ARC Document Solutions Inc (ARC) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2006 American Reprographics Company earnings conference call. My name is Jeff and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today's conference, Mr. David Stickney, Vice President of Corporate Communications. Please proceed, sir.

Thank you, Jeff. I'd like to welcome everyone to our first quarter 2006 earnings report. Mohan Chandramohan, our chairman and chief executive officer, is with me today, as is Suri Suriyakumar, our president and chief operating officer, and Mark Legg, our chief financial officer. Earlier today, the company issued a release reporting financial results for the first quarter of 2006, ending March 31, 2006. You can access this release and other previous releases from the investor relations section of our website, at www.e-arc.com.

Before we begin, here are a few items for everyone's reference. First, we have arranged for a taped replay of this call, which may be accessed by phone. It will be available about an hour after the conclusion of today's call and will be accessible for seven days after the call. The dial-in number for this replay is 617-801-6888. The replay pass code is 53910856.

Secondly, this call is being webcast live. A replay of the webcast will be available for 90 days from the investor relations section of American Reprographics Company's website at e-arc.com. You may contact myself or Financial Dynamics of San Francisco, our investor relations firm, for general information about the company. Contact information can be found on our press releases.

Before we begin, I'm required to make a brief statement regarding remarks and the use of non-GAAP financial measures. This call contains 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 2006 financial outlook.

We wish to caution you 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, specifically under the risk factors section of our annual report on Form 10-K for the year ended December 31, 2005 as well as the final prospectus for our recent secondary filing dated April 5, 2006. The forward-looking statements contained in this call are based on information as of May 4, 2006 and, except as required by law, American Reprographics Company undertakes no obligation to update or revise any of these forward-looking statements.

This call also will contain references to certain non-GAAP measures such as EBITDA, EBIT, pro forma incremental tax provision, pro forma net income and pro forma earnings per share. The reconciliation of these non-GAAP measures is set forth in today's press release, reporting our financial results for the first quarter of 2006. With that behind us, I'll turn the call over to our chairman and CEO, Mohan Chandramohan.

Thanks, David. Good afternoon and thank you for joining us today as we discuss ARC's first quarter financial and operating performance for 2006. As usual, I will begin with an overview of our financial performance for the quarter. I will then discuss the goals we have set for the company. Following that, Suri will outline the operational highlights for the quarter and Mark will discuss our financial details. We will take your questions after that.

To begin with, ARC reported sales for the first quarter of $140.8 million compared $116.5 million in the first quarter of 2005, a 20.9% increase year over year. Our gross margin for the fourth quarter was 42.9%, which compares to 41.5% for the same period in 2005. Our EBITDA margin for the quarter was 24%, which compares to 22% in the first quarter of 2005. Earnings per share for the first quarter of 2006 were $0.32. Based on our view of current economic trends, trends in the AEC industry and our business plans for the coming year, we wish to reaffirm our forecast for 2006 of revenues in the range of $560 million to $565 million and earnings per share of $1.21 to $1.24 fully diluted.

Please note that the acquisitions we anticipated in the first quarter and that were included in our forecast were all completed prior to the end of the first quarter. At this time, I would like to give you a brief overview of our goals for the remainder of the year. Our priorities in 2006 continue to support the long-term objectives we set for ourselves in 2005. Our focus remains on top-line growth with an emphasis on increasing our footprint, reaching our growth targets for digital services and on-site services, accelerating the progress of our premier accounts initiative and building on our lead-in technology.

In 2006, we will work towards realizing our revenue growth potential of 15% per year through continued organic growth, new branch openings and acquisition activity. Our first objective is to continue expanding our footprint. Specifically, our goal is to achieve the number one or number two market share in the top 50 metro markets as defined by Nielsen Media Research. Currently, we have a presence in nearly 40 of those 50 markets and we hold the number one or number two market share position in 15 of them. That said, there is tremendous room to grow. Working within a fragmented and transitioning industry has its advantages as there are continuing opportunities to consolidate.

We will not limit ourselves to these top 50 markets. We will also pursue acquisitions in the fastest growing areas in the country. As anyone who follows the census data will point out, there is tremendous growth occurring outside of the major metro markets, especially in the Sunbelt regions. Our acquisitions activity and growth commitments will focus on these areas as well.

Second, we continue to see great promise for the future by providing digital services around construction documents and information and by following the de-centralization of print through our on-site services. We refer to this service as facilities management or FMs. Digital services and FMs are emerging as high margin growth categories in every area of the country. We would like to see more than a quarter of our revenues generated by these two services by the end of 2007.

Premier accounts represents our third area of focus. This business initiative is now maturing and we are growing more comfortable with the specialized needs of these accounts. This year, we are expanding our sales efforts to grow premier accounts to a new level. Suri will add more details later in the call. Fourth, we will continue to build on our technological expertise in delivering value to our customers. This requires significant investments in development, implementation and marketing to support our existing line of technology products and to support ventures into new markets with applications such as sub-hub.

We will continue our efforts to make products that follow the drawing, if you will, and enable construction professionals and others to receive and consume information where they sit. For those of you with an interest in seeing this technology in action, we invite you to receive a personal demonstration at this year's International Reprographic Association convention and trade show being held from the 10th through the 12th of May at the Gaylord Palms Resort in Orlando, Florida.

Our product portfolio, [lead] association programs and many of the company's key executives will be on hand to showcase ARC's commitment to the industry. You can find out more information about the show at the IRGA's website at www.irga.com/convention. As noted, our focus is on top-line growth, but we will not take our eye off of our bottom-line goals. We remain highly focused on optimizing the high leverage nature of our sales growth in mature locations while mitigating the near-term dilutive effects of acquisitions and branch openings.

Two other initiatives in 2006 will have a dramatic effect on the effectiveness of our internal operations. First is to increase the effectiveness of our regional management team, our board of operations, as it relates to the overall management of the company. Even as we grow and our horizons expand, we intend to maintain close relationships with local markets. Because our regional executives are well schooled in their regions, they can keep us in touch with what's happening on the ground in individual markets and keep us nimble as we expand. These executives will also become more active in the process of integrating acquired companies into ARC. Their involvement will ensure smooth transitions for newly acquired companies.

Second, our 2006 financial accounting and report efforts will be characterized by finalizing our Sarbanes-Oxley certification. A strong internal team with the requisite skills has been working to bring us up to speed in critical areas of compliance. The Jefferson Wells Company, a respected S-Ox compliance consultancy firm, and our auditors, PricewaterhouseCoopers are also assisting us to test our procedures as we work toward our final certification.

Taken together, these objectives constitute an ambitious agenda for ARC in 2006, but one in which I'm confident we will produce the maximum results. With that, I would like to turn the call over to Suri for a synopsis of our operating activity during the first quarter. Suri?

Thanks, Mohan, and good afternoon, everyone. Our footprint in the first quarter grew nicely with the acquisitions in Arizona and Missouri. Both Scott Blue and Western Blue are recognized leaders in their markets and each has a small branch network that address outlying markets. These acquisitions are a perfect example of growth opportunities for ARC in markets where the company already has an existing presence. Our Southern California division, Consolidated Reprographics, operated two locations in the Phoenix area prior to the recent acquisitions. And our southern division, Ridgeways, operated a location in Kansas City.

However, the acquisitions of Scott Blue and Western Blue allow us to achieve deeper penetration into these large and dynamic customer communities. They both provide the infrastructure to expand in and around the areas of operation. And, of course, they each add a significant book of business to ARC as a whole. On a smaller, but no less important scale, we also opened one new branch in the first quarter through Reprographics Northwest, one of our Seattle-based divisions. The branch itself is our first location in Vancouver, British Columbia. And we look forward to doing business in another vibrant Canadian marketplace.

We also saw progress in capturing digital services revenue and in adding new facilities management contracts across the country. In the first quarter of 2006, digital services sales accounted for 4.5% of our overall revenue. While this is good progress against our goals, we know that most of our customers are still entrenched in an analog workflow. We expect continuing challenges to get all of our AEC clients comfortable in a digital reprographics environment. Our own efforts to educate them will make a difference to be sure. But our digital services also become more compelling as our customers consume more information at their desks, in the field and across digital networks including the Internet. We believe this represents the document work flow of the future and we are confident of our place within it.

Likewise, our facilities management business, where equipment and sometimes staff are placed on site in a customer's office, also support our customer's need to consume information where it's needed most. We added 216 new contracts in the first quarter of 2006. By way of comparison and as a testament to our sales commitment, this is more than half of the total number of contracts we added in 2005. Our total number of contracts to date is 2,573. As a percentage of all our sales, FMs accounted for 16.3% of revenues in the first quarter of 2006.

I'd like to take a moment now to talk about premier accounts. For those of you who may be new to the company, this operating unit consolidates the power and reach of ARC's many different locations, technology solutions and its services. It affords them a single package often under a single contract to large customers whose operations span states, regions or even the entire country. We are the only wholly-owned reprographics organization in the country who can offer such a service to these large AEC customers.

While it seems obvious that the benefits of consolidating reprographic services would create demand for premier accounts, the practical aspects of supplying these services are not as easy to implement as they might seem. Most of that is due to local building practices. Take, for example, a construction project in Chicago and San Francisco. The permitting process is different in each city, the building codes are different and the state, county and city regulations are all different. Because of this fragmentation, in practice, large construction companies have allowed and even encouraged regional offices to run autonomously, especially in their purchasing procedures. Thus, when they consider consolidating purchasing, they have their own struggles internally and it often takes more time than anyone expects to implement it.

Since its inception, our premier accounts staff has been getting familiar with this process. We have created technology solutions, established relationships deep within our customer's organizations and determined when, where and how much customization is required to meet these special customer needs. With such an education under our belt, we now intend to expand sales and administration team in order to target more new accounts while continuing to maintain and grow our business with existing accounts. The nation will be split into three sales territories, a senior account representative will operate in each territory, supported by divisional staff as well as a few key support personnel at our operations office in Walnut Creek, California. We will bring the new premier accounts structure into play during the second and third quarter of this year. We expect increases in prospecting and sales to follow shortly thereafter.

In 2006, we also intend to solidify the gains we made in creating the industry's finest technology. We are planning and implementing more aggressive marketing efforts and we are reaching out to new kinds of customers. The first and second quarters are trade show season for the AEC market and we have showcased our product to contractors, architects, developers, engineers and owners at five of them. As Mohan mentioned, we will also have a significant percent at this year's reprographics trade show sponsored by the International Reprographics Association. Six of our products will be available for the reprographers to view and use in actual production environments, including PlanWell PDS, the recently awarded best planned room by the leaders of the industry magazine, Wide-Format Imaging.

We will also be highlighting our vendor partnerships at the AEC tradeshow and promoting the benefits of our own industry trade association, the [Peer] Group. With regard to addressing new customers, we continue to develop the pilot program for our new self-contractor product, sub hub. This application is now available in five markets, with a statewide launch in California coming online later this year. Sub hub combines certain technology from our online planned room and [inaudible - accent] decision applications and uses a powerful address book function to notify subcontractors of jobs that match their skills and needs.

Our last big marketing venue to showcase our technology before summer begins, is the American Institute of Architects trade show held in Los Angeles in early June. For those of you who are interested in the industry, this event is comprehensive in its presentation of new plans and new thinking and design. And we have found it both inspiring and informative each year. On a final note, our own peer group and PlanWell licensing efforts continue to make incremental progress and we can [only] improve the quality of our members. Twelve new companies joined the peer group in the first quarter of 2006. During the same period, we canceled the memberships of several of our non-performing participants in the group. By keeping the quality and commitment of the member high, we believe the organization continues to be a dynamic venue for new ideas, best practices and increasing professionalism in the industry.

At the end of the quarter, there were 122 members in the Peer Group, 16 separate technology licenses and, in combination with ARC locations, more than 370 locations around North America make PlanWell technology available to AEC customers. Those are the operational highlights for the first quarter. And without further ado, I will turn the presentation over to Mark Legg, our CFO. Mark?

Thank you, Suri, and good afternoon, everyone. I will start this afternoon with our results of operations and then discuss selected balance sheet and cash flow statistics. As Mohan mentioned earlier, our revenue for the first quarter of 2006 was $140.8 million compared to $116.5 million reported in the same period of 2005, or an increase of 20.9%. Segmented by our three primary product lines, revenue in the first quarter was as follows. Reprographic services were 104.8 million. On-site services or facilities management came in at 22.9 million. And equipment and supplies reached 13.1 million. Reprographic services and facilities management business grew at 19.4% and 19.9% respectively while equipment and supplies increased by 36.5%. Equipment and supplies grew primarily due to four significant acquisitions made during the past 12 months. These acquisitions which were located in the Midwest and Southern regions, accounted for 31 points of the total 36.5% growth. Growth in equipment and supplies excluding these four acquisitions came in at approximately 5%.

Revenues by region were as follows. Southern California was 43.6 million. Northern California was 23.4 million. The Pacific Northwest reached 7.1 million. Our Southern Region, which extends from Florida to Las Vegas, was 25.8 million. The Midwest delivered 20.3 million and our Northeast division came in at 20.6 million. It's important to note that all geographic regions achieved increases over the first quarter of 2005. Gross margins for the first quarter 2006 came in at 42.9% compared to 41.5% for the same period in 2005, or an increase of 140 basis points. As we have discussed in previous earnings calls, acquisitions and branch openings tend to temporarily depress gross margins while these business units come up to speed. Without acquisitions, our first quarter 2006 gross margins would have been 43.5% or an increase of 200 basis points over the first quarter in 2005.

Our SG&A expenses came in at 31.5 million during the first quarter of '06 as compared to 26.9 million in the same quarter of '05. This increase of 4.6 million was the result of several factors, the most significant of which were the previously mentioned acquisition of four businesses that were not folded into existing operating divisions, the adoption of FAS 123R, a full quarter of public company costs including costs from our secondary offering and startup costs for our sub hub initiative. Operating income in the first quarter of 2006 was 28.1 million or 19.9% of revenue compared to 21.1 million or 18.1% of revenue during the first quarter of '05. Operating margins achieved on our incremental revenue of 24.3 million came in at 28.9% or 181% of our base operating margin. Operating margins have increased over the first quarter '05 due to the leverage benefit and thus margin expansion we enjoy from organically derived incremental revenue.

Interest expense in the first quarter of 2006 came in at 4.5 million, as compared to 8.3 million during the same period in 2005. This decrease of 3.8 million or 46% is due to debt reduction from both the proceeds of our IPO during the first quarter of 2005 and our continued debt pre-payments from operating cash flow. In addition we successfully refinanced our second lien debt in December 2005, further reducing our interest costs. The company's income tax provision for the first quarter 2006 was 9.6 million or 40% of pre-tax earnings. This compares to a one-time tax benefit in the first quarter of 2005 of 27.7 million which was related to our corporate restructure prior to the IPO. Excluding this one-time tax benefit and including our pro-forma tax provision as if we were a C Corp for the entire quarter, our tax provision in the first quarter of 2005 was 5.3 million or approximately 40% of pre-tax earnings.

Net income for the first quarter of 2006 was 14.4 million, or $0.32 per share fully diluted. This compares to net income for the first quarter of 2005 of 7.9 million, or $0.18 per share fully diluted excluding the one-time tax benefit related to the IPO. In addition, during the first quarter last year, we incurred 1.5 million in write-offs of deferred financing costs related to the IPO. Without this charge, our 2005 first quarter EPS would have been $0.21 per share fully diluted. Cash flow from operations in the first quarter of 2006 came in at 15.2 million compared to 2.6 million for the same period last year. This increase of 12.6 million was a combination of increased earnings and tighter controls over working capital. Our day sales outstanding and accounts receivable decreased year over year from 54 days to 52 days at March 31st, 2006, while our days supply on hand of inventory remained relatively constant at 32 days. In addition, the number of days of production and labor costs included in trade liabilities increased from 58.5 days at March 31st last year to 60 days at the end of the first quarter 2006.

Total bank debt at the end of the first quarter of 2006 was 221.5 million, as compared to 245 million at the end of the first quarter of 2005. Since the end of the first quarter of 2005, we have paid in excess of 29 million in bank debt and refinancing costs all from internally generated cash flow and after funding of all of our acquisition activity.

That concludes our financial discussion and at this point I will turn the call back to Mohan for the question-and-answer session. Mohan?

Thanks, Mark. As usual I will take your questions and where appropriate I will direct them to either Suri or Mark. I would like to turn this back to the operator for the Q&A.

[OPERATOR INSTRUCTIONS]. And gentlemen your first question comes from the line of Mike Schneider of American Reprographics. Please proceed.

Well, I'm not an employee yet, guys.

Okay.

Actually I'm with Robert Baird. Guys, great quarter. Thank you. And first maybe I could just ask -- Mark, do you happen to have organic growth for the quarter, if you X out all the acquisitions?

I can give that to you, Mike. Organic growth was 13.8% and therefore the acquisition relative growth was 7.1%.

Okay. And I guess then leading -- or following on that, Mohan, if you look at the guidance for revenue and you did 13 -- over 13% organic growth this quarter it seems to imply just off the top of my head about 8% organic growth for the balance of the year. Because you didn't raise your -- the revenue guidance. Is that just being conservative early in the year or why would organic growth decelerate in the remaining nine months by such a wide margin?

Okay. Yes. I'd be happy to answer that, Mike. We do not give quarterly guidance as you know. We only give annual guidance. That said, we are very bullish about the rest of the year. We are not projecting any slowdown. Again that said, it's still early in the year for us. We are just coming out of the first quarter. As we move through the second quarter and we see business activity that would warrant an upgrade of our forecast, Mike, we will promptly do that.

Okay. Very fair. And on pricing, Mohan, we had talked last quarter -- and I think even you and I in the fourth quarter about issuing kind of surgical price increases. Can you give us a sense of what pricing is contributing at this point in the year?

Minimal to none. This is all derived by actual market growth and market share growth. As you know, Mike, the [inaudible - accent] dynamics are such in the industry that are preventing any pricing power. However, strong technology solutions have allowed us to hold prices in the face of lower prices by certain competitors who do not offer technology solutions. So we are able to overcome that easily. We have strong technology solutions and we're able to offer that, hold the prices and with time this dynamic will change. So we are not anticipating pricing power this year. But as you can see, we have strong results in spite of it.

Yes. Okay. And finally just on acquisitions. You've done the deals that you forecast back in the fourth quarter call. What's left in the pipeline, Mohan, and can you give us even ballpark range of what you would hope to accomplish on top of what you've already closed this year?

The ones that we factored into the forecast, Mike, were all going to happen in the first quarter. In fact, I would have not factored in acquisitions into the forecast if I wasn't 100% sure. So that we were 100% sure the day we gave the forecast.

Sure.

For all of them. In terms of acquisitions, we will ramp up our acquisitions as we move forward. We have a tremendous pipeline and we are in negotiations with a number of companies.

Okay. Fair enough. Thank you guys. And congratulations again.

Thank you.

Thank you.

And gentlemen, your next question comes from the line of Matt Litfin of William Blair and Co. Please proceed.

Yes, hi. Good afternoon and add my congratulations as well.

Thanks, Matt.

Thank you.

Looks like your growth rate of the FM contracts accelerated north of 30% year over year. Is there any special reason for that and is that growth rate sustainable or do you think that will revert back into that high 20s where it had been the prior four or five quarters?

Well, there's definitely strong focus and increased emphasis on this and digital document management services because those are the two growth drivers for us. And they also happen to be higher margin services. So the growth reflects the emphasis and the focus. Usually we come off of the beginning of the year with a lot of momentum. Again, we are hoping that this trend will continue but our efforts will be -- will get stronger as we move forward in this area.

Okay. And another question if I could. The -- can you update us on your branch opening plans for the year? I think the target had been 15?

Yes. Absolutely. Good observation. Our target is still 15 although we've opened only one. That primarily is because the companies that we've acquired -- two companies that Suri mentioned -- and other companies we are targeting this year come with a reasonable branch network. So we are holding off some of the branch openings because of that -- rather than duplicating we are putting a greater focus on getting these deals done. So the goal is still rapid expansion of our footprint, the goal is still opening branches to cover the underlying -- outlying markets, with hubs in the metropolitan regions. But it so happens this year some of the companies we are targeting already give us their branch network.

My final question is maybe a broader one, but if you step back and look at the acceleration of the growth at your company over the last couple of years, how strongly do you feel about the senior management team and the operational management that you have in place and have you been able to keep up that acceleration of growth in the management as you've seen the top and bottom line accelerating?

Absolutely. We have created management -- a strong management infrastructure and capacity in the company with our formation of our board of operations, which is now coming into its own. And that comprises nine regional CEOs -- regional executives who are in charge of nine regions around the country. This allows us to [a] take the best practices right down to the branch level in all aspects. It allows us to integrate new acquisitions fairly fast and we are able to integrate those acquisitions into those regions and that takes the pressure off of corporate and the integration team so we basically created capacity there. And the other thing is we've introduced five vital factors and the board of operations along with the officers of the company are focused on those five vital factors which has further improved our operations. So we believe that we have tremendously improved our management infrastructure and our leadership training program which has entered its sixth year this year. Each year we pick 20 candidates and we put them through an 18-month leadership program so we have a number of graduates from that program standing ready to go wherever we need them.

Thank you.

[OPERATOR INSTRUCTIONS]. And your next question comes from the line of Michael Fox with JP Morgan. Please proceed.

Good afternoon, guys, and congratulations on another great quarter. Just had a few quick questions. It sounds like -- just to kind of harp on the acquisitions a little bit, if you make any more acquisitions this year, it sounds like that'll be upside to the guidance that you guys have already given for the revenue?

Yes, that is correct.

Okay. And then on the premiere accounts -- the ramp up that you guys are going to start -- will that have any type of impact on the margins in the near term?

No, they're already factored in, Michael. Suri has been working on this for a number of months now.

Okay. And then the strong growth that you've had this quarter and the past quarter in equipment and sales from acquisitions, it would seem that that could provide some nice growth down the road for facilities management because these guys would be prime targets for that. Have you guys had any success on targeting those accounts that you've acquired that had strong equipment and sales that might be facilities management down the road?

Absolutely. Absolutely. In fact we have developed -- we had developed a program just for these opportunities about three years ago and we continue to perfect it. And that is absolutely the goal. And in fact we are doing that.

Okay. Great. Thanks a lot.

Thank you.

Gentlemen, your next question comes from the line of Jonathan Shapiro with Goldman Sachs. Please proceed.

Hi, good afternoon.

Hello, Jonathan.

Mohan, I got to ask. Can you tell us what the five vital factors are?

Absolutely. Top-line growth -- as you know, that is our number one focus. We -- as I said earlier, we believe our potential is no less than 15% a year. So we put a focus on that to ensure that we don't take the eye off of that. The second is earnings before interest and tax -- operating profit. The third area is digital document management services and the fourth one is facilities management services -- we have certain goals for those two. The reason for that is they are high gross margin items and they position us strongly for the future. And finally, the fifth area is cash flow. We want to realize 100% of earnings before depreciation. So those are the five vital factors. We believe if we perform well in all of those areas we are doing everything right.

I would agree. On the overall market, everything we read -- the California building permits came out -- I think it was either yesterday or today, up 43% in March, 37% year to date. Are you -- and this is permits, so this is, I guess, just before you guys would start to see the work, but anecdotally -- and California is so big for you, are you starting -- I mean, is this -- do those numbers sound like what you're hearing from your customers or is this a little bit inflated by what the amount they [inaudible - cross talk] --?

Not everything that is permitted is built, as you know, Mike.

Sure.

However, having said that, we have visibility at a number of levels. And while that number sounds a little high -- it is high -- it is -- we are nevertheless bullish. SMI Corporation, a construction industry research firm -- a highly respected one, at that -- is projecting growth of over 8% compounded on an annual basis over the next four years. But beyond that there are four things that we look at. First, the macrotrends that support our industry. And those are like, jobs growth, business investment growth, vacancy rates, et cetera, they all look very positive. Secondly we see -- we are seeing impressive anecdotal evidence of projects all across the country -- just in the top three markets -- New York, Los Angeles and Chicago -- there are some marquee, multimillion-dollar projects. As you know, in New York, you have the Freedom Tower, the Goldman project, the Xanadu project. Here right where I sit in L.A., we have the LAX expansion, we have the Staples Center project, the Grand Avenue project -- all multimillion-dollar projects. And in Chicago, the Fordham Spire, the Trump O'Hare expansion -- so you could go city by city and we are seeing the high level of activity brewing anywhere from the schematic design stage to construction commencement. So we feel pretty good.

Okay [inaudible - cross talk] --

And the third area -- by the way, the third area is customer optimism which we monitor all the time and their pipelines and the fourth area is just the kind of work that we are printing -- particularly at our FMs which suggest increased design activitys.

Okay. And then last question -- I may have missed it if you gave it -- did you give a branch count as of -- I guess of --?

Yes. Our goal is 15 branches per year.

Sorry, no. Just what it -- the actual -- what it was.

230 branches as of right now. As of the end of the first quarter, by the way.

Great. Thank you very much.

You're welcome.

And gentlemen, you have no further questions at this time. I'd like to turn it back to management for closing comments.

Thanks, operator. We really have no closing comments other than to thank you for attending our webcast. Thank you.

Ladies and gentlemen this concludes today's presentation. You may now disconnect. Good day.