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

Aman Gulani – B. Riley FBR.

Good day, and welcome to the ARC Document Solutions’ Fourth Quarter and Fiscal Year-End Financial Results and Webcast. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. David Stickney. Please go ahead..

Thank you, Justin, 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 fourth quarter fiscal year-end results for 2017 were publicized earlier today in a press release.

The press release and other company 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, February 27, 2018, 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’ll now turn the call over to our Chairman, President and CEO, Suri Suriyakumar.

Suri?.

Thank you, David, and good afternoon, everyone. As you may recall, last year at this time, we made an important announcement with regard to our transformation strategy. In addition to investing in our technology solution, we also unveiled our plan to invest and strengthen our legacy print business.

Being the largest service provider in this space, our intention was to capture market share in order to minimize the decline in our print revenue and provide more time to build our technology services revenue. So in short, we chose to make more investments even in the face of declining revenue.

While it was an aggressive move, our options were limited, either we took such taps or resigned ourselves to secular trends that would drive a constantly shrinking business. History shows that secular changes of this nature can often cripple companies who don’t undertake bold measures to contend with that.

In retrospect, I’m pleased that we took the challenge and executed on it. While there is no doubt, there is still work to do to complete our transformation in 2017 we made significant progress.

The work we put in throughout the year delivered encouraging results as overall sales fourth quarter improved slightly or the third quarter despite well established historical trend. CDIM declined just 1% year-over-year in the fourth quarter, delivering its best performance of the year.

Likewise year-over-year MPS sales were flat for the same period, a marked improvement over every other quarter in 2017. Both were welcome achievements, and gave us reason to believe that we can counter the negative sales trends in print for the foreseeable future with aggressive measures to gain market share.

On the technology services front, we continue to fine tune our marketing effort and refine ourselves our salesforce as we make inroads into this space. We created significant interest throughout the year and by year-end, we began seeing greater level of adoption of our facilities management solutions.

In fact, earlier this month ARC was voted the best provider of Facility Software and Reporting Tool by the Facilities Executive magazine readers for our mobile facilities dashboard. Our pipeline for sales is excellent and the attention we have gained in the market is certainly noteworthy.

As I noted in our press release today, it is an – it is exciting to disrupt and improve such an enormous market. The facilities management segment spreads across all verticals of the commercial real estate industry.

But at the same time, it is a segment that has not kept up with the technological changes that we have seen in the broader construction market. Therefore, penetrating this segment of the business continues require persistence and patience.

Even with prospects who demonstrate tremendous enthusiasm and for the productivity of the efficient regains that are so obvious with our solution, making progress towards a purchasing decision consistently requires more education and time than we anticipated when we began this new initiative.

The plan we laid out in early 2017 was bold and challenging to execute. Yet we have done that and we have accomplished what we set to do. We have slowed the declines in our legacy business.

Giving us time for our technology business to gain traction in the marketplace and we believe while maintaining a relentless focus on the financial health and wellbeing of the company.

Despite overall revenue declines during the year, we generated very healthy cash flows bought back stock and remained aggressive in paying our debt down to strengthen our capital structure. As I stated in our press release earlier today, we still have our work cut out.

However, I’m immensely proud of my management team, we had the strength and courage to execute under such difficult circumstances. I’m confident that we will have even greater success with our transformation in the year ahead.

Our focus remains conservative for 2018, but we expect that our progress will be evident in the second half of the year as additional sales begin to offset the shrinkage in print volumes we have experienced in the past. We are more than halfway through the transformation we announced in 2016.

While the volume of printing continues to decline in construction projects and the use of technology is growing. We’re doing more than building something new. We are maintaining still healthy business while leveraging its success and resources to create more value for our customers and investors in the future.

We appreciate the patience of our long-term investors and I looking forward to working with others, who find this environment as exciting as we do.

With this as a backdrop for our further discussion, I’ll turn over the call to Dilo for some operational details and then we’ll conduct a brief overview of the finances with Jorge before we take your question.

Dilo?.

Thank you, Suri. We were happy to see the CDIM revenue line improving in the fourth quarter. While white format printing in construction continues to move towards digital workflows, our sales team have been successful in acquiring new customers, new projects and improved their penetration of other print services to the same customer base.

We are focusing on selling other specialized print services, but just construction and environmental graphics to our existing customers. The use of color in architectural and engineering drawings continued to grow.

We are seeing more traction in the use of our smart color services and more project color printing in the form of red lines and change tracking. It has become less expensive and more efficient to print in color and our recent investment in new print technology has helped us to penetrate and grow this market.

Project activity remains robust in many parts of the country and we will continue to sharpen our competitive advantage to win more market share in our print services. We continue to add valuable new workflows to supplement our SKYSITE platform.

As customers who use computing pure play technology products are finding out working with project documents outside of this proprietary technology sometimes impossible. By contrast, the flexibility we build into SKYSITE to support print workflows, file exports and close out management offer greater usability throughout the life of a project.

They put us in the position to be able to position and prove our services as being far more comprehensive and practical in the hands on environment of construction management. Customers, who use our cloud based software tools are also a good source for our sales team to sell other print, scanning and digital services of ARC.

MPS revenue was flat year-over-year and we were able to secure a few national customers to strengthen our customer base. We continue to improve our Abacus technology, the middleware that managers print at our customers’ offices. It remains a key differentiator in our MPS offering.

Our continuing strategy is to make it easier to unify and manage customers print environment and assist them to reduce we sort of printing habit. Our aim and facility services, though a small part of our revenue mix are used by our customers to digitize their paper content into a digital format.

Our print and technology sales teams are building a strong pipeline of opportunities and we hope to convert them in the coming quarters. Our strategic investments in sales are clearly making a difference in how we approaching the market and how our customers are weaving us. I look forward to continuing progress in 2018.

I’ll now turn the call over to Jorge to run through the numbers. Jorge..

Thanks, Dilo. Sales in 2017 declined by 2.9% driven by the declines in our print business. Items worth noting in the year, where the negative effects of the hurricanes and flooding during the quarter, but also the improved performance we achieved in the fourth quarter, especially in regards to our CDIM and MPS sales.

Historically, the fourth quarter is very soft for our traditional business. Yet, our teams managed to significantly reduce the year-over-year declines we’ve seen in the past. As we discussed on our last call, we did not anticipate a catch up effect to emerge in those areas affected by weather events in the third quarter. And we didn’t see what.

Instead what we saw, our improved sales coming from all over the country. Our gross margins for the year were 31.4%. It was challenged primarily by lower sales and their effect on our ability to leverage our fixed cost and labor. Also negatively impacting our margins were increased equipment sales in China, which carry considerably lower margin.

SG&A cost rose by 1.7% in 2017 with lower G&A cost offset by investments we made in sales and marketing. As we did throughout 2017, we will remain focused on managing costs in other areas of the company during 2018 to help offset additional expenses driven by aggressive marketing and employment of a higher caliber sales force.

As Suri noted earlier, our financial health in 2017 was characterized by very strong cash flow, despite in $11.7 decline in sales, cash flow from operations only declined $800,000 year-over-year. This allowed us to continue to pay down our senior debt and manage our leverage ratio in light of our lower adjusted EBITDA performance of $54 million.

Our current debt to EBITDA ratio, net of U.S. cash is 2.4 times and total payments on our credit agreement in 2017 were more than $20 million. Our strong cash position also gave us ability to purchase 1.2 million shares of our own stock during the fourth quarter. And still have $28 million of cash on the balance sheet at the end of the year.

As we wrap up to look at our year end result, it is important to remember that our third quarter results included a non-cash $17.6 million goodwill impairment, and our year end results included in the $11.9 million revaluation of our deferred tax assets due to the federal tax reform act that reduce the corporate tax rate from 35% to 21%.

On a far more favorable or positive note, I would remind you that we also amended our senior credit agreement in July.

The amendment lowered the required annual principal payments from $17.5 million to just $4.5 million reduce the applicable interest rate by 25 basis points and relaxed our financial covenants to provide the company with even more flexibility in its capital structure.

Finally, for those that you model in your estimates for 2018 the new tax reform act will lower our effective tax rate to 30% for the year. From a cash tax perspective we still have historical operating losses of more than $80 million at our disposal, though we will not be paying meaningful taxes for the next several years.

Also we do not expect further goodwill impairment charges for the foreseeable future. Our transformation has challenged us to drive new growth while maintaining a healthy and financially sound operating environment.

Clearly, our preference has been to do so by maximizing cash flows, paying down debt and maintaining a healthy balance sheet during our transition. This is a strategy that will remain in place throughout 2018 as we work to create a base of new business that will help us renew growth.

Suri?.

Thank you, Jorge. Operator, we are now ready for the questions..

Thank you. [Operator Instructions] Our first question will come from Aman Gulani with B. Riley FBR..

Hey, guys. Thanks for taking my question.

So I guess with the MPS business, what do you think a good number is for new customers for the MPS sort of transition to growth?.

So, you’re basically asking if indeed we were to grow the MPS business, how many customers we should have is that the question..

Yes. This quarter you added 700 customers, pretty much flat in that business.

What sort of number should we be looking at sort of to see some growth in that segment?.

Got it, got it. Okay, now I understand the question. Yes. So our MPS revenues come from largely, I mean, largely speaking comes from two buckets. We have these customers you’re talking about adding the new customers which are smaller MPS insolation.

And then we also have global customers who actually believe the MPS revenues, which are – like if you sign up a big global client. So between those two, we would actually get new customers that’s just how it works. So the small ones are like the ones we sign every quarter.

How many deal signed last quarter, Dilo?.

Something about 100’s..

So we sign a quarter maybe 150, some quarters 100 somethings 200 depending on the market space. So we add those customers. Then of course, depending on the sales cycles sometimes we get a very large time, which is a global client, which we call the global solutions. MPS revenues come from that as well.

Interestingly what will happen is, there’s no specific answer and I’ll tell you why.

Even though we sign a client this year, exactly after 12 months, I know for 12 months obviously whatever revenue they give us will be seen as growth because that same customer will be printing less the year after just the nature of the [indiscernible] just how the print industry works.

So there’s no specific number, so the acquisition of these customers whether they are small customers or the combination of small customers and large customers. If you can you do it quiet more aggressively then there is a chance we can all set that.

The idea is, without even growing at least to hold on to the current business, would you say that Jorge..

Yes. And I think the key point to point out there as Suri mentioned, we can sit here and give you a specific number. I mean, we’ve always said in the past the needle movers are the regional or big accounts. And we’ve characterized our GS customer has been those accounts that bring in $1 million plus in revenues.

So part of our growth strategy on that one is, we have to get a feel of those larger customers in there. We should get 500 of the small customers but they won’t make up the revenue that one big customer could bring in. So at the end of the day that it’s got to be a mix of large customers and the smaller customers kind of maintaining the day to day.

Does that help answer your question?.

Yes. It certainly does. So I guess on that front, in terms of big regional customers that where we can sort of see some growth in the MPS business do you have those in the pipeline that you think might be able to convert in 2018..

Yes. So we have a fairly strong pipeline and maybe in the last many quarterly, we’ve also mentioned that we don’t necessarily focus on large global clients we focus on large global clients as well as large regional clients as well. Because sometimes regional clients who creates more revenue opportunities for us.

So all in all, we have a very – we have a good pipeline and we have many, many of those deals, which are towards closing during the year. And we will continue to see some growth in the coming year..

Got it. Okay, that’s very helpful.

And then just the AIN – AIM business, sorry, what sort of steps are you taking for your clients sort adopt technology at sort of faster pace?.

Right. So the technology comes in many pieces, it’s a good thing you asked that question. There are many phases of our technology.

Fundamentally, that technology we have developed over a period of time that platform can be used in several fronts, largely described as for projects which is actually new buildings, which are new projects which are coming up.

And then for facilities, that is what we have been doing quite a bit last year that’s the new front, where these same technology is used for built space, not just new buildings, but the building which already exists for facilities management. And then as you know, we also use that in the AIM business, which we refer to as archive business.

So the same customers, if they want to store their documents for a long period of time, they can use the same platform. Or if they want to use the documents to manage the building, they can use it. That is for the build space. Or if somebody is building something new, they use the same thing.

So we are using our technology on multiple fronts and what we are doing is we are training salespeople, getting from new salespeople and introducing that concept to the customers. That’s what we talked about facilities management that new dashboards we created, using the existing software to address different needs of our customers.

And that is being received very well. So we are hoping in 2018, we’ll get a little more acceleration. The whole idea is our – if you take our revenue last year about $12 plus million is what we lost in terms of revenue erosion, right Jorge. So our number one objective is, how do you offset that.

So the way to offset that is, continue to drive market share in the print business itself. So look at ways in means of reducing that $12 million, maybe $10 million, or $9 million or whatever that might be, which is what we are seeing the trends are starting to happen and then in the meantime adding some technology revenues to offset it.

So that’s the big picture plan to do that. The challenge we have though, we may actually speed if the erosion accelerated. This is the use of technology and built. But we are basing our strategy based on all the information regarding 2016 and 2017. It seems like 2018, we have a better chance of our work on that.

Does that make sense?.

Got it. Yes, yes. That makes sense. I guess then turning to the CDIM business, a bit of improvement there.

Is that largely due to the color business growing a little faster than previous quarters?.

Yes, that’s what Dilo was addressing. The CDIM is primarily legacy business. That is driven by the legacy business. And the way, we’re approaching that business is not only selling to the existing customers what we sell, but also selling newer products to those customers. In terms – even in terms of print business and Dilo give some example.

Dilo, would you like to add that?.

Yes. So we – the last quarter success came from two folds. First one is focusing on the traditional project base spending, we may able to secure more projects and also win additional customers. So that give us new revenue plus, we’ve also been able to secure newer projects from existing customers for other print services.

So I talked about construction signage, safety signage, environmental graphics for our customer. So what we do is – idea is to when win a project, not only focus on the reprographics, the planned printing work that we normally get.

We also focused on other services, that goes into a project, whether it’s on the projects site or if it is dealing the construction or design phase of a project. So idea is to sell all of our print services to the same client base, and I think our sales team has been successful in penetrating many of them during the last quarter.

And we hope to continue that throughout 2018 as well..

And one other thing just to add with Dilo further, with an encouraging part that you mentioned was a color that was driving the growth there, offsetting the drop in our traditional reprographics our large-format black and white. And that wasn’t the case that it was as Dilo mentioned, us getting attraction and stabilization.

And frankly, flatness in the position of black and white business that really was probably the bigger driver of CDIM moderating that decline. So once again, that gives us encouragement that some other things we’re doing to protect the print side of the business are coming to fruition..

Okay, helpful. Okay, last question for me and then I’ll serve pass it on.

You bought some stock in the fourth quarter with the price of the stock, where it is now? Did you see further repurchasing in maybe Q1?.

I don’t know whether it would be Q1. I mean certainly that’s the possibility. Especially like you said, given the stock price. Our focus has been for the lots of several years drive through us reducing – aggressively reducing the debt. And I think it served as very well.

Right now, we don’t have a bank allocation, because based on that the renegotiations, we had with the bank. The focus was on being that debt down first with very, very attractive rates, which is exactly what we’ve wanted and they agreed to that. Last year, we had a bucket of allocation, which we’ve actually extinguished now.

And if the situation remains and the cash flow is good, we might try to go back and get that approval..

Yes. No, that’s exactly right. Noting to add. I mean, if we continue on this trajectory, then I’ll just have to go back to the banks, if we get a bucket there for stock buybacks. And obviously, it would require another board approval. But that’s something that’s definitely on our radar..

Got it. Okay, that’s all I have got. I’ll pass it on..

All right. Thank you very much..

[Operator Instructions] No further questions at this time..

Great. Thank you, Justin, and thanks everyone for joining us on tonight’s call. Very much appreciate your continued interest in ARC Document Solutions. And we look forward to talking with the next quarter. Thanks so much. Bye-bye..

Well, thank you. That does conclude today’s conference call. We do thank you for your participation today..