Thursday, April 21, 2011

Revenues from printing “hard-copy” plans and specs on paper have long been the main revenue driver for reprographers

What’s going on with “plans and specs” printed to paper?

As ARC management has previously pointed out (during “earnings calls” and in SEC filings), ARC’s “mix of sales” has changed, somewhat, as business conditions have changed and as the percentage of sales ARC derives from “FM” sales and from “Equipment” sales have changed, and especially because of the growth of its sales revenues in China, which, if I understand this correctly, are primarily from “equipment” sales rather than sales of “reprographics services.”

As I’ve previously stated in numerous posts on my blog, the “big question” is NOT whether the A/E/C Industry will bounce back and begin a strong recovery. That is certain to happen; the only question is when will that happen. It is a given that that will happen. For reprographers, and of course for ARC, the “big question” is, will reprographer revenues, and, in particular, sales from printing “plans and specs” for A/E/C projects, recover in direct proportion to the bounce-back, (recovery) that the A/E/C Industry experiences? Personally, I don’t think the bounce-back (recovery) will be proportionate; I think the bounce-back (recovery) in revenues from printing plans and specs will underperform the bounce-back (recovery) that the A/E/C Industry experiences. And, I say that specifically because A/E/C customers are, apparently, on a mission to drive the use of “paper” (meaning, the use of hard-copy prints of plans and specs) out of their project-business-process. As to the latter statement, I’ve done a number of posts on this blog, over the past year (and even longer ago than that), about A/E/C customers transferring digital files to their project partners (and to prospective contractors and sub-contractors) rather than committing everything to hard-copy print.

In today’s post, I’ve included three “tables”. Other than the “estimates” shown in the tables, the information presented was pulled from 10-K’s ARC filed with the S.E.C. (It’s not my intent to pick-on ARC, but ARC is the only “publicly-held” company in the reprographics business in the U.S; hence, the only company in the reprographics industry that publishes its numbers.)

Well over a year ago, ARC began its “Riot Color” initiative. In spite of that initiative, ARC’s “reprographics services” sales have yet to show any meaningful increase, and that’s despite the fact that Riot Color’s sales efforts are, if I’ve correctly understood ARC’s management’s statements about Riot Color’s primary business initiative, directed at/to “non-A/E/C” customers. Sales from Riot Color are included in sales of “reprographics services.” Sales of “reprographics services have, with only one exception (Q2 2010), sequentially declined over the past 12 quarters. If Riot Color is making headway, in other words, if Riot Color is gaining traction and has been and is contributing “new business” to ARC’s “reprographics services” sales, then what does that say about ARC’s revenues from printing “plans and specs”? To me, the numbers kind-of-lead-one-to-assume that, if Riot Color has been, and is, growing, ARC’s sales from printing A/E/C plans and specs are continuing to decline and are declining more than Riot Color’s sales are growing.

Quite recently, I received an e-mail from a former owner/manager of a fairly large reprographics company. In his e-mail to me, he said this ….. (note that, for confidentiality reasons, I’ve xxx’d out any “name” references that person made) …..

“One of the last projects I was involved with was the (name of project deleted) project in (name of city deleted.) About 75% of the documents that were sold (before I left) went out on CD, and, as best as we could tell, never came back for printing. Those who did order (prints on) paper ordered things like 1 set of full-size prints, 1 set of half-size prints …. and a CD with both plans & specs. Those orders came from the bigger GC’s and not from subs unless they (the subs) were really big ones.”

“(Name of GC deleted) built the long awaited (name of very large project deleted) project with minimal printing, and I mean next to nothing, and that was with the docs on (name of e-planroom deleted.)”

Although these statements were made by a single individual – certainly, the statements of one person don’t necessarily exactly define what’s going on in every city and state in the U.S. – the individual who made these statements was in the reprographics business for more than 30 years and, in my opinion, is one of the smartest, hardest-working individuals who ever worked in the reprographics industry – which is why I put great credence in the statements this individual made. Inasmuch as I’ve been “retired” from active participation in the reprographics business in the U.S., statements I make, as to what’s going on, are simply opinion. On the other hand, the statements made by the person who sent me the e-mail I’ve copied into this post, are statements of fact.

Here are the “tables” that I referenced above:

- - First table: ARC “total net sales”

- - Second table: ARC “reprographics services” sales:

- - Third table: % of “total net sales” attributable to sales of “reprographics services”:

Well, after trying three times, unsuccessfully, to get these tables to show up properly in this blog post, I decided to create a pdf file for the tables, and you will have to “click on” this link to access the tables:

One last set of comments, somewhat related to the blah-blah-blah above …. during the last several ARC earnings calls, I’ve heard Suri talk quite a bit about ARC’s Riot Color initiatives and about ARC’s MPS initiatives. But, I’ve not heard anything, at all, about ARC’s “BIM Services” initiatives. At the end of September (or maybe it was at the beginning of October) 2009, ARC completed the acquisition of the “business and assets” of the RCMS Group. Unless I’m wrong about this, the RCMS Group acquisition was the only “non-reprographics” acquisition ARC completed in the past three years. Inasmuch as RCMS offered “*BIM Services” - and, I would imagine, continues to offer BIM Services under its relatively new name, ARC BIM Services ARC’s acquisition of RCMS Group represented the acquisition of a technology business, rather than the acquisition of a reprographics business. And, inasmuch as ARC management has worked hard to present ARC as a “technology” business, rather than as “just” a “printing” business, I’m somewhat befuddled as to why Suri hasn’t spoken about ARC’s BIM services initiatives (and, it’s interesting to me that financial analysts who follow ARC and who participate in the “earnings calls” haven’t asked Suri about that initiative – how sales are going, how that business is affecting ARC’s overall business and strategy, etc.) Anyone who follows ARC knows that ARC’s BIM Services team members (led by K.P. Reddy, ARC’s VP of BIM Services) have been out, literally all over the country, promoting ARC’s BIM Services, for over a year by now. In my opinion, success in selling “BIM Services” would require (would have required, to put this in the “past tense”) the identification of “the right people” to sell BIM Services and extensive training to empower those people to properly sell BIM Services. This is not a “knock on” reprographics services “sales” guys and gals, but I’ve worked with a “whole-lotta” reprographics sales reps during my 40 (or so) year involvement in the reprographics business and industry and, in my opinion, not many of them would be the “right people” to sell BIM Services. So, I’m kind of wondering, has ARC had success with its BIM Services initiatives, or not, and, if not, why not, what went wrong?

(* BIM = building-information-modeling and consulting services)

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