ARC STILL PROFITABLE IN SPITE OF HORRIBLE BUSINESS CONDITIONS IN THE A/E/C INDUSTRY

Can business conditions in the reprographics industry get any worse than they were during the first six months of 2009?

Although many in the financial world are already beginning to say that, U.S.-economy-wise, the worst of the recession is behind us and that the beginning of the recovery appears to be not too far ahead of us, it has long been history that recovery in the A/E/C reprographics business lags recovery in the general economy.

Take a look at these numbers, reported in (or extrapolated from) ARC’s financials just released for Q2 2009 and for the First Half of 2009, compared to ARC’s 2008 numbers

For Q1 2009, compared to Q1 2008:
ARC’s revenues from “reprographics services” were down 29.98%
ARC’s revenues from “facilities management” were down 9.09%
ARC’s revenues from “equipment and supplies” were down 16.54%
and, ARC’s total revenues were down 25.59%

For Q2 2009, compared to Q2 2008:
ARC’s revenues from “reprographics services” were down 33.26%
ARC’s revenues from “facilities management” were down 20.22%
ARC’s revenues from “equipment and supplies” were down 8.75%
and, ARC’s total revenues were down 29.14%

Comments and Conclusions:

From an industry-wide, historical perspective, 2nd quarter revenues are typically higher than 1st quarter revenues. Running contrary to typical, ARC just reported Q2 2009 total revenues at $131,054, compared to Q1 2009 revenues at $139,483. (Remember to add 000 to all $ amounts.)

The deterioration of ARC’s revenues from “reprographics services” accelerated from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 29.98%
Q2 2009 vs. Q2 2008 saw a decline of 33.26%
Wow, an unbelievable 33% decline in reprographics services sales, year over year.

The deterioration of ARC’s revenues from “facilities management” accelerated from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 9.09%
Q2 2009 vs. Q2 2008 saw a decline of 20.22%
The “doubling” of the percentage decline in FM revenues was caused (this, of course, is only my personal opinion about this) by:
(a) A/E firms have downsized (fewer employees, fewer FM users, lower FM revenues), and
(b) lower levels of design activity at A/E firms, due to fewer new projects and a drop-off from projects that were on the boards, but which, by now, are over and done with. (I believe this also links up to the decline in the ABI Index (the Architectural Billing Index.)

ARC’s revenues from “equipment and supplies”, the latter being ARC’s least significant revenue segment, did not decline from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 16.54%
Q2 2009 vs. Q2 2008 saw a decline of “only” 8.75%
Apparently, the Q2 sales level is “bottom”; not expected to decline much further than it already has.

And, the “bright side,” ……….., if there is one ………….,

(1) In spite of VERY challenging business conditions, ARC continues to earn a profit. That, in spite of the fact that total sales were down 29.14% (Q2 2009 vs. Q2 2008)
(2) In spite of VERY challenging business conditions, ARC continued to generate positive cash flow and free cash flow and managed to pay-down long-term debt.
(3) If ARC’s management team is doing a great job weathering this “perfect storm” recession, will not stockholders be rewarded when ARC finds its way out of the recession?

Congratulations to ARC’s management team (and entire team) for another incredible quarter in the most challenging economic environment the reprographics industry has faced since the early part of the Great Depression.