Ladies and gentlemen, thank you for standing by, and welcome to the ARC 2020 Q1 Earnings Report Conference call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mr. David Stickney, Vice President of Investor Relations. Thank you. Please go ahead, sir..

Thank you, Atisi 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 2020 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. In today's earning announcement, ARC offered expanded supplemental disclosures to provide shareholders and analysts with additional information in advance of our quarterly conference call.

The disclosures are largely historical and will not be read on today's call.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.

Statements are only predictions based on information as of today, May 5, 2020, 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 welcome, everyone. We appreciate your interest in the company during this extraordinary time. I hope you and your families are healthy and staying safe as the pandemic continues.

As we stated in our last call, 2019 challenged us to reconfigure our product and service portfolios, to adapt to a transforming market and focus on returning shareholder value.Our actions in the second half of 2019 were starting to deliver results this year when COVID-19 was declared a pandemic by the World Health Organization.

It instantly changed everything. Many of you may not realize that ARC is considered an essential service. We serve critical industries such as construction, utilities, health care and more.

All but five of our service centers have remained open throughout the pandemic thus far, supporting other essential businesses across the country.In addition, our work on critical construction and infrastructure projects, there are other demands such as a universal need for health and safety signage in locations where our customers are still at work, performing essential services.

Moreover, we are also producing operating manuals and other documentation for companies who manufacture much needed medical devices and virus testing equipment.

Contrary to what many may have thought, we not only have been keeping up with the demand of our services, but also supporting the communities around us during these critical times.Like other businesses that have deep roots in their local communities, we put excess resources to good use and manufactured face shields of our own design to help and support thousands of frontline workers in the fight against COVID-19.

We also supplied personal protective equipment for our employees and their families. The COVID-19 crisis is like no other, something none of us have experienced in our lifetime.However, the management team at ARC has deep experience in managing the company through crisis situations, and our response was quick and decisive.

We identified critical actions required to protect the financial well-being of the company and executed them immediately. The key was to preserve cash and focus on business continuity.

We identified the largest expense items in the company and took action to mitigate the negative impacts caused by the economic shutdowns.First, we communicated with more than 160 landlords, our leasing companies and our equipment manufacturers and negotiated deferments.

Second, we took actions to mitigate our labor costs through a combination of furloughs, temporary layoffs, scheduled reductions and wage reductions. Third, we focused on collections. As they say, cash is king, especially in times like this.

Our CFO, Jorge Avalos, mobilized our financial teams and personally led these efforts providing us with the means to operate in an otherwise uncertain environment.Finally, our operations team, led by our COO, Dilo Wijesuriya, had daily calls with more than 300 members of our leadership teams to identify opportunities, to offset the economic disruption in every location and identify needs in our communities that we'll fulfill.

These calls were very powerful and effective, not only to preserve business continuity, but also to boost staff morale and create a sense of real teamwork across the country.The result thus far has been very satisfying. The last few weeks of March drove a 9% decline in year-over-year sales in the first quarter.

But our gross margin was essentially flat, and adjusted EBITDA, operating cash and earnings per share all posted gains year-over-year. Our performance illustrates how well we manage costs as the effects of the pandemic grew and how quickly we optimized our labor force and why we are confident that we will overcome the challenges in front of us.

This has been a humbling experience but also an empowering one.None of our accomplishments came easily, and all of them are the result of direct and decisive action on our part. I'm very proud of our team and their performance during these times of crisis.

I'm going to turn the call over to Dilo and Jorge to outline some of the pertinent details of the quarter and further explain our response to the pandemic.

All of the actions we have taken, I think, are inspiring under the circumstances and demonstrate the resourcefulness and grit of our executives and our employees.Dilo?.

first, to keep our employees and customers safe and second, to keep the business healthy. On the safety front, we directed every employee who could work from home to do so.

We applied social distancing between employees and customers in every service center, including curbside pickups and contactless deliveries.We issued face shield, face masks and gloves to protect our employees. We ensured our people who work at our customer facilities were equally protected.

We created emergency shutdown and work rerouting procedures in case of shop closures. And in several instances, we temporarily closed shops to allow for deep cleaning and disinfecting at the slightest concern around exposure.On the business front, we reduced our workforce by approximately 30% via furloughs or temporary layoffs.

We reduced work hours in our shops.

We temporarily reduced wages for all exempt employees between 10% and 25% based on their salaries and management led the way.Suri reduced his salary by 50% and the rest of the C-suite executives reduced their salaries by 35%.The need for health and safety signage has been enormous, and our color graphics capabilities have served us well in addressing it.

And we strengthened our online ordering systems and the ecommerce platform to help increase our presence in the market.

Our operations and sales managers met daily for the first few weeks of the shutdown, and we still meet twice a week online to explore new solutions and refine existing plans for every market.No suggestion is ignored and contributions from the team have been significant.

We are now designing, printing and installing graphics to support our customers back towards initiatives.

Signage will be a critical component when the employees return to the new norm.In addition to managing labor costs and inventory management, we have also negotiated rent deferrals for more than 60% of our service centers to date, and we have asked for and received several months of financing relief from major equipment suppliers.

I'm happy to share this news with you. It represents the combined effort of our people and the opportunities they have identified to serve both the business and our communities in the months ahead.Now I'll turn the call over to our CFO, Jorge Avalos.

Jorge?.

Thank you, Dilo. As we noted in February, ARC ended 2019 with lower levels of debt, a better cost structure, lower margins and a resilient capital structure.

While we were certain that such progress will provide for a good start to the year, we were fortunate that it also put us in a good position to manage through the COVID-19 pandemic.In early March, with growing evidence of an ongoing pandemic, we made the decision to preemptively draw $15 million from our revolving credit line.

It bolstered an already strong balance sheet and provides the comfort we need to operate as aggressively as we can despite the economic disruption that is occurring around us.Thanks to solid cash management throughout the company, I'm happy to report that we have not seen a drop in collections to date.

Cash and operational savings have been impressive. And we continue to explore alternatives in case of pressures from the pandemic delay the return to a more normalized economy.The results speak for themselves. Cash flows from operations in the first quarter was higher than prior year. EBITDA is higher than prior year despite the drop in revenue.

We reduced capital expenditures to $1 million versus $3 million in the prior year.

We took advantage of any and all tax deferments under the CARES Act, and we increased our US cash balance by more than $10 million from March 31 to the end of April.Importantly, this performance was 100% due to the management of our operating cash, not the result of borrowings or using withdrawals from our credit line.

Given the uncertainty of the economic situation, we also remain aware of opportunities for assistance should it become necessary, as such, we are examining the possibility of a loan under the CARES Act program.Although the rules are not final, we are exploring the Main Street loan program applicable to companies in our category.

At this point, it is too early to say whether we qualify for the loan or if we do, whether it would be beneficial for the company to participate, but we are closely watching developments in this area.In the end, there is no single plan that has characterized our approach to the pandemic.

In fact, it has been our willingness to look for and capitalize on opportunities wherever they may occur that has kept us healthy and strong to date. It is this approach and a strong focus on preserving our cash that will help us effectively manage the company in the future.At this point, I'll turn the call back to Suri.

Suri?.

Thank you, Jorge. Given our strong position and our readiness to resume normalized work levels, we remain confident that we can weather this storm, but there are too many variables to accurately forecast any details. As a result, we are withdrawing our annual guidance and suspending dividend payments and share repurchases for the remainder of 2020.

Likewise, the issue of how and when we will resume compliance with the New York Stock Exchange listing standards would be purely speculative.As it stands, the listing thresholds for the NYSC and NASDAQ have been suspended through June, and a resolution in our case isn't required until December.

No one really plans for a pandemic but I'm grateful that we were as well prepared as we were. There remains much to be done and barring any drastic changes in the character of the pandemic we are optimistic that an economic recovery is on the horizon.

As a nation, we have proven resilient and as a company, we continue to demonstrate our ability to adapt and find opportunities under any circumstance. I expect we will do so in the months ahead.Operator, at this time, we are available to take our listeners' questions..

[Operator Instructions].

Atisi, I think we can wrap up the call. Thank you, everyone for your attention this afternoon. We appreciate your interest in the company, and we look forward to talking with you again about our second quarter results later in the year. Thanks everyone. Stay safe. Bye, bye..

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..