Q2 2022 ARC Document Solutions Inc Earnings Call

Can you hear me.

Many of the progresses did not survive.

Laden with heavy acquisition debt of nearly $360 million.

And double digit revenue erosion.

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<unk> two this year.

These were remarkable times and it was an extraordinary feat to keep the company profitable.

Generate strong cash flows and meet our debt obligations in order to maintain a healthy balance sheet.

By 2018 after 10 of the most difficult year in the company's history, we had reduced our debt by more than 65%.

$227 million.

In 2020, we were challenged again.

Pandemic threaten our very existence.

At least that's what everyone thought.

But by now our management team was exceptionally experienced in navigating through times like this.

We saw a perfect opportunity to reinvent the company.

A company with a completely different business and revenue model with lower revenues, but with greater opportunities to grow and improve profitability.

Understandably it was hard for any investor to comprehend how the company will return to a path of profitability and prosperity in this period.

The past year, and a half safety dolls.

Five straight quarters of EPS and revenue growth.

In addition, we are on track to deliver an EPS of more than 25 in.

In 2022.

We haven't seen performances like this since 2016, when our revenues will well over $400 million.

It is also noteworthy that we did not receive any economic assistance or use the American rescue plan during the height of the pandemic.

Instead, we continue to pay our debt down which currently stands at $72 million.

Net of cash in hand, our debt is a mere $27 million.

They continue to generate cash flows in the region of.

$35 million or more.

Needless to say, if we choose to we are capable of extinguishing our debt.

Even more remarkable has been our ability to ramp up shareholder returns quickly.

Confident we can extinguish the debt within a few years, we started down a path towards returning shareholder value.

This too has produced extraordinary results.

Our current dividend yield is more than 7% mean.

Meanwhile, over the past three years, we have repurchased almost 12% of the company's shares at an average price of <unk>.

62.

This outcome should put to rest any skepticism out there regarding ops performance.

Ability to continue to grow and return shareholder value.

In just a moment I'm going to handle the call to deal to describe our progress in the recent quarter.

Many of you know that Dino was recently appointed President.

A position that I had for too long.

His appointment is in addition to his role as Chief operating Officer.

But 30 year veteran at arc <unk> that is more than capable of handling this position.

Currently by leading the transformation of this company through the pandemic with amazing results.

So without further Ado I'll, let him add some color to the detail and detail to our Q2 results and the outline of some of our plans for the future data.

Thank you Suri.

Very grateful for the support salary and the board have shown me by appointing me President.

It makes the work I've done to put the building blocks in place for sustainable growth, even more meaningful to me.

Once again, we were pleased with the sales towards we achieved in the second quarter.

Revenue increased eight 4% and we continue to execute well on our pipeline of opportunities.

Digital printing increased 7% in the second quarter, driven by strong sales in digital color graphics, and signage as well as stable levels of digital planned printing.

Mds also big robust, 7% hybrid bus schedules continue to constrain print volumes in the office, but we remain confident that moderated growth will continue.

Sales from scanning and digital imaging jumped nearly 32% year over year in the second quarter or about $1 million.

Scanning remains in high demand not only to support remote working arrangements, but also to increase overall business efficiency by digitizing physical file.

Equipment and supply sales grew more than 9%.

In quarter two.

Demand continues to rise from our design construction and public agency customers.

We have a good backlog of pending machine deliveries and we are now seeing moderate improvement in the supply chain.

Throughout the period daily sales were consistently strong and we expect that strength to persist throughout the rest of the year.

Our general opt in optimism for art is well supported first general business conditions in the U S mainly.

Remained relatively strong in Q2, most of our clients projects move forward.

Delays in project cancellations of <unk> and our customers appear confident in the business plans they have for the near future.

Y level joint venture in China had a very difficult first half of the year due to COVID-19.

Canadian and UK operations bonds back in the second quarter from Lockdown that were in place earlier in the year.

Third most of our small and medium customers are fully operational and have their staff back at work and our construction customers have also been very active.

Fourth and most important to us of a hiring hall is improving.

Our people are the backbone of the company and having a fully staffed workforce not only improves productivity, but it makes every employee happier and improves our ability to delight every customer.

On the sales side, we continue to keep our head count stable.

Finally, our customers continue to help us to understand what they need what they want and what makes them happy.

There are now more than 18000 customer reviews upfront the website with an average of $4 95 stars out of five.

More than a thousand reviews were posted on Google during the second quarter as well.

On the marketing side, we continue to refine our digital marketing tools and improve our prospecting activity and customer engagement via E Mail, social media customer success resources and the website.

Among the headwinds that still challenge our market our cost increases in materials and price competition in certain local markets.

The issue is overly concerning.

Pricing increases continue to be passed onto our customers and our teams remain very efficient with regard to operating costs and managing competition.

That said it takes a lot of work and careful attention to minimize.

Inflation impact on profitability.

Looking ahead, we are refining our strategic objectives and charting a path for continued growth.

Five transformational goals will define our sales and operation strategy going forward.

They are the transformation of our revenue line, the transformation of our customer base or industry vertical.

Transformation of how we sell.

The strengthening of our service organization and reinforcing our commitment to the success of our employees.

The transformation of our revenue lines continues to build on opening new markets for the company going forward. We will continue to offer a new service categories that can provide meaningful revenue.

The transformation of our customer base is an extension of moving beyond the single market of construction.

We will continue to expand customer verticals as well as sell multiple services to the same client.

The transformation of how we sell is directly related to the virtual selling we began during the pandemic to date. These techniques are far from the rudimentary necessities started with.

We have to ensure our sales executives continue to improve their ability to identify customer needs in a virtual scenario in order to continue expanding our market.

Our customer services covered much of our success and we are determined to make it even better.

We go beyond satisfying our customers that truly delighting them. It will transform them into true advocate for arc, making them part of our marketing team.

And of course, empowering and enabling our employees to succeed in these objectives is our biggest job without it we cannot expect to accomplish much at all.

With this as an operational backdrop for the quarter I will turn the call over to George for a review of our financial George.

Thank you Dale and divert the company performed well in every sales category and we successfully managed to minimize the worst effects of inflation.

Our higher sales boosted the leverage that we can apply to our fixed cost and help produce the impressive gross margin.

Operating income and EPS, we reported today.

Our gross margin was up 110 basis points year over year.

Despite price increases on materials and supplies rising as much as 10% on certain heavily use consumables during the period.

SG&A increased in absolute dollars.

But as a percentage of revenue it was down both sequentially and year over year.

Similar to last quarter sales growth drove increased commission bonuses and travel and we continue to compete hard to acquire and retain talent in the company.

Our year over year gross margin was up nearly 200 basis points in the second quarter.

The end result of these improvements was a 27% year over year increase in net income we produced earnings per share of <unk> <unk> as compared to <unk> <unk> for Q2 of 2021.

Cash flows continue to build during the quarter coming in at $8 $6 million.

We had some timing issues around receivables and payroll that muted second quarter cash flow.

But we expect cash flow from operation to accelerate in the third and fourth quarters and meet or beat last year's annual performance.

EBITDA came in at $11 3 million, making up for a softer first quarter, putting us comfortably above our stated average of $10 million or more per quarter.

As we look at the balance sheet, we ended the quarter with $45 million in cash.

And our net debt to EBITDA ratio continues to drop currently standing at <unk> six times.

That is impressive performance considering that at the beginning of 2020, our ratio stood at one six times.

This would spread to our cash balance I.

I am very happy to announce that we were successful in unlocking cash trapped in China.

During the second quarter, we completed an $11 2 million dollar capital distributions from our Chinese joint venture.

As we are 65% owners $7 $3 million came to us and 35% or $3 9 million went to our JV partner thus.

Thus, resulting in a decrease in our consolidated cash.

Looking ahead, we think strong sales will continue.

Continue within the normal constraints of seasonal performance.

Q3 sales are historically softer than Q2 and Q4 sales are also usually softer given fewer working days in the period, even though we think quarterly sale of $70 million or more are within our reach or the balance of the year.

With sales at this level, we should continue to see year over year increases in EPS and an average EBITDA.

$10 million or more per quarter.

In closing.

I'll remind you of our continued commitment to return shareholder value.

In the second quarter, we spent $2 1 million via our quarterly <unk> dividend delivery.

Seven 6% yield based on our stock price as of June 30.

Also spent $1 million on opportunistic purchases of our stock in the open market.

While this management team has always made a point of being nimble and changing as our market evolve.

We've built a model that will create opportunities for growth well into the future.

And our commitment to a <unk> <unk> quarterly dividend is a reflection of the confidence we have in executing on these opportunities with that I will turn the call back to Suri.

Thank you George operator, we are ready for the questions.

Thank you very much ladies and gentlemen at this time, if you have any questions or comments since the press star one and again a reminder, if you find your question has been answered you can remove yourself from the queue by pressing star one a subsequent time, we will pause for just a moment.

And we will take our first question. This afternoon from Rob Shapiro. Please go ahead.

Ed.

Hi, This is Rob from singular research.

My question is on the balance sheet the line item the change.

You mentioned, the joint venture, but I would say the noncontrolling interests from $65 65 down to 2051 is that related to that I know that historically it was.

Thank you Brian for multiple quarters in a row.

Yes, and it is related to that so basically the $3 9 billion of that capital distribution that went to our JV partner.

There was a decrease in our consolidated cash and the offset was a decrease in the minority interest in our stockholders equity section the noncontrolling.

Portion, so thats, where you see that going from roughly six and some change down to $2 million.

Does that makes sense.

Yes, yes, I understand okay.

That's all I had thank you.

Thank you.

Just a quick reminder, ladies and gentlemen star one please for any questions.

And Mr. Stickney. It appears we have no further questions. This afternoon I'll turn the conference back to you.

Thanks, Paul and thanks, everyone for your participation. This afternoon and your continued interest in the company. We very much appreciate it and look forward to talking with you again in November take care and have a good night.

Thank you again that will conclude today's our Q2 2022 earnings report conference call, we'd like to thank you all for joining us and wish you a great evening Goodbye.

Okay.