American Reprographics Company (ARP)

Q2 2010 Earnings Call Transcript

August 3, 2010 5:00 pm ET

Executives

David Stickney – VP, Corporate Communications

Suri Suriyakumar – Chairman, President and CEO

Jonathan Mather – CFO

Analysts

David Manthey – Robert W. Baird

Scott Schneeberger – Oppenheimer

Andrew Steinerman – JP Morgan

Matthew Kempler – Sidoti & Co.

Brad Safalow – PAA Research

Presentation

Operator

Good afternoon. My name is Tiara, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Reprographics second quarter 2010 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Mr. David Stickney, Vice President of Corporate Communications. Mr. Stickney, you may begin your conference.

David Stickney

Thank you, Tiara; and welcome everyone to the call. On the phone with me today are Suri Suriyakumar, our Chairman, President, and Chief Executive Officer; and Jonathan Mather, our Chief Financial Officer.

Today's call will cover our operational and financial performance for the second quarter of 2010, the financial results of which were publicized earlier today in a press release. You can access the press release and the company's other releases from the Investor Relations section of American Reprographics Company's website at e-arc.com.

A taped replay of this call will be made available, beginning about an hour after its conclusion. It will be accessible for the next seven days. You can find the dial-in number for this replay in today's press release.

As usual, we are webcasting today. A replay of the webcast will be available for 90 days from today on the company's website.

This call will contain forward-looking statements that fall within the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, regarding future events and the future financial performance of the company, including the company's financial outlook.

Bear in mind that such statements are only predictions, and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks are highlighted in our quarterly and annual SEC filings. The forward-looking statements contained in this call are based on information as of today, August 3, 2010 and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements.

Finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release, and in our Form 8-K filing.

At this point I will turn the call over to our Chairman, President and CEO, Suri Suriyakumar. Suri?

Suri Suriyakumar

Thank you, David; and good afternoon, everyone. As we have stressed in our press release today, we continued to manage our business aggressively, knowing that market conditions are not likely to improve during the last half of the year. Our first quarter prediction that 2010 would test our mettle has proven accurate, but I am pleased with the way we are meeting that challenge.

Throughout the first half of the year, we have refused to be intimated by the economy. Instead, we have focused on identifying opportunities to improve our business. We are refining our management practices, and improving our cost structure by eliminating overhead and non-essential spending. We are refreshing our sales priorities and using our excess capacity to focus on color, management services, and the refinement of our new digital tools. And we remain mindful that it is now is when we can best solidify our market share, and prepare for the market expansion when the economy improves. No other company in our space has so many resources to weather these extraordinary times. We have a strong capital structure, significant cash reserves, a broad geographic footprint, a technology-enabled workflow, and a sales force that can cover the nation.

So, how are we fairing? How are we managing these unique resources? During the second quarter, we saw our revenues continue to stabilize quarter over quarter. We delivered $0.04 in earnings per share, and saw our cash generation return to more robust levels, as we left the timing issues of the first quarter behind us.

We generated $18.3 million in cash flow from operations, and have cash reserves in the bank totaling $33.7 million. And our gross margins improved from the first quarter from 32.9% to 34.3% in the second quarter. This performance leads me to reaffirm our annual forecast for EPS to be in the range of $0.15 to $0.30, and cash from operations to be in the range of $65 million to $80 million. Given my earlier commentary, we are likely to perform at the lower end of our forecast.

We continue to believe that the AEC industry will lack the recovery of the general economy by a factor of nine to 12 months. The difficulty, of late, has been determining whether the general economy has recovered in any meaningful way, and if it has, to what degree. We have yet to put a stake in the ground to stay, this is when we should start the clock for our own recovery. While we may plant that stake in late 2010, I would not be surprised if it turns out to be later in 2011. Once again, we refuse to be hamstrung by these uncertainties. We can wait, or we can act. So, we have chosen to act.

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