WALNUT CREEK, Calif.,
May 1, 2018 /PRNewswire/ -- ARC Document Solutions, Inc.
(NYSE: ARC), a leading document solutions provider to design,
engineering, construction, and facilities management professionals,
today reported its financial results for the first quarter ended
March 31, 2018.
Financial
Highlights:
|
|
|
|
Three Months
Ended
|
|
March
31,
|
(All dollar
amounts in millions, except EPS)
|
2018
|
|
2017
|
Net Sales
|
$
|
97.7
|
|
$
|
98.7
|
Gross
Margin
|
30.9%
|
|
31.2%
|
Net income
attributable to ARC
|
$
|
0.6
|
|
$
|
1.8
|
Adjusted net income
attributable to ARC
|
$
|
0.5
|
|
$
|
1.9
|
Earnings per share -
Diluted
|
$
|
0.01
|
|
$
|
0.04
|
Adjusted earnings per
share - Diluted
|
$
|
0.01
|
|
$
|
0.04
|
Cash (used in)
provided by operating activities
|
$
|
(2.0)
|
|
$
|
6.9
|
EBITDA
|
$
|
10.2
|
|
$
|
12.8
|
Adjusted
EBITDA
|
$
|
10.9
|
|
$
|
13.6
|
Capital
Expenditures
|
$
|
2.9
|
|
$
|
2.0
|
Debt & Capital
Leases (including current), net of unamortized deferred financing
fees
|
$
|
138.1
|
|
$
|
154.3
|
Management Commentary
"We are starting to see our sales declines moderating, while we
experience a return to growth in our more traditional business
lines. This is encouraging and clear evidence that we are making
progress against our strategic objectives laid out last year," said
K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document
Solutions. "Our renewed focus on ARC's print business gained
considerable traction during the quarter with a 2.1% increase in
CDIM."
"While our efforts to protect our print business and grow our
tech business are starting to show results, recent experience shows
that we must continue to make changes as we move forward and stay
ahead of the curve in an ever-changing business environment," said
Mr. Suriyakumar. "We remain upbeat about the coming year and our
strategic direction, and in pursuit of further progress, we will
continue to support initiatives that are growing, but shrink costs
associated with products and services that have not."
"Medical costs were exceptionally high during the period, having
a 140 basis point impact on our operating margins and a
two cent impact on earnings per
share. Despite these costs, gross margin declined just 30 basis
points," said Jorge Avalos, Chief
Financial Officer. "Negative cash flow from operations was due to
changes in working capital, and more specifically
the timing of payables. This is a trend that is likely to be
familiar to our long-term investors, and as usual, we expect this
trend to reverse by the second half of the year, and anticipate
strong cash flows for the year as our forecast demonstrates."
2018 First Quarter Supplemental Information:
Net sales were $97.7 million, a
1.0% decrease compared to the first quarter of 2017.
Days sales outstanding were 55 in Q1 2018 and 54 in Q1 2017.
Architectural, engineering, construction and building
owner/operators (AEC/O) customers comprised approximately 79% of
our total net sales, while customers outside of construction made
up approximately 21% of our total net sales.
Total number of MPS locations at the end of the first quarter
has grown to approximately 10,270, a net gain of approximately 590
locations over Q1 2017.
Adjusted EBITDA excludes loss on extinguishment and modification
of debt and stock-based compensation expense.
Sales from
Services and Product Lines as a Percentage of Net
Sales
|
|
|
|
Three Months
Ended
|
|
March
31,
|
Services and Product
Line
|
2018
|
|
2017
|
CDIM
|
53.5%
|
|
51.9%
|
MPS
|
32.2%
|
|
32.9%
|
AIM
|
3.0%
|
|
3.3%
|
Equipment and
supplies sales
|
11.3%
|
|
11.9%
|
Outlook
The outlook for ARC Document Solutions remains unchanged with
2018 fully-diluted annual adjusted earnings per share anticipated
to be in the range of $0.10 to
$0.16; 2018 annual cash provided by
operating activities projected to be in the range of $44 to $50 million;
and 2018 annual adjusted EBITDA forecast to be in the range
of $48 to $54 million.
Teleconference and Webcast
ARC Document Solutions will hold a conference call with
investors and analysts on Tuesday, May 1,
2018, at 2 P.M. Pacific Time
(5 P.M. Eastern Time) to discuss
results for the Company's 2018 first quarter. To access the live
audio call, dial 800-239-9838. International callers may join the
conference by dialing +1 323-794-2551. The conference code is
9761261. A live webcast will also be made available on the investor
relations page of ARC Document Solution's website
at http://ir.e-arc.com. A recording of the webcast will be
available for approximately 90 days following the call's
conclusion.
About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions distributes Documents and Information to
facilitate communication for design, engineering and construction
professionals, real estate managers and developers, facilities
owners, and a variety of similar disciplines. The Company provides
cloud and mobile solutions, professional services, and hardware to
help its customers around the world reduce costs and increase
efficiency, improve information access and control, and communicate
faster, easier, and better. Follow ARC at www.e-arc.com.
Forward-Looking Statements
This press release contains forward-looking statements that are
based on current opinions, estimates and assumptions of management
regarding future events and the future financial performance of the
Company. Words and phrases such as "return to growth,"
"making progress," "remain upbeat," "guidance," "expect,"
"projected," "forecast," "outlook," and similar expressions
identify forward-looking statements and all statements other than
statements of historical fact, including, but not limited to, any
projections regarding earnings, revenues and financial performance
of the Company, could be deemed forward-looking statements. We
caution you that such statements are only predictions and are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those contained in the
forward-looking statements. In addition to matters affecting the
construction, managed print services, document management or
reprographics industries, or the economy generally, factors that
could cause actual results to differ from expectations stated in
forward-looking statements include, among others, the factors
described in the caption entitled "Risk Factors" in Item 1A in ARC
Document Solution's Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, Quarterly Reports on Form 10-Q, and
other periodic filings and prospectuses. The Company undertakes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise, except as required by law.
ARC Document
Solutions, Inc.
|
Consolidated
Balance Sheets
|
(In thousands,
except per share data)
|
(Unaudited)
|
|
March
31,
|
December
31,
|
Current
assets:
|
2018
|
2017
|
Cash and cash
equivalents
|
$
|
13,968
|
|
$
|
28,059
|
|
Accounts receivable,
net of allowances for accounts receivable of $2,516 and
$2,341
|
59,893
|
|
57,011
|
|
Inventories,
net
|
19,577
|
|
19,937
|
|
Prepaid
expenses
|
5,220
|
|
4,208
|
|
Other current
assets
|
4,313
|
|
5,266
|
|
Total current
assets
|
102,971
|
|
114,481
|
|
Property and
equipment, net of accumulated depreciation of $199,231 and
$198,693
|
63,083
|
|
64,245
|
|
Goodwill
|
121,051
|
|
121,051
|
|
Other intangible
assets, net
|
8,078
|
|
9,068
|
|
Deferred income
taxes
|
28,043
|
|
28,029
|
|
Other
assets
|
2,577
|
|
2,551
|
|
Total
assets
|
$
|
325,803
|
|
$
|
339,425
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$
|
20,850
|
|
$
|
24,289
|
|
Accrued payroll and
payroll-related expenses
|
9,552
|
|
12,617
|
|
Accrued
expenses
|
14,912
|
|
17,201
|
|
Current portion of
long-term debt and capital leases
|
20,198
|
|
20,791
|
|
Total current
liabilities
|
65,512
|
|
74,898
|
|
Long-term debt and
capital leases
|
117,888
|
|
123,626
|
|
Other long-term
liabilities
|
3,279
|
|
3,290
|
|
Total
liabilities
|
186,679
|
|
201,814
|
|
Commitments and
contingencies
|
|
|
Stockholders'
equity:
|
|
|
ARC Document
Solutions, Inc. stockholders' equity:
|
|
|
Preferred stock, $0.001 par
value, 25,000 shares authorized; 0 shares issued and
outstanding
|
—
|
|
—
|
|
Common stock, $0.001 par
value, 150,000 shares authorized; 47,936 and 47,913 shares
issued and 45,262 and 45,266 shares outstanding
|
48
|
|
48
|
|
Additional paid-in
capital
|
121,650
|
|
120,953
|
|
Retained
earnings
|
21,152
|
|
20,524
|
|
Accumulated other
comprehensive loss
|
(1,954)
|
|
(1,998)
|
|
|
140,896
|
|
139,527
|
|
Less cost of common
stock in treasury, 2,674 and 2,647 shares
|
9,350
|
|
9,290
|
|
Total ARC Document
Solutions, Inc. stockholders' equity
|
131,546
|
|
130,237
|
|
Noncontrolling
interest
|
7,578
|
|
7,374
|
|
Total
equity
|
139,124
|
|
137,611
|
|
Total liabilities and
equity
|
$
|
325,803
|
|
$
|
339,425
|
|
ARC Document
Solutions, Inc.
|
Consolidated
Statements of Operations
|
(In thousands,
except per share data)
|
(Unaudited)
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Service
sales
|
$
|
86,710
|
|
$
|
86,964
|
|
Equipment and
supplies sales
|
10,998
|
|
11,767
|
|
Total net
sales
|
97,708
|
|
98,731
|
|
Cost of
sales
|
67,523
|
|
67,893
|
|
Gross
profit
|
30,185
|
|
30,838
|
|
Selling, general and
administrative expenses
|
27,301
|
|
25,147
|
|
Amortization of
intangible assets
|
1,008
|
|
1,115
|
|
Income from
operations
|
1,876
|
|
4,576
|
|
Other income,
net
|
(81)
|
|
(19)
|
|
Loss on
extinguishment and modification of debt
|
—
|
|
66
|
|
Interest expense,
net
|
1,442
|
|
1,555
|
|
Income before income
tax provision
|
515
|
|
2,974
|
|
Income tax
provision
|
39
|
|
1,226
|
|
Net income
|
476
|
|
1,748
|
|
Loss attributable to
the noncontrolling interest
|
152
|
|
36
|
|
Net income
attributable to ARC Document Solutions, Inc.
shareholders
|
$
|
628
|
|
$
|
1,784
|
|
Earnings per share
attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
Basic
|
$
|
0.01
|
|
$
|
0.04
|
|
Diluted
|
$
|
0.01
|
|
$
|
0.04
|
|
Weighted average
common shares outstanding:
|
|
|
Basic
|
44,741
|
|
45,639
|
|
Diluted
|
44,855
|
|
46,382
|
|
ARC Document
Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Cash flows from
operating activities
|
|
|
Net income
|
$
|
476
|
|
$
|
1,748
|
|
Adjustments to
reconcile net income to net cash (used in) provided by operating
activities:
|
|
|
Allowance for
accounts receivable
|
327
|
|
208
|
|
Depreciation
|
7,129
|
|
7,139
|
|
Amortization of
intangible assets
|
1,008
|
|
1,115
|
|
Amortization of
deferred financing costs
|
60
|
|
94
|
|
Stock-based
compensation
|
653
|
|
737
|
|
Deferred income
taxes
|
(92)
|
|
1,177
|
|
Deferred tax
valuation allowance
|
57
|
|
(11)
|
|
Loss on
extinguishment and modification of debt
|
—
|
|
66
|
|
Other non-cash items,
net
|
(44)
|
|
27
|
|
Changes in operating
assets and liabilities:
|
|
|
Accounts
receivable
|
(2,913)
|
|
(53)
|
|
Inventory
|
524
|
|
(1,534)
|
|
Prepaid expenses and
other assets
|
(150)
|
|
(202)
|
|
Accounts payable and
accrued expenses
|
(9,014)
|
|
(3,569)
|
|
Net cash (used in)
provided by operating activities
|
(1,979)
|
|
6,942
|
|
Cash flows from
investing activities
|
|
|
Capital
expenditures
|
(2,892)
|
|
(2,012)
|
|
Other
|
380
|
|
132
|
|
Net cash used in
investing activities
|
(2,512)
|
|
(1,880)
|
|
Cash flows from
financing activities
|
|
|
Proceeds from stock
option exercises
|
—
|
|
68
|
|
Proceeds from
issuance of common stock under Employee Stock Purchase
Plan
|
44
|
|
36
|
|
Share
repurchases
|
(60)
|
|
—
|
|
Contingent
consideration on prior acquisitions
|
(53)
|
|
(70)
|
|
Early extinguishment
of long-term debt
|
—
|
|
(8,500)
|
|
Payments on long-term
debt agreements and capital leases
|
(5,751)
|
|
(3,808)
|
|
Borrowings under
revolving credit facilities
|
2,000
|
|
1,500
|
|
Payments under
revolving credit facilities
|
(5,875)
|
|
(125)
|
|
Net cash used in
financing activities
|
(9,695)
|
|
(10,899)
|
|
Effect of foreign
currency translation on cash balances
|
95
|
|
267
|
|
Net change in cash
and cash equivalents
|
(14,091)
|
|
(5,570)
|
|
Cash and cash
equivalents at beginning of period
|
28,059
|
|
25,239
|
|
Cash and cash
equivalents at end of period
|
$
|
13,968
|
|
$
|
19,669
|
|
Supplemental
disclosure of cash flow information
|
|
|
Noncash investing
and financing activities
|
|
|
Capital lease
obligations incurred
|
$
|
3,275
|
|
$
|
7,920
|
|
ARC Document
Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Service
sales
|
|
|
CDIM
|
$
|
52,320
|
|
$
|
51,258
|
|
MPS
|
31,467
|
|
32,494
|
|
AIM
|
2,923
|
|
3,212
|
|
Total service
sales
|
86,710
|
|
86,964
|
|
Equipment and
supplies sales
|
10,998
|
|
11,767
|
|
Total net
sales
|
$
|
97,708
|
|
$
|
98,731
|
|
ARC Document
Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows (used in) provided by operating
activities to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
|
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Cash flows (used in)
provided by operating activities
|
$
|
(1,979)
|
|
$
|
6,942
|
|
Changes in operating
assets and liabilities
|
11,553
|
|
5,358
|
|
Non-cash expenses,
including depreciation and amortization
|
(9,098)
|
|
(10,552)
|
|
Income tax
provision
|
39
|
|
1,226
|
|
Interest expense,
net
|
1,442
|
|
1,555
|
|
Loss attributable to
the noncontrolling interest
|
152
|
|
36
|
|
Depreciation and
amortization
|
8,137
|
|
8,254
|
|
EBITDA
|
10,246
|
|
12,819
|
|
Loss on
extinguishment and modification of debt
|
—
|
|
66
|
|
Stock-based
compensation
|
653
|
|
737
|
|
Adjusted
EBITDA
|
$
|
10,899
|
|
$
|
13,622
|
|
|
See Non-GAAP
Financial Measures discussion below.
|
ARC Document
Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document
Solutions, Inc. to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
|
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Net income
attributable to ARC Document Solutions, Inc.
|
$
|
628
|
|
$
|
1,784
|
|
Interest expense,
net
|
1,442
|
|
1,555
|
|
Income tax
provision
|
39
|
|
1,226
|
|
Depreciation and
amortization
|
8,137
|
|
8,254
|
|
EBITDA
|
10,246
|
|
12,819
|
|
Loss on
extinguishment and modification of debt
|
—
|
|
66
|
|
Stock-based
compensation
|
653
|
|
737
|
|
Adjusted
EBITDA
|
$
|
10,899
|
|
$
|
13,622
|
|
|
See Non-GAAP
Financial Measures discussion below.
|
ARC Document
Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited
adjusted net income attributable to ARC
(In thousands, except per share data)
(Unaudited)
|
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
2017
|
Net income
attributable to ARC Document Solutions, Inc.
|
$
|
628
|
|
$
|
1,784
|
|
Loss on
extinguishment and modification of debt
|
—
|
|
66
|
|
Income tax benefit
related to above items
|
—
|
|
(26)
|
|
Deferred tax
valuation allowance and other discrete tax items
|
(149)
|
|
28
|
|
Adjusted net income
attributable to ARC Document Solutions, Inc.
|
$
|
479
|
|
$
|
1,852
|
|
|
|
|
Actual:
|
|
|
Earnings per share
attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
Basic
|
$
|
0.01
|
|
$
|
0.04
|
|
Diluted
|
$
|
0.01
|
|
$
|
0.04
|
|
Weighted average
common shares outstanding:
|
|
|
Basic
|
44,741
|
|
45,639
|
|
Diluted
|
44,855
|
|
46,382
|
|
|
|
|
Adjusted:
|
|
|
Earnings per
share attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
Basic
|
$
|
0.01
|
|
$
|
0.04
|
|
Diluted
|
$
|
0.01
|
|
$
|
0.04
|
|
Weighted average
common shares outstanding:
|
|
|
Basic
|
44,741
|
|
45,639
|
|
Diluted
|
44,855
|
|
46,382
|
|
|
See Non-GAAP
Financial Measures discussion below.
|
Non-GAAP Financial Measures
EBITDA and related ratios presented in this report are
supplemental measures of our performance that are not required by
or presented in accordance with accounting principles generally
accepted in the United States of
America ("GAAP"). These measures are not measurements of our
financial performance under GAAP and should not be considered as
alternatives to net income, income from operations, or any other
performance measures derived in accordance with GAAP or as an
alternative to cash flows from operating, investing or financing
activities as a measure of our liquidity.
EBITDA represents net income before interest, taxes,
depreciation and amortization.
We have presented EBITDA and related ratios because we consider
them important supplemental measures of our performance and
liquidity. We believe investors may also find these measures
meaningful, given how our management makes use of them. The
following is a discussion of our use of these measures.
We use EBITDA to measure and compare the performance of our
operating segments. Our operating segments' financial performance
includes all of the operating activities except debt and taxation
which are managed at the corporate level for U.S. operating
segments. We use EBITDA to compare the performance of our operating
segments and to measure performance for determining
consolidated-level compensation. In addition, we use EBITDA to
evaluate potential acquisitions and potential capital
expenditures.
EBITDA and related ratios have limitations as analytical tools,
and should not be considered in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are as follows:
- They do not reflect our cash expenditures, or future
requirements for capital expenditures and contractual
commitments;
- They do not reflect changes in, or cash requirements for, our
working capital needs;
- They do not reflect the significant interest expense, or the
cash requirements necessary, to service interest or principal
payments on our debt;
- Although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements; and
- Other companies, including companies in our industry, may
calculate these measures differently than we do, limiting their
usefulness as comparative measures.
Because of these limitations, EBITDA and related ratios should
not be considered as measures of discretionary cash available to us
to invest in business growth or to reduce our indebtedness. We
compensate for these limitations by relying primarily on our GAAP
results and using EBITDA and related ratios only as
supplements.
Our presentation of adjusted net income and adjusted EBITDA is
an attempt to provide meaningful comparisons to our historical
performance for our existing and future investors. The
unprecedented changes in our end markets over the past several
years have required us to take measures that are unique in our
history and specific to individual circumstances. Comparisons
inclusive of these actions make normal financial and other
performance patterns difficult to discern under a strict GAAP
presentation. Each non-GAAP presentation, however, is explained in
detail in the reconciliation tables above.
Specifically, we have presented adjusted net income attributable
to ARC and adjusted earnings per share attributable to ARC
shareholders for the three months ended March 31, 2018 and
2017 to reflect the exclusion of loss on extinguishment and
modification of debt and changes in the valuation allowances
related to certain deferred tax assets and other discrete tax
items. This presentation facilitates a meaningful comparison of our
operating results for the three months ended March 31, 2018
and 2017.
We have presented adjusted EBITDA for the three months ended
March 31, 2018 and 2017 to exclude loss on extinguishment and
modification of debt and stock-based compensation expense. The
adjustment of EBITDA for these items is consistent with the
definition of adjusted EBITDA in our credit agreement; therefore,
we believe this information is useful to investors in assessing our
financial performance.
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SOURCE ARC Document Solutions, Inc.