feel that the ship is turning and we just need to stay the course and stay focused on just driving the sales and pipeline conversations we're having and the improved margin is a very high priority in our business. You have my commitment that -- and a leadership team that will continue to drive for success in 2016 and thank you for your time today and I look forward to reporting on our second quarter successes in a few months. Have a good day.

And ladies and gentlemen, this does conclude today's presentation. We thank everyone for their participation.