David Stickney - Vice President, Corporate Communication and IR Suri Suriyakumar - Chairman, President and CEO Dilo Wijesuriya - Chief Operating Officer Jorge Avalos - our Chief Financial Officer.

Josh Nichols - B. Riley Alan Weber - Robotti & Company Advisors Glenn Primack - Promise Holdings Matt Schwartz - Maze Investments.

Ladies and gentleman, good day. And welcome to the ARC Document Solutions' 2018 Second Quarter Earnings Report Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. David Stickney, Vice President, Corporate Communication and Investor Relations. Please go ahead, sir..

Thank you, Eve. And welcome, everyone. On the call with me today are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; Dilo Wijesuriya, our Chief Operating Officer; and Jorge Avalos, our Chief Financial Officer. Our second quarter results for 2018 were published earlier today in a press release.

The press release and other company materials are available from our Investor Relations pages on ARC Document Solutions website at ir.e-arc.com. Please note that today's call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are only predictions based on information as of today, August 2, 2018, and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly and annual SEC filings.

This call will also contain references to certain non-GAAP measures, which are reconciled in today's press release and in our Form 8-K filing. I'll now turn the call over to our Chairman, President and CEO, Suri Suriyakumar.

Suri?.

Thank you, David, and good afternoon, everyone. Thanks for joining us today. ARC overall performance in the second quarter can be attributed to pure execution. Our topline growth even in the pace of shrinking print volumes was primarily driven by the investments we made in sales and marketing to extend our market share in our core business.

Consistently executing on strategic objectives has delivered three quarters of overall sales improvement, two quarters of growth in CDIM, where most of our print business is, one quarter of year-over-year consolidated sales growth for the first time since 2015.

While printing revenue has led the way, we also drove incremental growth in MPS and in AIM where most of our technology services are booked. The leverage we can apply to profitability even with moderate sales increases can also be seen in our second quarter numbers.

Our gross margin increase on a percentage basis is roughly twice our sales improvement. And would have been higher were it not for the outstanding medical claims we experienced this quarter and in quarter one. These extraordinary charges also had a significant impact on SG&A and EBITDA.

Nonetheless, our performance translated to solid earnings with half of the year ahead of us we have already achieved the lower end of our previously announced annual EPS forecast. As mentioned, in our release today, we still have work to do and we feel positioned -- well-positioned for further growth as we move into the second half of the year.

Considering our current performance and our expectations for Q3 and Q4 we are upgrading our forecast bringing ARC annual EPS range to $0.12 to $0.17. We feel good about our adjusted EBITDA and operating cash flow forecast in light of both the opportunities and the challenges we face for the remainder of the year.

This part of the forecast will remain unchanged for the time being. We have made organizational changes throughout the company over the past -- several years actually to protect, print and grew -- grow our technology. Just as important our customers are involving not just how they use technology services but even in how they use print services.

That simply means that we have align the company and our culture within our customers demand. It’s a different way to think about our technology and our core business support each other how our technology and core business support each other and deliver a more unified solution to serve our customer.

As I said many times, our customer haven’t changed, but the way they work have changed enormously and sometimes in an unexpected way. Within a few years after emerging from the recession we expected our business and our customers to be completely reliant on technology.

We threw ourselves into developing many of the digital solutions we use today and yet within a very short timeframe we realized our core business remained vitally important to our customer and thus to our business and we took pains to rebuild and refresh the solutions we provided in print.

Today our print customers use technology to manage and distribute everything from traditional construction drawings to a library of retail graphics marketing materials or sales presentations.

Likewise, our technology customers use prints to supplement their BIM [ph] models, produce hard cope documents from digital archives or share information outside of the proprietary digital platforms like internet, private clouds or even the mobile dashboards we provide to our facility customers.

Our position as successful information managers depends on the continuation of developing new and innovative solutions on both sides of the business and our offerings clearly have value to the market. It is clarifying to see growth return after three years and succeed in such an environment.

We want to assure all of our investors that we will continue to work hard to maintain these trends. To provide some color on our operations during the quarter.

Now I will turn the call over Dilo after which Jorge will provide the usual perspective on our financials? Dilo?.

Thank you, Suri. The strong performance of our sales organization was the result of our focus on fundamentals that is to provide great quality and service and provide and exceptional customer experience to earn repeat business.

Growth in our print services will come from our continued acquisition of new customers and from selling additional services to the same customer base, while we still face challenges from declining print volume, even paper manufacturers have drastically reduced their manufacturing capacity in the market, CDIM services grew by more than 3%.

The second quarter is usually the strongest period for builders and our design and construction customers were busy throughout the spring and early summer. Paper graphics, specialized color services and digital services to support construction work flows all had strong customer usage.

The investments we made in upgrading plant printing hardware allows us to provide improved quality at lower operating costs and faster turnaround time giving us a tremendous competitive advantage. Of 170 service centers our real assets that continue to be well utilized by customers.

None of our competitors have a sound network of service centers in North America with unified leadership. Our MPS business line produced nominal revenue growth in Q2 as we continue to acquire new customers in local markets along with a number of regional wins.

The MPS revenue segment will continue to be volatile as we fight for the acquisition of new customer engagement and we deal with the effects of our own print optimization program.

Unlike equipment manufacturers we want to sell – who want to sell machines and service we provide value by focusing on reducing print volumes and making our customers more efficient by moving them to a digital environment. Organic sales growth comes from cross-selling other services.

Archiving and information management services delivered 1% growth in sales there is noticeable demand for digitizing documents in order to reduce expensive office space dedicated to file storage.

Our facility information management services are also having a positive influence on our customers who actively manage commercial buildings, schools, hospitals and other facilities. They like having easy access to their critical building information on a mobile tablet that reduces wasted time in searching and retrieving documents.

We continue to educate facility management teams by taking part at trade shows and providing educational seminars. There is significant upside in this revenue line once customer see the ease of use and the practical application in their day to day work process for one building, we earn the right to digitize the rest of the buildings they manage.

While we are in the early stages of our facilities custom acquisition our domain knowledge in real estate our national footprint of scan centers and our SKYSITE cloud platform has become a viable competitive advantage. While we focus on custom acquisition we also continue to improve the efficiencies at our service centers.

ARC has a strong experience service center management whose focus is on improving custom experience and increasing efficiency on our production flows.

During the second quarter we improved gross margin thanks to strong execution from operation team, more than 80% of our operating units grew their year-over-year profitability in the second quarter a number we intend on improving. We support our productions staff with profit sharing programs and other incentives to keep them inspired and motivated.

Their personal success is critical to the company’s continuing growth. Finally, our ongoing marketing efforts have been a tremendous effort to our customer acquisition strategy. The e-marketing campaign, social media post and online resources have assisted us to promote our diversified portfolio of services.

In the end, our continued strategy to provide the resources guidance and inspiration for employees to be the best in what they do provide an exceptional customer experience and increase our market share. With that, I’ll turn the call over to Jorge for a review of the financials.

Jorge?.

Thanks Dilo. Consolidated revenue growth was a prevailing theme for our second quarter, three out of four business line had year-over-year improvements, while our equipment and supply business maintained its defensive role in our business mix.

Aggressive cost containment and ability to leverage our labor and fixed cost resulted in gross margin increasing year-over-year by 70 basis points. We achieved this growth despite a negative 70 basis points impact from the extraordinary medical expenses incurred during the period.

Absent these expenses, our gross margins would have been approximately 35% or more than 100 basis points higher than prior year. With regards to SG&A, we expected increases this year in light of the sales and marketing resources we put in place in 2017.

But the increases were larger than we anticipated due to the exceptional medical cost saving SG&A, along with infrastructure improvements that helped grow our sales growth. Overall, incremental medical costs had a negative impact of $1.4 million on EBITDA during the second quarter and decreased earnings per share by $2.1.

Without these costs, adjusted EBITDA performance would have exceeded our prior year second quarter performance and our EPS would have been more than $0.10. As we have reached our stop loss insurance cap on most of these extraordinary medical claims, we anticipate medical costs will begin to moderate in the second half of the year.

As we move forward, the company will continue to maintain its strong cash flows and capital structure. In the second quarter, our operating cash flows recovered strongly from the slow start to the year, increasing more than $6 million year-over-year.

Year-to-date, we paid down $10 million of our term loan debt, about $8 million of which is ahead of scheduled. And our leverage ratio is currently under 2.5 times. Well, we have pointed out the challenges ARC faces in the marketplace. We feel good about our financial performance and the progress we made with regards to our strategic objectives.

As we execute these goals, they would deliver benefits in the future, thus providing a solid foundation for growth. With that as background for our financial discussion, I'll turn the call back to Suri.

Suri?.

Thank you, Jorge. Operator, at this time we're happy to take our listeners questions..

Thank you. [Operator Instructions] And we will take our first question from Josh Nichols with B. Riley..

Yeah. Thanks for taking my question. Obviously a pretty strong quarter here. One of the questions I have is nice to see the MPS business transition back to growth.

But looking at the customer increase, I was wondering, did the -- maybe a larger regional or international account or is it from any potential M&A that's happened in - just kind of give some additional color on what really drove the MPS growth?.

Dilo, would you like to take that?.

So, the -- primarily the growth came from couple of regional customers that we've acquired in late last year to earlier part of this year.

So, as you know, whenever these large regional customers come aboard, it take about three months to four months for us to optimize the plan, build the scope and then roll out, so, we've had some roll outs in the first -- last couple of months coming from wins that is acquired in the last -- early part of the year..

Thanks. That’s helpful. And how should we think -- I mean Q2 is obviously – the strongest quarter.

How should we think about the year-over-year opportunity for revenue growth in the back half of this year and also what type of gross margin profile the company is looking to achieve?.

Jorge, would you like to?.

Yeah. I mean, in regards to our financial performance for the second half, we outlined some of the challenges during our script. But, with that said, we feel that we're in a good place to be able to repeat kind of what we did in the second quarter, right. We had 2% revenue growth, a little bit of gross margin expansion.

We think we led the groundwork for that in the second half of the year.

Does that answer your question?.

Yeah. That's very helpful.

And then, despite the headwinds from the medical costs, I guess, what would you expect as kind of a more normalized SG&A run rate in the back half, now that the company had its cap?.

We haven't fully hit our cap, I did mention, as you noticed on the script, that we hit our cap on most of them. Plus there's always surprises, right, that we could count on or predict. So, where SG&A is around that $27 million range for the second quarter, we would expect to be in that range give or take a little bit for the balance of the year.

With some upside if we see much better medical claims in the second half of the year. But from where we stand now, we can't predict that..

Right.

And then last question from me, just -- could you talk a little bit about the Company's capital allocation strategy, assuming paying down the debt continues to be the company's primary focus and also what type of leverage ratio are you kind of targeting for the longer term 12 months to 24 months?.

We're striving again closer to leverage of 2 or under 2, that's kind of the optimal. And as you all know that's a product of two things, right. How quickly we pay down the debt and also an increase in EBITDA that we feel that we're headed down towards that trajectory of getting EBITDA growth in the second half of the year.

So, it's really a balancing act between those two. I will say we'll probably continue to pay down debt for the next couple of quarters, that will probably start slowing down after that or maybe even sooner depending on where we're at in those ratios. Based on that….

Yeah. So, based on what Jorge said, exactly like he said, we've had challenges with the revenue for the last two or three years. So, obviously, we are actually focused on paying that debt down, and I think that's the right thing to do. And if things change, we might become more opportunistic as to how we allocate in the capital.

But for now, we have done well and we'll obviously try to keep that ratio down to -- try to take it to 2. And if market changes, and continue to strong, then we will have adoptions, of course, which will be nice..

And the sooner we can get there, the better for all of us..

Yeah..

Sounds good. Thanks, guys..

All right. Thank you, Josh..

We will take our next question from Alan Weber with Robotti & Company Advisors. Please go ahead..

Oh! Hi. Good afternoon..

Good afternoon, Alan..

So, I guess maybe partly I was little concerned because you said if the medical – flat your gross margin would have been 35%, 40%, [ph] right?.

Correct..

But then I thought in the previous question, you were talking about SG&A being higher because of the medical expense?.

And just to clarify that, so when you get the medical expenses, chunk of our employees are in direct labor, right. So, the medical charges related to those employees go to direct labors. Then we have another big pool of employees that are SG&A employees. So, the medical expenses related to those employees go to SG&A.

So, in total, the number is $1.4 million of incremental medical expense in the second quarter, rough charge is 50-50, 50% of direct labor, 50% SG&A.

Does that answer your question?.

Yeah. No. It does. But then I guess, the question is then, like for the year, for the first six months SG&A was up like $4 million and care for that medical.

The SG&A is -- quite understand about the marketing like that is more in last year's numbers?.

Do you think about it, I mean, we ramped up the resources from the sales and marketing standpoint. We added in different degrees throughout 2017. So, now in ‘18, we were completely expecting that to increase because now we're going to have a full year run rate.

So we did expect it to increase from ‘17 to ‘18, now it increase more than what we expected, primarily due to the medical, that was unexpected..

Okay. Okay. And I mean – okay. Great.

And I guess going forward, I mean, the idea is [technical difficulty] revenue growth, we should see higher gross and continue – and we should see more leverage in the SG&A?.

Correct, exactly. Yeah. Yeah. Unless otherwise the, I mean, if in a very good situation, growth really goes high and we want to invest small, then that's the difference solely. But for now, what's going to happen is if we continue to stay on track and medical goes down, SG&A will be -- we'll have a better leverage on that one for sure..

Yeah. And to your point when revenues go up and you leverage more your fixed cost on the COG side and you SG&A so as a percentage of total that becomes a lower number, so..

Right..

Yes. I would agree with your comment..

Okay.

And just quick follow up what is for the year what do you expect capital spending to be and how much do you expect the capital lease obligation to be?.

We did have a little bit of blip in the second quarter capital lease expenditures it went up to $7 million we trending around $4 million to $5 million.

We did kind of second wave of investments in our service center for equipment we spoke a lot about it last year with newer technology new equipment coming from manufacturers that provided efficiency and more opportunities to sell. So we upgrade our equipments in most of larger facilities, some mid-sized facility.

Q2 was a little bit of Phase 2 kind of our final phase of those that we missed last year. So you did see an uptick there about I would call $3 million-ish due to that initiative.

So kind of borrowing I look at them saying combine you’re going to be in that $8 million range, $8 million to $9 million range depending on what we’re getting lease rates and determines what the split is going to be. But $3 million, $4 million on cash capital expenditures and then in the $5 million to $6 million range in the leasehold improvement..

And Jorge that line may be $8 million to $10 million combine for the second half?.

Yeah. Yeah. It’s about $8 million to $10 million and it varied every quarter..

Right..

If we sign a big global solution’s customer then we may have a big capital outlay for that new enterprise MPS customer which is obviously a good thing..

Right..

Right. Because we got the readymade revenue for that, so there are ebbs and flows due to that nature, but borrowing the steady state, yes, $8 million to 10 million is reasonable number for you think about..

And again borrowing that kind of customer would $20 million in the low $20’s million kind of be the number for next year?.

For the year borrowing but you got to remember at the same token yeah the investment we did in service center that in the most part behind us it might be one-off here there..

Right..

So you kind of let in that, but that is the core nature of our business is going out and adding new MPS customers so for me to say hey we’re going to stay flat and we’re not going to add any more MPS customers well it go against our strategic objective.

So I would never say hey that number is going to be $20 million next year because that way we are not going to add new customers which we have added for the last decade in the MPS world so..

Right. Okay. Great. thank you very much and good luck..

All right. Thank you..

Thank you..

[Operator Instructions] Our next question comes from Glenn Primack with Promise Holdings. Please go ahead..

Hello..

Hi Glenn..

Hi Glenn..

Hey.

How are you doing?.

Good, good..

Nice quarter two quarters in a row the trend kind of going higher what you’re seeing on a kind of macro level as you talked the big sector construction companies in terms of kind of funnel projects going in the pipeline there call it 12 months to 18 months, I am guessing you are on the front path looks, so from your own….

Yeah..

… thing do you see like less projects more projects same projects?.

There is no question right now based on what we know there are more projects I won’t say it exploding commercial projects definitely are in a healthy place. So I am encouraged about the market Glenn. I don’t think there is any sign of that slowing down.

I mean individually retail might slowdown but healthcare might pickup but overall the general tendency is with economy up there is a little bit of buoyancy in the market and that’s a good thing.

The challenge we have though even if we have that the challenge we have like we always said in the last couple of years we are looking at a shrinking marketplace and our challenge is to drive market share within that space and then layer it up with technology. So we will have a good outcome like quarter.

So that’s – so it’s all about execution that’s what we are focused on hopefully the market won’t soften it will continue to stay healthy it should looks like it’s going to be the case for the next 12 months to 18 months and we are very confident we can execute..

All right. And within like little description is that include stuff for company structure plan or you’re not seeing anything like that potentially….

Yes. Yes..

… in your print centers?.

No, no, no. No comments on that one we are staying out of it..

No, no, no.

So it has -- there is any – so you have anything to pick like tape we got a infrastructure project we got to draw some prints before we start buying steel and bricks and all the other stuffs?.

Yeah. Yes. Yes..

Okay..

I mean, yeah, of course, that will always be helpful but I can’t be sure of and we can’t be sure is that they will lean on print, they – technology is really making an impact in this space and people are getting more and more comfortable and you probably know this better than I do Glenn.

I am getting more and more comfortable with the tools out there and therefore turning to digital needs..

Okay. Yeah. Because even though like it tweaks a lot I think it’s nano it probably runs in your favor.

If I take that down like just the top 50 builders and stuff for me and our magazine anything new thing for you within there or is it pretty much you’re doing less whale hunting and more so saying what you have today and making sure you are defending it?.

I don’t think we are doing less whale hunting, I mean, we are always looking for whales, so our team out there is hustling to get as many as we can. But we think our growth Glenn is coming from peripheral areas two ways. We are looking not just to only construction market now we’re doing a lot more of the web marketing.

We have a presence in the internet and in the web is greater our digital marketing is stronger. So we are starting to get customers from other areas who actually use print whether it be museum, whether it be trade show things that we probably didn’t do before. So that part is helpful.

Secondly we are going to the existing customers and selling additional things like building information modeling, some hyper linking, some visualization services. So a variety of things.

So what we’re doing we just as I said in my script this whole market is evolving and we are evolving with the customer’s demand in finding new ways to excess those markets and that’s what actually bringing in this additional growth its additional services to the existing customer such as additional color services, additional bib services, and so we are tapping out that really aggressively selling that part of it.

While we are also looking outside not just strictly inside the construction market and real estate market, so while we have not stopped hunting for those big whale that’s not only focus. So I think that is helping us spread our tentacles a little bit and bringing a little more stability and I think that’s what resulted in our growth..

Okay. Okay. Two more little quickies this is one kind of more Jorge related and you to because over past couple years with the revenue decline the margins came in quite bit. But now since you have things kind of state while starting to show the leverage.

So requirement state kind of let you execute actually really I think maybe the stock market price then the margin or they need to fall and this is going to be a free cash flow like burden?.

Hey Glenn before we answer this we’re having a little bit of audio issue here in coming in – your breaking up?.

Breaking up in the middle..

So could you just ask each piece of that question and let Jorge answer it and we’ll go back and forth just trying to keep it a little shorter so we can follow what you are saying?.

Yeah.

I just got all the time from my wife and kids?.

Thanks Glenn..

The gross margin there is degradation that converse the revenue shrink over the past few years as you stabilize revenue and start to grow it should we expect to see this gross margin to be more stable as well, and just the same cycle left, that you did on the….

yeah..

… on the way down?.

Yeah, no, definitely. I think you've seen a product that during the second quarter, right. It's not like we had 10% growth, right, we had 2% growth but yet our gross margins increased 70 basis points. So, I think that shows you the power of the leveraging..

How much we can leverage..

Yeah. Leverage our labor and our fixed cost because once we get more revenue especially when it's coming into our service centers, that's coming out of very high contribution margin, because your labor is already there and your fixed costs are already there. So, yeah, that is a definitely true statement..

Okay, so the broad based back drop is good, I mean, no headwinds, right tailwinds, and your margins going to remain somewhat constant or go up 50% or like grow itsy bitsy, and I'm not going to -- my own little magic number, then potentially you could pretty grow next year versus shrink? Is that thing as I looked as Bloomberg as they have your EBITDA but if you could actually have your EBITDA approach both to $60 million, on a $100 million to net debt, that's kind of crazy in terms of what someone would say for enterprise priority EBITDA and a franchise that's intact and everything else.

Am I missing something?.

We definitely agree that we're undervalued even at $50 million in EBITDA worth what our market cap is. We're not giving projections for 2019..

No. And I'm not asking for any projections.

But if I have like the slight tailwind in the execute, so you are going to have -- is it going to grow or shrink?.

We achieve our growth..

Okay..

Potentially..

Yeah..

No more Suri..

Yeah..

Thank you, Glenn. We always appreciate talking..

And we will take our next question from Matt Schwartz with Maze Investments. Please go ahead..

And I think the sound issues are all around because it keeps cutting out on my end as well. But just to kind of piggy back on Glen's question and a point of clarity.

So, say you guys gave for this year, I guess inclusive of all the hit from the healthcare related costs, is that right? So, we'll be looking at more or like something like an incremental $3.5 million of EBITDA and $0.04 of earnings on top of the current guidance?.

Correct. We're saying even the current guidance. Because our year-to-date medical expense incremental to extraordinary claims was $3 million. So, yes, $3 million translates to roughly $0.04..

So, if you are able to comment towards that high end guidance.

Where we kind of had a starting point for next [inaudible] $58 million or little bit less or say $57 million versus this year?.

It's a fair way to say good bye for now, so we'll caution on from the medical side. We're not sure what's going to happen next year. I mean, there's a lot of moving pieces there and it gets pretty complicated. So, I'm not ready to – say, hey that $3 million that we've had year-to-date, a portion of that may or may not continue next year.

So, it's too early to tell on those..

And what is the maximum out of pocket for the Company on an annual basis?.

Maximum out of pocket, we have stop loss insurances per claim of $250,000. And so just to be fully transparent, typically a company of our size that's self insured, you should have two claims. If that hit that stop loss insurance. And which has been the case for us for the last eight years that we've been self insured.

We would have two or less, this year we have 11. So, it's one of those perfect stormier that shifts off the charts [inaudible]. Now how those all develop and how they end up getting results, and that kind of dictates what happens next year with that medical.

So, we are protecting ourselves from the catastrophic aspects of it but does add some incremental always to the total expense.

Does that answer your question?.

Yeah. Because I know last quarter you were talking about Q2 being the end of the significant hit to the P&L and now I thought I heard you say, you might have some continuing impact in the back half.

I'm just trying to get my arms around if it's kind of be a substantially less than what Q1 and Q2?.

I would expect it to be less than Q1 and Q2, how much less? That's the question that's a little bit hard to predict, in the sense, as I mentioned before to Glen, and I believe it was Glen or before that, that of these, let's call it, seven cases that are going, seven of them have already hit the stop loss.

So, anything that comes in for those claims, will be covered by our stop loss insurance. But you still have four that haven't hit it. So, there's still a little bit more to get. My expectation, frankly, at the end of the first quarter was that we're going to be 98% done with these claims by the end of June.

That didn't materialize, but just with the numbers I shared with you, is why I say my comments that it should start moderating into second half of the year. Far than any new surprises which it just seems to be the year of surprises when it relates to medical..

Understood.

And then on the facilities management side, I know it's still early but could you talk about some of the sales opportunities that you're currently seeing in -- I don't know if you have any sides of all cluster has that currently intact or whether you can disclose any of the names or maybe talk about the length of this touch period that some of these potential customers are in your opinion?.

Sure. Obviously we don't like to talk specific customers or names. But I can give you directionally the facilities solution we have on the technology side, is being very well received. That's something that we are excited about. The numbers are not meaningful yet for us to be able to talk about it. And when that time comes, we'll obviously talk about it.

But right now it's a question of learning and understanding that market. So, some of the verticals we have been having had lot of success in healthcare, we are working with several hospitals, they're very interested.

We are able to offer them some meaningful solutions in order to meet their requirements compliant to the big issue on hospital, so that's very helpful. When the education vertical especially with colleges and universities, there's a lot of building going on their end, facilities, managers, deal with a lot of stuff there. So, that's helpful.

Manufacturing is good. So, we've broken into that space, we have multiple customers and we don't offer our solution free anymore because we actually want the customers to really sign up and track, do the IT review, do the legal, and pay off the money before we do anything. Because the production is also cost us a lot to do that.

And these are large companies, many of them are fortune 500 companies. So, just it's a longer sales cycle, but once they come on board, they are unlikely unless we drop the ball, they are unlikely to stop you because we set them up for continued use because obviously building online cycles along.

Public utilities, we have bunch of them, we have bunch of retail. So, we're making some progress.

We obviously work with facilities, managers, and facilities previously in providing them print for facilities work, so we do understand that space, but right now it's in the growth phase and it's very promising and we are excited about the opportunity ahead of us..

Okay, great.

And then just lastly it would be more for Jorge, but would it be possible for you to provide just a rough range for CapEx and for the lease expense expected for this year?.

In regards to the CapEx, we're going to be ranging in that $3 million to $4 million range, kind of call it the average from the cash CapEx. And regards to the capital leases, and I'll caveat it with the fact that in here [inaudible] enterprise customer for our MPS solution, that number may go up pretty significantly.

But I would say in the capital leases we're going to be in that $5 million-ish range $5 million to $6 million, and the cash CapEx and the 3 million to 4 million range. So when you add it all up, it’s in that 8 - call it 8 to 10 million range, give or take..

And we have no additional phone questions at this time. I would like to turn the conference back to David Stickney for any additional or closing remarks..

Thanks Eve, and thanks everyone for your interest in ARC Document Solutions and your attention this evening. We look forward to talking to you soon. Thanks very much. Good night..

Ladies and gentlemen, this does conclude today’s call. And we thank you for your participation..