Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the ARC Fourth Quarter 2018 and Fiscal Year Ending Earnings Report Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. David Stickney, Vice President of Investor Relations. Please go ahead..

Thank you, Kelly. And welcome, everyone. On the call with me today are Suri Suriyakumar, our Chief Executive Officer; Dilo Wijesuriya, our Chief Operating Officer; and Jorge Avalos, our Chief Financial Officer. Our fourth quarter and fiscal year end results for 2018 were publicized 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, February 26, 2019, 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 CEO, Suri Suriyakumar.

Suri?.

Thanks David and welcome everyone. In the later part of 2016, we made a commitment to protect our legacy revenues while continuing to invest in technology solutions that would facilitate future growth in our business.

To that end, we made meaningful investment in our legacy business both in developing technology and acquiring new print equipment that would provide competitive advantages, greater capacity and more efficiency both in our customers' offices and our service centers.

Now as we report our 2018 results we have undoubtedly demonstrated that our investments were well founded. Driven by our strong performance in CDIM, ARC delivered nearly 2% growth in annual sales in 2018.

Not only we were able to stabilize and protect our revenue from print, but we grew it while continuing to develop and implement technology to support all aspects of our business. It also highlights the value of our technology solutions across the board.

Our facility solution which leverages our expertise in construction document management continues to be embraced by large and well-known clients. We had also earned several awards for the best facility software in 2018.

Abacus our print tracking software was upgraded significantly last year and will soon be operating on the cloud dramatically expanding its on-premise and mobile capabilities. Our MPS clients are deeply dependent on this technology and it has proven to be a major differentiator with our competitors.

In 2018, we developed a new mobile app called ARC Print and released it to the general market less than a month ago. The app connect mobile users to our nationwide network of service center and allows customers to obtain a quote, order variety of services and track and deliver print jobs within a few simple tabs on their phone.

And we also added new technology services to our portfolio during the year including drone flight data capturing services, 3D visual imaging and printing, project close out services and more. We've always demonstrated that we can leverage any volume of sales growth throughout our P&L and 2018 was no exception.

But we also did tremendous amount of continuing work on margin expansion throughout the year and it showed. Gross margin improved significantly at 32.6% for the year, we delivered $2 million more in cash flow from operations than we anticipated and we beat the high end of EPS estimate by $0.01.

Even in the phase of higher than anticipated medical expenses for the year, we stabilized our SG&A cost and delivered adjusted EBITDA that was solidly on target.

As we look to the remainder of the year, we continue to protect our print revenue, expand our technology portfolio, generate solid cash flows and maintain a rock solid capital structure upon which we can grow. With this as a backdrop for the discussion, I'll turn the call over to Dilo for some operational detail.

And then we'll conduct a brief overview of the financials with Jorge before we take your questions.

Dilo?.

Thank you, Suri. We are very happy with our sales performance in the fourth quarter and how we performed as a company for the year. Our CDM result was strong and we were successful in growing all our construction related print services. Our customers are busier than normal and trends in construction continue to move in the right direction.

Our teams were able to successfully hold and grow our share of wallet with our customers but they did so by selling more than just construction document printing. Our customers are increasing the use of technology to manage their construction document and to distribute them digitally. As a result, print requirements per project continues to erode.

Our goal is to continually offer our customers best-in-class service and move their document needs to our digital services when they don’t wish to print. To support this growing trend and to capture every sale from our existing customers, we introduced a variety of technology enabled services several of which Suri mentioned a moment ago.

We have proven quite successful in keeping business with ARC and attracting new customer. CDIM also had good support from our color services and we continue to enjoy a growing share of our customers color names. The demand for project site signage, office signage, environmental graphic and marketing in print make our print services very attractive.

MPS revenue remained flat as we see an increasing number of customers move their small format document printing to a digital environment. In 2019, we are strengthening our regional and national account team as we feel there are more opportunities to unify the print hardware requirements of customer that are in multiple state under a single contract.

Here the double-digit growth in AIM business in quarter four. Thanks to our construction and faculty customers we are busy digitizing their paper documents, adding intelligence and helping them to manage their content in our cloud and mobile platform. Our equipment supplies had a moderate sales growth due to strong sales from our Chinese division.

We are very proud of our team in the way they managed our operational expenses. With 6.2 million in overall sales growth in 2018 our teams were able to increase our gross profit by 6.8 million. This result is no accident but instead is due to our experience operational management staff in North America.

Their focus on operational efficiencies and a high level of customer service helped us to achieve this result. We know that our customers are printing less and we know our customers are moving to a digital workflow this is a fact.

Our goal is to focus on the fundamentals of unparalleled quality and service to our customers and work smartly to increase our market share. I’ll now Jorge for an update of our financials.

Jorge?.

To protect revenue from our core business, continue to introduce technology solutions where they can help support new sales, keep the focus on our margins, and generate strong cash flows to produce another solid year. With that, I'll turn the call back to Suri.

Suri?.

Thank you, Jorge. Kelly, now we will be taking the questions from our listeners..

[Operator Instructions] Your first question comes from the line of Aman Gulani from B. Riley. Please go ahead. Your line is open..

I'm just wondering if I can get a little bit more color on CDIM growth. What was the main driver there, was it more on the reprographics side or was it color - if you can give more color on that that'd be great..

Yes, Jorge you want to do that, Dilo?.

We continue the strong performance in the reprographics. And when I say reprographics, that's probably long winded because that really means our large format and small format black and white printing. So the way I really look at it is our service centers were busy.

Our 170 service centers were busy printing either black and white materials or graphic colors. It definitely was aided by the color graphics.

Dilo, anything to add?.

Yes, I mean basically the way you want to look at is the - we obviously many, many years back we were heavy on construction related wide-format blueprinting business. But today we are migrating more and more into quick high speed digital print capabilities whether it's black and white or color or large format or small format.

That's where the bulk of the growth in 2018 came to us. It's finally from same customers, markets that are very adjacent to construction that require fast turnaround, high quality, short run, digital color and digital black and white print. And that's the market that has helped us last year..

And then just looking at the AIM business; looks like there was significant growth year-over-year.

What was the primary driver there and then can we expect to see similar growth trends going into 2019?.

We hope so. I mean you know the AIM business is largely - the bigger part of that is mostly customers who want to archive their materials. And firstly the percentage growth is big but it's coming off really small numbers. Secondly, this AIM business also comes in like - it doesn't, it comes in chunks.

It's not really consistent recurring kind of a thing, depending on what kind of customers are looking for archival business. And some of the customer's who actually are using our facilities so far, also use the AIM services so to speak because they're basically scanning all these documents and putting it into that database.

So the way you look at this is, what we have been able to do is really push our services to customers on multiple fronts using technology in terms of whether it is drone services or BIM services or AIM services, it's really the same customer base.

Its construction related but we are selling them more services with the help of technology enabled delivery. So, that's actually generally driving activity all around the marketplace. So we feel like we have found a way to get more business from the areas which we didn't previously have, which will help us grow the business..

And just turning to the MPS business, any large regional or national accounts secured during the quarter that we can expect to maybe rolled out in 2019?.

Well, obviously we don't speak about specific customers. But obviously MPS business is a business largely challenged because it's mostly driven by small format printing. So overall, MPS business is generally challenging.

I mean if you look at any print manufacturing you'll know at once that Canon, HP, whoever manufactures equipment, all their sales are down simply because technology is replacing most of this print work.

However, what we are able to do is to be able to capture more customers from different marketplaces in a way that we can actually sustain the business or hold on to that business using again technology, Abacus and so on like I said previously.

So we don't expect it to grow significantly but what we are doing is we are offsetting the erosion in the business by adding new customers.

And many of these customers are coming, regional customers because there only that many large customers out there in the marketplace because after awhile almost all of them either renew their contracts or they no more new customers because the big customers are far and few in between.

But there are lots of regional customers spread across the country and recently we have been starting to focus on them and that has actually help us sustain our numbers..

And one thing to add to that too, once we're in our customers on their side then it gives us an opportunity to expand our relationship with that customer maybe due to some of their AIM services, maybe due to some of their color printing. So that's another side benefit of adding new accounts..

Okay, last question from me. I just wanted to get a little bit more color on the ARC app that you recently rolled out.

What sort of traction are you getting for that in terms of downloads, subscribers whatever it maybe?.

So that's basically in line with the trend what we're seeing in the marketplace, people's behavior.

As you know, people are turning to apps literally to do anything whether they are ordering food or whether they're looking at the weather or they're sending a text or sharing videos, there is an increased use of apps by the general population in every sphere of the business.

So being the Company who has been using technology significantly to integrate into our business, we thought why not print, why not make it easy for our customers. Our whole team has been for the year 2018, make it easy and fun for customers to do business.

So in that line, in that school of thought we taught about, customers have to actually, when they send a job or receive a job or they send a print job or when they want to send a print job, they always have to go to their desktops. Why? What if they can do it from their mobile phones which is what more people are doing now.

So we've been working on this app to make it more meaningful not for the sake of just having an apt but make sure that the customers will enjoy using it and actually get the benefit of having an app like that. So we have been developing this over a period of time and we just release this last month.

So we don't know how many customers will actively start using it. We are just introducing it to the customer but it's one thing that we believe that if it make it easier and more convenient for our customers to do business they likely to do more business with us.

For example we are now on app previously we had reviews but it was our private our own site but now we are on the app. So because of that we’re getting more exposure because of app I think we’ll get people - we will be able to review - or downloads our app. We will be able to have access to them which means we can push product to them.

So I think again this goes to what we talked about previously that we are constantly looking to really integrate technology into our print services in a way that we make it easier and faster for people to actually access our services..

Thank you definitely a good way of increasing customer engagement. Yes, again congrats on the quarter and I’ll pass it on..

Your next question comes from the line of Glenn Primack from [indiscernible]. Please go ahead. Your line is open..

Yes, good afternoon Suri..

Good afternoon Glenn, how are you?.

I am good because you told me 18 months ago you’d have the ARC turned you turned the ARC..

Let’s hope we still - we are working hard to do that Glenn we are working hard to that..

No animal two by two were damaged in the turning of the ARC, so that’s really good. Yes, what would make it even more successful then what you've already done over the past 18 months.

As I look at the guidance is it like you just not sure of the environment in terms of being able to grow the topline? You only improved your gross margin your debt level, net debt level is down to likes sub two times the EBITDA that’s on here.

So I am just so that if you can actually grow in 2019 versus 2018 I mean your equity is cheap anyways right, but if you can actually grow another year that's kind of cool I don’t think the multiple which they would advance?.

Right so obviously Glenn that’s all planned every company wants to grow but we are mindful of the history the recent history and what’s happening in this space we are mindful of that. And we are also in terms of operating metrics I think we have done a phenomenal job in 2018 because remember in 2016 we talked about we want to invest in the business.

We want to invest not only just in new technologies stuff but we want to invest in the print related business as well which is what we took the plunge into 2017 and the results showed in 2018.

So and therefore we were even more mindful to make sure that we control our cost which I think we did a phenomenal job and the numbers speak for themselves that.

So in terms of operating metrics I don't think there is a whole lot to improve there but I think in terms of revenue can it be improved surely can be but it’s going to be largely dependent on what the market conditions are going to be.

We are as excited and invigorated about this business as we were in 2018 or more because like you said we turn the corner. We fought hard to turn it and we feel good about it.

And all the things we described in the previous question as well applying newer technology to draw customers from different areas that we haven't drawn before is starting to work. So we hope that 2019 will be a better year.

But again like I said we would have to – given the market conditions and given what's going on in the industry we just have to go there and get it executed which is exactly what we plan to do..

Yes, it sounds like we did a conservative but that's good I don't want any no victory deal. I am just happy it’s like how many people on the 21st century make a promise 18 months ago and then deliver on it..

Well let’s keeping working Glenn we will work hard at it that’s our promise..

And AIM again like analyst before me that showed pretty good growth this quarter I appreciate that it can be lumpy and sometimes you have a good one and sometimes more chop is good.

My questions one is the gross margin in that business larger than the overall margin of the of ARC or is it in the low 30s?.

It’s about the same I would say Glenn I couldn’t say that now here what happens in AIM. There are good jobs in AIM and there are bad jobs in AIM and how that does work. If you take ARC job you could have documents which are very, very old which are more complex to our archive which takes much more labor than in average job but still it’s a job.

But on the other hand you could actually also find somebody who comes and says we have lots of building which I have all recently build but they are not necessarily those [indiscernible] 40s years old and they are not doggier and they don’t have coffee stains and they are not creased and they are not torn.

That’s a different kind of job so get a mixed bag so overall average is about the margins we get. Yes Jorge..

Yes, I would be in that 30%, 35% range but the one thing I will add to that and there's an opportunity there as more of that book of business turns more into the reoccurring software type of revenue. Then over time we would anticipate the margin of the blend i.e.

more software less of the professional services so have the potential to continue to increase..

When somebody archives a bunch of documents you don't get to sell 50 licenses Glenn you might sell three or four or five but they add up over a period of time and those things actually come to us at a much higher level of profit and that's what Jorge is referring to..

And the average length and deal that six months a year it depends I guess on how much stuff referring?.

Exactly so the thing about AIM is at the beginning the cost is very high because of lot of professional and services to get all those drawings prepared and uploaded it. But once they get customers get on board those documents are hardly with us forever it's like it will stay in our archives and they will continue to use it.

And they’ll be some charge for them using it that charge we are referring to that comes at a higher margin obviously or a period of time when we have 10, 15, 20, 30,000 customers that will make a meaningful impact. But most of the services upfront is all professional services..

And then you mentioned Abacus at the beginning of the call is that something you made what was it I missed that at the very beginning?.

Yes, so basically you know it was a desktop a server kind of a software which largely customers operated from their server it is in line with the previous software developments we have had but what we did is we moved that cloud we can use that also on mobile platform but it’s faster quicker easier to install and the interface is much more user-friendly.

That something that we are focusing on anything which our customers get in touch with we are making it easy and faster for them to use like the Apple apps. So that's actually we are excited about that we think the customers will like it even more..

Great because then you will make them even greener and then maybe you can just fix up one of those environmentally social conscious on..

I don’t know whether I will wish for that one but thank you for the comment..

I think you are saving paper for clothes right..

Right..

And then 170 print setters are other technology things that you're working on to drive more traffic into your network?.

Yes, like we mentioned obviously we aren't Yelp now so there a lot of people who reach us out through the web we have web chat, we have live chat, people will come to our website and ask us hey, can you help me with this and he said absolutely and we will help with that.

Now it’s app which means we can push notification through the app whoever who is using the app every time they pick a job we can send them advertisement and whatever that might be. These are all new initiatives we are trying we are also working with other print service providers to be able to provide our services like Fathead.

They want stuff printed, they want a network where they can reliably print, we can do that. We're working with retail chains. We are - I don't want to mention names but we are working with retail chains. We are - if they want services in multiple locations, we are able to provide that with the same level of consistency.

So there's lots of this stuff which is coming to us now, Glenn. It's coming through different and new channels which we didn't have before. And that's actually basically fundamentally driving - giving us the ability to actually hang on to the business and grow a little bit..

You already hired a national accounts person or has that already been in place? That's kind of like being able to - it sounds right, yes, right? So you can do the chilies printing all over the country from just someone pressing a button..

Yes, we already have that in place..

Yes, there's been regional management and solid good regional management in place to accommodate those type of customer requirements..

So the next step is, I'm at [indiscernible] and I put in my prints thing and then I have an ARC drone that drops it off over to the site right when the person needs it, is that like a couple of years out, are you working on that one?.

Yes, sure, why not?.

That's probably cool..

Yes, it should be super cool..

And so you'll generate cash in 2019, then it's always my question on these things but I'm not even going to talk about your buyback, it's more - since you're already had less than 2x net debt, you don't need to pay down like a ton more debt but just this quarter you dropped off $5 million, if you just said $5 million towards a dividend that would also I'm looking because your stock at times comes under pressure but who wouldn't want to earn like 4% and 3% world and wait for you to hit it out of the park with your next iteration of an ER product.

Can we talk about that or like relative to other uses a cash because there's – man, you're doing - you've done a great job paying down debt over the years..

When we get there we'll cross that bridge, Glenn. Right now our focus is figure out a way to continue to stay in this growth mode. I'm not even thinking about casual what we are going to do if we get another couple of years and our wealth can we grow, we'll know.

But at the moment because anytime the revenue strips which we have had in the last three years, immediately EBITDA gets affected and immediately it comes back to bite us with ratios and so on. I think that's behind us, we don't know that. We have done it one year, we want to do it couple of more years and I think we'll get there.

So we are working hard at it but all points noted I mean I'm sure everybody is thinking what will happen if those things happen but those are good things to happen and then at that time we'll cross that bridge..

Yes, well we still don't have an infrastructure built in this country. And part of the reason that I'm always thinking about you and Dilo, right. And so that's just a passive income hit in from all your hard work, right..

Jorge is very upset that you are only thinking about me and Dilo and that you didn't mention his name..

Well, Jorge doesn't go out and cast a rubber band like Dilo does, right. That's all my questions..

Your next question comes from the line of Matthew Schwarz from MAZE Investments. Please go ahead. Your line is open..

Jorge, could you spend a couple of minutes talking about the differences between really the high end and the low end of the EBITDA guidance and maybe some scenarios that could lead us to high end or low end and how much does the healthcare issue tie into the delta?.

I think from a very high level I think Suri kind of touched on it in regards from the revenue generation. Obviously we do garnish and get a little bit of growth and continue that momentum from 2018 and maybe even improve upon it a little bit then that definitely would put us in a good position to be in the higher end of the range.

Obviously if there's market conditions and the digital transformation accelerates more than it has been in the last couple of years, which seems to have stabilized, it's happening but it's stabilized then obviously that give you risk to the bottom end of the guidance.

In regards to our cost structure, we feel good about the moves and the changes we made from a cost structure standpoint in 2018 that builds are sustainable with a slight caveat that our employees did a great job and we also need to make sure we retain our employees.

We got to consider 100 - 35%, 40% of our business comes from California in a very competitive market. So you got to be cognizant of that to be able to compensation wise retain your good people. So that's a challenge we deal with every year, nothing new. In regards to the medical side of it, it's a bit of a wild card.

And like I said in my script, typically when you have chronic diseases or those – that fever that we all try to avoid when we go to the hospital, well those things typically don't flush out in one year. It typically takes a couple years. So, we still have fair amount of those in the system. What impact they're going to have in 2019, remains to be seen.

Any new surprises going on there? We didn't make very dramatic changes to our medical structure providing the best benefits to our employees but we did decouple a lot of things that gives us a lot more ability to try to provide great service and hopefully reduce some costs.

So that's a long winded way of saying we hope to improve upon what happened in 2017 and hopefully bring that down. But there's so many unknowns there..

Yes, just multiple factors I guess. Obviously we are going to try very hard to maximize that but given the various factors involved here, we're just being careful about what they're predicting. We'll see how it goes..

And just to dig in a little bit more on the healthcare.

So you said $4.3 million, can you talk about what that was last year? What the structure of your healthcare agreement currently is with the stop losses presently?.

Yes, the structure. So the increase in 2018 over 2017 was $3.7 million. So obviously borrowing that we would have some nice growth in EBITDA, obviously outside of the control of operations. Our stop loss is set at $250,000 per individual for the year. So if any individual were over $250,000 our stop loss kicks in and they cover that.

So it's just a product. How many cases go over that, how many are in that $100,000 and $200,000 range and that's frankly something that's too early in the year to give a concrete answer on that..

I see. And I think if I extrapolate on what you said about SG&A per quarter. Basically gets us to an SG&A level for the year that's down something like $1 million versus last year. So is it safe to say that if you look at the Company as a whole and I know you are doing a lot of increases in tech spending and other initiatives over the year.

Is that all fully loaded at this point?.

Hey, we're going to continue to invest in those areas where we think could generate new growth. But we're also going to be very conscious in managing our cost in those areas that we don't think are providing benefit and continuously do what's in our DNA, reduce those costs where we can.

And if we get a little bit of help from the medical maybe we could beat some of the old numbers..

And then just last one, the facilities management piece I know I think I asked this last quarter as well.

But is there any information you can give us about how many people are maybe testing or using the product or anything else to help us understand I guess the progress or potentially momentum that this product has in the marketplace?.

So obviously we are using several customers and we have airlines using it, we have government, some customers from the government sector, we have some customers from the healthcare sector. So the range of customers are using, nothing is big enough to be for us to be able to quantify and say it's really meaningful and we want to drive it.

Obviously we are trying to see which is the sweet-spot. Obviously this is property development, there are public utilities because when you talk about facilities, we are talking about the bills biz.

But the interesting thing is we use the same knowledge, depth of knowledge we have in the new building construction in the bills biz, that's what we're doing. And because we have extensive knowledge in construction, documents, information and management.

So that's what we are doing right now but we don't have enough information to be able to – it's not material for us to be able to declare that just yet. We just don't want to send the wrong signals out there.

So once we come to a stage that we really feel like it's something material, it's going to make an impact then we would definitely be talking a little bit more about it. But all we know is the product is being received well and people like the product and we are also trying to understand the customer fit whether this is working very well.

So many of those things we are making changes right now, trying to get adjust the software and make the customers respond to that. We'll know more as we continue to use this product..

And just lastly picking back on Glenn's question about debt; I think you've talked a little bit about some leverage targets in the past before you consider some other uses of capital, capital allocation decisions; is there a target you have in mind today because obviously you're generating a tremendous amount of cash specially versus here - your market cap and even your enterprise value today..

Yes, so I mean obviously the cash generation depends on how much money we are investing and also it's all relative to where the market is going. If we have good growth and if we have good EBITDA then our comfort levels go quickly higher because our rations perform better.

The thing which we were concerned about in the last three years would be, Jorge, correct me if I'm wrong, is when our EBITDA starts slipping then you start worrying about what the consequences might be. So one of the things we have focused on, say, look, really bring the debt under control, which is what we have been doing.

And now we are in a much better position. But having said that, there are changes in the accounting rules, we are going to have new lease accounting standards and we'll wait and see how these things fall out.

But right now like I told them I mean we are totally focused on making sure that the we sustain this level of activity in the market place and protect the business we have and if you can come up with some growth, it'll be amazing. We are trying to see how well we can do that.

So, we are really focused on getting these new revenue avenues really solidify this year. That is our focus..

Your next question comes from the line of Alan Weber from Robotti Advisors. Please go ahead. Your line is open..

Can you talk about kind of - have you seen any change kind of at service level in competition, any closing of service centers that's made a difference or that you expect to see given kind of the industry trend over the last few years?.

Yes, we can discuss - chat about that a little bit. So in our traditional space where you find other reprographers, that space is getting - significantly changing. They're basically all becoming print houses with color capabilities. They're largely all become largely color houses.

There are a few people doing slightly different things in terms of some technology offerings, 3D works, some people do some 3D printing and so on and so forth.

Some people do some building information modeling kind of work, right, Dilo? So, there are few variations of that but largely they are all become very good at printing color and that's the market everybody is driving very, very hard. But we also get competition from newer sources which is basically print companies offering print services on the web.

So there's a bunch of different companies trying that out. But we think there is a way we can structure our services where we could continue to deliver really high value service or high level of service. For example, if you check our reviews and if you go to Yelp, it's not uncommon for customers to give us five stars.

Right, Dilo, would you confirm?.

Yes..

I can't think of a four star we got last time. In other words we are focusing on that level of service. Somebody comes with an enquiry, literally within hours we not only respond to them but in many instances even complete the job. So we are trying to actually adapt today's needs of customers.

And that's we previously described about the app in and so forth. The idea is to be able to deliver services and solutions. Make it much easier for our customers to access us, find us. And then when they find us and when they want something, make it really, really easy for them to order it and really easy for them to get delivered.

And they have the information, right Dilo?.

Yes..

Hey, can you print for us whether it's fliers or whether it is a museum. We get all kinds of orders on the web now. So we are using the back channel also to create that excitement. But in terms of competition, now we have I would say more competitors because we are obviously stepping into other markets which traditionally we didn't get into.

But the traditional competition in the form we had has gone down.

Would you say that Dilo?.

Yes..

But they're in different forms..

Yes, same competitors are still there. They have probably got a little smaller as we've got in the last few years. So they have not gone away.

I think mostly what we are enjoying is that - our focus is primarily on good quality service and good customer service because when the markets are good, customers are demanding high level of quality and turnaround time.

That's where we have focus over the last 18 months and all our staff around the country we are super focused on getting the job done very well with high quality and make the customers happy and get their repeat orders coming back to ARC. So that's where we are focusing on.

I think that's where we are continuing to win that extra market share by providing that high quality service..

And I also would add that - I don't know of any of our traditional competition of people who have been in our space, investing the amount the way we are investing. So we feel good about the investments we are making in order to drive the business. So we think that's a benefit because we are a healthy company, we can continue to invest in the business.

I think that is the reason why we were able to show this 1% growth, plus percent growth. And we are hoping that will help us..

I would think that at some point it would lead towards some form of consolidation of the service centers or fewer service centers..

I don't - it's very interesting. As you know, we have been in the consolidation model. There was a period of time that we acquired back-to-back so many companies. We don't see that opportunity right now.

Let's put it this way, we don't see that as a meaningful thing now because any customer we buy, if they are not - if they don't have the model like we do, it's likely their revenue will erode. So, I don't see any more consolidation. I think it's going to be - the market is going to depending on the demand out there adjust itself in terms of size.

But it's interesting, it's a challenging market but we feel very good about what we did in 2018 and we certainly expect to have the same level of energy and enthusiasm going into 2019. It's looking good and we are very hopeful that we will continue to grow..

And just my final question.

In terms of the cash flow, what do you expect capital spending and capital leases to be for 2019?.

Capital spending I think will be in that $12 million range. As I mentioned in my script, it was about $2.7 million due to accounting rules that were shown as an inflow from operations and an outflow from capital expenditures. So when you take that $2.7 million out, that would have got you to about $12 million for 2018.

And I think that's a good proxy to use as we look out into 2019. In regards to capital leases, the lease rates are still very attractive out there. We did decrease number of cap releases we entered into. We were at $25 million in 2017, we dropped it to $21 million. I would anticipate that number dropping a little bit, borrowing any positive news.

We signed a big enterprise type customer in MPS and I need to buy $5 million machine, well that would be a great thing. I don't see that in the horizon right now. That's not the strategy we're going after. So just kind of with that said, getting that in the $15 million to $20 million range is probably a good proxy for the lease side of it..

And there are no further questions at this time. I will now turn the call back to David Stickney, for closing comments..

Thanks everyone for joining this evening. We appreciate your continued interest in the Company, and we look forward to talking to you shortly here in the first quarter of 2019. Thanks so much. Good night..

This concludes today's conference call. You may now disconnect..