Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Arc document solutions fourth quarter and full year 2019 earnings report conference call.
At this time all participants are in to listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you acquire any further assistance. Please press star zero I'd now like to hand, the conference over to your speaker today.
David Stickney, Vice President Investor Relations. Thank you. Please go ahead Sir.
Thank you can't tell and welcome everyone on the call with me today, our Suri Suriyakumar, Chairman, President and CEO and Georgopoulos, our Chief Financial Officer.
Our chief operating officer deal or would you serious traveling today and won't be joining us.
Our fourth quarter and full year results for 2019 or publicized earlier today in a press release. The press released another company materials are available from our Investor Relations pages on arc document solutions website, <unk> IR Dot E. dash KR Si dot 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 other than the overview will not be read on today's call.
Instead, we will offer brief introductory remarks about the previous period in our expectations for 2020 before turning to the question and answer period.
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 February 25th 2020, and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly and annual FCC filings.
This call will also contain references to certain non-GAAP measures, which are reconciled in today's press release ended our form 8-K filing.
Now I'll turn the call over to our chairman President and CEO Suri Suriyakumar sorry.
Thank you David Good afternoon, everyone and thanks for joining us.
As you stated I mean, I would personally 2019 Cellini just do we come to go a product and service portfolios to adapt to the transforming mark.
We accomplished that successfully unconvicted, our cash flow from operations, which remain steady stores, all strength and stability for the company.
Sales declined moderately in the U.S., but were adversely affected by the performance so far a coupon that supplies business in China.
[music] sensing does give you shouldn't girls early in the year, but fairly dramatically late in the accounting for more than half of the decline in our water all revenue for the fourth quarter and more than a hurdle poll ward all revenue decline for the year.
With regard to margins they affects all four aggressive restructuring.
Right.
During the third quarter had a significant positive impact in the second half of the year.
We also met our forecast where you'd be S and EBITDA and I'm pleased to report that to be exceeded our forecast for cash flow from operations.
Looking forward to 2020, we will maintain the same focus we established in 2019.
We will continue to focus on protecting cash flows and profitability.
Do you use waterfall excess cash to be good shareholder value through dividend and share repurchases.
And then we will be less aggressive being down what he's very manageable debt level.
[music] from a sales standpoint, why no easy segment continues to be the quarter fall business.
We're expanding our reach into all but you need easy novel non traditional print offerings in cala promotional and environment to graphics.
Our teams are highly focused on promoting our expertise in these areas two large organizations and franchises and have called impressive account wins in the back half of 2019.
We also expect additional wins self large MPS customers, while global services unit.
We spent the majority of the 2019 marketing our enterprise MPS. So he says do adjacent markets and I'm pleased with the progress we have made.
Aim while small is also continuing to demonstrate robust growth.
And that's potential to make the material contribution into any great.
[music], we anticipate the coupon then supply sales in China to remain soft.
If for no. Other reason then the difficult economic conditions, the country's experiencing and the reason disruptions caused by the Colby 19.
Should be nor did that old business has not been affected by the cool we 19 widest due date.
As noted in our third quarter call. It is important to keep in mind that old business is not suffering from a loss of customers.
And that golf relevant services all company do precious.
We have what our clients want and need.
But they are simply not using our traditional services as much as they have in the boss.
As a whole market changes, we will continue to change really optimizing the business to produce solid cash flows and he'll be margins as we already is done.
Today, we released our annual forecast for 2020, I need reflects the opportunities and the challenges I have outlined here as well as a few special circumstances that I, let George Carlin briefly in his remarks before turning to anyway.
George Thank you sorry as noted in the third quarter, we went three restructuring exercise I need a $10 million an annual savings.
We realized approximately $3.5 million those savings in 2019, and the remaining 6.5 million will be realized in 2020.
We will lap the cost reductions in August of this year.
Our strong cash flows from operations, where assisted by these cost savings measures, but our performance was driven primarily from aggressive inventory management.
Improved air collection.
As well as other changes in working capital.
Our cash flow performance also supported our decision to convert 100% of our long term bank debt Tory revolving facility and the fourth quarter as previously disclosed and provided the structure to create our new dividend program.
Our most recent quarterly dividend announcement was made two weeks ago on February 14th.
Before we move to Q in age I'd like to reiterate the circumstances outlining our outlined in our press release regarding our forecast for 2020 cash flow from operation.
As our pay period is biweekly.
This year, we will have an additional pay period caused by the ideal timing differences in payroll, including leap year.
This catch up payroll period affects arc every 11 years and we'll have an approximately 4.5 million dollar negative impact to cash flow from operations in 2020, but no impact to net income.
At this point I'll turn the call back to sorry, sorry.
Thank you George operate at this time be available to take all listeners questions if that 80.
As a reminder to ask a question you press star one on your telephone to withdraw your question press, the pound or how should keep.
Please standby will be compiled that given a roster.
Again, if you would like to ask a question of press Star one on your telephone. Your first question comes from Brad Safalow with P.A. Research. Your line is open.
Hey, guys. Thanks for taking my questions.
Sure no worry.
Just make sure I have this actually on the payroll side, you said, it's a four and a half million dollar.
Our will be a foreigner front have really no negative impact on cash from ops for the year for the extra payroll.
Correct, because we'll be doing 27 payroll payments in 2020 versus 26, which is typical and it's all due to that leap year never 11 years, when you're on biweekly payroll it happens.
Okay. So ex that you guys.
I would expect cash flow from UBS to be.
Roughly.
Consistent with 2019.
Correct exactly yes, okay.
And then just going through this figure this out from what you had in the balance sheet.
The bank debt outstanding right now under the revolver is at around $60 million.
That's correct, it's exactly $60 million and it's all revolver. So no required principal payments next year.
Okay and then.
I think it down in the last quarter, you had 46 and a half million or so a capital leases is that number still the same.
Yeah, that's right around there.
Okay.
So if I start to pencil out next year in terms of cash from ops.
Do you have you guided to stick the midpoint of that what what kind of Capex do you expect for 2020.
A you know I think will be a little lower than we were 1919 were around 14 million I think we'll be in that 10 to 12 million.
Okay.
And then you have I think you last Q. It said that you had about 18 million in required capital lease payments is that right.
Yeah, I'm wondering about 18 million 18, and half million instead of about 4.6 million per quarter.
Okay and then.
I guess based on what your share count is now your dividend on cost yeah.
Is it a million and a half $2 million for the year.
1.6 million about 400000 per quarter.
Okay.
If I do that the basic math, there you're talking about.
15 to 17 million of let's just say distributable cash flow.
For share buybacks and or debt repayment, you said that you were not be as aggressive paying down debt.
Help me understand what the how you're thinking about the balance between the two.
Oh, you know is weak and we think about the balance obviously with the the dividend is a dividend right. So you know that's 1.6 million. That's what we already announced obviously on a quarterly basis in regards to share repurchase I'm, we're going to purchase them in the open market and we're going to be opportunistic I mean, if the price is right abhi.
So we have the money there are certain restrictions when you're buying in the open market, but it is an opportune for a big block trade at a good pricing then we'll do it once we exhaust our resources on dividend and share repurchase then what kind of take a look and say okay. How much money do have less left over to you know reduce our into.
Just a little bit and pay down some debt so it'll be a bit a moving target 31 after that yeah. So, but I mean again, we wanted to be opportunistic here, what you're seeing is obviously, we want to played save into himself.
Planning for that we don't want to cut it too fine not knowing what the yogurt or because of the transformation, but like you said, we're super confident we'll make the changes required like we did in 2019 and be able to begin with that seem to have enough cash, but we want to be we are mindful of the fact that.
Do they say shifting economy, if something changes, we wanted to having enough margins, there and youve, if nothing changes and things like exactly like that doesn't I didn't mean, a great players and then we'll be happy to make this is Jim what it would do chembio to make but like George said, if you get a great chance to buy a block of shares.
Yes at had a good price, we'll do that too. So we want to keep all options open that's the short answer and if history gives any indication you know we spent about a million dollars and share repurchase in both the third and fourth quarter you add the dividend payment of call. It 400000 about 1.5 million.
At that run rate, you're about $6 million for the year. So then that gives you another $10 million or think about they do more share repurchase maybe pay back a little bit of the debt as well too.
Hopefully that's helpful. I'll give you a little color to your question Yeah, just thinking of it if you're in the open market based on liquidity your stock I don't know how many restricted days you have a quarter, but let's say 25 50, I think the Max you couldn't repurchase is about a million shares in the quarter.
Based on trading restrictions, obviously that 700000 in the fourth quarter.
Right I guess, what I don't understand what the stock where it is like why you're not considering something more aggressive like a tender for stock or is that something you will consider over the course of the year, depending on how things shake out.
Yeah, depending on how cashes going I mean, if indeed be found that you know days a reasonably chains that he can do that and it's not going to any we do you know offset the balance in terms of whatever capital structure is suddenly with looking at right. Obviously, that's like I said, you know keeping the options open to.
Oh, we proceedings.
If the year is looking good things going well you know don't forget it's an election year. So we are mindful of that to you never know what what these things turned out to be but if they entered into a good and be a lot of extra cash I think that we can come up with our the options to use that cash given the stock price we eightys. These movies.
And for us to buy as much dark as possible.
And you know we don't have an obligation to pay the money to the bank and that's why we have shifted our focus to saying we're focused on shareholder done. So that's definitely won't be thinking about yeah. It also don't forget and you. Obviously you know the rules in regards to the restriction w. because of what you could purchase on the open market, but you could also do a block trade.
If that's all you do that one day that could be half a million that could be a million dollars. So there are opportunities to get a little bit more aggressive even with the current structure, we haven't actually been looking for stuff like that but we do know people would show up on the radar screen for block trades every now and then we have not been encouraging that but maybe maybe we'll take a different path.
With that when people who onto.
You don't think of body differently also I also feel we've we've already announced one Brad we are going well moving into this dividend space I think there'll be some shifting our shareholder base because they're different types of shoulder to the already seeing evidence of that different type of people are getting into the star todays.
A little bit of movement in the market as well so you'll see I mean it goes.
But in just two I remember you you sorry go ahead, sorry, good alright, good I know you the cap on share repurchases for the year under the new credit agreement is $10 million.
That is we have $10 million that we could use for either dividends or share buyback that do not impact our for natural that shows covenant covenants.
Okay quite well come back.
Yeah, and and remind me again, where the the new leverage Covenant is set for you guys. It's and that's really leverage target for us is that 2.75.
Well under were about 1.9, I believe 1.8, so yeah, we have tons of cushion there who pay that ever in a good place.
Okay, well at least I would put myself in a camp that as we get through.
Summer and you're coming close to where are your cash flow is I mean, I think you need to signal more the market that you really actually want to drive shareholder value by purchasing more stock through a Dutch tender or something that can be.
Farmer meaningful then yeah buying 20000 shares a day 40 day, yes in a quarter.
I agree I agree I mean that certainly that we can look at we just have to push those strategies to the board, which I think we can do yeah, I mean, but it is especially if you have they sort of cash in the near term focus is just keep delivering the strong cash flows focus on the core business.
Okay, and just on the core side.
You mentioned facilities management revenue streams and the aim mine what's the split between lets just say project oriented archiving work and the let's say more recurring FM piece at this point.
[noise] <unk> you know I bought idea I mean, we have numbers out there. It's a we haven't broken out the facilities.
<unk> expenses in or plan to do do that no I mean, they are growing our they figure I forgot to our overall sales consider were 400 million not quite there I will tell you that our growth. The name we grew over year a million that that was definitely driven from the new facility solution, we are getting traction getting.
New customers, some nice big logos and I can't say this call, but yes. The thing is bad there.
The challenge, we have which you know because you know the quite business quite values because all the traditional print related business is eroding Jayson I think we don't go be grow but unfortunately, none other growth shows up because the like yeah. Let go for a drop in print volumes is the one which gets affected but we certainly think that.
Those things will continue to be good.
It's just that is isn't showing the numbers that we should show because of the fact that a speed ocean has been there and hopefully the ocean one continue to be down at the market remains strong.
Ill like 2018, we could have another good year easy.
Okay, and then just in terms of a macro framework.
Through which you said this guidance.
What kind of non res environment have you assumed is it.
Low single digit growth mid single digit growth.
Flattish high single digit growth.
In terms of construction I thought I would say I would say all all of the above I mean, obviously you you seen what we did with our Q3 restructuring and one of the things. We always prided ourselves is that we're going to optimize our cost structure to optimize the sales that we can get so if we're seeing sales growth no one 2% great.
You know that really drives a lot to the bottom line. If we see a come down a couple of percentages them you know what do the need for on the cost structure to protect our cash flows in our EBITDA.
And that's that's what we're saying it's a similar year to last year can we grow a couple of percent yeah. I mean, I think that's in there and the realm of possible. We're lucky now the possible to stay flat or drop a couple of points, yeah that could happen as well so anything that today no I think that's pretty much. The same obviously, we would like to grow that bought that's one part we.
I think we can grow a damn more up.
They are more project oriented that they're not account oriented you know these large color jobs I did they just coming John's you get a project and and bad debt for their finishes and year to get another project that doesn't mean that we can continue to attack that space, but that's what we're doing right now and we've been getting some good.
Brand names, we just have to continue to push that hot.
Okay.
I've asked a lot of questions I'll, let someone else I've been thank you.
Alright, Thank you Rob.
Again, if you would like to ask a question press star one on your telephone.
There are no further questions at this time I'll now turn the call back over to the presenters.
Thank you Shentel and thanks, everyone for listening. This evening. We appreciate your interest in the company and we look forward to talking with you in the next quarter take care Bye bye.
This concludes today's conference call you may now disconnect.
[music].