American Reprographics' CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: ARC Document (ARC)

American Reprographics Company (NYSE:ARC)

Q1 2012 Earnings Call

May 8, 2012 5:00 p.m. ET


Suri Suriyakumar - Chairman, President & CEO

Dilo Wijesuriya - COO

John Toth - CFO

Jorge Avalos - Chief Accounting Officer

David Stickney - VP, Corporate Communications


Molly McGarrett - JPMorgan

Brandon Dobell - William Blair

Brad Safalow - PAA Research


Good afternoon and welcome to the quarter one ARC earnings conference call. My name is Samantha and I will be facilitating the audio portion of today’s interactive broadcast. (Operator Instructions) Thank you.

At this time, I would like to turn the call over to David Stickney, Vice President of Corporate Communications for ARC.

David Stickney

Thank you Samantha and welcome everyone. Joining me are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; Dilo Wijesuriya, our COO; John Toth, our Chief Financial Officer; and Jorge Avalos, our Chief Accounting Officer.

Our first quarter results were publicized earlier today in a press release. You can access the press release and the company’s other releases from the Investor Relations section of ARC’s website at A taped replay of this call will be made available several hours after its conclusion. It will be accessible for seven days after the call. You can find the dial-in number for this replay in today’s press release. We are also webcasting our call today as usual and the replay of the webcast will be available for 90 days on ARC’s website.

This call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the company, including the company’s financial outlook. Bear in mind that such statements are only predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings.

The forward-looking statements contained in this call are based on information as of today, May 8, 2012 and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today’s press release and in our Form 8-K filing.

At this point, I’ll turn the call over to our Chairman, President and CEO, Suri Suriyakumar. Suri?

Suri Suriyakumar

Thank you, David and good afternoon everyone. As noted in our earnings release, ARC delivered first quarter revenue of $103.6 million and a gross margin of 30.8%. Our adjusted EBITDA margin was 15.4% and cash flow from operations was $12.4 million equating to $0.20 of cash flow per share. Our adjusted earnings share was zero cents.

We are firming our annual forecast for the full year of 2012. We expect annual EPS to be in the range of $0.05 to $0.10. We expect cash flow from operations to remain strong ending the year in the range of $40 million to $50 million. Our revenue from traditional services remained challenged. The reasons for this are not surprising and we have discussed them at length during previous earnings calls. Despite some year-over-year growth reported in construction spending in recent periods, these figures are benefitting by comparison given the 12-year low reported in construction spending last spring.

No matter how you look at it, economic conditions have remained soft for private non-residential construction. There has been some commentary around the potential for increased construction activities during the latter half of the year and other forecasters are focused on the possibility of another year like 2011. We have early data points to a stronger recovery only to be followed by lacklustre results. The current environment suggests that this may be the case, especially with the elections later in the year and the apparent deadlock in Congress.

In either case, we are treating both these ideas with healthy scepticism given our experience with the construction forecast of the past few years. If significant increase in construction activity takes place, we are well prepared to capitalize on it. The improvements we’ve made in operational efficiency, technology development and rightsizing the organization will serve us well whenever recovery gets underway. However, such a recovery may take time given the current economic condition. Therefore we have our focus on new initiatives that will drive organic growth from the same customer base.

Our sales initiatives in management services, color imaging and digital services are all in high gear. These efforts will help offset any revenue lost due to the economic conditions or changes in our customers’ behaviour due to the increased adoption of technology. The price part in the first quarter for ARC was the result of aggressive effort in our MPS sales team. They produced more than 10% growth for the fourth quarter in a row, led primarily by the expansion of our business with larger clients. Our pipelines remain robust and we continue to mine the top under construction clients for new business.

We’re also very encouraged by the progress in our regional MPS program over the past year. Our stronger sales executives have been assisting in identifying and securing our large accounts in their region. With the national program well established, we are starting to see local prospects increased and we look forward to their contribution in future quarters.

Digital color sales decreased by 0.5% in the quarter but comprised 29% of our reprographics revenue in the first quarter versus 27% in the first quarter last year, clearly demonstrating color’s growing influence in our product mix. Three factors affected color sales in the first quarter. But we made some significant changes to our color sales team, investing in training and other onboarding activities early in the first quarter which dampened the activity. Second, several large local sports oriented color products in 2011 that were not repeated this year. And third, a large non-AEC global solution client reduced their work with us and that added pressure to the top line in color.

With that said, our color sales team is integrated with new and new ideas. We’ve recently launched a whole new marketing campaign for the year, aggressively pursuing new accounts and we expect to be back on track and improving our performance in the coming quarters.

Digital services is starting to make a bigger impact with our customers. Although our digital services revenue increased by just 2% year over year, it represented 9.3% of our overall revenue and we are sensing greater adoption of technology by our customers in nearly every area of our business.

A case in point, with our managed file transfer tool, we saw an increase in large international jobs being managed with ishipdocs during the first quarter and that generated more than $2 million from all the shipping tool to date. In April, a new version of ishipdocs was released with new features that include Chinese language support to facilitate traction to our service interest there, better content integration and options for customized branding.

PlanWell Collaborate all through the ship major upgrades, that’s included support for 3D files, flash embedded to identify problems in building information modules and the announced file viewer and more. These tools continue to generate interest with new clients to start in deepening our existing customer relationships and expanding the range of our services.

Our equipment and supplies business grew primarily because of sales in China, the increase in sales has largely been a result of the infrastructure we have put in place there. We have the people, resources and experience (indiscernible) in this growing market and equipment and supply sales make up a larger part of the document solution in China than we offer here in the United States. Decrease in equipment and supply sales in China along with sales here in the U.S. affected our product mix and diluted our gross margin by an estimated 250 basis points as compared to quarter one of last year, primarily due to the higher material costs associated with these sales.

That said, gross margin for the quarter came in nearly at 10%, a very healthy performance even though it was pressured by the product mix and lower sales for the quarter. The implementation of our Stay Fit program for the past several years has served us well and kept us firmly focused on cost controls, the benefits of brand and footprint consolidation and the aggressive management of labor costs. These efforts helped offset lower margin sales for the first quarter and we believe they will deliver margin expansion in the future when combined with top line growth.

The benefit of our Stay Fit efforts is also clearly in the strong adjusted EBITDA of 15.4% in the first quarter of this year. Finally, our relentless focus on cash generation and the strength of our balance sheet deserves your attention. The company is well positioned to maintain its leadership position in document solution during these difficult times and continue its expansion into our new service line.

With this in mind, I will turn the call over to John to review the specifics of our financials and then we will open the call to your question. John?

John Toth

Thank you, Suri and good afternoon everyone. I will briefly review our revenue mix for the quarter and then work down in the income statement to our earnings results. Then I will speak to our balance sheet and cash flows. With regard to revenue mix by customer base, revenue from AEC customers accounted for 77% of our total revenue, with 23% of our revenue coming from non-AEC customers. This is largely in line with trends we’ve seen over the past 12 months.

As I mentioned in our previous call, our stable customer mix suggests that while a material increase in construction projects has not occurred, we are still finding meaningful way to leverage our AEC customer relationship and so are new product services to our existing customers.

With regard to revenue mix by service, reprographic services delivered roughly 50% of our overall revenue. Our facilities management sales delivered approximately 26% of our revenue and equipment and supplies sales delivered approximately 15% of our revenue. As Suri mentioned, digital services delivered 9% of our growth. As a reminder, reprographic services revenue as reported in our financials includes both color and digital sales in addition to black and white print sales. And the FM or facilities management line item includes our managed print services or MPS sales. For your daily sales calculation, the first quarter of 2012 has 64 days as did the first quarter of 2012.

With regard to sales by geography, our year-over-year regional revenue performance for Q1 2012 was as follows. Southern California was down 12%, Northern California was up 1%, the Pacific Northwest was down 7%, our Southern Region was down 10%, the Midwest was down 2% and the Northeast was down 2%.

Our international operations excluding Canada are up 61% largely due to our very strong quarter in China. As Suri mentioned earlier, our gross margin was muted by the growth in our equipment and supplies sales particularly in China. This decrease in margin was largely offset by the cost savings we achieved through our Stay Fit program executed during the course of 2011.

At $4.6 million, amortization of intangible assets was essentially flat to the quarter as compared to the same period in 2011. I bring this to your attention because the accelerated amortization of trade names which we initiated during the fourth quarter of 2010 and which was roughly 800,000 per month ended April 30. You can expect to see a decline in amortization of intangibles in future period.

Net interest expense was $7.4 million during the first quarter as compared to $8.2 million in the same period in 2011 and consists primarily of accrued interest on our 10.5% high yield notes issued December 30, 2010.

Moving on to the balance sheet and related metrics, we ended the first quarter of 2012 with a cash balance of $29.8 million. This is a 17% or $4.4 million more than we had at this time last year. Days sales outstanding or DSO were 52 days in the first quarter of 2012 which is in line with our past Q1.

Total debt, including capital leases in the first quarter of 2012 was $226.5 million, down from $247.8 million in the same period of 2011 and almost 9% decrease on a year over year basis. I should also point out that the new $50 million asset supported senior facility we put in place in January remains entirely undrawn. The ratio of debt to trailing 12 months adjusted EBITDA at the end of the first quarter was below 3.4 and adjusted EBITDA coverage of interest was greater than 2.2 times.

As I wrap up this financial review, I think it’s important to recognize how actively we are managing and improving our liquidity and capital structure. To reiterate some of the highlights: year over year cash flow operations makes us a $12 million versus only $5 million during the first quarter of last year, up more than 2.5 times. This outstanding result is due to the company’s aggressive and ongoing cost…

Cash and cash equivalents is up more than 15% on a year over year basis. And although we have grown our FM, MPS business by more than 20% on a year over year basis. Our CapEX is down 8% for the same period. Our debt plus capital leases is down from $240 million to $226 million on a year over year basis. As I said, our new revolver remains untapped in our U.S. based senior debt is effectively zero. So it’d lead – we jus $1.3 million senior debt based in China.

Our changes in working capital added $200 to our cash flow operation versus last year when that changes in working capital reduced our cash by 9 million,

And when it comes to operating capital, the effected our aggressive gross management and enthusiast demonstrate that in our adjusted EBITDA margin, it could grew from 13.9% in the first quarter of 2011 and to 15.4% in the first group just here. As Suri mentioned, we are confident about delivering between $50 million in cash flow from operations in 2012.

While we remain constantly focusing on improving our channel picture, for ARC, we continue to have confidence and the underlying financial structure of the cost. For a while detail, I’d encourage you to look at our 10-K which would be filled tomorrow.

At this point, I will the call over back to Suri.

Suri Suriyakumar

Thank you John. Operator, at this time we are available to take questions from our callers.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Andrew Steinerman.

Molly McGarrett - JPMorgan

Hi, this is Molly McGarrett in for Andrew. I was wondering if you could give us break down of your sales force between service lines. I know you talked about ramping up some of your initiatives of MPS, but just a breakout of that would be great.

Suri Suriyakumar

So, because of our sales force don’t specifically – it not broken down, Molly, by products because we have a lot of sales team members actually will refer to as general list who would be selling FM, MPS, color, and also traditional reprographics services and traditional services. Now whereby in regions in certain areas, we do have MPS specialist or FM specialist. We could have digital specialist, depending on the size of the region we might have one, two, or three specialists. What we have for Riot is – for the Riot we have two brands of color -- one is the ARC color, which is the traditional color sales that we have with our existing customers. And then we have this new brand called Riot where we have separate sales force for that. Riot sales team is about how much – about 27 dedicated Riot sales reps we have across the nation. And we’re continuing to hire them -- as we have been opening these centers, we've been able to hire them. So it’s about 27 separate reps for Riot. But everyone else is actually together as a sales group

which totals about 230 sales reps round numbers.

Molly McGarrett - JPMorgan

Got it. Thank you. And then just I thought your comment on your regional sales was interesting just on a breakdown of northern California and southern California, the divergence there. Can you just - do you have any idea of why they are so different?

Suri Suriyakumar

Yes, obvious they are different because Southern California, the dip we had because of the recession has been pretty aggressive. And it is starting to come back. There are green shoots all over, but there isn't enough revenues to actually prop it up. So we are still seeing the impacts of that housing downturn that we had, we're still recovering from. I think it is starting to show signs of life, but it is still there. The difference in North California, the impact was not as bad in the Northern California area, but what is actually good about Northern California area is the silicon valley section, the technology sector is starting to show a lot of life. So there is a lot of activity going on in the tech companies which actually help us prop that number. That’s the one which is helping us.


Your next question comes from line of Scott Schneeberger.

Unidentified Analyst

Hello it’s Ryan Davison (ph) here for Scott. . I just had a few questions here. First, can you guys kind of touch on any inquiries maybe outside of like bigger projects? And also another quick question about the move to digital in the core repro market, what is the latest thinking maybe on that rate and also there is a proliferation of iPads, speeding that up any or?

Suri Suriyakumar

So three questions. I'll try to remember all three of them. The first one is bigger projects. There is -- there is talks about a lot of new projects, but we haven’t seen them really materialize. And we don’t – we will not probably see any of them through the end of the year given the fact that this is a very decent year, election year. There are a lot of things on hold. So people have talked about a lot of sports stadiums, arenas, there have been other shopping centers. There is talks about a big new hotel in Las Vegas, but none of them really have come to fruition in terms of reprographics works. So there’s something big showing up on the radar screen, although we are constantly monitoring that.

The second one you had was the impact on digital. So we are starting to see more customers adopting digital tools. So the rationale behind that is when we are talking to customers today, they're more receptive to receiving proposals about digital archives. There was a time they would not be interested, or that would not be a subject of discussion. These days when we go up to the customers and say, you're printing all these things, and putting them in boxes and storing them all over, wouldn’t you be interested in actually storing them digitally as you go along is starting to gain traction. We are also--because we offer software solution for our customers to actually collaborate on the web, we can use that same program to archive the documents while they're collaborating, in order words, while they're developing the documents or while they are collaborating, all of those change orders, all of those versions, all of those iterations can be actually sent directly into archive.

So those kind of activities are starting to become more frequent. I wouldn't say it's a flood gate but more frequent within our customers. So that’s quite connected with your third question. Are the iPads making an impact? I think definitely iPads are making an impact, or what you refer to as the tablets. People are using more tablets. They're getting used to viewing that information or moving through that information through tablets. But if your question was, are they seeing drawings on tablets? I don't think we're there yet, but they're certainly looking at documents in regard to project documents, project schedules, request for information, specifications, that's happening more and more. A few people might be also looking at certain drawings and so on and so forth, but that’s not the biggest impact. The impact is that the use of tablets and iPads have certainly accelerated the use of digital solutions in our customers' offices.


Your next question comes from the line of Brandon Dobell.

Brandon Dobell - William Blair

I want to make sure I understood what you were saying with regards to a couple of projects that were abnormally large in 2011. So two perspectives, one, did I hear that correctly, and kind of how do we size that out? And is there anything else in the remainder of '11 that we should think about as we’re trying to look at the core business for the remainder of '12 that would create a weird comparison I guess either good or bad?

Suri Suriyakumar

Right, I guess when you are talking of projects, you were talking -- you were talking about the fact that I was saying there was a drop in our color business, meaning quarter-to-quarter we didn't have the same color numbers. And that's because some projects we had in 2011, which we didn't have this year. We did a massive project for final four in obviously sports related in Texas. Dilo is here. He's right next to me – in Texas. And that particular project gave us obviously a very large revenue, and we didn't have that this year. That's one of the reasons why going from quarter-to-quarter that number showed different. That's what I was referring to.

Brandon Dobell - William Blair

With the strong growth that continues at MPS, how should we think about, or I guess what kind of assumptions are you making for what that does to other cash collection cycle in terms of your free cash flow estimate? Does it change the DSO? Does it change how you think about how much cash you use in the remainder of the year, as this pace keeps up, kind of the core reprography business maybe you see kind of huge bump along here? Should we think about the cash flow any differently than we are thinking about it now?

Suri Suriyakumar

No, I don't think it's going to change the cash flow picture at all. What is going to do is that as we continue to drive this MPS sales, we're going to have -- that's going to drive us deeper into our customers with regard to not just only project-related work or onsite and offsite related work but now also into the work we do inside the offices. So it actually makes us the complete solution provider. We do onsite, we offsite and we also do all the work in the offices. So that actually becomes better and better.

But in terms of the cash flow or the billing cycle, they are identical to what we've been doing in the reprographics world, with regard to projects work, all the FMs we've had in the past. In fact, it's almost like a subscription model, right? It's basically that what you are seeing -- it's like a subscription model. I have John Toth next to me. It's basically cost to copy. And that’s what we do – with also the FM. So it’s a similar model. So it’s not going to have any negative or detrimental implications on our cash flow.

Brandon Dobell - William Blair

And then final one for me, I don't know if you talked about this previously or not, is there any way to look at -- I guess from a cross sale ratio or tie ratio that something tells us these many clients use one or more, two or more or three or more lines of our business, and some way to see how that trajectory is moving? I guess we're trying to get a better idea of how much you're selling into the existing customer base as opposed to creating new customers.

Suri Suriyakumar

Right, that's a very good question, and in fact, it will be an interesting study. We haven’t actually tried to identify how much percentage of our business is actually being sold to the existing customer base. But one of the focuses we have is products like MPS, you know, it's something very new. We started in the last 24 months, or 18 to 24 months, and it’s starting to get a steam. It certainly helps us a lot with larger clients because we’re going to the national and global clients, and we're extremely successful in that field. What we're trying to do is we are trying to replicate the same level of success with regional clients and smaller customers which we are starting to sense. Therefore, when we sell those programs, we use our same sales channels, we have distribution channels we have on the ground to be able to promote that.

We haven’t done a specific study to be able to see whether each of those clients use that, but what we do is take

a report at the end of the quarter or at the end of the month, depending on how the senior regional vice presidents want to use it. And they would say, okay this customer uses this much business, but no color business, so let's go after the color business. Or they don’t have MPS. That’s how we are identifying. So your question is in line with what we do on the ground, but we haven’t quantified that yet to be able to speak about it on calls.


Your next question comes from the line of Brad Safalow.

Brad Safalow - PAA Research

Just first on the ishipdocs, you’ve seen pulled out some statistics, and I want to make sure that I understand them correctly. You said $2 million of revenues to the company. Is that end of the day?

Suri Suriyakumar

No, no, it's actually for this year. We have got $2 million. So what we are doing is, Brad, we are going to our customers and promoting this doc (ph). If you're doing overnight shipping or other courier shipping, if you are shipping documents by courier, we can speed that process up, you can be greener and the cost is lower and the time is substantially cut down. That concept of we'll take those digital documents into our system, ship it digitally, meaning through using ishipdocs to either London, or China, or wherever, and be able to deliver them faster. That concept has worked very well for us.

Wherever customers have large volume of documents which they need to deliver urgently, because of the fact we not only just ship them digitally, but we will also be able to ship it to our locations, print them and deliver them. So we have what you call a global distribution center, right? GDC, set up where we have 350-plus locations where we can track these documents and deliver and give a personalized service. So that has actually helped us. These are new ways that we are reaching out to our customers and using our digital technologies help them to deliver documents. So that’s about $2 million in revenue.

Brad Safalow - PAA Research

So just to be clear I know you charge some modest fees to third parties that are on your platform, and I think even to customers. The $2 million is just project-related work. The $2 million is just specifically for the project work you generated on the platform.

Suri Suriyakumar

The $2 million basically comes out of this kind of work we do for our customers, and 40% of that would be pure digital costs, right? 60% would be print-related. If you know what I mean. So if you print something in China, so you spend $1, so probably $0.60 went because we are printing and delivering whether it’s a color document or whatever but 40% we charge for the shipping and that 40% -- there is 80%, 90% margin because there’s not much cost, we’re not physically shipping anything.

Brad Safalow - PAA Research

And just to understand the network, I think ishipdocs side you have – you say that you have 400 locations, how many of those are yours versus third party?

Suri Suriyakumar

Right, so we have in the U.S. we have – I am just looking at these numbers here. We have a total of 214 locations. 193 are in the U.S. We have seven in Canada. One in UK. 11 in China, and two in India. Everything else, Brad, are partners, basically.

Brad Safalow - PAA Research

Okay, you talked about kind of the sign-up rates of the partners? What have you seen? I know you’ve been spending some more time on this recently.

Suri Suriyakumar

We've been keeping them easy. If you have more jobs, then we can consistently sign up more partners. So it depends on how much work is flowing. So we’ve been signing them up. We also have been encouraging them to do reverse shipping, meaning encourage them to ship back into the U.S. So up now to about 350 dealers in terms of partners --total locations – total locations is about 350, Brad.

Brad Safalow - PAA Research

And just the $2 million compared to a year ago was what?

Suri Suriyakumar

Do we have a comparison of $2 million a year ago? We don't have that number off the cuff, Brad.

Brad Safalow - PAA Research

That's very helpful. And then just going back to the revenue growth you see now, and I guess it was the legacy FM line, versus now FM, MPS, is there any way you can extract for us what the actual impact was exclusively from the MPS initiative versus what you're actually seeing in terms of FM change of revenue on the FM side. I know there are overlaps, so maybe it’s hard to say.

Suri Suriyakumar

Yes, we have been working – it’s one of our products, Brad, it’s something that we plan to do over the year to be able to get that clarity because as you know, FMs and MPS, you rightly said can be quite a bit overlapping and that's what is happening with our customers. Sometimes we go for FM extension, which is a straightforward large format printer. And they would say, oh, by the way, we need copiers, too. And then we would have now a large format printer and two small format copiers, but we technically don't consider that an MPS because it does not fall within the description of how we go after the MPS business.

So we are trying to come to terms with that. Right now it's in one single docket, but most of the growth in that segment is coming from the MPS. That is actually driven by, not by small customers but large customers, where we have gone into national and global companies, and placed, say, 500 output devices, 800 output devices. So we know that kind of growth, any improvement in the numbers are largely coming from large customers. But we are working on it, and hopefully we'll be able to give you more color in the latter part of the year.

Brad Safalow - PAA Research

Okay, and this is another question I ask every quarter. 214 branches in the US. Is that correct, is that right?

Suri Suriyakumar

193 in the US. Seven in Canada. So that would make about 200 in North America.

Brad Safalow - PAA Research

About 214 overall, and you did $63 million in reprographics revenue, which I guess if my math said revenue per branch is 13%. I know you guys don't think of it that way. I think last quarter you were 60%, you've been able to move the needle a little bit better.

Suri Suriyakumar

Yes, but we would think that the capacity is largely there, Brad, because we don't run the second and the third ships yet in any out of the branches. That's all very possible. So if the market turns and the work starts coming, that will be wonderful. That is the least of issues.

Brad Safalow - PAA Research

Yeah, but you are where you want to be in terms of footprint at this point.

Suri Suriyakumar

Yes, very much so. Because what we're finding out is that having that footprint gives us significant and specific advantage over other providers who can pretend—not pretend to, want to give similar services because we can do onsite, offsite and virtual. So when we are competing with customers, where other competitors like Xerox or HP in management services, that's the distinct advantage we have. We can go to the customers and say we're not going to outfit your entire office with more printers or maximum number of printers. When you work with us, we'll install the minimum number of printers in your office, and five miles down the street we have a location which can actually print and deliver all of your overflow capacity.

Brad Safalow - PAA Research

I guess I was surprised you actually reduced the number of branch locations quarter-to-quarter. That's what I was referring to more.

Suri Suriyakumar

Right, what we're trying to do is, Brad, we're trying to consolidate, and obviously make improve the efficiency, even know there are branches because of lease consideration, existing leases. We have not been able to rationalize them. So the whole idea, if you think about it, these opportunities are largely available in major metropolitan cities, right. There are 50 markets, that's where the biggest opportunities are for MPS, that’s where the biggest offices are, that's where the biggest customers are, so all the major markets. If you take the major markets, that's where we want to be largely within the metropolitan areas. So there are still some offices with just large footprint but we have not been able to convert that yet we want to, because the machines are faster, quicker, so the new technologies are helping us actually reduce the footprint inside the offices. So I think over the year we will still make them more and more efficient, without a doubt.

Brad Safalow - PAA Research

Just in terms of what you have on the lease horizon in terms of expiration, in 2014, how much more can that go down this year?

Dilo Wijesuriya

Yes, we may not because we have a very high visibility of when the leases are coming up for renewal, but from a branch network point of view, I think we have a solid branch network, and the locations are very good, very competitively placed. But what I tried to do is every time we have a lease coming up for renewal, we will – I will try to find a way to reduce the footprint of that location. So the branch numbers won't get eliminated unless it's really, really required. What I will do is from a 10,000-square-foot facility I might bring it down to 6,000 or 7,000. So ideally reducing the transportation and reduce the operating expenses.


There are no further questions at this time.

Suri Suriyakumar

Great, thanks Samantha. Ladies and gentlemen, thank you very much for your attention and continued interest in ARC. Have a good evening and we'll talk to you nexttime. Bye bye.


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

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