American Reprographics Company (NYSE:ARC)
JPMorgan Ultimate Services Conference
November 9, 2011 2:45 p.m. ET
Suri Suriyakumar - Chairman, President & Chief Executive Officer
Dilo Wijesuriya - Chief Operating Officer
John Toth - Chief Financial Officer
Molly McGarrett - JPMorgan
Molly McGarrett - JPMorgan
Great. So we will go ahead and get started. I am Molly McGarrett, I am a research associate here at JPMorgan on the business and education services team. And I would like to introduce this afternoon the team from American Reprographics. We have Chairman, President and CEO, Suri Suriyakumar, and CFO, John Toth; and COO, Dilo Wijesuriya. So I will hand it over to you guys.
Thanks, Molly. Good afternoon, guys. So four of you, it’s easy to talk to. It’s almost like an individual meeting. So going through this forward-looking statements, go past that. So the overview. Fundamentally, we are still the largest document solutions provider in our space, the biggest company by far. The industry we serve is known as AEC, architecture, engineering and construction companies. And we also provide similar to services to what you refer to non-AEC costumers. In other words who are not construction related.
But in the AEC segment, we are by far the largest company. The only national service provider. There are so many reprographers. Once upon a time we used to have as many as 3000 reprographers in the industry, much less now after this downturn. But we are the national service provider, times larger than the next largest competitor. About 200 locations and 43 states. 120,000 customers in more than 6000 facilities management contracts which means that those are actually services we provide for our customers in their offices. 200 locations on the ground. And then, acquired more than 140 companies since 1998. That has been our -- acquisition was a major part for our growth during the early years and strong historical performance.
So what we do. So fundamentally what we do is document management, what used to be known as reprographics. So if you go back 30 years or 35 years, people would have referred to us as blueprinters. And then in the last 10-15 years we were known as reprographers doing document management for the AEC industry. We still do the same thing though. We are just becoming more and more document control and document management. So what it means is this access to documents. Organization of documents, collaboration of documents and archival of documents. So that’s in a way, in the modern terminology, that’s where it’s going it’s becoming more digital.
So these are all indications as to how the industry is starting to kind of evolve. And of course documents logistics is a big part both digitally and also physical delivery is a key element. And print on demand, which means we will print onsite, offsite, large format, small format, black and white, color, managed print services, the whole range. On top of that we also have technology development and integration for the document solutions required for our AEC customers. So we do have a planned room. We distribute documents, manage documents. We use bidding tools. So there is a variety of technology tools to enable our customers to accomplish their goals faster and efficiently.
So as our customers evolve, like I said, the construction industry especially with this downturn is starting to use more digital technologies and starting to evolve. We are also becoming more and more content manager of the information and be able to provide that content to them. When they want them, where they want them, in whatever form they want them. Whether they need it in CDs, DVDs, printed copies or just digital files. We are able to provide the entire range of services there.
ARC provides a very critical role in construction and communication. For anyone of you who has not heard this before, I have constantly said this to my existing investors. So I always put in a small story. For example, to understand what we do in the industry, if an architect wants to give instructions let’s say to a construction company about doing a window in this building. You know he doesn’t send them an email saying that, hey, I want a window. You know 8X4 in this wall. He doesn’t send them an email or leave a voice mail.
He actually issues a drawing and the drawing will say what kind of window, what should the frame be. Should it would be wood, steel, aluminum? What should be the glass; what should be the tensile strength in the glass; how should it be secured; what should be the hinges. Should it be aluminum, steel. All the details he will put in a drawing and then he will communicate that to the contractor. So think about it like this. In the construction industry we have over 220 different trades. And how I explain that is the same guy who comes to install your carpets doesn’t do your plumbing, right, in your house.
The guy who does the plumbing won't do cabinetry. The cabinet guy won't do steel. Steel guy won't do the roofing. Roofing guys won't do plumbing. I mean it goes on and on and on. 200 different trades. So if you think about a new building when an architect is giving instructions, he has to give instructions or he has to issue drawings to all 200 trades. And that’s the only way they communicate. Because the architect doesn’t walk around saying, I want a five-foot wall here and I want it to be eight-feet wide. He won't say that. He will actually issue a drawing.
So the way they communicate in the construction industry with these 200 different trades is basically through documents. So documents play a very critical role. And the documents move from the design phase. That’s the early stage. Then it goes to the bit phase. That’s where you real and deal and set prices and sign all the contracts. And then it goes to the build phase when the real engineers come and break the ground and pour the concrete and start building. And during this phase the drawing keeps changing. A project can -- you know if you just take an average home, it could be 24 months before you will build it. And if it is a customer home, it’s probably 36 months.
You know the way to think about it is, how many changes will you make from the time you decided you wanted to build a house and by the time you’re finished building the house from the kitchen to the pool, to the family room, to your office room. You know you will constantly be changing. You will go to somebody’s house and say, you know I like that kitchen counter, I like that kitchen counter to be like that. Or I want my pool layout to be like this.
So the drawings not only move inside the construction industry but it also goes outside the construction industry. People such as municipalities, regulatory authorities, all the guys who do the environmental studies. All of those people, the fire marshal for example, have to approve the drawings. So every time the drawing goes there it gets in -- changes are made. So all these changes have to be kept track of. What changes were made, who made those changes, which are the new drawings and what is the latest version. This is what a reprographer does.
So there are thousands of drawings moving over a period of two three years in a large project. In a big project like MGM City Center, you’re looking at 7,8 years. And millions of drawings, reprographers keep track of that. That’s exactly what ARC does when you say that we provide a critical role in construction communication.
Currently, just to discuss the current situation, extraordinary macro headwinds. There are two elements to that. One is, it’s the cyclical drivers. Unemployment and vacancy rates are two biggest drivers of all business. So unemployment and vacancy rate are both high. And the second thing is capital. I mean private capital drives our industry. Non-residential is largely driven by -- non-residential commercial construction is largely driven by private capital and there are constraints on the private capital.
However, recent cost reductions and reorganization will drive margin expansion significantly as the economy recovers. Okay. So for the key investment highlights. Why should we invest in ARC? Commanding market position. I will describe them in detail later. Solid financial performance and a strong cash flow, one of the basic characteristics of all business. Very strong cash flow. A seasoned management team. Competitive advantages of scale. We are by far largest player in the marketplace. Unmatched ability to serve national and global customers. I will explain that. That’s a very important phenomena as large construction companies are becoming larger, so it’s a very important element.
Ability to acquire more companies if you have to expand the market share. Leading technology innovator. Over the last ten years we have spend about $100 million developing technology solutions for our customers in order to facilities document solutions. That’s a key highlight and a reason why we would be very successful as the market returns back to normal. Explosive growth potential upon the economic recovery. And organic growth opportunities in color and MPS, and technology side. I will explain that in a little detail.
So I will run through this quickly. Commanding market position, as I said previously, the second largest company that you can see -- we are $440 million plus, we think the second largest company could be closer to $50 million to $75 million. We don’t know the exact numbers because it’s a private company and they have gone through the same difficulties we have gone through, if not more, during the downturn. And if you take the number of production facilities they are in less than 20 or 25 while we are in 250 locations.
Seasoned management team. On to my left here is John Toth, who joined us recently. Dilo has been in the company since 1991. Rahul Roy, our Chief Technology Officer has been in the company for 2000. And more importantly the companies we acquired, average tenure of those senior executives are 15 to 20 years across the board. So really a very seasoned management team.
So company took advantages of scale. 200 production facilities across North America in 43 states. Operating presence in Canada, UK, India, Australia, Hong Kong and China. So as the market becomes global most of our large competitors are in these areas like in Canada, UK, China, Hong Kong. And we are able to help them and also expanding to those territories. In addition to that we have 350 print partners in more than 50 international locations. That’s becoming important because our customers keep sending documents across countries and we are able to do that for them and I will explain that to you one of the next slides.
So here is -- we talked about the competitive advantages of scale, here is one reason why that puts us a very strong position. Our ability to serve national and global customers. So the end market is consolidating. All the large construction companies are becoming larger. All the middle companies in the middle are getting swallowed by the larger companies and they are becoming multi-billion dollar companies. There is a huge amount of mergers and acquisitions going on in the construction industry. And the first thing they do after going through an acquisition is to see how they can reduce the cost. Because if a company is operating in say -- I will take one example of a customer we have worked with. They were working in 140 locations and they had 34 reprographers servicing them, and had 1000 invoices.
Today, we are the only reprographer we serve them. We give them one invoice. It’s a single invoice. And every day at midnight we update their (people’s office) system automatically. So that’s just to show the benefit we can bring to a customer how is in multiple and in multiple states. And if you take the ENR 500, which is the Engineering News Record which lists all the large construction companies. The top 50 are all billion-dollar companies. We work with 15 of them and 7 of them exclusively. And this is a development over the last three-four years.
Increasingly, we are going after these large customers. Realistically, these large customers don’t have a whole lot of choice other than working with multiple vendors. We have the ability to go and become the single source provider for document solutions and be able to consolidate their services. So that’s a huge advantage. So here are some customers that we have listed. We do work for Aecon which is obviously the largest construction company in the face of earth. HDR, HOK, Gensler, Crate and Barrel, Disney, some of the non-AEC clients, Southwest Airlines and ArcelorMittal.
So ability to expand market share. Market share continues to consolidate, like we said, under the AEC players. And growing managed print services under ARC. That’s an important thing. As we go after these large clients and we become the global solution for them. Where we do offsite work, which is all the reprographics work, and we do onsite work which we use to refer as FM which is work related to the projects inside the offices. So we do offsite work and onsite work.
The new phenomena is that if you look to other side, there are 300 people seated in the offices and there are desktop printers, copiers, scanners, fax machines, workgroup printers, color printers. Hundreds of them in customers offices but they are all generally provided by people like Xerox Business Systems or Canon Business Systems or IKON, previously, companies like that. That’s a segment of the business. It is evolving in the last three or four years as managed print services. What managed print services mean is that you would take over the fleet of all these small scanners, fax machines, printers and workgroup printers, and remove them and replace them what you refer to as multifunction devices, MFDs. So you have low volume multifunction devices, mid-volume multifunction devices and high-volume multifunction devices.
So by doing that you actually take over the entire document control in the offices as well. So we are now in a position where we can do offsite work which we always did for hundreds of years, large format and small format. Largely large format because it’s project related work. And then we did onsite work which is called FMs, which is related to projects large format and a little bit of small format. Now we also do managed print services. Which is a very large segment of the market place. Managed print services refer to -- commonly referred to as MPS is about $23 billion marketplace across the United States in 2013. I think Gartner made that statement.
So if you take the construction vertical, we have the best opportunity to provide managed print services solutions to our customers because we already work with them. We already give them volume through offsite work, we already do onsite work. They are our customers and we can go and convert them as MPS customers as well. So that’s a growing segment of our business. Very attractive. So ARC global services continue to be in large AEC and non-AEC accounts, often beating established competitors in MPS. Technology applications help us consolidate that because now we can go and drive their print drivers with our software solutions. We can track their number of copies they are making with our tracking solutions. So our customers relationships becoming stickier.
Small and mid-sized privately held companies can't provide that. So ARC’s long standing experience in this, servicing these customers help us actually grow the AEC business and the MPS business. And in the mean time we are also reaching out and growing our color business and the non-AEC business. So leading technology innovator. These are some of the tools we have. AbacusPCR is a tracking tool which allows us to track the number of prints customers are doing so that customers are able to then able to recharge their customers for the work they are doing. So a very important element in construction industry.
Ishipdocs is a digital shipping of documents. So for example, we can go to a customer and say if he is shipping documents to China, if he uses the traditional method mailing or FedEx or UPS, even if he uses something like FedEx or UPS it’s still going to take three days to go to China. And if gets caught the customer it will take another couple of days. We can use ishipdocs. We will upload it into ishipdocs. Download it in China in our region, in Shanghai or Beijing or wherever. And then we will print and deliver it to the customer and we will be able to accomplish that within 24 to 48 hours. And we will be able to accomplish that at a much lower cost and the customer will feel good about it because he is much greener now. He is not burning aircraft fuel flying this 60,80,100 pound rolls of documents from here to Shanghai and he is taking five days. So AEC customers love this. Architects want to be green for whatever reason. So that helps them a lot.
Plus it’s half the price, price to speed, we call it. We kind of say half the price to SSP. So it probably won't be $150 million business just yet but the $6 million or $8 million we do in that business is pretty good margins. And it basically allows us to cement our relationship with our customers and say, look we can be a total document solutions provider here for you. Because most of all, large customers, especially the large customers in the construction industry, almost all of them are international. They are in China, they are in London, they are in Beijing, they are in Shanghai, Hong Kong, Australia, India, Singapore, Middle East, you name it. It’s Quarter to Dubai to Abu Dhabi. They are all over.
So they love when we are able to go and give them solutions. So that helps -- the technology helps us actually consolidate the customers. Okay. Leveraging technology to expand the market opportunity. So here again more than anything else, we used to have all of our customers documents on PlanWell, and PlanWell is actually a cloud. We didn’t think of it as a cloud and invested it but we centrally stored all of our documents in a single database and be able to have servers to be able to hold these drawings and distribute the drawings.
So we can actually use the technology now to further to further serve our customers where we can store, organize, access and print from the web which is becoming very popular now. More and more people are thinking about working off the cloud. So what it means is that if you go to a customer and if he was to get a collaboration tool from a competitor he would have to buy a big fat server. And then he would have to have servers like that in every location they are in. And if they have to move files then they have to bring technology to compress files and decompress files then they would have to have something like Riverbed. Riverbed or something like that, software which will actually compress the files and move it to the next location and decompress it.
But you come to a place like ARC, we give them a collaboration tool which is called PlanWell Collaborate, it sits on the cloud. So everybody logs on the cloud and work on the cloud. There is no downloading, there is no uploading, there are no big fat servers. We just charge them for seat licenses. So these are some of the examples of how our technology is starting to make sense for our customers. The other important element is, we have been traditionally a reprographics business how do you transition the business. Now this clearly shows how we are able to take a traditional revenue we had, a revenue model we have, and move it to futuristic revenue model.
So our revenues are starting to fall in different buckets like cloud printing because we are printing if off the database; managed print services; technology licensing because we give licenses; strategic document outsourcing, that is when they outsource the work to us; technology consulting; managed file transfer, that’s when they want to files to Shanghai or Singapore or Quarter, wherever that might be; and workflow and collaboration. So you can see what is important for us is that we are evolving with the customers. As the construction industry evolves, we are staying with it and we are evolving with the customers and can give them the latest and the greatest so that we actually expand our business instead of letting it shrink.
So this is the long-term potential. There are three buckets here. I am looking at three to five years. The organic growth we are basically referring to the fact that we used to be somewhere in the $40 million in annual revenues. We are now doing $440 million. So if the market comes back over three to five years, even if we were to get minimal increase because of biggest share in global accounts, because of the fact that the smaller competitors have fallen into trouble, I mean we would easily be able to get $200 million of that market share.
Acquisitions which used to be big on, I am not sure it’s going to be a huge part of our strategy going forward because our competitors have suffered a lot during this downturn and they have not invested in technology. So we might be just buying only customer bases instead of really buying the companies as such because it really doesn’t make a whole lot of sense. And the third bucket is, again, is technology, managed print services and color. Color is another area we have invested a lot. Between color and managed print services we think that market will grow.
Our global solutions customers this year is tracking $60 million in revenue, even in a down market. 85% of that comes from managed print services because of the new segment of work we have started doing for them. With that I will hand it over to John to talk about some numbers. John?
Thanks, Suri. The numbers are always the best part of the presentation. I am going to briefly walk through the summary of the financials. We have historically had a healthy performance even through the down turn. And as Suri pointed out, strong cash flows continue to be a hallmark of ARC. We have the charts of our annual sales and cash flows and you will see our year-to-date numbers along the left side of the slide. We expect we are -- at the end of the third quarter we have $320 million in revenue. Adjusted EBITDA year-to-date of $51 million adjusted for goodwill impairments and other non-cash charges. Free cash flow of roughly $18 million and CapEx we are spending about $12 million, we are pace to spend another $3 million in Q4 continuing, as Suri said, investing in our business.
On a quarterly basis, it’s hard to see it given the scale of this slide but you will see that we are beginning to end a trend that was dominated by a decline in the construction space. If you were to extend this chart out to the left, you would see quarter over quarter reductions due to the contractions in construction and we are beginning to see the return of seasonality to our numbers and some stability in our quarter-over-quarter numbers.
Missing from this chart is Q3 where we came in at $104.8 million, which is roughly inline with the seasonal trend you would expect to see off of Q2. Our gross margin performance is a similar story, similar story to our revenue except that you will see we are coming off a meaningful margin expansion off the low of Q4 2010. You will see our low of 29.5 and Q3 ’11 we were 32.4. This is due largely to our cost reduction efforts executed by our operations team, led by our Chief Operating Officer, Dilo, who is sitting here with us. We have had a very successful campaign reorganizing our business and getting our cost structure where it needs to be balanced for this level of sales.
And picking off some of the highlights. As of October 31 or Halloween, we have no debt drawn down on our $50 million revolver. Our cost reduction program, we call it our Stay Fit program, has resulted in roughly $26 million in annualized savings across our system. And most importantly, as we point in the bottom of this slide, we have been reorganizing and redeploying staff and resources against our growing segments. We have more balance across our revenue lines than ever before. We are still a reprographics company. And when construction comes back you are going to see us more pretty dramatically with that. But we are not only a reprographics company at this point, we are more balanced and we have more opportunities to grow in other areas then we ever had before.
So that’s my quick presentation. I think we will now turn it over to questions to the extent you’re having.
Molly McGarrett - JPMorgan
I’ll start off with a couple. So one metric we look at for the non-residential construction spend is the Architecture Billings Index that had been turning up a bit and that the most recent number looks like it fell off. How do you think about when just some volatility, some noise becomes a trend. Or at what point do you see an upward trend?
So the way we would look at it, Molly, is to not just look at Architectural Billings Index alone as a single index, but you will see that in combination with everything around it like FMI, what is McGraw Hill saying, what is census bureau saying about the construction would impact. So Architectural Billings Index is a good indicator but you can't take that as absolute because it’s a survey basically from architects so it will be bouncing around. But overall if you look at, it is kind of an index which indicate activity. And what it said is that is that people have projects, it’s showing up on the radar screen. So it said the design stage probably. So most of the Architectural Billings Index activities are in the early design stages and then just before going into that.
So when it starts going up about 50 what it shows is that there are things bubbling, activity is bubbling but not enough to sustain it. And then people say things are not looking good. Let’s put it off for six months. So no billings. That’s what happens. So it’s a good indicator of the fact that it’s not going in the wrong direction, that it’s up there, that is just about to take off but it’s a matter of how the economy is going to turn and whether everybody has the confidence to actually proceed with the project.
We are seeing there are many many projects on the drawing board. Ball parks, stadiums, hospital projects. They are all just being held, you know, waiting for the right time so to speak. There is pent up demand out there. So Architectural Billings Index is an indicator of that.
Molly McGarrett - JPMorgan
And you spoke a lot about your technology in your presentation. Could you speak a little bit more about the PlanWell application and what kind of revenues are driving directly from that technology and how you see that business model kind of evolving?
Yes, so PlanWell right now is about, just about 9% in terms of, meaning technology. That is what we refer to as digital revenue. This scanning, storage, distribution, setting up and any seat licenses, that’s all in that bucket, about 9%. Historically, we give PlanWell as a tool for customers to get the print work because we wanted them to -- encourage them to do more printing. So they use the PlanWell platform. So we stored all those things from -- we actually scanned all the information and had them in PlanWell for customers to view and just order prints. That’s how we started PlanWell ten years ago.
However it’s evolving to be a completely different tool. Customers are starting to incorporate tools like PlanWell into their workflow now. They are thinking about sending bidding documents straight off PlanWell. They are thinking about collaborating on PlanWell. Because it is also a cloud solution. So instead of buying something for $80,000, paying $20,000 in maintenance and then replicating that in ten cities they could actually work on PlanWall Collaborate. And it’s a license fee of $25. Everything is on the cloud.
So customers are getting comfortable with things like that. So there are two examples I give, recently we have had is, one is Southwest Airlines. So they have what we call a facilities group who handles all the gates of all the Southwest, all the airports they are landing. So as you know these gates are always constantly changing and the construction in the gate is changing. And they use SharePoint which is a very common tool. But it was a pain in the high knee for them. They had have all these servers and constantly tweak the software. So we said, move to PlanWell Collaborate. You will have all the documents, you can access it whether from YC Idaho or San Francisco or Los Angeles. Make all the changes, instantly other person can it. You want it printed, you can get it printed. We are there, everywhere.
So we got a three-year from them. They just love it. So that’s one good example as to how our technology helped get these customers. Second one is ArcelorMittal, the steel giant. They acquired U.S. Steel in Illinois and they have these U.S. Steel plant with just 500,000 drawings in microfiche format. And they have suppliers, all of their vendors brining documents and they used a custom made software which was clunky at best. And it was not doing anything for them. So we showed them PlanWell Collaborate. They were amazed who scalable it is. So we got another three year contract from them. We customized PlanWell Collaborate and connected it with their software and now we are in the process of converting all those drawings and putting it on the PlanWell platform.
So customers like these won't go away and they will constantly with us. But this is an indication as to where we can take our technology and the kind of customers who can come to us.
Molly McGarrett - JPMorgan
I will open up for questions from the audience.
For the reproduction, reprographic services, so where do you think early signs will be, I am sure you heard them. Thank you. He was bringing the mic along. So for the reprographics work, production, so non-residential building, let's put it that way. For that segment to grow we are looking an unemployment and vacancy rates. They are the two biggest drivers. And the third one of course is private investment. But if unemployment and vacancy rates starts going in the right direction, investment will come in no time. They are the biggest indicators. Have always been the indicators.
But things like management services, even in a down market it will grow. Because what we do is we go to customers and say okay you are spending right now, say $2 million on your existing printers and scanners, fax machines. We can reduce your cost by 20% to 30% on that. And that’s how we get the business. So the managed print services segment will grow even without the market recovering. That’s a good part that we have done that very well and it’s very encouraging. And the color also is growth. I mean when the economy turns it will be even more fast in its growth, but the color is a huge market and we have grown in color in double-digits especially in large format color.
But if you refer to the non-residential segment which has been traditionally our strength, stranglehold. For that to come back it’s unemployment and vacancy rates.
(Question Inaudible) as far as the use of technology and if there will be any on the way you guys monetize your services as far as paper or anything like, or do you think that given the size of things like that it’s still going to be mostly paper?
Sure. There will be an element of digital -- erosion in new to digital technology. There is no question on that. But that will be made up for the FMs and the MPS revenues because the print revenue is going to come back. But at the same time because of the fact that we now serve almost all of the large clients, the market share growth will outweigh any concerns we would have on the basis of the digital technologies. The interesting part is, we are continuing to use the digital technologies to expand our market share, get customers like Southwest Airlines, ArcelorMittal, we never had before. So we will have the ability to grow our business outside of even the reprographics business, what we traditionally refer to as reprographics business with AEC customers.
And about the MPS business, is that margin similar to the FM business or more the traditional business or?
Yes, very much similar to the FM and the traditional reprographics business. It’s a very attractive market. Yes? This gentlemen.
Yeah, you announced a cost reduction program a while back, I think it was $27 million. And that figure was up on your slide. Does that mean you have completed that reduction program?
Sorry, go ahead, John.
So those cost reductions were put in place in Q1, Q2 and little bit in Q3. So those reductions are, they are in our numbers and it will realize -- that’s annualized number that we share with you.
There is a little stickiness in some of our older head and fixed costs that would drag on through Q4. So as a run rate we will see some benefit in Q4 that we didn’t see in Q3, but a little bit.
So let's say your revenues were to fall again by 5% or 10%, would you be able to -- will these cost reduction measures enable you to maintain margins or will you have to have further cost reductions in order to maintain margins?
Yeah. So basically these, whatever we have done up to now, right, is for today's business sales object as we have in place. We constantly look at different other cost reduction methods as well, for example our leases, right. As and when leases come up, we may not require the same amount of square footage in a plant. So we always try and downsize square footage going forward in each of our plants. So there are continuous cost reductions program that are in place in our company that can support the sales structure for next year as well.
And the thing we have been able to do is actually as the business have gotten challenged, we also have been not only be able to reduce cost that was our first thing, aggressively reduce cost. Then we realized we are still the largest player. We are by far the dominant. And this market is not going to go away. I mean it’s going to come back. So we want to position ourselves. And we saw the impact of digital technology so what we have been able to do is to reposition and rebalance and restructure the company to take advantage of the growth cycle which will come after that. And that’s what -- because we need now smaller branches. Because machines are much twice or thrice as faster, and they are digital, digital technology.
So, like for example if you take pickup and delivery, we do still delivery but there is no pickup. Everybody sends to us files by digital. So lot of things have changes and with the change we have actually aligned the company in a way that when the market comes back we will be able to take advantage of this. The global solutions and the MPS customers are relatively three plus years. So it’s what we have taken advantage during this downturn and we think that will help us a lot when the market comes back.
And if I many, a 5% drop in revenue I think margins will -- we are in the zone of maintaining margins if it’s more than that than further cuts might be in order.
Molly McGarrett - JPMorgan
All right. I think we’re now over time so I will wrap it up there. Thanks so much again for coming.
Thank you, Molly.
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