ARC Document Solutions(US:ARC)2019-11-07 03:59Financial Data and Key Metrics Changes - Overall sales for the quarter declined by 6.3% year-over-year, attributed to a double-digit drop in international equipment and supply sales, particularly due to a softening economy in China [16][17] - Cash flows from operations increased by $3.7 million year-over-year, primarily due to aggressive inventory management and improved accounts receivable collections [17][18] - The company maintained strong gross margins despite the sales decline, thanks to cost controls implemented prior to the third quarter [17] Business Line Data and Key Metrics Changes - The traditional service line experienced declining revenues, prompting a reexamination of operations and services offered [7][9] - The Managed Print Services (MPS) business saw new sales from clients outside the construction industry, although the construction sector remained a strong sales area [14][16] - Scan and archival services continued to attract customer interest, while equipment and supplies sales were affected by a drop in the Chinese joint venture [15] Market Data and Key Metrics Changes - The company noted a significant decline in printing services from construction and design companies, with work from homebuilders also decreasing [14] - The MPS business in the construction phase has been somewhat stagnant, but there are emerging opportunities in non-construction sectors [10][14] Company Strategy and Development Direction - The company is focusing on leveraging technology to differentiate services and sustain market share, particularly in MPS and archival services [10][12] - Strategic changes were made to align operations with sales levels, including closing two print locations in non-strategic markets [16] - The company is exploring ways to return value to shareholders, such as paying annual dividends or expanding the share repurchase program [12][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the business is not suffering from a loss of customers or competitive pressures, but rather a shift in how traditional services are utilized [8][9] - The company anticipates earnings per share for 2019 to be in the range of $0.14 to $0.18, with cash provided by operating activities expected to be between $45 million and $50 million [13] - Management remains optimistic about maintaining cash flows and protecting financial health despite the current challenges [12][41] Other Important Information - The company achieved over $10 million in annualized savings by the end of the year, which is expected to ease pressure on margins [7][12] - The effective tax rate for the year is projected to be approximately 30% due to new tax laws, with historical operating losses available to offset cash taxes [19] Q&A Session Summary Question: Can you provide examples of non-traditional channels being pursued? - The company is focusing on management services for large companies in sectors like insurance and energy, as well as exploring opportunities in retail, hospitality, and healthcare for color printing [22][24] Question: What is the projection for MPS revenue growth over the next year or two? - MPS revenues are unpredictable due to the nature of contracts and customer acquisitions, with potential for low single-digit growth in good years [25][28] Question: Why was there a limitation on stock buybacks? - The company faced restrictions on the amount of shares it could buy back based on market liquidity and trading volumes [30][32] Question: Can you elaborate on the $10 million in cost savings? - Approximately 60% of the savings come from cost of goods sold (COGS) and 40% from depreciation and amortization (D&A), with expectations for these savings to positively impact operating profits starting in 2020 [30][33] Question: What are the expectations for cash flow in 2020? - While exact predictions are difficult, the company aims to maintain cash flows at similar levels to 2019, focusing on protecting cash generation [40][41]