Q4 2020 ARC Document Solutions Inc Earnings Call

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Thank you for standing by and welcome to our Q4 and fiscal year end earnings report.

At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Require any further assistance please press star zero.

I'd now like to hand, the conference over to your Speaker today, David Stickney, Vice President of Corporation Communications and Investor Relations. Please go ahead.

Thank you Celine and welcome everyone on the call with me today are Suri Siri Akamai, our CEO, our chief operating officer, Deload, which Syria, and George envelope, So our chief financial Officer, our fourth quarter and fiscal year end results for 2020 were published earlier today in a press release the press release on the other company materials or.

Available from our Investor Relations pages on arc document solutions website at IR Dot E Dash AARC dotcom and.

In todays 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. Please.

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 23rd 2021, and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly.

An 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 on.

I'll now turn the call over to our CEO Suri Siri Akamai Sir thank.

Thank you David and good afternoon everybody.

Our business and financial performance in 2020 outperformed expectations across the board.

Despite the sales drop off more than $90 million caused by the pandemic, we aligned our cost structure with a new revenue model opened up new markets for all services produced strong earnings and generated cash.

Unprecedented level.

After a pause in the middle of the year, we recommenced our dividend program in order to return value directly to our shareholders and we all sort of assumed share repurchases less than two months later.

At least our quarterly dividend by 100%.

Its an enviable position considering the economic impact of COVID-19 on businesses around the world.

Okay.

When we reconfigured this business in the third quarter of 2019. The plan was to create a company that was smaller but held more potential for the future.

We thought the changes we made was significant far reaching and impact.

Literally the realized weighted us in 2020.

The precipitous decline in revenues due to the effects of the pandemic comparator is too big you wouldn't deeper into this strategy to become more adaptable to the environment and the customers' needs.

We incorporated more technology into our marketing efforts to address an audience more in tune with social media.

The best shopping and online purchasing allowing us to showcase the extraordinary work our colleagues, but produce for retail hospitality technology and education.

We have non service scanning operations.

The real engine for online document axis to create capacity and credibility for a wide variety of document types.

In addition, using our knowledge and experience in managing print infrastructure for multinational engineering companies, we were able to win contracts for other multibillion dollar entities, such as utility companies and other large public entities.

In short during the last 18 months, our organization has encountered unprecedented challenges not only because of the secular changes that impacted our legacy print business.

But also the extraordinary twist and turns brought about by the pandemic.

More often than not such conditions result in the demise of a company.

We not only survive this catastrophe, but emerged stronger out of the crisis as evidenced by other numbers.

From a financial perspective, we were able to match our 2019 annual earnings per share.

Increase in your cash flow from operations over last year.

Hold more cash on the balance sheet than in any previous year prior to the recession.

And deliver nearly $45 million in adjusted EBITDA.

In 2021 moving.

We'll be conducting business much along the same lines.

Most of our new business in 2020 came from non construction oriented customer and we expect that trend to continue.

These new sales aren't likely to rival existing sales.

Architects engineers and construction companies in the near term, but the plan is to shift more he could do on balance in the future.

The lack of office activity is the biggest obstacle for Amy.

I'll follow on site services.

But many of our customers are already planning to bring employees back into the offices.

As they do so we expect our sales team through with them.

We are proud of what we had accomplished through these incredibly trying period.

We are also excited to see how the new year will play out.

The continuing pandemic and the recent weather.

We will undoubtedly provide a rocky start, but we remain very confident in our strategic vision for the company.

With that in mind I'm going to ask Nino to provide some operational details for your concentration dealer.

Thank you Suri.

Thanks to all the sales at divisional management teams.

Well to navigate the fourth quarter with.

As already pointed out the pandemic has been throwing different challenges that throughout the year and we have skilled fully responded to them.

Our primary focus has been to listen and work with customers that support day immediately.

<unk> is a diversified customer portfolio and it has allowed us to pursue the jobs on projects of those customers who are staying busy throughout the pandemic.

They do catch on sector continues to order distancing and other signage trauma and other comprehensive ability to design and install has won several new projects.

The construction vertical continues to use our sop plane plan printing tanks to a wide variety of distribution services supported by our 150 plus service Center network.

It does help our customers to seamlessly work from home and still get printing done and delivered from the nearest arc print center.

Many of other customers from different industries are focused on getting debt paper documents converted to a digital platform.

These customers require the reduction of the office space currently taken up by paper documents or they need to in the hands document workflows for employees, who work from home or other remote locations.

In addition to our 20 specialized us can centers, we have added capacity and capabilities to all other print centers to capture the new scanning needs of other customers.

Large color projects also continue to keep us busy as signage merchandising and environmental graphics must do more to communicate in a more socially distance world.

To date, we have yet to see much life in other M. P S and equipment sales as customers are.

The only partially working in their offices or working from home exclusively.

As both a b as in equipment sales are driven by office activity. These segments of our businesses are being affected more than others.

Towards the latter part of 2000 Twenty's fourth quarter, we started to experience the effects of a tight day economic Lockdown in California, New York City, Canada and in the UK.

These lockdowns are continuing into 2021 and are providing a slow start in the new wheel has already mentioned the impact of recent weather disruptions, we likely aggravated the situation.

But as the vaccination program is rolled out throughout the country and economy activity returns to more normal levels.

Anticipate greater demand for all other services.

Our customers have indicated that they are planning for the return of desktop in stages, beginning in the second quarter and proceeding incremental.

If all goes well we are confident in our ability to capture new market share and continue to support our customers new workflows.

He controls we put in place during the pandemic are continuing to be of value in keeping the company healthy. These controls helped arc to deliver strong performance in 2020.

They've all been around.

Keeping our customers on staff safe.

Delivering exceptional customer service.

Listening to customers that are supporting that new document requirements.

Moving on to operating margin.

Tight management of inventory and Tom to cash collections.

As we enter 2021, we are certain that the pandemic will continue to through obstacles in other parts.

As a management team. However, we have the experience and the adaptability to overcome that.

He will leverage the solid plans, we have already put in place rely on our broad and deep portfolio of services.

The business has been necessary and continue to keep the company safe as we grow our market share with that I'll hand over to George for our financial update George.

Thank you Jill them over the past two quarters, we've offered numerous examples of the customer needs we've met.

And the opportunities we discovered during the pandemic while much of this experience was new to US we were ready.

<unk> favors the prepared as the saying goes.

When we started the year, we were ready to operate a smaller company. This.

The stage has been set for a more focused sales effort in 2020, and the shedding of service line that would no longer relevant to our existing customers.

The emphasis on moving more of our marketing efforts towards customers outside of the construction market was well timed and coupled with being considered an essential service.

We were able to maintain business continuity and continue to serve our communities at the same time.

Well the pandemic ultimately shrank 2020 revenue more than we could ever imagine.

Reconfiguring, the business and reducing expenses had been baked into our plans from the beginning we simply had to do more of it.

The results of our efforts were that our gross margins, we're comfortably above 30% every quarter during 2020.

We took the same approach with SG&A.

Resulting in a 26% year over year reduction in expenses, the strength of which benefited earnings and cash flows throughout the year.

EBITDA was more than $10 million in each period, including the fourth quarter. The historically weakest quarter in our historically pressured year EBITDA margin for the year was 15, 5% a 260 basis point increase from prior year.

Cash flow from operations surpassed $50 million and actually grew year over year by more than $1.5 million.

Our 2020 cash flows were not only aided by our sustained profitability during the pandemic.

But also from an over $10 million improvement in working capital driven by strong Air collection, a reduction in inventory and deferment afforded to us under the cares Act.

The ultimate strength of our performance had a dramatic impact on our capital structure.

If you consider the cash on our balance sheet of more than $50 million on.

Our lower debt levels.

And the reduction of our leverage ratio to one three times net of U S cash or capital structure today is considerably stronger than it was prior to the pandemic.

Our confidence in the future is also higher as demonstrated by the recently announced increase in our quarterly dividend.

As I mentioned during our last call our invest faster should recognize that we are working from a position of strength and we are keeping our commitment to returning shareholder value at the top of our minds.

With that as a summary, I'll now turn the call back to Suri sorry. Thank.

Thank you George on.

Operator.

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Two.

For all the questions.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Yeah.

Okay.

And we have no questions at this time.

We have a question just came in coming from the line of Jeffrey Scott with Wells Fargo Bank. Your line is open.

Hi, Thank you and thank you for this update very helpful.

I guess the question that I have is.

You guys look forward into 2021.

At the top line the revenue, which obviously is down in 2020 versus 2019.

As you are.

Describe.

Where do you see that top line.

Going in 2021 do you believe that the top line has stabilized at this point or are you anticipating further decline for which you will then have to do.

Just your cost structure further.

So for the 2020 top line, we now see debt as the best top line that is something that we talked about in the last quarter as we have re engineered and reconfigured our company to a new baseline and business fall off.

This has been happening for a while we have had previously.

The impact because of the secular changes to our traditional on legacy print business. So this has been ongoing what the pandemic day. It is.

Just compelled us to re look at this and really come up with a new baseline in 2020 based on all the conditions, we experienced so thats, where we are in 2020. So we are not thinking about what happened in two eight to 2019, we're starting off with what happened.

In 2020, that's our new cost and operational structure, we have from there onwards.

The simple answer to that is obviously the operated under some extraordinary conditions in 2020 during the pandemic. It was very difficult and very hard we all agreed 'twenty 'twenty, one is going to be better because of vaccinations out 18, Scott coming back to normal.

Generally conditions are improving and days a lot of forecast in offices opening up back schools opening up back which means activity will be higher and the IV it'll be a return of some amount of legacy business compared to 2020. So between we expect 'twenty one 'twenty two.

We want to be better.

Celine if we don't have a response you can check the queue for further questions.

Again in order to ask a question simply press Star then the number one on your telephone keypad.

So lean at this point it doesn't look like we have further question. So we can go ahead and end the call.

Everyone for listening. This evening, we appreciate your attention and your continued interest in arc document solutions. We look forward to talking with you again next time take care Bye bye.

This concludes today's conference call you may now disconnect.

Okay.

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