Good day, and welcome to the ARC Document Solutions Second Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Stickney, Vice President of Corporate Communications. Please go ahead, sir. .

Thank you, Michael, and welcome, everyone. On the call with me today are Suri Suriyakumar, our Chairman, President and Chief Executive Officer; Dilo Wijesuriya, our Chief Operating Officer; and Jorge Avalos, our Chief Financial Officer. .

Our first quarter financial results for 2015 were publicized earlier today in a press release. The press release and other company releases are available from our Investor Relations pages on ARC Document Solutions' website at ir.e-arc.com. A taped replay of this call will be made available several hours after its conclusion.

It will be accessible for 7 days after the call. The dial-in number is in today's press release. Per our usual practice, we are webcasting our call today, and a replay of the webcast will also be available on ARC's website. .

As a reminder, today's 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, May 5, 2015, 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. .

I'll now turn the call over to our Chairman, President and CEO, Suri Suriyakumar.

Suri?.

Thank you, David, and good afternoon, everyone. As you have seen in our earnings report earlier today, ARC Document Solutions got off to a good start in the first quarter with sales growth across all 3 of our service lines. Managed Print Services and Archiving and Information Management both delivered solid increases.

And despite the harsh winter conditions in half of the country, our Construction Document and Information Management business experienced meaningful growth as well. .

Sales from Equipment and Supplies fell in the first quarter due to softer sales in the U.S. and in line with the continuing trend of our customers adopting MPS or outright equipment purchases. Along with its consolidated sales growth, ARC delivered 70 basis points of improvement in our consolidated gross margin. .

Net of sales, our continuing focus on cost controls and a business mix weighted to our technology-enabled services delivered the continuing expansion we expected. Our sales and margin performance led, in turn, to another quarter of solid adjusted EPS improvement.

The investments we have made in sales, marketing and training over the past few 2 quarters continued into the first quarter. Training our teams to sell our new solutions and educating our customers on our current capabilities are 2 critical elements for a market which is going through a transformation. .

Even with the investments these necessary measures require, we increased our EBITDA by 4%, matching our year-over-year growth in sales. Given that our performance is in alignment with the expectations we set in our forecast just a few months ago, our outlook for 2015 remains unchanged. .

We are forecasting annual adjusted earnings per share to be in the range of $0.37 to $0.41 on a fully diluted basis. Our outlook for annual adjusted cash flow from operations is in the range of $61 million to $66 million. Our outlook for annual adjusted EBITDA is $75 million to $80 million. .

Managed Print Services, or MPS as we call it, addresses the current document and information management in our customers' offices; AIM addresses the legacy document and information management; and CDIM addresses the document and information management for project-oriented work. .

As many of you know our -- in our recent Investor Day, we showcased a wide variety of solutions that make up our portfolio of offerings. The feedback we received after the event strongly suggests that our new reporting structure will help our investors better understand our business as well as understand where we are headed in the future.

As for now, though, there is much to do. .

While the outlook for nonresidential construction remains generally positive, the result of the oil and gas glut early in the year are starting to play out, and some questions around the general economy are beginning to emerge.

It comes as no surprise, then, that many of our customers and prospects have increased their interest in solutions like MPS and AIM due to their potential to reduce the cost of the operations and increase efficiencies around document management, distribution and production.

These issues, that is, reducing costs and increasing efficiency, are, of course, the core and the primary value propositions for each of our solutions, and we intend to capitalize on our customers' interest. .

The sales pipeline for all of our services is healthy and in line with our expectations for the year. Global Solution continues to actively engage our largest prospects and our regional account sales team while, brand new and only recently fully staffed, is making good strides in identifying new business and engaging new prospects.

As our growth in the first quarter implies, new AIM customers are also emerging across the country in both construction settings and in facilities and property management. We are continuing to develop and enhance our services to meet the needs of a larger and more diverse customer base. .

With CDIM, we continue to explore the opportunities of a changing product landscape. The hybrid nature of document management on a job site continues to challenge the requirements of our customers, and we are pleased to be able to meet their needs in both digital format and to provide traditional services when required. .

Few construction industry partners, if any, offer as broad a technology and service portfolio as ARC does, and our presence in this market remains strong and vital.

With that as a brief overview of our position after the first quarter, I will turn the call over to Dilo and then -- our COO, and then, of course, Jorge, our CFO, who will provide some color on the numbers.

Dilo?.

Thank you, Suri. Managed Print Services continues to drive ARC's business, reporting a sales increase of approximately 9% for the period. Growth in the first quarter came from new sales and a mix of continuing rollouts for our Global Solutions customers.

As Suri mentioned, we continue to win MPS contracts at local and at regional levels, but ARC's MPS solutions remains compelling over larger prospects. .

In the first quarter, we won a 4-year exclusive engagement with LEO A DALY, a large, well-established architectural firm, with 28 offices in the U.S. and several other locations worldwide. We'll begin rolling out locations for the firm over the next several months.

Our cost tracking and print management software, Abacus, was instrumental in securing the customer. These opportunities being so enormous -- numerous, we are expecting great results from our regional accounts team.

We continue to leverage our national and international footprint, our Abacus technology platform and our unique brand-agnostic equipment offering to win customers in the AEC vertical. .

Archiving and Information Management also grew roughly 9% in the first quarter. Wins for AIM continued to come from wide variety of customers who manage infrastructure-related documents and information. City and state agencies and school districts have been notable customers in our recent wins. .

Our PlanWell archive cloud services are uniquely positioned in the marketplace. We are one of the only service providers who are able to capture, store, manage, review and distribute various architectural and engineering file types.

Because we can sell these solutions as a turnkey offering, complete with consultancy services and flexible software platform, our customers don't have to choose expensive, discrete and highly customized solutions that take a long time to deploy and use. .

Within a few weeks of beginning a project, most of our customers can have cloud access to the archived information as it's being built. Few, if any, of our competitors can offer anything close. The benefits we offer around AEC documents, however, are only part of the story of a solution that extends to other types of documents as well.

Customers who have started an AIM project with the infrastructure-related documents are now looking at other more conventional documents to add to the cloud. Accounting, marketing and legal documents are common examples. .

Our ability to store and maintain all our customers' current project documents, business documents and legacy documents in one place with a single log-in is unique, so it is no surprise to see how quickly our customers are willing to expand the idea of how we can be of service. .

CDIM sales grew 2.4% year-over-year. While we experienced some disruptions in January and early February due to the weather, it wasn't as severe as what we saw in 2014. Demand is still compelling in the AEC space, but the mix of services we provide changes with each new customer we acquire.

The continuing use and experimentation with mobile application tools like our SmartScreen and a variety of both input and output devices creates a dynamic sales environment. Once again, few of our competitors, if any, can provide the diversity of product, support and hands-on service that ARC can. .

Our sales team finished the initial training in January on SkySite. We also pursued a vigorous public relations program and raised awareness across many of the markets we serve. As a reminder, SkySite is a complete cloud-based workflow for project documents using computers, tablets and other mobile devices to manage, distribute and share information. .

As you might imagine with a new application, the bulk of our early adopters are taking advantage of free-trial versions. At least more than 1,000 trial sign-ups to date, they are quickly gathering data on customer preferences, usage patterns and other information to help us build on the early excitement of the product.

Other technology solutions such as hyperlinking and PlanWell SmartScreen continue to gain significant traction with our customers and support a paperless workflow. .

In terms of our investment in sales and marketing, our resources have been applied to a wide variety of events and purposes. We have exhibited at 15 industry association trade shows and other marketing events in the first quarter.

We are conducting regular open houses at our service centers to introduce our customers and prospects to our new technology services. And we're using web-based and email marketing technology to reach across our prospect space. In addition, we brought on dedicated product and business development managers for each of our new sales categories. .

Finally, we've hired and trained regional solution consultants to help identify new customer opportunities and support the sales team itself. We have strengthened our products, enhanced our teams and set the bar for success. While there's always more to prepare for, ARC is at a point where it's simply time to execute on our plans.

I look forward to telling you about our continuing success as the year unfolds. .

At this point, I'll turn the call over to Jorge for a review of our financials.

Jorge?.

Thanks, Dilo. Before we run through the numbers, I wanted to offer our listeners a breakdown of our previous sales reporting format and our new sales category. This will likely help in adjusting models and give everyone an idea of how we think about approaching the market with our services. .

Our MPS category includes our previously reported Onsite Services as well as sales generated from the servicing of equipment, which had been included in Traditional Reprographics. Sales generated from our AIM services have been split out from our previously reported Digital Services category and presented separately.

The remaining sales generated from Traditional Reprographics, Color Services and Digital Services have now been combined into CDIM. Equipment and Supply sales remained unchanged. .

Like our previous sales categories, we have directional estimates for gross margins on each of the new category. We estimate them and do not report them formally as part of our audited financials, because we share resources such as equipment, facilities and labor across all our revenue lines. .

With that said, we believe the range of gross margin for MPS is between 32% and 35%. Gross margin for AIM is in the range of 35% to 38%. CDIM gross margin is in the range of 37% to 40%. And the range of Equipment and Supply sales gross margin remains at 18% to 21%.

These estimates represent our current thinking, and we may update them after we get a few more quarters under our belt with the new reporting structure. .

Moving on to our first quarter results. Our consolidated sales growth allowed us to better leverage our fixed costs and labor while staying focused on controlling our variable costs and making the most of a better business mix. This resulted in a 70-basis-point improvement in gross margin for the first quarter of 2015 compared to prior year.

This level of improvement is in line with our expectations for 2015 and exemplifies our ability to expand margins with any reasonable improvement in sales. .

Our SG&A increased approximately $1.3 million, reflecting both the increase in sales-related items such as commissions as well as planned investments in sales and marketing. As Dilo pointed out, this included some hiring, which occurred primarily in the last half of 2014.

Hence, the year-over-year comparison will be more meaningful in the second half of this year. The 53% year-over-year drop in interest expense continued to demonstrate the power of our new capital structure. Currently, we expect quarterly interest expense for the rest of the year to be within the same range as the first quarter interest expense.

This will provide us with strong year-over-year comparisons throughout 2015. .

Our cash tax has remained minimal, under $300,000 for the first quarter of 2015, given our cumulative net operating losses from prior years. But for modeling purposes, we recommend a pro forma tax rate of approximately 39.5% for 2015. .

Moving to the bottom of the income statement. Our adjusted earnings per share of $0.07 represents significant growth for the period, again, due to our sales growth, gross margin expansion and the lower interest on the new term loan.

Adjusted cash flow from operations in the first quarter of 2015 was $6.4 million as compared to $8.1 million in the first quarter of 2014. The decrease is due to the timing of sales and collection of the receivables during the period.

This is reflected in our DSO, which stood at 57 days for the quarter as opposed to 53 days for the same period in 2014. The quality of our receivables remains strong, and we expect DSO to decrease significantly in the second quarter of 2015. .

As was the case in 2014, cash flow from operations will accelerate during the remaining quarters of 2015. Adjusted EBITDA for the quarter was $16.8 million, a 4% increase, mirroring our sales growth for the period. As noted in our press release, we achieved EBITDA growth despite our planned investments in sales and marketing.

It is also worth mentioning that this quarter's adjusted EBITDA includes a onetime expense of $350,000 in severance compensation to our former CFO. Were we to exclude it, adjusted EBITDA growth for the period would have been 6%, outpacing our sales growth. .

With our continued financial improvement and aggressive debt pay-down, we have achieved a significant improvement in our debt-to-adjusted-EBITDA ratio, which now stands at 2.7x as compared to 3.2x a year ago. Much of what we see in the financials for the first quarter has set the stage for the year.

Most of our base metrics, such as SG&A, depreciation, tax rate and interest rate, are likely to remain stable through 2015. .

As Dilo said, our task this year is to execute and deliver on the opportunities we've created, and that's exactly what we intend to do.

Suri?.

Thank you, Jorge. Operator, at this time we are available to talk -- take our callers' questions. Please go ahead. .

[Operator Instructions] We'll take our first question from Matt Blazei with Lake Street Capital Markets. .

A quick question for you.

I was interested in your comments about the 1,000 trials that have signed up for the SkySite products, and that's -- I assume that's all been in the last 3 months?.

Yes, indeed. Most of the trials have been -- it just kicked off. The date of kickoff was... .

It was end of January, so most of the trials are coming -- came along in February and March. .

Yes. .

And is there a -- is that -- what sort of penetration of that is your current customer -- of your current customer base?.

I would say mostly -- most of the customers that would start up with trials are existing customers. We also have a good percentage that have -- that we have penetrated, customers that have not done any business with us in the past as well. .

And is there a length of time on these trials? I guess what I'm trying to get to is, when do they start -- if they're going to convert, when would they start converting into potential contracts and revenue generation?.

Typically, we are looking at about 60 to 90 days as trials and -- before they become a paid customer. .

So potentially, we could be seeing SkySite contracts in the second half of the year?.

From Q2 onwards, we should see conversion of customers. But it will start off small. As you know, customers do take a little time to convert. But we should see some early adopters in the Q2. .

And that will fall in the CDIM line, the new revenue bucket?.

Yes, it will -- whatever is the SkySite revenue, it will come in the CDIM bucket. .

Got it, okay. And one second question. It sounds like you're still staying relatively cautious on the end markets on the non-res construction market.

Is that a good read on that? Or are you still assuming no growth in your end markets?.

No, that's a good read, Matt. I think that's pretty much the way we are looking at the market. It's exactly what we expected when we actually gave the guidance earlier in the year. So I don't think anything has changed. It's pretty much in line with what our expectations are, and we are hoping it will stay the same way.

I mean, we haven't seen a whole lot of vibrant new activities in the non-res market. It's staying somewhat muted in that sense. And the fact that the oil price kicked in a little bit of -- threw in a little bit of range there as well. So we certainly think the market is just going to stay like that and continue for the rest of the year.

We don't see any signs of aggressive growth or neither do we see it falling off. .

Because there are some people that look at, say, the AIA index, which has been positive, as you know, for at least 9 consecutive months now, as a precursor to increasing construction activity here, starting relatively, say, second half of '15.

What is your read on those sorts of surveys?.

Yes, I think the AIA definitely is an early indicator. There is no question about that because, obviously, you have the architectural and design and then -- we can then go into the build phase. So I don't think that's inaccurate. I mean, directionally, I think they're right.

There's certainly a lot of green shoots and there are positive activities with regard to the design part of the activity which is going on, Matt. And we certainly hope they'll all stay on track and become real projects. I mean, the outlook is positive, there is no doubt, but we don't see a whole lot of activity on the ground yet. .

[Operator Instructions] We'll go next to Peter Luber with Post Street Capital. .

Give us a little color on the MPS pipeline, what you guys are seeing in that pipeline right now. .

Right. So MPS, we have -- Peter, you might have known that we break that down into 3 different segments. One is we take that as a global customer, and then we have regional customers, and then we have the, what do you call, the local customers, which is actually -- in each of the divisions we sign them up. They are the smallest of the lot. .

So the local customers, we signed up I think -- I'm just looking up the numbers here. Last year -- last quarter, the first quarter, we did 155 new contracts, bringing our total number of contracts to 8,655. Those are the 4-machine, 3-machine, 5-machine, the real small customers. So they are up to 8,655. .

The regional accounting team, which goes after customers who are in multiple states, we just kicked it off. We have -- the pipeline is pretty healthy. It's starting to get filled up. .

With regard to the global customer, it's strong. It just doesn't flow as much. We signed one up in the first quarter, which is what I think Dilo talked about, LEO DALY, which is a good sign. We have a few more.

Obviously, we can't talk about the specific customers, given the competitive nature of the business, but that customer pipeline is pretty strong. It's a question of how fast they come on board.

Larger customers, which are generally global customers, most of them are billion dollars plus in terms of revenue, it takes a while to sign them up and implement them., but the interest in our product is really strong. .

And what do you guys think was the important aspect of the contract that got the one big customer over the finish line?.

So the -- the whole idea, I think, at this point of time, what we focus on is our ability to actually streamline and actually improve efficiency and reduce the cost for our customers. That's a big, big hot button for almost all of our large customers. Everybody is looking to actually improve efficiencies, reduce costs.

And of course, transitioning to digital is also a big topic these days. People are using -- our guys are getting more and more accustomed, even in the large companies, to using digital technologies to be able to track, share, store documents. .

So the one which thinks -- which takes us over the hump is the fact that we can help them with their cost recovery. That is very, very critical in the construction space. We can improve their efficiency and really streamline and consolidate their fleets and reduce their costs. Those -- we can do them better than most of our competitors. .

And with no further questions in queue, I would now like to turn the conference back to David Stickney for closing comments. .

Very good. Thanks, Michael. Ladies and gentlemen, we appreciate your attention this evening and your continued interest in ARC Document Solutions. Have a great night. Bye-bye. .

And ladies and gentlemen, that does conclude today's conference. We thank you for your participation..