ARC Document Solutions Inc (ARC) 2017 Q2 法說會逐字稿

Good day, and welcome to the ARC Document Solutions 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 of Investor Relations. Please go ahead, sir.

Thank you, Don, 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 2017 were published 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. Thus, statements are only predictions based on information as of today, August 1, 2017, and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly and annual SEC filings.

This call will also contain references to certain non-GAAP measures, which are reconciled in today's press release and in our Form 8-K filing.

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

Thank you, David, and good afternoon, everyone. We were gratified with our financial performance for the second quarter, especially in the light of continuing headwinds in print sales and our ongoing transformation. We moderated our sales declines with wins in CDIM and executed the plan we put in place to acquire more regional MPS accounts across the country. As we have discussed previously, our technology offerings related to facilities, projects and archives are generating excitement with our customers. As noted in the press release we distributed earlier today, we generated nearly $4 million more in cash flows from operations in the first half of 2017 than we did in 2016.

Our second quarter gross margin was nearly 34%, and SG&A was essentially flat compared to 2016, even with all the investments in sales and marketing. Over the past several years, our overall strategy of continued focus on protecting our cash flows and aggressively reducing our debt has paid off. It has allowed us to renegotiate our debt agreement with our banks, resulting in a more favorable and a more flexible capital structure for ARC.

Our previous agreements reflected a time when the company was working towards stabilizing its revenues after an extraordinary financial crisis. As many of you will recall, during the recession, we had little choice, but to finance our needs through an expensive high-yield bond due to the severe impact the downturn had on the construction industry. Several years later, as the markets recovered, we were able to refinance to a Term B loan, and less than a year after that, we were able to refinance again to a Term A loan. Our recently completed amendment provides us with even better interest and amortization rate and more options for the use of our cash.

Today, we have a proven track record in the strength and consistency of our cash flows, and we have achieved the financial flexibility to continue our transformation by aggressively investing both in the growth of our market share in print and accelerating our revenues with our new technology offerings.

Overall, the results of our second quarter are encouraging, and as such, we are maintaining our annual guidance for 2017 as follows: Adjusted earnings per share $0.24 to $0.29. Cash flow from operations of $54 million -- of $49 million to $54 million, and EBITDA of $58 million to $63 million.

With that as an overview, I'll ask Dilo to provide a brief operational summary, and then, we will wrap up our formal remarks with a review of finances with Jorge. Dilo?

Thank you, Suri. Our focus to acquire new customers continues to be our main objective. Many states have strong construction activity, and as demonstrated by our sales performance in the second quarter, we continue to win new customers for ARC services. When we win a new customer, our goal is to expose and expand our sales by identifying other areas where our services could add value in managing their projects. This includes our on-site and off-site offerings as well as technology. For example, several of our project customers, who used us for print and document management, turned to us for interior decor as the building finished, which added color imaging and finishing to the same account.

ARC's color services continued to be used by both AEC and non-AEC accounts to market their businesses during the period. The investments we noted last quarter in upgrading our equipment and infrastructure are helping us to compete and win in a crowded marketplace.

Our existing MPS customers continue to print less in the offices, but in the second quarter, we added new local MPS locations in markets all around the country to help offset the declines from changing print practices and print optimization.

We have also been successful in securing new regional and larger MPS opportunities during the quarter, and we see sustained interest in these services in every market. Our pipeline for AIM and facility management services continues to grow, and we hope to convert many of these opportunities in the months to come.

Finally, we launched a new release of SKYSITE during the second quarter, upgrading our infrastructure to a Big Data platform. This technology migration allows us to scale customers' data efficiently and on the fly and compete aggressively for information management services related to construction.

With that, as an operational backdrop, I'll turn the call over to Jorge for a look at the numbers. Jorge?

Thanks, Dilo. We reduced declines in overall sales considerably in the second quarter. Sales were down 1.4% as compared to a 4.7% drop in the first quarter. Specific drivers of the improvement were the reduction in sales decline in CDIM. They were down 2.1% as compared to being down 4.5% in the first quarter and a 10.9% increase in equipment and supply sales that was driven by our China division.

As a reminder, for those of you building revenue models for the upcoming period, we will have 1 less business day in the third quarter as compared to the same period in 2016. Gross margins of 33.7% for the quarter represented a year-over-year decline of 130 basis points. The decrease was primarily due to the dilutive impact on margins from the increase in low-margin equipment sales.

SG&A for the quarter was in line with our expectations at $25.6 million. While we continue to invest in sales and marketing, we have been able to mitigate the increase in expenses by aggressively managing our costs in other areas.

Keeping the company financially healthy during our transition remains a primary objective as evidenced by our strong cash flows, which are nearly $2 million higher in the second quarter compared to last year, and the amendment to our credit facility, which improves our capital structure. The credit agreement lowered an already low interest rate by 25 basis points, reduced the Term A loan to $60 million and increased the revolving line of credit to $80 million. The balance of the outstanding debt, under the credit facility, remains unchanged at $110 million. Required annual principal payments dropped from $17.5 million to $4.5 million, a reduction of $13 million. In keeping with our plan to keep the company financially healthy, in the short term, we will continue to delever by paying down debt at a level similar to prior year. Although adjusted EBITDA dropped $1.2 million year-over-year, as we push to resume our sales growth, we made significant progress towards our objectives and performed to our expectation for the period.

At this point, 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 Chris McGinnis with Sidoti & Company.

I guess we can just start -- can you just talk, obviously, CDIM, a little bit better this quarter than it has been, and can you maybe just talk about the makeup of the sales you're having. You talked about a new SKYSITE platform or upgrade. Can you just maybe talk about how the customers taking the services now versus the old -- the legacy versus the new? And what you are seeing with the newer technologies?

Sure. So there are a bunch of questions here, they asking there are just two. Overall, CDIM, I can actually get Jorge to give a little more color inside CDIM, which we refer to as Construction Document and Information Management, Chris. But what we are basically doing is as we have been talking last quarter and the quarter before, we reconfigured our sales teams and invested in trying to also not just go after the technology sales, but also accelerated the print-related revenues, and those efforts are starting to show off. What it's allowing us to do is really moderate the declines, which is very good from our perspective, because in spite of the headwinds, we are still able to generate healthy margin and healthy cash flow. With regard to the platform, it's -- and when I finish, I'll get Jorge to touch on the details on CDIM. With regard to the platform itself, it is largely not experienced by clients directly, Chris, what it is, is earlier we used to be on a Microsoft platform and our servers would be the SQL servers. And what it simply meant is that, every time we brought in additional new customers and expanded our revenues, our -- we would also -- our cost also would relatively go up, because that would simply mean, we would have to continue to pay more license fees to Microsoft and for SQL servers and so on and so forth. That is one issue. Second thing is the speed with which we can scale. So by moving to an open platform, it's our own IP, and therefore, we are not indebted to anybody else for having that data managed on that platform. So we are in our own Big Data platform. And we do not actually have to pay license fee for this. So that's a cost benefit. The second benefit is that, if we, as planned, bring more technology customers then we can scale them very comfortably, without the loss of speed or efficiency on that platform. So that's the use of our -- that's the benefit of shifting to a Big Data platform. But, however, in order to do that, you really have to be able to develop and nurture serious technology, which our technology team is very capable of. So that's what we were able to do last quarter. Jorge, would you like to give a little color on the CDIM?

Sure. With the CDIM, how we were able to achieve the 2% decline was a 2 ways we got there. One, if you recall our historical traditional reprographics, call it our large format blueprinting, was dropping at a rate of 4% to 5% and in some quarters, even north of that 5%. So with all the efforts we did -- the investments we did in our print side of the solutions and focus on getting market share, we were able to mitigate that decline to a little bit less than 4%. And as you know, that makes up roughly -- the traditional reprographics makes up roughly 50% of the CDIM revenue. The other big chunk of the CDIM revenue is our color print. And in regards to our color print, we've talked about, and Dilo mentioned a little bit as well in his script, that we've been making a lot of investments on color equipment and focus on getting color work out there. And we were very successful in the second quarter in garnishing that work, and we've actually seen a growth in our color revenue of a little bit over 2%. So when you combine those 2 components, the moderation in the traditional reprographics, growth in the color printing, that's how we are able to achieve the 2% decline as opposed to the roughly 5% decline we saw in the first quarter.

Okay. That was really helpful. And so, I guess, in thinking about the rest of the year, do you think you could even see that rate kind of decline more in terms of, as the sales force gets out, I think a little bit more experience under their belt, should that decline abate even more or do you think this is the kind of a new baseline?

So that's -- what I'd -- it's going to be a loaded question. It's really a loaded answer, Chris, depending on how we are looking at it. So fundamentally, obviously, we would like to think all the efforts we are making in order to gain market share or rather moderate the declines is working -- definitely working. But as you know, when that happens one quarter, we can't claim it as a trend. We got to be able to repeat it more and more. But there are multiple factors for it and against it. For it is that, obviously, sales team are getting settled down, we are in a rhythm, we are continuing to drive that segment hard. So that's a positive. So there's a chance that this trend can continue. What works against us is that, remember Jorge said, there is 1 less working day in the -- on the calendar, that's number one. Number two, we are going into the softer segment of the year, right? The second half of the year is traditionally softer than the first half of the year. And especially, the second quarter generally, there has been exceptional years, but generally second quarter is a strong quarter. We ourselves don't expect the third and the fourth quarter to be as strong. Now that doesn't -- therefore, I'm not predicting that we won't do as well as the second quarter, because we are -- our sales is in a rhythm, and we're definitely hoping that we will continue to perform like that. But it's likely that the second half will get moderated from where we are today from an overall perspective of the complete year. Does that make sense?

No, it does make sense. I totally understand what you're saying, and I appreciate that. I guess, not the jump away, but now I guess thinking about MPS. What's that? I'm sorry.

I just want to say one thing, Chris, just to put a little color to Suri's comment that we're going to have 1 less business day. From our standpoint, 1 less business day in the quarter equates to $1.5 million to $2 million. So when you apply that towards a $100 million roughly for a quarter, that could have an impact of about 1.5%. So just wanted to give that to you so you could kind of quantify that number. Sorry, you can go ahead with your next question.

Well, I was going to go on and ask questions, but I'll now just stay on that for a minute or 2. Yes, I was thinking traditionally, it's about 2%, I guess, is what...

Yes, 1.5% to 2%. Yes, that's exactly right way to look at it.

And so I was thinking, I guess, for the remaining guidance for the year. I guess, that range of roughly was it $0.12 to $0.15 -- $0.12 to $0.17 your guidance. I guess you're thinking that's more of probably Q4 than Q3 weighted, I guess, is that correct?

Right.

Okay, I appreciate that.

Right.

Last question, and I'll jump back in the queue. I just wanted to ask about the MPS. It sounds like it was a little bit stronger than you maybe expected. And you talked about maybe some bigger deals? Can you just elaborate on that a little bit?

Sure. I mean, fundamentally this is the impact of our drive to accelerate the sales, where on the print side, we are putting a little more effort in terms of marketing, getting the sales people out there and letting their presence -- our presence known. So we're not taking the foot off the print side of the business because we are still the largest player in this space. So by focusing on that segment, some segments like that can grow [out] -- MPS largely, largely, Chris, is dominated by the small format, which also shrinks very first. Because as you would know, from your own personal experience, how much of paper you use today as against what you did 3 years ago or 5 years ago, right? So that acceleration continues to occur. But what we're able to do is to get more new customers. This is why we were talking about the gain in market share. By acquiring new customers, we're able to moderate that shrinkage, allowing us to actually grow that business. So there are 2, 3 elements. One segment of the business is small customers in multiple locations with 1 or 2 or 3 machines, that is the large majority of our customers regionally and divisionally -- divisionally and locally and then regional customers is what Dilo was pointing out in his script. Where we have started going after some regional customers, and we have had some wins. So the combination of regional customers and the small customers is allowing us to show a little pop on that. But we got to continue to stay on that, that's the challenge. Because it's a shrinking market, and you continue to take market share in order to offset that shrinkage.

We will go next to Aman Gulani with B. Riley & Co.

Looking at your new credit facility, you amended it, you got a lower interest rate now, and you also have a bit more flexibility around the use of excess cash. Do you see maybe repurchasing shares this year?

So we -- that's not our primary motive to do this, Aman. The whole idea is that when we renegotiated this, we were trying to kind of be a little more clearer in our script. When we originally bid our bank agreements, this is, I'm talking post downturn, immediately after the downturn, obviously, we had a high yield. And when we put together our bank agreements, the banks were concerned this is the construction industry, yes, we know you guys are a great company, you have good management and you generate good cash, but you are in the construction industry. So we had to go give them comfort in showing them we can still generate that amount of cash and pay this debt down under Term A or Term B, and we really don't have to be under a high yield, which is, as you know, is extraordinarily expensive. So our first step was go to Term B, and very quickly, we've showed them how strong our cash flow is when we went to Term B, and those conditions, which we negotiated, were strictly to give us a chance to prove that we are capable of servicing that debt, which we did. And before even in a year, right? Jorge, it is less than a year?

Less than a year.

We renegotiated, and because we aggressively paid down the debt, and we said -- we told you so, and we delivered the goods. And we renegotiated to a Term A at a significantly lower interest rate. However, the conditions were still same. We had tight conditions on us with regard to where we can invest, when we can invest and the use of cash. There were restrictions on that. So what we did this time is when we renegotiated, we said that phase is over. Our debt has significantly come down. Our cash flows are continuing to be strong. Therefore, we want to renegotiate debt -- this debt. So it will allow us to actually, if we had a very large client or a very large opportunity, whether in print or whether in technology, we want to be able to invest. For example, in the first half of the year, I think, it was almost $5 million that we invested in equipment, right, Jorge?

Correct.

Now we may not be doing that every quarter, but when we wanted, we should be able to quickly have access to the cash to be able to make those investments, whatever they may be. So what we did is we went and renegotiated our conditions so that we don't have ugly covenants hanging over our head, when we are thinking about transforming the business and building the business. So the transformation stage, as you know, Aman, is hard because of the shrinking revenues, and we are trying to build the technology revenues. So during this time when we are investing, we really need to have the flexibility, that's what we were able to accomplish. With regard to the share repurchase, repurchase itself, we've always maintained it's going to be based on the best ROI. I mean, if we have the ability to invest, would it be best in investing in future technology or continue to invest more in the print technology or is it better to buy the stock back. And time and again, it has shown buying the stock back at this point of time may not be the best investment for us. So that's not what we have predominantly in mind, although if conditions change, we may still do that.

Yes, okay. It makes sense. Okay and then, I guess, turning to MPS. You added 590 locations in the quarter. I mean, when you look at it in a sense of like how many locations do you need to add in the quarter for revenue to maybe flat as opposed to declining?

Dilo, you want to answer that?

Yes. So 590 deals that we have -- [which is] year-over-year for the quarter. Our goal is to add -- to double it because we want to add about 1,000 new installations each year. That's our immediate goal the management team has. And sometimes, it's not the number of deals that helps in getting MPS to a break-even point of -- to a growth area. It's a size of the customers as well, right? The last few years, we haven't had a good breakthrough in some of our global type of customers, and we are getting traction. We have some of the hard work we put in the last 18 months are paying off. Many of the customers are considering to speak to us, negotiate with us on different types of solutions for, it may not be globally, it could be regionally. And then, we off once we win a regional project, our goal is to somehow take it national and then to globally as well. So there are multitude of things that we need to do to get to a growth area, and I feel very confident that, as a team, we are focused on those initiatives. And hopefully, someday, some quarters down the line, we can show you the growth.

Sorry, go ahead. One more point to add is that, I think the point Dilo is saying is that, there are -- it's not because -- the number of installations is not necessarily the deciding factor because they don't always necessarily generate the same amount of revenue depending on the customer. So one customer might have 15 output devices while the other customer might have 3 output devices. So the way we actually judge that is to how much revenue each customer is generating, and like Dilo said, larger customers will generate much larger revenue, which will allow us to actually offset those numbers.

We'll take our next question from Brad Safalow with PAA Research.

I just want to go back to the question of capital allocation. You made a statement that you plan to continue to reduce debt at the same pace. Can you just clarify exactly what you mean by that?

Yes. So the opportunity we have is that we still have $110 million in debt, and we will continue to pay that down so that we will have the ability to have that extra cash in hand in case we need it to invest. Obviously, at some stage, whether it is in 2018 or 2019, if we keep this pace up, we will have the chance to extinguish the debt. I am not saying we will pay down to 0, but for now, our strategy is with the excess cash we have, we'll continue to pay the debt, so we can create this cushion and keep a revolver we have to be substantially sized. So if we had an opportunity to invest in one of the areas, which will allow us to actually grow the sales, we want to be able to do that. Jorge, would you like to add to that?

Yes. I mean -- and kind of to add a little more color to what Suri said, we've been paying down anywhere between $5 million to $8 million a quarter in debt, and we plan to stay in that realm as we move forward for the next few quarters. And back to Suri's point, what this new credit facility really allows us to do since now the bigger chunk of the credit facility is in the revolver, so now when we pay down the debt, we'll pay it down through the revolver. Now circling back to Suri's point, the capacity is still there. The dry powder is still there as we pay it down. It's not going away as opposed to when we have a Term A loan, you pay it down, that money is gone there at that point, you can't grab it back. So we thought it would be prudent to continue to do that. Likewise, keeping our leverage ratio, which we are roughly at 2.4x leverage ratio. We think optimal for us is to get under 2x leverage ratio as I made in my comments. One of our primary goals is to ensure we maintain the financial health of the company, and we think that would be a prudent thing for us to do here in the short term.

So if you think about it, Brad, if you -- when we refinance now, we've $80 million actually in the revolver and $60 million is our Term A. And what we want to do is we want to keep that revolver as flexible as we can. So if we had to draw $10 million, $15 million, $20 million, we'll have no trouble drawing so. So the short-term strategy, at least in the next 2, 3, 4, 5 quarters, is for us to continue to pay down the debt, create that elbow room and really take advantage of the structure we put in place. We had a specific plan as to how we think about that, and we are happy that we can execute on that.

So just to clarify, I guess, I was reading between the lines on the credit agreement and the press release, that maybe you are considering acquisitions more actively than you had in, let's say, the last nearly 5 years. Is that not the case?

Not really because I mean, there are 2 ways to think about that, Brad. We have -- one segment of the business is print-related, the other segment is technology-related. We don't think it's prudent to acquire a print-related business at this point in time because the print-related business itself is changing very fast, and we have significantly modernized and optimized our print-related business. Any other business, which may come up for sale, is often riddled with all the challenges we went through 2, 3 years ago. We don't want to acquire those assets and struggle in it. So in nutshell what I'm saying is if we just bought a business, which is -- which has $5 million in revenues, likely by the time we clean up, it will be $3 million. And so for us, it really doesn't make any sense to buy print-related business. We are actually putting -- infuse more technology into our customers and how we serve the customers. So there is -- I'm not saying absolute no, who knows what will come up in the horizon, but we don't certainly see that coming up in the print-related business. As for the technology side acquisition, as you know, technology company acquisitions can be very, very expensive, and we are not geared at this point of time to make technology acquisitions. We have been building our technology, but what is most important is that, if we need we feel there is a compelling opportunity and we needed to build an infrastructure to go after that, we want to be able to spend that money or invest that money in a large archival client or in a large MPS client without having restrictions on our bank agreement.

Put me in the camp that I don't mind if you -- and I'm a shareholder -- don't mind that you pursue acquisitions, obviously, at reasonable multiples. I'd much prefer you do that, then buy back stock, which for businesses that face the kind of the secular challenges that you guys have, shareholder value destruction comes in the form of share buybacks. So I want to see you guys, which sounds like you're going to, get on the pathway of, if you're going to invest, invest in sustainable revenue and EBITDA. With that in mind, one last question. Can you give me any sort of update on SKYSITE? I know you just -- you talked about what you did on the back-end, but really more on the client side, if there is anything you can talk about in terms of momentum, how you're thinking about whether trials, subscriptions, things like that. And I'll turn it over.

Sure. Sure. You're welcome. The idea in SKYSITE is we built a very strong platform and it's fundamentally a platform which allows us to distribute customers' documents and information to facilitate communication. That's how we think about that platform, right? It's fundamentally a platform to distribute documents and the information to facilitate communication. That's what we did with paper. We just used paper as a medium. Now we are using cloud and mobile access as a medium. But using that platform, Brad, we can actually address 3 different segments in our customer space, right? We can not only address the project space, but we can also address the built space in the construction world. So we have the 3 segments being projects, so SKYSITE can be used for projects. SKYSITE can be used for facilities, and SKYSITE also can be used for archives. So our focus now is to be able to get the product to be used in different areas. We're working on projects, we're working on facilities, and we are working on archives, all 3 of them. But our main focus is, could we get into more facilities? Because that is the space which is the largest in the construction arena, right? Because there is more built space than the space we are building right now. So while we are addressing the new projects and while we are addressing the archives, one of our focuses is trying to build the revenues from the built space, which is facilities. And it's very exciting for us, because all of our new efforts is starting to show results. We have good customer excitement. The customers like what we have. And relatively, it's a new space for us, and we're very excited about it. And that's the one we are saying, look we need 18 to 36 months really to fine-tune this, get into a rhythm of really capturing that market share.

We will take our next question from [Glenn Primack] with Promus Holdings.

How does ARC on the technology side, like compare and contrast Dropbox, which I think some of your customers use?

All right. So at the initial stages, [Glenn], it was -- Dropbox was very popular, especially going back, if you went back 36 months to 48 months, it was new, it was heavily promoted and marketed. It was sent -- marketed as a free tool, so a lot of people got on to Dropbox and Box as a tool to actually move files around. But as the construction space becomes more mature in using technology and as you know this space very well, where, -- it's a legacy space, but we are getting very comfortable with the technology. They are realizing both Dropbox and Box do not have the ability to really meet their requirements. If they wanted to mark the document up or if they wanted to do some RFIs, which is called request for information. If they wanted to store and tag photographs specific to certain projects. There are a lot of things, especially when the use of large format drawings is becoming very uncomfortable. Can they load 50,000 drawings in a Box or in a space and keep the data there? Sure, they can. Can they sort it out? Can they search it? Can they have the same kind of structure we have, specifically separated as mechanicals, electricals, plumbing and the various disciplines in the construction space? They don't have that. So as a result, my view is over a period of time, the use of Box and Dropbox for the construction space will continue to shrink as more players in this space start coming out with solutions for the construction space, specifically designed for the space, given the size of the space.

Okay, great. I mentioned it because I think, at some point they're going to probably become a public with big banker behind them, and I'm sure they'll probably talk about construction as an area.

Sure, sure.

California, are you still like 30%-ish plus revenue coming out of the state?

Yes, yes. It is still a major dominant area. Also, the use of technology is heavy in this side. Absolutely, it is still the case.

And if you had like put your finger in the air in terms of business conditions in your market, is it green, yellow or red?

I would say, it's looking more greenish than yellow.

Just the numbers that we've seen that are out on like -- for projects and stuff, and it seemed like it's greenish.

Yes.

And so that's why I asked...

I would agree. I would agree that's a good assessment, [Glenn]. Definitely, there is growth all over the place, which is offset by this shrinking paper and the use of technology. And the use of technology is very, very -- it's not consistent across the construction space. They're using multiple tools. They are getting comfortable in the technology. There is no specific technology completely dominant in the space. There are a lot of moving parts in this space. It's an evolving space, but one thing I can assure you though and you probably noticed, Glenn , from your perspective is that, there's a lot more players, whether it is venture capitalists, banks or private equity focusing on the construction space, knowing and understanding the depth of this and the breath of this space.

Sure, but they don't serve it like you do?

Yes, yes, and that's our hope that we would be the player who can actually drive this market given our domain knowledge and history in this space.

So it's pretty good that it's green today, at the same time that you think you're doing a good job of recovering market share?

Absolutely. We feel good about what we're doing. We are challenged because this is a challenging business environment, because -- of the obvious reasons, because the new technology is reducing paper, people want to be green, people want to be environmentally responsible, so that's another whammy against us. So there are multiple reasons why there is shrinkage, understandably so. But knowing that and going after and increasing our market share is [some] of [our] strategy, so that we can actually really moderate the declines in our revenue, and who knows, if we continue to stay on this path, we might actually even breakeven in terms of how much business we are gaining, as against what we are losing. In the meantime, our technology efforts have to not slowed down, we continue to focus on the technology, so -- and when we start seeing growth on that segment and that's the one we are saying transformation time, we need time, then I think we'll be in a good place.

And your competitors on that traditional, is it safe to say they are getting weaker as they're not as big as you guys.

Yes, I mean, I would say, yes, they are not as big. And in terms of saying weaker, what it is, is they are probably relatively speaking, maybe weaker. They are not getting weaker, but they are not actually making the improvements and the advancements that they need to make in order to keep that space modernized because customers' habits and behaviors are significantly changing. Even when they order print, it's very different what the way they ordered and used print 5 years ago.

Okay. And then that traditional business, are more customers coming to you saying, "Hey, you know what, what the heck, and why don't I print this off in color and you can give me the wiring in red, the plumbing in blue, and is that -- I think -- is that happening?

Sure. That's definitely the case. In fact, one of the reasons, our black-and-white is also taking a bigger beating is we are finding -- a segment of the customers are saying, color is so cheap, we may also print this in color and that's happening all over. And there is -- there is no such thing as a small format, black-and-white printer anymore. As you know, every printer can do all the colors as the market is evolving.

So when you're talking color, you are not just talking Riot, you're talking a big architectural firm that's looking at a project, and says, "Hey, you know what, I'll do this in color" that -- and if you can deliver us [equal] [full page], it's okay.

Absolutely. Yes, pretty much...

Super. And your customers -- although that black and white is like kind of whammy, your customers aren't giving you any whammies, just looking at the website and seeing the reviews that you have over there?

Yes, I mean, if you notice that something that we recently started and this is clearly, [Glenn], showing the trend of, we are saying even on the print side, we are using social marketing and web marketing to be able to engage our customers and talk with them. And you are seeing that -- I mean, it's hard to find the 3 [stars] in terms of review on that site, and we get them week after week after week, and we get nothing, but absolute kudos about how good the service is and it is allowing us and other customers are seeing that. And we're getting greater traction of customers, using our web presence to actually reach out to us, which is a good news for us. I mean those are the things are we've been investing on. We...

And that's the strategy, [Glenn], that we put it together last probably year and 1.5 year ago, is to empower every employee at ARC to give great exceptional customer service and retain those customers and grow the business within the same customers, right? So -- that's a part of when we talked about growing market share. In the print industry, yes, we can grow market share because we have good equipment, good quality, services and so forth, but nothing like the relationships, our employees at every level can build with the local employees -- with the local customers. That empowerment is the one that is helping us to keep the customers and get the repeat business and sell additional services. So that's part of our strategy to build market share is to protect what we have and grow into new customers and customers -- exceptional customer service is what we are focusing around the country by all our employees.

Super. And on MPS, Suri, are you going out to like the top 50, top 100 at all within those ENR lists and making calls or...?

Sure, sure. Constantly, that -- there is something that we are doing constantly, Glenn. But having said that, that's space, as you know and you can track. There is so much turmoil going on there. There is so much consolidation going there -- going on there...

No, but I think since you're the guy in there, that probably plays in your favor for the most part. Occasionally, there might be a consolidation where you don't win, but I'm guessing that more often than not that probably helps you out.

Absolutely. And that is our hope. Actually, our track record clearly shows that we, as a company, can consistently perform at that level and that's we have the reviews and the references we get are very, very good. And we are seeing signs of that companies coming to us and saying, "Okay, we really want to -- we wanted to make a change. We didn't get a chance to do it. We were reluctant, but now we think we should do it." So yes, our hope is that it'll continue to add more momentum to our efforts to gain market share, Glenn.

Okay. And the tech group. How are you measuring like success over there ?

So it's too early right now. We have formed the team. We have put the processes in place. It's a very different ballgame. So we are -- we have a group of people trying to monitor that and establish how that moves along. So that's very early stage in terms of really being able to talk about it, Glenn. But we will do so more and more in the coming quarters as we gain a little more traction.

Okay, but you have to have internally some sort of goal. You don't want to share it, but you have one...

Sure, sure, of course (inaudible) for everything.

And so if you want to sprinkle -- if you -- yes, I know because I've heard the stories about counting the rubber bands and stuff over there. So I'd like -- I am comfortable with you guys and the cash. In terms of allocation, I get more comfortable if I know that if you're going to put something (inaudible) with the other guy, if you got an opportunity to build sustainable revenue and EBITDA, that's great as long as that -- with that return profile is there as well with the payback.

Yes. And that's the transformation we're talking about. We're excited about it. We can't talk about it yet. We don't know enough to talk about it. That's the uncharted waters we are in. We're hoping sooner than later we will be able to talk about it.

I hope more sooner. Lastly, on the use of cash. I know that the debt paydown you've done it, you've got like if there is opportunities on archival because that's a little bit more cash upfront, right?

Yes, depending on the customer and what kind of...

Depending on the customer and then the same thing with MPS. If you are out like whale hunting within that ENR [crop], that's [cost] and that like -- I like that use of cash. But man, with the stock here at like around $3.50, I think you and I agree that it's probably worth a lot more. So if you could allocate a little bit of that free cash, sort -- sort of stock buyback, if -- I'd still do some of that because it's just -- it seems, given what you've done to try to steer the ARC ship and the light's kind of green, you might as well put some more green into your pocket because every share you buy back's going to be worth more to you guys, given I think you probably own more than me. I'm just thinking about you.

Yes, thank you for the advice, and as you know, I, obviously, see you guys, my investors, and point well noted. Thank you.

There are no additional questions at this time. So I'll return the conference to David Stickney for any additional or closing remarks.

Thanks very much, ladies and gentlemen, for your attention this evening. We appreciate your support of ARC Document Solutions, and we look forward to talking with you next quarter. Take care. Bye-bye.

This does conclude today's conference. Thank you for your participation. You may now disconnect.