Architectural Technology Firm Poised to Benefit From Boom

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American Reprographics Co., the low-profile company that sells architectural drawing software and services, is looking to take advantage of new technology.


“Customers are increasingly requesting Web-based document management services, which include the ability to view, order, download and digitally distribute construction documentation,” said Chairman and Chief Executive Mohan Chandramohan in a recent conference call.


Those same customers also want in-house printing capabilities to check designs, he said, and they want to download documents and print short runs in-house “without waiting for the reprographics shop to produce them.”


To stand out from the average Kinko’s, Glendale-based American Reprographics developed its own proprietary software and launched a national expansion. The idea is to target the biggest accounts, expand its facilities management operation and gain more customers outside of the building industry.


There are now 279 reprographics service centers connected to American Reprographics’ technology center in the Silicon Valley (about two-thirds of those are company-owned). The company generates revenue from add-on fees for scanning, downloading and distributing documents digitally.


Though the company’s origins date to 1960, when it operated a single storefront in Los Angeles, it went through a management-led buyout and two recapitalizations before going public in February at $13 a share. It now trades at around $15.


From 2000 to 2004, the company made 46 different acquisitions for a total of $181 million, as it beefed up its operations and revenues.


Last week, Chandramohan, and Chief Operating Officer Suri Suriyakumar (both hail from Sri Lanka and are longtime friends) went on a mini road show, trying to get sell-side analysts to drum up interest in the company.


Five investment banks participated in the company’s IPO which was led by Goldman Sachs & Co. and four have issued analyst coverage.


Thatcher Thompson, an analyst at CIBC World Markets, recently initiated coverage with an “overweight” rating on the stock. He believes the company is poised to benefit from a rebound in non-residential construction, particularly in California, which generates 50 percent of its revenue.


“The company has been able to grow revenue during booms and maintain revenue during downturns,” Thompson wrote in a research report.


Michael Schneider, an analyst at Robert W. Baird & Co., one of the company’s underwriters, has a $17 price target on the stock. “We expect more positive earnings surprises from management,” he said.


In the first quarter ended March 31, American Reprographics reported net income of $35.6 million, compared with $8.4 million for the like period a year earlier. The latest quarter’s results included a $27.7 million one-time tax benefit due to its reorganization from a limited liability company to a Delaware corporation as part of its February IPO. First-quarter earnings included a $1.5 million write-off of deferred financing costs associated with debt prepayment from IPO proceeds.


Excluding the one-time items, the company earned $6.4 million in the first quarter, compared with pro forma net income of $5.9 million a year earlier.


First quarter revenue rose 5.4 percent to $116.5 million.


Chandramohan says the evolving needs of customers are forcing a convergence of document management and facilities management industries with reprographics.


The biggest question for shareholders is whether the company can reach its target of 40 percent to 45 percent earnings growth this year from its three business lines reprographics services, facilities management, and equipment sales. Though reprographics services makes up the bulk of revenue, roughly 75 percent, the fastest-growing segment is facilities management.


American Reprographics operates 182 service centers and recently opened its first store in Mexico City.


Its largest shareholder, Chicago-based private equity firm Code Hennessy & Simmons LLC, sold 5.7 million shares in the IPO and still holds another 11 million shares.


*Staff reporter Kate Berry can be reached at (323) 549-5225, ext. 223, or at

[email protected]

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