Q2 2021 ARC Document Solutions Inc Earnings Call
Total revenue.
[music].
Yes.
Good day, and thank you for standing by local to the Q2.2021 earnings report on this.
Final part the spots are in a listen only mode.
After the Speakers' Brexit day him the little Big question and answer the attention so I'll take questions during the <unk>.
You will need to press the star 1 on your catapult EBIT guar and per day of assistance. Please press Star Zero I would now like to hand, the cockpit, Alberta as speaker of today.
The acne VP corporate communications and Investor Relations. Please go ahead.
Thank you Jerome and welcome everyone on the call with me today are serious area of Kumar, our CEO, our chief operating officer dealer with dish area and George <unk>, Our Chief Financial Officer, Our second quarter results for 2021 were publicized earlier today in a press release the press release.
And out of the company materials are available from our Investor Relations pages on arc document solutions website at IR Dot E cash AARC dot com.
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.
The disclosures are largely historical and will not be read on today's call.
Please note that today's call will contain forward looking statements the 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 3.2021, and actual results may differ materially as a result.
The risks and uncertainties that we highlight in our quarterly and annual of 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 now.
Now I'll turn the call over to our chairman President and CEO Suri Syriac Omar sorry, Thank you David and welcome everyone on.
Sales were up.
Every segment for the second quarter, producing a 7% increase in net sales for the same period last year.
On the strength of the increase in sales. We also posted improvements in gross margin EPS and adjusted EBITDA.
This performance.
As we anticipated a continuation of the trend we saw on developing back in March.
With what appears to be the worst of of the pandemic behind us.
Economic activity picked up and so the demand for all the services.
When we can certainly attribute some of the taxes to employee circumstances.
More specifically businesses the opening the office of the game for the employees.
Our focus on diversifying our market as the accounted for the majority of on EBIT.
Meanwhile, the economic reopening of across North America has brought new vitality to our existing customers in the market.
While construction is currently with some constraints regarding labor and the cost of materials plans to move forward have not slowed down.
As the case in point the AI.
He is architectural billing index recently BD in the consecutive.
Consecutive months of positive coal not seen since before the great sufficient and other service and indeed.
From treated patients expressing similar optimism.
Looking forward for the rest of the year, we anticipate continuing opportunities from customers both of insight.
And outside of the construction vertical supported by a growing economy.
Our challenge will be to accelerate the progress we have made in targeting new customers.
Marketing to their needs and converting a higher volume of proposals and CT.
In the fifth.
Of note, we don't believe that normal seasonal trends.
The play.
As the lodge at all as they have in the past year.
Body major setback in the fight against COVID-19, we think the economic and business optimism being extra may will override the typical desire for slowdown we'd be approach of the holidays.
The push to make up lost ground is strong and the expected to stay that way.
And benefit from it.
In the quarters ahead.
As you would expect our strong performance also support of our commitment to shareholder value.
Turn to the shareholder value of primarily while quarterly dividend program as well as opportunistic stock repurchases.
Just last week, we announced our dividend of 2021.
Shareholders will receive <unk> per share on November 30th.
With this broad sketch of the quarter as the basis for the discussion I'll now turn the call over to D. Low to provide for the detail Neil. Thank you story after a slow start for the year I am pleased to share with you of that of accelerated activity throughout the period do of our top of.
Line by 11, 5% from quarter, 1 to call the tool.
We also delivered more than $11 million in adjusted EBITDA for Q2.
Well above the flow of $10 million per key.
<unk> set for ourselves.
We explore the new market Hunter of new customers, 1 new sales and produce outstanding work.
Environmental graphics specially the color printing for retail entertainment and education and scanning services all continued to grow in response to our targeted digital marketing initiative.
While there was plenty of the increased activity in the U S. During the quarter, Canada, and the UK did not contribute much due to strict COVID-19 related losses.
But as we speak these regions are opening up and we hope to see improved sales from them in the months ahead.
Sales for the construction of non construction customers continue to growth.
Thanks to the expansion of the services.
I believe the sales more than just construction planned printing for general contractors engineers and architects is helping us to capture a larger share of their wallet at a time when construction backlogs are healthy and industry optimism is high.
As we discussed in the prior call, but our 65% of from a new customer acquisition is coming from non AUC customer of.
The marketing team has been focused on the segment with E marketing and social media campaign exporting our digital print and document services to many new customer vertical.
Digital print opportunities the continued to growth in these new customer verticals as employees return to work in an office.
For those customers looking to consolidate the offices, we see a tremendous opportunity to grow our scanning business by digitizing their paper documents.
To date of our aim of operations are busy and the expanding on the scan centers to accommodate the increased demand.
Thanks to more efficiency and a better cost structure. Our sales force is smaller than it was prior to the pandemic.
We have learned how to attract more customers to us and develop new and profitable relationships without adding head count of light.
We don't expect to spend more on our infrastructure to support increased demand.
As we demonstrated this quarter in addition to growing sales on increasing opportunity of our management team improved our margins by managing our materials labor inventory and infrastructure costs more efficiently.
Another benefit of increasing of the efficiency has been the smooth operation of the.
Supply chain.
We have excellent relationships with our suppliers and flexible inventory management practices to help us.
The material shortages.
At this time, we don't expect supply chain for inflation issue to have any impact on our results in the coming quarters.
As soon as said previously we have emerged as a different company. After the pandemic, we will continue to deliver good value to our customers can operate as an efficient technology, driven print and document solutions company.
At this time I will hand over the call the George for the financials of the judge.
As we expected impressive sales growth combined with the permanent changes we made in our cost structure for prior to and during the pandemic drove a year over year increase of 130 basis points and our gross margin for the quarter.
The $4.5 million revenue increase delivered $22.8 million and gross profit.
The $2.3 million compared to the same period of 2020 of.
The $4 million compared to the first quarter of 2021.
As I noted in today's press release, we believe the leverage our cost structure of desserts on our sales is both sustainable and will provide consistent benefits in the future, especially considering that the second quarter did not benefit from the temporary wage and other cost reductions we made last year the.
The efficiency of our cost structure, coupled with our sales growth powered an increase of an EPS of <unk> <unk> for double what it was the last year and an increase in adjusted EBITDA of 400000.
We saw a bigger impact on EPS this quarter, thanks to significant reductions in interest primarily due to lower debt and the drop in LIBOR.
At the end of the second quarter, our net debt to adjusted EBITDA leverage ratio was 7.4 and the capital structure was further strengthened by the refinancing deal we announced in April.
Cash flow from operations in the second quarter were free from the more aggressive measures. We took last year to manage working capital at the height of the pandemic instead of cash flows of our normalized for the period and they reflect the usual cyclical build we see on the first half of the year.
For our typical cycle, we expect cash to continue to build in the second half of the year.
As Suri mentioned, we announced our fourth dividend for the year last week when paid in November we will have returned $3 million to our shareholders via the program in 2021.
Since the beginning of the current stock repurchase plan, we have repurchased over 4 million shares of stock with 400000 purchase of 2021.
Arc is at a point, where there is great potential for sales growth from dynamic new color market.
The momentum in construction work.
On employees returning to offices.
With our optimized cost structure, we will continue to add leverage to every new dollar of sales and drive bottom line performance.
And generate the strong cash flows our investors have come to expect.
The business model is proving to be both sound and resilient our capital needs are low and we continue to return value to our shareholders if the.
Good place for the company the be halfway through the year and an even better 1 for our investors with that.
I will turn the call back to service sorry.
Thank you George operator, we are now ready and available for any business.
<unk>.
And can you ask the reminder, question you will need the print.
On 1 on your telephone again, you need the bond 1 on your telephone.
On your question.
Okay.
Your first question comes from the line Alex Harman.
I mean, the big lump in Bernstein. Your line is now open.
Thank you. So my question basically is the capital allocation question. I mean, you guys have about $50 million of cash on your balance sheet has been the pretty steady for the last couple of years I guess I'm, just wondering why you're not getting more aggressive with the buyback I mean, youre basically anybody by the share of stock today, I mean, theyre getting the dollar $1 market value of cash on the balance sheet.
And then you're basically getting $1 for the business in a business that basically generate from a buck a year. So I mean, why not get more aggressive I mean, I think there is the acquisition out there.
On similar.
Results I mean, you would probably be looking to buy them out and pretty quickly.
Just your thoughts on that day.
The article related.
Sure.
When we look at our.
Stock repurchases, we've been pretty aggressive as much as we combine the open market, obviously youre aware of our flow.
The guidelines of what.
We are allowed to buy to.
To the extent that opportunities present themselves that we could accelerate the repurchase.
Definitely willing to do it.
Have you guys looked at maybe doing a tender offer or something like that.
That is something we had looked at at this stage in time and as you well know when you do a tender offer you would have to be looking of purchase somewhere upwards of 10% to 20% of the company company's stock back at this current state we're coming out of the pandemic, where we're still on the middle of the pandemic. We don't think that's the prudent thing to do for the company.
It seems like you guys got a lot of cushion built in and stuff like that so it might be something that gets there again, especially now that we're further along but.
That's it.
Michael Thank.
Thank you Greg.
Thank you.
Thank you again in Q1 sort of asked the question the bottom line on that kind.
Upon your net.
The question comes from the line of Alan Weber from both the advisors. Your line is now open.
Good afternoon, how are you.
Good very good day.
Just a quick question can you gain for can you talk about what the revenue is off from Covid.
Sorry.
I understand the question.
Yes, Paolo you don't want the revenues are.
And the compared over last year and sequentially in line Grant.
We don't typically break the color revenue out because part of the CDM I am total, but does any of the colleagues about almost 50%.
The way, we look at it see the items roughly 50% of CDI in the past it was probably closer to 30% to 40% right now we're about 40% to 50% of the CRM. So we definitely do see traction on the on the color sales there, but I still on mentioned, we don't disclose it.
Separately, because the way we look at the company is how much revenue how much for any could we drive to a service center black and white via color. So we look at it from a total perspective, how much revenue, we could drive to that service center.
Alright, Okay that was my only question. Thank you very much.
Alright Keith.
Thank you dawn of further questions of this time turning over back to you David.
Thanks, Jerome and thanks to everyone for your attention and your participation. This afternoon. We appreciate your continued interest in the company and we look forward to talking with you again soon take care and have a good evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Good day.
Okay.
Okay.
Okay.
Sure.
Yes.
Sure.
The market.
Sure.
Yes.
Sure.
Yes.
[music] growth.
Okay.
Okay.
Sure.
Okay.
Yes.
Net.
[music].
Okay.
On that.
Your line.
The.
Okay.
Good day.
Yes.
[music].
Okay.
Okay.
Yes.
Okay.
Hi.
Your line.
The engine.
The year.
Sure.
Good day.
Net.
Yes.
Okay.
The decrease.
True.
Okay.
Thank you.
No.
Okay.
Yes.
Okay.
Okay.
Okay.
Yeah.
Thank you.
Sure.
Sure.
Net.
Okay.
Sure.
[music].
Yes.
And the.
The.
Okay.
Sure.
Yes.
Yes.
Right.
Okay.
Sure.
Thank you.
And the scale.
Great.
Great.
Sure.
Okay.
True.
Okay.
[music].
Good day.
Yes.
Yes.
[music], Inc.
Okay.
Okay.
Yes.
Sure.
1 of them.
And the trends.
Yeah.
Thanks.
Good morning.
Hum.
Of course.
Okay.
Your line.
Okay.
Thank you.
Okay.
Okay.
The.
Okay.
Yes.
And the timing.
Great.
Net.
Okay.
The net.
Okay.
Net.
Okay.