American Reprographics CEO Discusses Q4 2010 Results - Earnings Call Transcript

American Reprographics Company (ARC)

Q4 2010 Earnings Conference Call

February 22, 2011, 5:00 pm ET

Executives

David Stickney – VP, Corporate Communications

Suri Suriyakumar – Chairman, President and CEO

Jonathan Mather – CFO and Secretary

Analysts

David Manthey – Robert W. Baird

Andrew Steinerman – JP Morgan

Scott Schneeberger – Oppenheimer

Matthew Kempler – Sidoti

Brad Safalow – PAA Research

Michael Terwilliger – Bank of America

Operator

Good afternoon. My name is Ryan and I will be you conference operator today. At this time, I would like to welcome everyone to the American Reprographics fourth quarter 2010 earnings conference call. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. David Stickney, Vice President of Corporate Communications.

David Stickney

Thank you, Ryan, and thanks everyone for joining us today. With me today are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; and Jonathan Mather our Chief Financial Officer. The company’s release reporting financial results for the full year and fourth quarter ending December 31, 2010 was issued earlier today. We will review and expand on the information contained in the press release and then we’ll open the call to your questions. For your reference, 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 and you can access the call anytime within seven days from today. You can find dial-in information in our press release. As usual, we are webcasting our call and a replay of the webcast will also be available on our 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.

Please 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, February 22, 2011, 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. With that as a background for the call, I’ll introduce our Chairman, President and CEO, Suri Suriyakumar. Suri?

Suri Suriyakumar

Thank you, David and good afternoon everyone. Well, we have completed another tough year in this unprecedented downturn of our times. The company reported 2010 annual revenue of $441.6 million, adjusted annual earnings per share of $0.03 and annual cash flow from operations amounted to $53.9 million.

Revenue for the fourth quarter of 2010 was $105 million. We recorded a fourth quarter loss in adjusted earnings per share of $0.03, and cash from operations for the quarter was $15.9 million. While our results may not have met our expectations on all fronts, given the difficult circumstances, I’m proud of our performance. If you recall, earlier last year we expected 2010 to be a year of recovery. Although we did feel that the first half of the year was likely to be weak, we certainly expected the markets to begin to recover during the second half. Unfortunately, that was not the case.

The second half of the year turned out to be much lighter from a revenue perspective. The only consolation was the fact that the daily sales were stabilizing month-over-month. What was conspicuously absent were new projects, which are a primary driver of strong sales and healthy profit margins.

However, in spite of all the challenges in the market we have been able to accomplish our main goals. We generated strong cash flow, continued to aggressively reduce our operating cost and maintained a healthy capital structure throughout the tumultuous year. I’m glad 2010 is behind us and I’m excited and looking forward to 2011. I am by no means suggesting that 2011 will be without its challenges.

I have always maintained that considering the depth of the financial crisis we have experienced over the past several years, short-term set backs are bound to be part of any recovery. In that light, we expect this year to be bumpy, especially the first half. But at the same time, there is tremendous reason for optimism. We now have a stable capital structure that will allow us to take advantage of the opportunities ahead of us. As bad as this downturn seems, the longer it lasts the stronger our position becomes in the marketplace.

We are clearly emerging to be the only viable option for large AEC companies that need a single provider of document solutions across the nation. The proprietary technology we have developed is starting to become more of a standard throughout the industry. While other reprographic companies are finding it difficult to stay afloat, given the depth in technology, we have started exploring new but related areas in document management such as Managed File Transfer and Cloud Printing. In 2011, we are focused on five growing initiatives, each with an experienced and savvy Senior Vice President leading the way.

The first is global services, already a strong contributor to our top and bottom lines. Global services added nine new accounts to its roster in 2010 including AECOM, a $7 billion industry giant in design and engineering. These new customers represent $14 million of annualized revenue. In total, global services brought $46.8 million in sales, for 2010. We have exciting prospects in the pipeline for 2011 and we are targeting some of the largest companies in the design and engineering space as well as smaller, regional targets to help fill in the gaps.

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