American Reprographics CEO Discusses Q4 2011 Results - Earnings Call Transcript

American Reprographics Company ( ARC)

Q4 2011 Earnings Call

February 21, 2012; 05:00 pm ET

Executives

Suri Suriyakumar - Chairman, President & Chief Executive Officer

Dilo Wijesuriya - Chief Operating Officer

John Toth - Chief Financial Officer

Jorge Avalos - Chief Accounting Officer

David Stickney - Vice President of Corporate Communications

Analysts

Molly (ph) - JPMorgan

Daniel Aliperti - Oppenheimer

DeForest Hinman - Walthausen & Co.

Brad Safalow - PAA Research

Brandon Dobell - William Blair

Presentation

Operator

Good afternoon. My name is Joseph and I will be your conference operator today. At this time I would like to welcome everyone to the ARC’s 2011 quarter four and fiscal year end conference 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 Communication.

David Stickney

Thank you Joseph and welcome everyone. Joining me today are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; Dilo Wijesuriya, our COO; John Toth, our Chief Financial Officer; and Jorge Avalos, our Chief Accounting Officer.

Our fourth quarter and fiscal year end financial results 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 ARC’s website at www.e-arc.com. A taped replay of this call will be made available several hours after its conclusion. It will be accessible for seven days after the call. You can find the dial-in number for this replay in today’s press release. We are also webcasting our call today and the replay of the webcast will be available for 90 days on ARC’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, February 21, 2012 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’ll turn the call over to our Chairman, President and CEO, Suri Suriyakumar. Suri.

Suri Suriyakumar

Thank you David and good afternoon. Our results for the fourth quarter and full year came in as expected in 2011 and once again our performance amply demonstrates our ability to perform in the midst of economic and industry uncertainty.

The company reported annual revenue for 2011 of $422.7 million with a gross margin of 31.8%. Cash flow from operations was $49.2 million in 2011, making it the fifth year in a row, where the company has generated more than $1 per share in cash flow from operations. Adjusted earnings per share came in at negative $0.02 and included $0.015 of cost associated with the company CFO’s transition and certain facility closing cost.

We reported revenue for the fourth quarter of 2011 of $101.8 million, a quarterly gross margin of 30.7%, adjusted earnings per share for the fourth quarter of $0.0, while cash flow from operations for the period was $19.7 million. While most reprographers clung desperately to traditional services and struggled to survive 2011, ARC was actively diversifying into adjacent and growing markets and delivering results that strongly indicate the company is finding new ways to apply it’s core competencies to new markets and generate new sources of income.

As I noted in our press release earlier, FM revenues grew 13.5% in the fourth quarter and posted more than 11% increase year-over-year. This performance was led largely by our managed print services and offering that was brand new to us just 18 months ago.

Large-format color revenue grew 10.3% year-over-year, again led by new offerings to new markets under our Riot Creative Imaging brand and while not a new source of revenue for us, annual digital services sales stayed steady at 9% as a percentage of our overall revenue, in spite of the drop in digital services revenue generated by the project related work which we traditionally enjoy.

As you can see, the real story of 2011 was the success of our diversification efforts. When we reported our 2010 results at this time last year, economies were calling for a recovery in late 2011. This year however, forecasts are more tempered by comparison and from what we can see, this is probably appropriate.

The economy is improving bit by bit according to the headlines, but evidence of the best news is difficult to find on the ground. Employment appears to be inching up, the markets have improved and some capital looks like it’s coming off the sidelines. But vacancy rates remain stubbornly high and lending for non-residential construction projects is still very difficult to come by.

Construction related reports from FMI, McGraw-Hill, the AIA and others suggested that improvement in the office market will not experience meaningful growth until 2013 and any growth they expect in 2012 will be coming off a very low base. The outlook for retail space remains anemic too.

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