ARC Document Solutions Inc (ARC) 2021 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the ARC Third Quarter 2021 Earnings Report. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, speaker David Stickney, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Dara, and welcome, everyone. On the call with me today are Suri Suriyakumar, our CEO; our Chief Operating Officer, Dilo Wijesuriya; and Jorge Avalos, our Chief Financial Officer. Our third quarter results for 2021 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.

In today's earnings announcement, ARC offered expanded supplemental disclosures to provide shareholders and analysts with additional information in advance of our quarterly conference call. The disclosures are largely historical and will not be read on today's call. In addition, we are conducting this call from multiple locations today, which may require some additional direction from our speakers, especially during Q&A.

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, November 4, 2021, 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'll now turn the call over to our Chairman, President and CEO, Suri Suriyakumar.

Thank you, David, and welcome, everyone. We are delighted with our third quarter results. Since 2008, our company and the industry as a whole has been devastated with secular changes. Print revenues, especially related to the construction industry have no size as technology and new workflows have replaced the use of paper.

We at ARC have been battling these changes with multiple (inaudible) and restructures over the years in an effort to tamper revenue erosion and put the company back on a growth standard. It has been an appeal test and the pandemic did not make it easier. However, we now believe we have been successfully transforming the company. We are now a different company than we were in the past. We have new revenue streams from an expanded service portfolio and new customers from a much wider range of industry segments. The results of this transformation have already been seen with more and greater opportunities for growth.

Our performance this year demonstrate that we are now on the right track. While a few quarters have had aberrations in the recent past, our fundamentals have remained steadfast. We have continued to generate solid cash and EBITDA, allowing us to keep our debt in control under our quarterly dividend program and repurchase program.

This quarter is the perfect example. EPS grew and EBITDA was formed for the second consecutive year. Margins were solid, thanks to our new cost structure and our cash flow performance remains impressive. Clearly, the changes we have made to the company has enhanced our financial performance. But as noted, I expect our transformation to continue generating new growth opportunities as we look forward to the fourth quarter and beyond.

While the design and construction industries remained a strong contributor to our earnings, new sales are being dominated by work once we consider to be opportunistic and by customer segment who has likely never heard of us just 2 years ago. National retail brands, educational institution, fitness center, health care company, marketing agencies and many other industry segments regularly contributes the lion's share of our new segment.

I think the variety in our customer base speaks volumes about the appeal of both our digital printing and document scanning services as well as the effectiveness of our marketing efforts in quoting new customers. Meanwhile, our traditional customers continue to return to work and our legacy revenues are stabilizing.

With regard to our review of the fourth quarter, I mentioned in our last call that we don't think normal seasonal trends will play as a larger role as they have positioned. Our opinion hasn't changed. Demand for better visual communication, more access to documents and information, pent-up demand and a competitive holiday retail season are likely to push business deeper into the last quarter of the year than we have seen in the recent past, and we are prepared for it.

Finally, our commitment to return shareholder value is as tight as it could be. We were buyers of our own shares in the open market during the third quarter, and the shareholders will receive their third quarter dividend at the end of November.

With that, I will turn the call over to Dilo to provide further details on the operations of the company during the period. Dilo?

Thank you, Suri. The structural changes we have been implementing in our sales, operations and customer service processes are helping us to transform into a company we have aspired to become. We have diversified our services and our customer base over the past several years. While we were successful in gaining some traction in the past, the pandemic accelerated the changes we made and created diversified revenue from new customer verticals.

Importantly, we focused on improving and growing services, we can already perform in our service centers using the same print equipment and domain knowledge of our employees. Much credit goes to our divisional management teams for being nimble and expanding our solutions to a wider group of customers.

Our demand gen and marketing teams are using social and other channels to get in front of new customer audiences. With social posts, we are able to show the final results of our completed project, communicate our print capabilities, demonstrate our project management skill and showcase the end-to-end solutions of ARC. Not only are we watching out to these new customers in different business verticals, but they are also reaching out to us as interest in our services grow.

Our ability to print and install from 150 key cities are clearly differentiating our services from our competition. With the growing need for digital document access, many of our customers have increased their need for document scanning.

During the last quarter, we introduced simplified pricing and a service to make it easy for customers to think about it. Our scan by box program is designed for small and medium-sized businesses to make use of 150 scanning production centers to digitize their documents with a simplified offering and a pricing model that highlights its value for smaller projects. Our ability to support quick and easy scans will help us to be well recognized as valuable partners when customers have larger projects.

While we continue to improve the company, it has been a refreshing experience to drive a higher level of customer experience at our service centers. Our teams are motivated by the positive online reviews we received daily. While there are many digital print competitors in the market, we believe that our ability to provide memorable and frictionless services are key to our growth. We are thankful to our customers for their continued trust in ARC.

As we move into the fourth quarter, we will continue to transform our company and become the best digital print and document imaging company in the market today. Our customers are getting busy and promoting their products and services for the season. We also see a steady increase in back to office employees. These positive trends will help us grow and consolidate our position in every market we serve.

At this point, I'll turn the call over to Jorge for a financial review of the quarter. Jorge?

Thank you, Dilo. Sales growth continues to characterize ARC's progress, along with the sustainable leverage new sales deliver on our new cost structure. The best demonstration of that is our sequential and year-over-year sales growth for the past 2 quarters.

We delivered $23.8 million in gross profit, a nearly 33% gross margin and quarterly earnings per share that were not only higher year-over-year by [10], but also $0.01 higher than in the second quarter. We were also able to build on our second quarter performance in EBITDA and cash flow from operations, both improved in the third quarter.

At $11.5 million, we comfortably exceeded our early expectations for EBITDA while delivering almost the same amount, $11.3 million, in cash flow from operations. The strength of our current and expected future cash generation easily supported our commitment to returning shareholder value, as Suri mentioned.

During the third quarter, we spent a combined $1.4 million on share repurchases in the open market and on dividends. Aggressive inventory management remained a high priority throughout the quarter, not just in materials and supplies, but also in the way we optimize and redeploy other utilized printing equipment in our service centers or at our customers' location.

As we mentioned in our investor presentation this year, actions like these are helping us advance towards our target of $2 million to $4 million in combined equipment [needs] and cash additions per quarter or about half of the capital expenditure levels prior to the pandemic. While each one of these measures has its own story, when taken together, we have a company committed to returning shareholder value, growth potential with the diversification of its addressable market and optimized cost structure, strong cash flows but low cash (inaudible), a solid capital structure and a sustainable and resilient long-term business model. All of this is becoming clearer with time, and that's why we remain optimistic about the fourth quarter, midyear and the future of the company.

With that, I'll turn the call back to Suri. Suri?

Thank you, Jorge. Operator, we are now available for our listeners question.

(Operator Instructions)

Operator, I think we're fine. We don't have any questions in the queue. So with that, I want to thank everyone for their attention this evening and their continued interest in ARC Document Solutions. Thank you, and have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.