David Stickney - Vice President of Corporate Communications and Investor Relations Suri Suriyakumar - Chairman of the Board, President, Chief Executive Officer Jorge Avalos - Chief Financial Officer Dilo Wijesuriya - Chief Operating Officer.

Chris McGinnis - Sidoti & Company Aman Gulani - B. Riley & Co..

Good day and welcome to the ARC Document Solutions' first quarter earnings report. 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 and Investor Relations. Please go ahead, sir..

Thank you Evany 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 results for 2017 were published earlier today in a press release.

The press release and other accompanying materials are available from our Investor Relations pages on ARC Document Solutions website at ir.e-arc.com. Please note that today's call will contain forward-looking statements that fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are only predictions based on information as of today, May 2, 2017 and actual results may differ materially as a result of risks and uncertainties that we highlight in our quarterly and annual SEC filings.

This call will also contain references to certain non-GAAP measures, which are reconciled in today's press release and in our Form 8-K filing. I will now turn the call over to our Chairman, President and CEO, Suri Suriyakumar.

Suri?.

Thank you David and good afternoon everyone. In the press release we distributed earlier today, we reported that we continue to execute on the plans we put in place last year. We are working hard, making prudent investments in protecting print revenue and ramping up our new offerings in technology.

As we noted in our last call just 60 days ago, the disruption from all sales reconfiguration is still being felt and print volumes remain volatile in the marketplace. This resulted in a soft start to the year and will likely have a containing impact into the second quarter.

We believe performance improvements will begin to be evident in the second half of the year and we are sticking to the annual guidance we offered in March. Adjusted earnings per share $0.24 to $0.29, cash flow from operations $49 million to $54 million and EBITDA $58 million to $63 million.

The key to our transition is maintaining the fiscal health of ARC while we go through it and in this regard we are ahead of the game. Cash flow from operations was very strong for the quarter and we have used excess cash to continue to pay down our senior debt. Since its inception, we have reduced our principle on the loan by roughly $00 million.

We have always focused on actively meeting or exceeding our financial obligations while ensuring that our capital structure remains sound.

As has been obvious through our transition, management is being purposefully conservative with cash not only to ensure the company's financial well-being but also to emerge from the process in a position to capitalize on the changes we are making.

There is no point to make these changes if at the end of it we lack the resources to pursue aggressive growth. In the end, we remain focused on protecting the present and ensuring our growth in the future. Our eyes are on the prize and we are executing on our plans.

With that as a theme, I will pass it to Dilo for a brief operational summary and then we will wrap up our formal remarks with Jorge on the finances.

Dilo?.

Thank you Suri. Our CDIM customers are busy and that's obviously good news. The number of projects in the design and construction stage are increasing and the more our customers do, the great opportunity to sell across our portfolio of products and services. We continue to see a reduction in printed documents of all kinds.

Paper is still in use but no longer the medium of choice on most large construction projects. When paper is being used, our customers are making full use of it. It is becoming increasingly common to see the addition of color to construction drawings to convey more information with greater clarity.

As we mentioned on the last call, it's one of the reasons we have upgraded much of our printing fleet. These new machines allow us to stay competitive with current clients as well as gain new customers with better services and pricing than our competition can provide.

Our enterprise-level MPS engagements increased during the quarter with some solid regional customers that came online and we added more than 600 contracts year-over-year to our local MPS client base. Most of the latter are smaller contracts relative to our global solutions relationships with few omissions covered under an agreement.

As part of our training and marketing initiatives, we are exploring new approaches to expand the size of these engagements in the future Our AIM sales have taken the brunt of the disruptions from reconfiguring the sales force even though the impact on our numbers is very small.

We are making progress with our pipeline of new services, but as Suri mentioned on the last call, we don't anticipate an obvious inflection point or hockey stick effect this year. There is much to do but every day we are accelerating our progress.

Lastly, the performance of our equipment and supplies unit was overshadowed by a one-time sale that boosted performance 18% last year and made for a difficult comp this year. With that as a summary of operations, I will turn the call over to Jorge.

Jorge?.

Thanks Dilo. Sales in the first quarter were down 4.7% thus not allowing us to leverage our labor and overhead costs which in turn affects gross margin. Even so, we delivered a healthy gross margin of 31% for the period.

We continue to make prudent investments to support our newer technology solutions in order to establish a solid foundation for growth as well as support the print side of the business by upgraded much of our printing fleet while aggressively managing costs in other areas.

The cost containment resulted in a $1.2 million drop in SG&A in the first quarter of the year as compared to last year. Keeping the company financially healthy during our transition remains a primary objective and for us that means more than simply managing our cost.

We are actively maximizing our cash flows by utilizing historical NOLs to reduce our cash taxes, keeping cash interest low by maintaining a low interest rate while paying down our senior debt and carefully managing the way we acquire resources to protect our print business and grow our MPS engagements.

In the first quarter, cash flows from operations were up $1.6 million compared to last year, a 30% improvement year-over-year despite the drop in sales and margin. We used our excess cash to pay down an additional $7 million of our senior debt during the first quarter of 2017 which has allowed us to maintain a strong leverage ratio of 2.5 times.

This in turn keeps our interest rate comfortably low and more cash on hand. Accomplishing all this in the face of a year-over-year drop of $1.2 million in adjusted EBITDA gives us great confidence.

Focusing on cash generation and balancing prudent investments with disciplined cost management is not only keeping the company healthy but it provides for opportunities to revitalize weakening market and to open brand new ones. As Suri mentioned, the challenges to our performance are far from behind us.

We face continuing declines in organic print volumes and bringing technology into a brand-new market is not an easy task but as I stated a few months ago we will meet these challenges by continuing to focus on managing our cash flows, reducing our debt and positioning ourselves for growth in the future.

At this point, I will turn the call back to Suri.

Suri?.

Thank you Jorge. Operator, at this time we are happy to take our listeners' questions..

[Operator Instructions]. We will take our first question from Chris McGinnis with Sidoti & Company. Please go ahead..

Hi. Good afternoon. Thanks for taking my question..

Good afternoon..

So I guess maybe just starting the sales force initiative. Can you just maybe talk, are you seeing, I guess, the benefits or where about in the stage are you with the implementation? I am understanding the product offering and you going to market a little bit more effectively.

I know you think in the second half it will be a little bit better, but how far along are you? I know it's relatively recent..

Sure. So it's a matter of just getting the sales force set up correctly, make sure to give them their territories, schedule their customers and get them with a talk track, all the preparation stuff if what's going on right now. And it is going on pretty well.

As we continue to do this month after month, they are getting very comfortable and they are getting very conversant with their talk track and their customer bases and then getting those pipelines filled with regular calls and contacts. That's what's going on right now.

So most of this, we started last year and got the team into a rhythm, filled some of the empty slots and rearranged our sales force. So it's now in full gear.

But we are going to go through this second quarter as well as these people get more and more comfortable with their customers and customer base and then hopefully the second half we will start to see the revenue impact of that..

Okay. And then maybe just on the traditional business.

If I guess the sales force for the traditional business should know the products a little bit, is that outperforming a little bit better than the mark? How has that changed the market impact of the sales trends there?.

So they definitely know the product. There is no question about it. It is just that we have reconfigured their market spaces or rather customer bases because we have pulled certain people out of that force and allocated them all, designated them as technology salespeople. So we had go back and reallocate the market space.

So it's a question of, they getting comfortable with the customers and what their behaviors are and what they order and so on and so forth. With regard to the product itself, those sales people are very comfortable with that customer base.

Now, it's too early to say we are seeing any progress but if you see last quarter, our shrinkage was just over 5%, this quarter it's under 5%. So one can make the argument, we are going in the right direction.

But the true effect of that, Chris, would be seen, I would think, the second half of the year as we see more evidence of our revenue picking up from the print side..

Sure. Okay.

And then maybe just I guess just the balance of the year and seeing I guess maybe how is the health of your customer base? Energy seems to be stabilizing, the energy markets and maybe are you seeing any indication that things maybe picking up on the front since that's been kind of a headwind over the last, call it, 12 months roughly?.

Yes. Definitely on the energy side, it seems like it has settled down. There is much more stability than negative impact we had because of oil prices and all the changes over the last 24 months or so. It seems like they are evening out and there is consistency in the market.

The only concern in the market is whether there is a bubble and whether there would be an issue with the construction market going forward. That's being talked about in the largest cities. But overall, I think there is much more stability in the market, definitely focused on that energy side.

Because those negative impact we had on our customers are tapering off. Customers have adjusted themselves and I think there is more consistency in terms of where the customer are at. So the way they are looking at the big picture, Chris, is that we said, look this transformation is a tricky one.

It's going to take a period of time for us to really get print on the right track and technology on the right track. We think it will take 24 to 36 months. That's the big picture stuff. So this is our second year into that. This is the first half of the second year. So you know there is a very good chance, second half would pick up and run stronger.

But having said that, it's exactly as we thought would happen with the business in terms where the revenues and what progress we are making with regard to really reconfiguring and reorganizing this business..

Great.

And maybe if you could just touch on the MPS business as well in the same aspect of the strength that you are seeing there on the smaller side, I guess, but then also any big opportunities on the enterprise over the year that are out there that you might be able to win?.

The enterprise customers, certainly in that space there was a lull of for a couple of years because of all the negative impacts we had in the energy space. Like I said, it has stabilized now.

There is a little bit of uptick, nothing really to report large but there is much more positive outlook with these larger clients with regard to their business is consistent. People are not into M&As and down locations. That theme has died down, Chris.

Wouldn't you agree, Dilo?.

Absolutely. We have, as you know, from a global and regional customer point of view, I think we have had some success in the past and the pipelines are getting stronger in that segment and within the next 18 months or so we have good opportunities to convert some of the them..

Great. And then lastly, just to touch on AIM real quick and I will jump back in the queue. Down year-over-year, but I know that can fluctuate just because of the stage that it's at.

Maybe just the outlook there? How you feel about where the product is at the moment? And I know it's going to take some time with the sales force, but just any positives you see around that business that you should expect to play out for the year? Thank you..

Sure. We certainly expect. The reason we mentioned is that we consider that as separate bucket in the way we predict our numbers, CDIM, MPS, AIM and equipment and supplies because we created it as a separate bucket. But in terms of the number itself, it's not a big numbers.

It's just a fluctuation we have in the number and that is largely because of reconfiguring our sales people and focusing them in the more in the areas where there is greater potential.

So there is going to be a lull for little while on the AIM business because we have taken the foot off that specific space and we are trying to think about, is there a better opportunity in the larger facilities space. But we are working on that, Chris. And second half of the year will give us a better idea as to where the revenues are going to fall..

Okay. Thank you very much for the time today..

You are welcome..

[Operator Instructions]. We will move next to Aman Gulani with B. Riley & Co. Please go ahead..

Hi guys. Thanks for taking my question.

I wanted to get a little bit more information on how the traction is going for SKYSITE? Are you guys, like where are you for number of paying users and single order percent in the user base?.

Okay. So in general, SKYSITE, is gaining traction but obviously we don't specifically disclose the number of users a competitive reasons. We have not done that for a while now. But overall SKYSITE is a technology we use as the fundamental technology platform to support our archival business, our facilities business and our projects business.

So literally anything we do is on that centralized platform called SKYSITE. Independent of that, we also sell SKYSITE if somebody wants to sign up for SKYSITE in order to distribute documents and information. We sign them up as well.

But fundamentally, we build solutions on SKYSITE and then sell the whole solution whether it's the archival solution or really the facility solution or whether it is the project solution. So overall SKYSITE licenses are growing, but I can't specifically declare the existing number.

But we have, if you look at our website, we are continuing to make upgrades to our solution and it's definitely in great shape for customers..

Okay. That's all the questions I have. I will get back in the queue..

Okay. Thanks Aman..

And there are no further questions at this time. [Operator Instructions]..

That's fine Evany. I think we can wrap it here..

All right. Thank you sir..

Thanks for your attention this evening everyone and your continuing interest in ARC Document Solutions. We look forward to speaking with you next quarter. Good night. Have a great evening..

This concludes today's call. Thank you for your participation. You may now disconnect..