Thank you for standing by. And welcome to the ARC Q4 and Fiscal Year End Earnings Report. At this time, all participants are in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session.

I would now like to hand the conference over to your speaker today, David Stickney, Vice President Corporation Communications and Investor Relations. Please go ahead..

Thank you, Saline, and welcome everyone. On the call with me today are Suri Suriyakumar, our CEO; our Chief Operating Officer, Dilo Wijesuriya; and Jorge Avalos, our Chief Financial Officer. Our fourth quarter and fiscal year end 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 site at ir.e-arc.com..

Thank you, David, and good afternoon, everybody. Our business and financial performance in 2020 outperformed expectations across the Board.

Despite a sales drop of more than $90 million caused by the pandemic, we aligned our cost structure with a new revenue model, opened up new markets for our services, produce strong earnings and generated cash at an unprecedented level.

After pause in the middle of the year, we recommenced our dividend program in order to return value directly to our shareholders and we have also resume share repurchases, less than two months later, we increased our quarterly dividend by 100%. It’s an enviable position considering the economic impact of COVID-19 on businesses around the world.

When we reconfigured this business in the third quarter of 2019, the plan was to create a company that was smaller, but held more potential for the future. We know the changes we made was significant, far reaching and impactful.

Little did we realize what awaited us in 2020? The precipitous decline in revenues due to the effects of the pandemic compelled us to dig even deeper into the strategy to become more adaptable to the environment and the customers need.

We incorporated more technology into our marketing efforts to address an audience more in tune with social media, web based shopping and online purchasing, allowing us to showcase the extraordinary work our colleagues produce for retail, hospitality, technology and education.

We enhanced our scanning operation, the real engine for online document access to create capacity and credibility for a wide variety of document types.

In addition, using our knowledge and experience in managing print infrastructure for multinational engineering companies, we were able to be in contracts for other multibillion dollar entities, such as utility companies and other large public entities..

Thank you, Suri. Thanks to our sales and divisional management teams. We were able to navigate the fourth quarter well. As Suri pointed out, the pandemic has been throwing different challenges at us throughout the year and we have skillfully responded to them.

Our primary focus has been to listen and work with customers and support their immediate needs. ARC has a diversified customer portfolio and it has allowed us to pursue the jobs and projects of those customers who are staying busy throughout the pandemic.

The education sector continues to order distancing and other signage from us and our comprehensive ability to design, print and install has one or several new projects. The construction vertical continues to use us our plan printing. Thanks to a wide variety of distribution services supported by 150 plus service center network.

It has helped our customers to seamlessly work-from-home and still get painting done and delivered from the nearest ARC print center..

Thank you, Dilo. Over the past two quarters, we’ve offered numerous examples of the customer needs we’ve met and the opportunities we discovered during the pandemic. While much of this experience was new to us, we were ready. Chance favors the prepared as the saying goes. When we started the year, we were ready to operate a smaller company.

The stage had been set for a more focused sales effort in 2020 and the sharing of service lines that were no longer relevant to our existing customers.

The emphasis on moving more of our marketing efforts towards customers outside of the construction market was well timed and coupled with being considered an essential service, we were able to maintain business continuity and continue to serve our communities at the same time.

Well, the pandemic ultimately shrank 2020 revenue more than we could have imagined, reconfiguring the business and reducing expenses had been baked into our plans from the beginning. We simply had to do more of it. The results of our efforts without our gross margin were constantly above 30% every quarter during 2020.

We took the same approach with SG&A, resulting in a 26% year-over-year reduction in expenses, the strength of which benefited earnings and cash flows throughout the year. EBITDA was more than $10 million in each period, including the fourth quarter, the historically weakest quarter in a historically pressured year.

EBITDA margin for the year was 15.5%, a 260-basis-point increase from prior year. Cash flow from operations surpassed $50 million and actually grew year-over-year by more than $1.5 million.

Our 2020 cash flows were not only aided by our sustained profitability during the pandemic, but also from an over $10 million improvement in working capital driven by strong AR collection, a reduction in inventory and deferment afforded to under the CARES Act. The ultimate strength of our performance had a dramatic impact on our capital structure.

If you consider the cash on our balance sheet of more than $50 million, our lower debt levels and the reduction of our leverage ratio to 1.3 times net of U.S. cash, our capital structure today is considerably stronger than it was prior to the pandemic.

Our confidence in the future is also higher as demonstrated by the recently announced increase in our quarterly dividend. As I mentioned during our last call, our investment investors should recognize that we are working from a position of strength and we are keeping our commitment to returning shareholder value at the top of our mind..

Thank you, Jorge. Operator, we are now available to -- for our questions..

Thank you. And we have no questions at this time. I mean, we have a question just came in, coming from the line of Jeffrey Scott with Wells Fargo Bank. Your line is open..

Hi. Thank you and thank you for this update. Very helpful. I guess the question that I have is, as you guys look forward to 2021, at the topline, the revenue, which obviously is down in 2020 versus 2019, as you described.

Where do you see that topline going in 2021? Do you believe that the topline is stabilized at this point or are you anticipating further decline for which you will then have to adjust your cost structure further? Thank you..

So for the 2020 topline, we are now seeing that as the best topline, that is something that we talked about in the last quarter. We have re-engineered and reconfigured our company to a new baseline. And this is for ARC, this has been happening for a while.

We’ve had previously impact because of the secular changes to our traditional and legacy print business. So this has been ongoing. What the pandemic did is, it just compelled us to relook at this and really come up with a new baseline in 2020, based on all the conditions we experienced. So that’s where we are in 2020.

So we are not thinking about what happened in 2019. We are starting off with what happened in 2020. That’s our new cost and operational structure we have. From there onwards the simple answer to that is, obviously, we operated under some extraordinary conditions in 2020. During the pandemic, it was very difficult and very hard.

We all agreed 2021 is going to be better because the vaccinations are out and things are coming back to normal. Generally conditions are improving and there is a lot of forecasting offices opening up back, schools opening up back, which means activity will be higher and there will be a return of some amount of legacy business compared to 2020.

So which means we expect ‘21 -- 2021 to be better. Saline, if we don’t have a response, you can check the queue for further questions..

.

Saline, at this point, it doesn’t look like we have further questions. So we can go ahead and end the call. Thanks everyone for listening this evening. We appreciate your attention and your continued interest in our documents solutions. We look forward to talking with you again next time. Take care. Bye-bye..

This concludes today’s conference call. You may now disconnect..