ARC Document Solutions, Inc. (NYSE:ARC) Q3 2018 Earnings Conference Call - Final Transcript
Nov 07, 2018 • 05:00 pm ET
(Operator Instructions) Josh Nichols, FBR.
I wanted to ask a little bit -- I mean, nice increase in the gross margin. I know the company's always been diligent about its expense and overhead management. Could you talk a little bit about the different margin profiles you've been seeing between like CDIM, MPS and AIM, and how that's been affecting the mix and changes on that front?
Yes, absolutely. That's a perfect question for Jorge. Jorge, would you like to address that?
Yes, sure. So one of the things that we always talk about, with CDIM, most of that revenue is driven to our service centers. So when you look at our cost structure there, our facility is fixed. Our equipment is fixed, yes, maybe a little variability in the labor but when we drive more revenue in there, the contribution margin there comes in at a much higher rate than our normal gross margin. So when we look at the mix in this quarter, where CDIM was up 4.6%, then that's a big contributor to why we have the 200 basis points increase in gross margin. Does that answer your question?
Yes, perfect. Then I was going to ask a follow-up question on the MPS front. Good to see some healthy, continued growth trajectory there for two quarters now. Do you think that's sustainable as we move into 2019? And then also, is there -- what's the big driver behind that? Is it large regional, national wins? Any additional color you could provide would be helpful.
Sure. So MPS, as you probably know, is largely driven by small-format printing. That's the one which dominates the managed print services marketplace in offices. And that's a challenging market because, number one, there's a huge amount of oversupply in the market. There are still over 20 manufacturers competing for this market fiercely. And in addition to that, that is the one market which is actually taking a beating from the user technology, where it's something as simple as even signing contractual documents. You probably heard DocuSign just went public, and it's a $5 billion company. So more people are using electronic signatures. And so the user technology is actually hurting that space. And that will continue. So this has always been a challenged market like any other print segment. This is more vulnerable to the user technology, and we have been very opportunistic about it. And with regard to what really delivered our numbers this time is, yes, we have -- every now and then, sometimes, we win a larger account or regional or national account. And that will help us prop our numbers up. But because of our -- the technology integration we have and the fact we are actually one -- provide an ecosystem of all of these construction-related services, we are able to grow in many parts of these segments -- many segments of this business.
And then last question from me. Good to see that the SG&A coming down a