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By Ed Avis
ARC announced last week that sales during the second quarter of 2019 dropped about 5 percent from the same period in 2018. In a press release and in an earnings call, ARC leaders said various issues have hurt sales, including the technology-driven move away from print, customers’ environmental concerns, AEC industry consolidation, and customer price sensitivity. Dropping equipment sales also hurt revenue, they said.
"Having reviewed ARC's results for the past six months, we believe it is time for us to critically examine and re-evaluate the products and services we offer," said Suri Suriyakumar, ARC’s CEO, in the press release. "We are facing a constantly-changing sales environment that continues to move away from traditional uses of print. We must move with it.”
Here are some key data points:
- Net sales were $98.9 million, a 5.1% decrease compared to the second quarter of 2018.
- Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 79% of total net sales, while customers outside of construction made up approximately 21% of total net sales.
- Total number of MPS locations at the end of the second quarter grew to approximately 10,675, a net gain of approximately 285 locations over Q2 2018.
High-Tech Sales Better, But Not Enough
In an earnings call on August 6, ARC leaders offered some details about the company’s performance. Dilo Wijesuriya, ARC’s COO, said color printing and on-site services were both down for the quarter, and construction document printing was stable.
Higher technology services were a bright point, Wijesuriya noted: “Our sales teams have also been able to win construction-related technology services, such as Hyperlinking, BIM and drone services. However, the revenue we generate from these services hasn't been able to overcome the reduction in print revenue from declining print volumes.”
Environmental Concerns Hurt Print
In the Q&A period of the earnings call, one of the analysts asked for detail about the declining print volume, and Suriyakumar responded, in part, but explaining the increasing interest among customers to be more environmentally aware: “…That's a different element of the business altogether where people behaviors are changing, they're using more technology and they're becoming environmentally more responsible. So everybody is like, we want to try to print less. We want to avoid printing. In e-mails, you get ‘Be responsible. Don't print.’”
ARC is trying to address this issue by launching an initiative to encourage customers to make donations to a tree replanting organization. The program, called “Print & Plant,” was announced a week after the earnings call.
“Print & Plant is an inexpensive, easy and environmentally-responsible donation-matching program,” said Wijesuriya in a press release about the new program. “Our program collects a tax-free donation as small as 50 cents, adds a matching donation from ARC, and uses the money to plant trees in certified reforestation programs around the world.”
To learn more about this program, click here.
Focusing Services Where Needed
Another analyst on the earnings call asked ARC’s leaders to explain what Suriyakumar meant when he said it was time to “critically examine and re-evaluate the products and services we offer.”
Suriyakumar responded by suggesting that ARC will reduce the range of services it offers in areas where demand is soft. Here are his comments on that topic from the transcript of the call, slightly edited for clarity:
“So historically, if you look at the company, we grew through acquisition. And over a period of time, we have a myriad of services in the constructions space, right? Anything related to print or construction-related services.
“So let's say, for example, large-format black and white, large-format colors, small format, small-format black and white, what you call site graphics, construction-related graphics. Then drone services, BIM services, hyperlinking, archive-related services. So we have a range of services. We pretty much have been providing that across-the-board. If you have 130-plus locations, almost in every location we provided all these services.
“So with what's going on in the marketplace, what we are thinking about is that the need for such services might be greater, for example, in larger cities, such as New York, San Francisco or Los Angeles or Chicago, the big markets, Texas, Houston. But that may not be the so in a branch in Maryland or somewhere in Florida, a smaller location.
“So what we're doing is we are looking at it and saying, ‘Should we have the entire portfolio of services in these locations? And therefore, should we be equipped to do all that work? Is there a need for those services or products and lineup in those markets?’
“And what we are trying to do is we want to optimize that. We want to say, ‘Okay. These markets will only provide these basic services.’ But once you come to a larger market like New York or San Francisco or Los Angeles or Chicago, maybe we have wider array of services depending on how much customer traction we have for such services.
“So we are simply trying to focus on areas that is better opportunity for us to market and try and sustain the growth there. … So it's all a question of fine-tuning the business and saying where do we have the best impact for these services and what kind of customers we are going after and focus on that.”
This is just a sample of what was said during the earnings call. To read the whole transcript, click here.