ARC Document Solutions Inc (ARC) 2018 Q2 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the ARC Document Solutions' 2018 Second Quarter Earnings Report Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. David Stickney, Vice President, Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you, Abby, and welcome everyone. On the call with me today are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; Dilo Wijesuriya, our Chief Operating Officer; and Jorge Avalos, our Chief Financial Officer. Our second quarter results for 2018 were publicized earlier today in a press release. The press release and other company materials are available from our Investor Relations pages on ARC Document Solutions website at ir.e-arc.com.

Please note that today's call will contain forward-looking statements that fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are only predictions based on information as of today, August 2, 2018, and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly and annual SEC filings. This call will also contain references to certain nonGAAP measures, which are reconciled in today's press release and in our Form 8-K filing.

I'll now turn the call over to our Chairman, President and CEO, Suri Suriyakumar. Suri?

Thank you, David, and good afternoon, everyone. Thanks for joining us today. ARC's overall performance in the second quarter can be attributed to pure execution. Our top line growth, even in the face of shrinking print volumes, was primarily driven by the investments we made in sales and marketing to expand our market share in our core business. Consistently executing on strategic objectives has delivered 3 quarters of overall sales improvement, 2 quarters of growth in CDIM where most of our print business is, 1 quarter of year-over-year consolidated sales growth for the first time since 2015.

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

Our gross margin increase on a percentage basis is roughly twice our sales improvement and would have been higher were it not for the outstanding medical claims we experienced this quarter and in quarter 1. These extraordinary charges also had a significant impact on SG&A and EBITDA.

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

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

We have made organizational changes throughout the company over the past years -- past several years actually to protect, print and grow our technology. Just as important, our customers are evolving, not just how they use technology services, but even in how they use print services. That simply means that we have to align the company and our culture within our customers' demands.

It's a different way to think about our technology and our core business support each other -- how our technology and core business support each other and deliver a more unified solution to serve our customers. As I've said many times, our customers haven't changed, but the way they work has changed enormously and sometimes in unexpected ways.

Within a few years after emerging from the recession, we expected our business and our customers to be completely reliant on technology. We threw ourselves into developing many of the digital solutions we use today and yet within a very short time frame, we realized our core business remained vitally important to our customers and thus to our business, and we took pains to rebuild and refresh the solutions we provided in print.

Today, our print customers use technology to manage and distribute everything from traditional construction drawings to a library of retail graphics, marketing materials or sales presentations. Likewise, our technology customers use prints to supplement their BIM models, produce hard copy documents from digital archives or share information outside of the proprietary digital platforms like intranet, private clouds or even the mobile dashboards we provide to our facilities customers.

Our position as successful information managers depends on the continuation of developing new and innovative solutions on both sides of the business and our offerings clearly have value to the market. It is gratifying to see growth return after 3 years and succeed in such an environment. We want to assure all of our investors that we will continue to work hard to maintain these trends.

To provide some color on our operations during the quarter, now I'll turn the call over Dilo after which Jorge will provide the usual perspective on our financials. Dilo?

Thank you, Suri. The strong performance of our sales organization was the result of our focus on fundamentals that is to provide great quality and service and provide an exceptional customer experience to earn repeat business. Growth in our print services will come from our continued acquisition of new customers and from selling additional services to the same customer base. While we still face challenges from declining print volume -- even paper manufacturers have drastically reduced their manufacturing capacity in the market -- CDIM services grew by more than 3%. The second quarter is usually the strongest period for builders and our design and construction customers were busy throughout the spring and early summer. Paper graphics, specialized color services and digital services to support construction workflows all had strong customer usage. New investments we made in upgrading our plant printing hardware allows us to provide improved quality at lower operating costs and faster turnaround time giving us a tremendous competitive advantage. Our 170 service centers are real assets that continue to be well utilized by our customers. None of our competitors have a sound network of service centers in North America with unified leadership.

Our MPS business line produced nominal revenue growth in Q2 as we continue to acquire new customers in local markets along with a number of regional wins. The MPS revenue segment will continue to be volatile as we fight for the acquisition of new customer engagements and we deal with the effects of our own print optimization programs.

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

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

Our facility information management services are also having a positive influence on our customers who actively manage commercial buildings, schools, hospitals and other facilities. They like having easy access to their critical building information on a mobile tablet that reduces wasted time in searching and retrieving documents. We continue to educate facility management teams by taking part at trade shows and providing educational seminars.

There is significant upside in this revenue line. Once customers see the ease of use and the practical application in their day to day work process for one building, we earn the right to digitize the rest of the buildings they manage. While we are in the early stages of our facilities custom acquisition, our domain knowledge in real estate, our national footprint of scan centers and our SKYSITE cloud platform has become a viable competitive advantage.

While we focus on custom acquisition, we also continue to improve the efficiencies at our service centers. ARC has a strong experienced service center management whose focus is on improving customer experience and increasing efficiency on our production floors.

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

Finally, our ongoing marketing efforts have been a tremendous effort to our customer acquisition strategy. The e-marketing campaigns, social media posts and online resources have assisted us to promote our diversified portfolio of services. In the end, our continued strategy is to provide the resources, guidance and inspiration for our employees to be the best in what they do, provide an exceptional customer experience and increase our market share.

With that, I'll turn this call over to Jorge for a review of the financials. Jorge?

Thanks, Dilo. Consolidated revenue growth was the prevailing theme for our second quarter. 3 out of our 4 business lines had year-over-year improvements, while our equipment and supplies business maintained its defensive role in our business mix. Aggressive cost containment and our ability to leverage our labor and fixed costs resulted in gross margins increasing year-over-year by 70 basis points. We achieved this growth despite a negative 70 basis points impact from the extraordinary medical expenses incurred during the period. Absent these expenses, ARC's gross margins would have been approximately 35% or more than 100 basis points higher than prior year.

With regards to SG&A, we expected increases this year in light of the sales and marketing resources we put in place in 2017. But the increases were larger than we anticipated due to the exceptional medical cost hitting SG&A, along with infrastructure improvements that helped fuel our sales growth.

Overall, incremental medical costs had a negative impact of $1.4 million on EBITDA during the second quarter and decreased earnings per share by $0.021. Without these costs, adjusted EBITDA performance would have exceeded our prior year second quarter performance and our EPS would have been more than $0.10. As we have reached our stop-loss insurance cap on most of these extraordinary medical claims, we anticipate medical costs will begin to moderate in the second half of the year.

As we move forward, the company will continue to maintain its strong cash flows and capital structure. In the second quarter, our operating cash flows recovered strongly from the slow start to the year, increasing more than $6 million year-over-year. Year-to-date, we paid down $10 million of our term loan debt, about $8 million of which is ahead of schedule. And our leverage ratio is currently under 2.5x.

Well, we have pointed out the challenges ARC faces in the marketplace. We feel good about our financial performance and the progress we made with regards to our strategic objectives. As we execute these goals, they will deliver benefit in the future, thus providing a solid foundation for growth.

With that as a background for our financial discussion, I'll turn the call back to Suri. Suri?

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

(Operator Instructions) And we will take our first question from Josh Nichols with B. Riley.

One of the questions I had -- it's nice to see the MPS business transition back to growth. But looking at the customer increase, I was wondering did the

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maybe a larger regional or national account or is it from any potential M&A that happened in this space? Can you just kind of give some additional color on what really drove the MPS growth?

Dilo, would you like to take that?

Yes, so primarily the growth came from couple of regional customers that we've acquired in late last year to early part of this year. So as you know, when these large regional customers come aboard, it takes about 3 to 4 months for us to optimize plan, build the scope and then rollout. So we've had some rollouts in the first -- last couple of months coming from wins that we've acquired in the last -- early part of the year.

That's helpful. And just how should we think -- I mean, Q2 is obviously typically the strongest quarter. How should we think about the year-over-year opportunity for revenue growth in the back half of this year and also what type of gross margin profile the company is looking to achieve?

Jorge, would you like to?

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

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

We haven't fully hit our cap. I did mention as you notice on the script that we hit our cap on most of them plus there's always surprises, right, that we could never count on or predict. So where SG&A is around that $27 million range for the second quarter, we would expect to be in that range give or take a little bit for the balance of the year with some upside if we see much better medical claims in the second half of the year. But from where we stand now, we can't predict that.

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

We're striving to get closer to leverage of 2 or under 2, that's kind of the optimal. And as you all know, that's a product of 2 things, right. How quickly we pay down the debt and also an increase in EBITDA that we feel that we're headed towards that trajectory of getting EBITDA growth in the second half of the year. So it's really a balancing act between those 2. I will say we'll probably continue to pay down debt for the next couple of quarters. That will probably start slowing down after that or maybe even sooner depending on where we're at in those ratios.

Based in that...

Yes, so based on what Jorge said, exactly like he said, we've had challenges with the revenue for the last 2 or 3 years. So obviously we were actually focused on paying that debt down, and I think that's the right thing to do. And if things change, we might become more opportunistic as to how we're allocating the capital. But for now, we have done well and we'll obviously try to keep that ratio down to -- try to take it to 2. And if market changes and continue to stay strong, then we will have other options of course, which will be nice.

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

The better, yes.

And we will take our next question from Alan Weber with Robotti & Company Advisors.

So I guess maybe part of it I was little concerned because you said if the medical (inaudible) were flat, your gross margin would have been 35%, right?

Correct.

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

Just to clarify that. So when you get the medical expenses, a chunk of our employees are in direct labor, right. So the medical charges related to those employees go to direct labor. Then we have another big pool of employees that are SG&A employees. So the medical expenses related to those employees go to SG&A. So in total, the number is $1.4 million of incremental medical expense in the second quarter, rough [just] is 50-50, 50% of direct labor, 50% SG&A. Does that answer your question?

Yes, it does. But then, I guess, the question is then like for the year, for the first 6 months, SG&A was up like $4 million and care for that medical. But the SG&A is -- I didn't quite understand about the marketing like that is more in last year's numbers.

Well, you think about it. I mean, we ramped up the resources from the sales and marketing standpoint. We added in differing degrees throughout 2017. So now in '18 we were completely expecting that to increase because now we're going to have a full year run rate. So we did expect it to increase from '17 to '18, now it increased more than what we expected primarily due to the medical, that was unexpected.

Okay, great. And I guess going forward, I mean the idea is if you continue the revenue growth, we should see higher gross and continue -– and we should see more leveraging of the SG&A?

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

Yes, and to your point, when revenues go up, then you leverage more of your fixed cost on the COGS side and your SG&A. So as a percentage of total, that becomes a lower number. So yes, I would agree with your comment.

Okay. And then just a quick follow-up, what -- for the year, what do you expect capital spending to be and how much do you expect the capital lease obligations to be?

We did have a little bit of a blip in the second quarter on capital lease expenditures. It went up to $7 million. We were trending around $4 million to $5 million. We did a kind of second wave of investments in our service center for equipment. We spoke a lot about it last year with the newer technology, new equipment coming from manufacturers that provided efficiency and more opportunities to sell. So we upgraded our equipments in most of larger facilities, some mid-sized facility. Q2 was a little bit of a Phase 2, kind of our final phase, those that we missed last year so you did see an uptick there about, I would call it, $3 million-ish due to that initiative. So kind of barring that, I look at them saying combined you're going to be in that $8 million range, $8 million to $9 million range depending on what we're getting lease rates and determine what the split is going to be, but $3 million to $4 million on cash capital expenditures and then in that $5 million to $6 million range in the leasehold improvement.

And so is that like maybe $8 million to $10 million combined for the second half?

Yes, it's about $8 million to $10 million, it varies every quarter. If we sign a big global solutions customer, then we may have a big capital outlay for that new enterprise MPS customer, which is obviously a good thing, right, because we've got the readymade revenue for that. So there are ebbs and flows due to that nature, but barring a steady state, yes, $8 million to 10 million is a reasonable number for you to think about.

And again, barring that kind of a customer would 20 -- in the low 20s kind of be the number for next year?

For the year, yes, barring, but you got to remember at the same token, yes, the investment we did in our service centers, that's for the most part behind us. There might be one-offs here and there. So you kind of eliminate that. But that is the core nature of our business is going out and adding new MPS customers. So for me to say, hey, we're going to stay flat and we're not going to add any more MPS customers, well, that goes against our strategic objective. So I would never say, hey, that number is going to be $20 million next year because, I'd say, we're not going to add new customers which we've added for the last decade in the MPS world, so.

(Operator Instructions) Our next question comes from [Glenn Primack] with [Promus Holdings].

What are you seeing on a kind of macro level as you talked the big sector construction companies in terms of the kind of funnel of projects going in the pipeline there, call it 12 to 18 months? So I'm guessing you are on the front [path looks]. So from your own thing, do you see like less projects, more projects, same projects?

There is no question, right now based on what we know, there are more projects. I won't say it's exploding. Commercial projects definitely are in a healthy place. So I am encouraged about the market, [Glenn]. I don't think there is any sign of that slowing down. I mean, individually retail might slowdown, but health care might pick up. But overall the general tendency is with economy up there is a little bit of buoyancy in the market and that's a good thing. The challenge we have though, even if we have that, the challenge we have like we always said in the last couple of years, we're looking at a shrinking marketplace and our challenge is to drive market share within that space and then layer it up with technology. So we'll have a good outcome like this quarter. So that's -- so it's all about execution, that's what we are focused on. Hopefully the market won't soften, it will continue to stay healthy, it should, looks like it's going to be the case for the next 12 to 18 months and we're very confident we can execute.

All right. And within that like a little description, does that include stuff for Mr. Trump (inaudible) structure plan or you're not seeing anything like that potentially in your print centers?

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

No, no, no. So it has -- there isn't any –- so you haven't seen debate like, hey, if we've got an infrastructure project, we better draw some prints before we start buying steel and bricks and all the other stuffs?

Yes, it's -- I mean, yes, of course, that will always be helpful. But what I can't be sure of and we can't be sure of is that they will always lean on print. Technology is really making an impact in this space and people are getting more and more comfortable -- and you probably know this better than I do, [Glenn] -- getting more and more comfortable with the tools out there and therefore turning to digital means.

Okay. Yes because even though like he tweets a lot, I think he's an [adult]. That probably runs in your favor. If I take that down to like just the top 50 builders and stuff for me and our magazine, anything new (inaudible) for you within there or is it pretty much you're doing less whale hunting and more just saying what you have today and making sure you are defending print?

I think -- I don't think we are doing less whale hunting, I think we're always looking for whales. So our team out there is hustling to get as many as we can. But we think our growth, [Glenn], is coming from peripheral areas, 2 ways. We're looking not just to only the construction market now, we're doing a lot more of the web marketing, we have -- our presence in the Internet and in the web is greater, our digital marketing is stronger. So we are starting to get customers from other areas who actually use print, whether it be museum, whether it be a trade show, things that we probably didn't do before. So that part is helpful. Secondly, we are going to the existing customers and selling additional things like whether it's building information modelings, some hyper linking, some visualization services, so there're a variety of things. So what we're doing is we just -- as I said in my script, this whole market is evolving and we are evolving with the customer's demands and finding new ways to access those markets and that's what actually bringing in this additional growth. It's additional services to the existing customers such as additional color services, additional BIM services, and so we are tapping out that, really aggressively selling that part of it, while we're also looking outside, not just strictly inside the construction market and the real estate market, so while we have not stopped hunting for those big whales, that's not our only focus. So I think that's helping us spread our tentacles a little bit and bring in a little more stability and I think that's what resulted in our growth.

Okay. Two more little quickies, this is one kind of more Jorge-related, well, and you 2 because over the past couple years with the revenue decline, the margins came in quite a bit. But now since you have things kind of stabilized, (inaudible) starting to show the leverage. So if requirement stays kind of lets you execute (inaudible) I think maybe the stock market price, then the margin, so continue to fall and this is going to be a free cash flow like (inaudible)?

Hey [Glenn], before we answer this, we're having a little bit of audio issue here in coming in. You're breaking up.

You're breaking up in the middle.

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

Yes, I get that all the time from my wife and kids. The gross margin, there was degradation that with the revenue shrink over the past few years as you stabilize revenue and start to grow, should we expect to see this gross margin to be more stable as well and get the same type of lift that you did on the way down?

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

How much we can leverage.

Yes, leverage our labor and our fixed cost because once we get more revenue, especially when it's coming into our service centers, I mean that's coming at a very high contribution margin because your labor is already there and your fixed costs are already there. So yes, that is a definitely true statement.

Okay. So if the broad based backdrop is good, no headwinds, slight tailwinds, and your margin is going to remain somewhat constant or go up if you continue to like grow itsy bitsy and I'm not going to -- my own little magic number then. Potentially you could have $60 million grow next year versus shrink because I think as I look at Bloomberg as they have your EBITDA, but if you could actually have your EBITDA approach closer to $60 million, on a $100 million to net debt, that's kind of crazy in terms of what someone would pay for enterprise (inaudible) EBITDA and a franchise that's intact and everything else. Am I missing something?

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

No. And I'm not asking for any projections. But if I have like the slight tailwind when you execute, so you are going to have -- it's going to grow, not shrink?

We achieved our growth.

And we will take our next question from [Matt Schwartz] with [Maze Investments].

But just to kind of piggyback on [Glenn's] question and a point of clarity, so the (inaudible) that you guys gave for this year, right, is inclusive of all the hit from the health care related costs, is that right? So we'd be looking at more like something like an incremental $3.5 million of EBITDA and $0.04 of earnings on top of the current guidance?

Yes, correct.

For next year.

Yes, we're saying even the current guidance.

Current guidance, yes.

Because our year-to-date medical expense incremental, the extraordinary claims was $3 million. So yes, $3 million translates to roughly $0.04. So yes, you're correct.

So if you are able to come in towards that high end of guidance. We kind of have a starting point for next, say, of that $58 million or a little bit less, let's say $57 million versus this year. Is that a fair way to think about it?

Well, it's a fair way to think about it, but I also will caution on from the medical side, we're not sure what's going to happen next year. I mean, there's a lot of moving pieces there and it gets pretty complicated. So I'm not ready to sit here and say, hey that $3 million that we've had year-to-date, a portion of that may or may not continue next year. So it's too early to tell on those.

I'd say. And what is the maximum out of pocket for the company on an annual basis?

Well, the maximum out of pocket, we have stop-loss insurances per claim of $250,000. And so just to be fully transparent, typically a company of our size that's self-insured, you should have 2 claims that hit that stop-loss insurance and which has been the case for us for the last 8 years that we've been self-insured. We would have 2 or less, this year we have 11. So it's one of those perfect storm years that's just off the charts actuarially. Now how those all develop and how they end up getting resolved, then that kind of dictates what happens next year with that medical. So we are protecting ourselves from the catastrophic aspects of it, but does add some incremental dollars to the total expense. Did that answer your question?

Yes, because I know last quarter you were talking about Q2 being the end of the significant hit to the P&L and now I thought I heard you say you might have some continuing impact in the back half. So I'm just trying to get my arms around if it's going to be substantially less than well, Q1 and Q2.

Yes, I would expect it to be less than Q1 and Q2. How much less, that's a question that's a little bit hard to predict in the sense that, as I mentioned before to [Glenn] or I believe it was Glenn or before that, that of these -- let's call it 7 cases that we have going, 7 of them have already hit the stop-loss. So anything that comes in for those claims will be covered by our stop-loss insurance. But you still have 4 that haven't hit it. So there's still a little bit more to get. My expectation, frankly, at the end of the first quarter was that we're going to be 98% done with these claims by the end of June. That didn't materialize, but just with the numbers I shared with you, is why I say in my comment that it should start moderating in the second half of the year barring any new surprises, which it just seems to me the year of surprises when it relates to medical.

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

Sure. Obviously, we don't like to talk specific customers or names. But I can give you directionally, the facility solution we have on the technology side is being very well received. That's something that we're excited about. The numbers are not meaningful yet for us to be able to talk about it and when that time comes, we'll obviously talk about it. But right now it's a question of learning and understanding that market. So some of the verticals we have been having had lot of success in health care, we're working with several hospitals, they're very interested. We're able to offer them some meaningful solutions in order to meet their requirements. Compliance is a big issue on hospitals, so that's very helpful. When the education vertical, especially with colleges and universities, there's a lot of building going on there and facilities managers deal with a lot of stuff there. So that's helpful. Manufacturing is good. So we've broken into that space, we have multiple customers. And we don't offer our solution free anymore because we actually want the customers to really sign a contract, do the IT review, do the legal and pay us the money before we do anything because the professional services cost us a lot to do that. And these are large companies, many of them are Fortune 500 companies. So it's just it's a longer sales cycle, but once they come on board, they are unlike to -- unlikely -- unless we drop the ball, they are unlikely to stop using us because we set them up for continued use because obviously building site lifecycles are long. Public utilities, we have bunch of them, we have bunch of retail. So we're making some progress. We've obviously worked with facilities managers and facilities previously in providing them print for facilities work. So we do understand and know the space, but right now it's in the growth phase and it's very promising and we're excited about the opportunity ahead of us.

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

Yes, in regards to the CapEx, we're going to be ranging in that $3 million to $4 million range. Kind of call it the average from the cash CapEx. In regards to the capital leases and I'll caveat it with the fact that, hey, if we were to add one enterprise customer for our MPS solution, that number may go up pretty significantly. But I would say in the capital leases, we're going to be in that $5 million-ish range, $5 million to $6 million, and the cash CapEx in the $3 million to $4 million range. So when you add it all up, it's in that $8 million -- call it $8 million to $10 million range, give or take.

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

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

Ladies and gentlemen, this does conclude today's call. And we thank you for your participation. You may now disconnect.