ARC Document Solutions Reports Results for Second Quarter 2018

August 02, 2018

SAN RAMON, Calif., Aug. 2, 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 second quarter ended June 30, 2018.

Financial Highlights:







Three Months Ended


Six Months Ended


June 30,


June 30,

(All dollar amounts in millions, except EPS)

2018

2017


2018

2017

Net Sales

$

104.2


$

102.3



$

201.9


$

201.0


Gross Margin

34.4

%

33.7

%


32.7

%

32.5

%

Net income attributable to ARC

$

4.1


$

3.6



$

4.7


$

5.4


Adjusted net income attributable to ARC

$

4.1


$

3.7



$

4.6


$

5.6


Earnings per share - Diluted

$

0.09


$

0.08



$

0.10


$

0.12


Adjusted earnings per share - Diluted

$

0.09


$

0.08



$

0.10


$

0.12


Cash provided by operating activities

$

24.9


$

18.5



$

23.0


$

25.4


EBITDA

$

15.6


$

16.1



$

25.9


$

28.9


Adjusted EBITDA

$

16.2


$

17.0



$

27.1


$

30.6


Capital Expenditures

$

3.8


$

2.9



$

6.7


$

4.9


Debt & Capital Leases (including current), net of unamortized deferred financing fees




$

136.2


$

152.0


Logo (PRNewsfoto/ARC Document Solutions, Inc.)

Management Commentary

"We made definitive progress toward our strategic objectives in the second quarter, delivering growth in three out of four business lines," said Suri Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "Traditional project printing was the primary driver of sales as we continued to protect print revenues, and when coupled with our constant focus on managing costs, we added seventy basis points of improvement to our consolidated gross margin. With half of the year ahead of us, we have already achieved the lower end of our previously-announced annual EPS forecast."

"While the print market will continue to challenge us, we feel well-positioned to gain market share as our investments in sales and marketing take hold," said Mr. Suriyakumar. "Considering our current performance and our expectations for the remainder of the year, we're pleased to upgrade to our annual forecast, bringing ARC's annual EPS range to 12 to 17 cents."

"In the face of a shrinking print market, we were gratified to deliver year-over-year growth for the first time in three years, especially with the improvements in gross margin and operating cash flows that came with it," said Jorge Avalos, Chief Financial Officer. "The exceptional increase in medical costs we predicted for the second quarter had a negative impact of $1.4 million on EBITDA and they decreased earnings per share by 2.1 cents, but despite these pressures, our results for the quarter were solid and we expect them to be sustainable for the balance of the year."

2018 Second Quarter Supplemental Information:

Net sales were $104.2 million, a 1.9% increase compared to the second quarter of 2017.

Days sales outstanding were 52 in Q2 2018 and 52 in Q2 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 second quarter has grown to approximately 10,390, a net gain of approximately 560 locations over Q2 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

Six Months Ended


June 30,

June 30,

Services and Product Line

2018

2017

2018

2017

CDIM

53.3

%

52.5

%

53.4

%

52.2

%

MPS

32.0

%

32.3

%

32.1

%

32.6

%

AIM

3.0

%

3.1

%

3.0

%

3.2

%

Equipment and supplies sales

11.7

%

12.1

%

11.5

%

12.0

%

Outlook

The outlook for ARC Document Solutions 2018 fully-diluted annual adjusted earnings per share has been upgraded to a range of $0.12 to $0.17 from its previous range of $0.10 to $0.16; 2018 annual cash provided by operating activities remains unchanged and is projected to be in the range of $44 to $50 million, as is the company's 2018 annual adjusted EBITDA, which is 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 Thursday, August 2, 2018, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2018 second 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 7263562. 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 "definitive progress",   "well-positioned to gain market share", "expectations", "outlook", "sustainable", "projected," 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)


June 30,

December 31,

Current assets:

2018

2017

Cash and cash equivalents

$

24,738


$

28,059


Accounts receivable, net of allowances for accounts receivable of $2,586 and $2,341

60,689


57,011


Inventories, net

18,481


19,937


Prepaid expenses

5,168


4,208


Other current assets

5,056


5,266


Total current assets

114,132


114,481


Property and equipment, net of accumulated depreciation of $198,045 and $198,693

68,059


64,245


Goodwill

121,051


121,051


Other intangible assets, net

7,040


9,068


Deferred income taxes

26,219


28,029


Other assets

2,463


2,551


Total assets

$

338,964


$

339,425


Current liabilities:



Accounts payable

$

25,895


$

24,289


Accrued payroll and payroll-related expenses

13,834


12,617


Accrued expenses

16,535


17,201


Current portion of long-term debt and capital leases

20,785


20,791


Total current liabilities

77,049


74,898


Long-term debt and capital leases

115,394


123,626


Other long-term liabilities

4,500


3,290


Total liabilities

196,943


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; 48,345 and 47,913 shares issued and 45,671 and 45,266 shares outstanding

48


48


   Additional paid-in capital

122,252


120,953


   Retained earnings

25,226


20,524


   Accumulated other comprehensive loss

(3,367)


(1,998)



144,159


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

134,809


130,237


Noncontrolling interest

7,212


7,374


  Total equity

142,021


137,611


  Total liabilities and equity

$

338,964


$

339,425


 

ARC Document Solutions, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


Three Months Ended

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Service sales

$

92,031


$

89,870


$

178,741


$

176,834


Equipment and supplies sales

12,159


12,410


23,157


24,177


Total net sales

104,190


102,280


201,898


201,011


Cost of sales

68,355


67,794


135,878


135,687


Gross profit

35,835


34,486


66,020


65,324


Selling, general and administrative expenses

27,506


25,550


54,807


50,697


Amortization of intangible assets

985


1,082


1,993


2,197


Income from operations

7,344


7,854


9,220


12,430


Other income, net

(20)


(22)


(101)


(41)


Loss on extinguishment and modification of debt


40



106


Interest expense, net

1,516


1,594


2,958


3,149


Income before income tax provision

5,848


6,242


6,363


9,216


Income tax provision

1,840


2,522


1,879


3,748


Net income

4,008


3,720


4,484


5,468


Loss (income) attributable to the noncontrolling interest

66


(84)


218


(48)


Net income attributable to ARC Document  Solutions, Inc. shareholders

$

4,074


$

3,636


$

4,702


$

5,420


Earnings per share attributable to ARC Document Solutions, Inc. shareholders:





Basic

$

0.09


$

0.08


$

0.10


$

0.12


Diluted

$

0.09


$

0.08


$

0.10


$

0.12


Weighted average common shares outstanding:





Basic

44,936


45,792


44,839


45,716


Diluted

44,979


46,258


44,924


46,329


 

ARC Document Solutions, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


Three Months Ended

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Cash flows from operating activities





Net income

$

4,008


$

3,720


$

4,484


$

5,468


Adjustments to reconcile net income to net cash provided by operating activities:





Allowance for accounts receivable

228


353


555


561


Depreciation

7,190


7,271


14,319


14,410


Amortization of intangible assets

985


1,082


1,993


2,197


Amortization of deferred financing costs

59


83


119


177


Stock-based compensation

574


816


1,227


1,553


Deferred income taxes

1,799


2,248


1,707


3,425


Deferred tax valuation allowance

(6)


45


51


34


Loss on extinguishment and modification of debt


40



106


Other non-cash items, net

(62)


(163)


(106)


(136)


Changes in operating assets and liabilities:





Accounts receivable

(1,761)


(95)


(4,674)


(148)


Inventory

550


1,026


1,074


(508)


Prepaid expenses and other assets

(613)


(1,956)


(763)


(2,158)


Accounts payable and accrued expenses

11,993


4,018


2,979


449


Net cash provided by operating activities

24,944


18,488


22,965


25,430


Cash flows from investing activities





Capital expenditures

(3,825)


(2,899)


(6,717)


(4,911)


Other

(8)


262


372


394


Net cash used in investing activities

(3,833)


(2,637)


(6,345)


(4,517)


Cash flows from financing activities





Proceeds from stock option exercises


3



71


Proceeds from issuance of common stock under Employee Stock Purchase Plan

28


30


72


66


Share repurchases



(60)



Contingent consideration on prior acquisitions

(61)


(81)


(114)


(151)


Early extinguishment of long-term debt


(5,650)



(14,150)


Payments on long-term debt agreements and capital leases

(5,663)


(4,106)


(11,414)


(7,914)


Borrowings under revolving credit facilities

4,125


1,000


6,125


2,500


Payments under revolving credit facilities

(8,000)


(175)


(13,875)


(300)


Net cash used in financing activities

(9,571)


(8,979)


(19,266)


(19,878)


Effect of foreign currency translation on cash balances

(770)


63


(675)


330


Net change in cash and cash equivalents

10,770


6,935


(3,321)


1,365


Cash and cash equivalents at beginning of period

13,968


19,669


28,059


25,239


Cash and cash equivalents at end of period

$

24,738


$

26,604


$

24,738


$

26,604


Supplemental disclosure of cash flow information





Noncash investing and financing activities





Capital lease obligations incurred

$

7,653


$

6,390


$

10,928


$

14,310


 

ARC Document Solutions, Inc.

Net Sales by Product Line

(In thousands)

(Unaudited)


 Three Months Ended

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Service sales





CDIM

$

55,531


$

53,684


$

107,851


$

104,942


MPS

33,330


33,050


64,797


65,544


AIM

3,170


3,136


6,093


6,348


Total service sales

92,031


89,870


178,741


176,834


Equipment and supplies sales

12,159


12,410


23,157


24,177


Total net sales

$

104,190


$

102,280


$

201,898


$

201,011


 

ARC Document Solutions, Inc.

Non-GAAP Measures

Reconciliation of cash flows provided by operating activities to EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)


Three Months Ended

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Cash flows provided by operating activities

$

24,944


$

18,488


$

22,965


$

25,430


Changes in operating assets and liabilities

(10,169)


(2,993)


1,384


2,365


Non-cash expenses, including depreciation and amortization

(10,767)


(11,775)


(19,865)


(22,327)


Income tax provision

1,840


2,522


1,879


3,748


Interest expense, net

1,516


1,594


2,958


3,149


Loss (income) attributable to the noncontrolling interest

66


(84)


218


(48)


Depreciation and amortization

8,175


8,353


16,312


16,607


EBITDA

15,605


16,105


25,851


28,924


Loss on extinguishment and modification of debt


40



106


Stock-based compensation

574


816


1,227


1,553


Adjusted EBITDA

$

16,179


$

16,961


$

27,078


$

30,583



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

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Net income attributable to ARC Document Solutions, Inc.

$

4,074


$

3,636


$

4,702


$

5,420


Interest expense, net

1,516


1,594


2,958


3,149


Income tax provision

1,840


2,522


1,879


3,748


Depreciation and amortization

8,175


8,353


16,312


16,607


EBITDA

15,605


16,105


25,851


28,924


Loss on extinguishment and modification of debt


40



106


Stock-based compensation

574


816


1,227


1,553


Adjusted EBITDA

$

16,179


$

16,961


$

27,078


$

30,583



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

Six Months Ended


June 30,

June 30,


2018

2017

2018

2017

Net income attributable to ARC Document Solutions, Inc.

$

4,074


$

3,636


$

4,702


$

5,420


Loss on extinguishment and modification of debt


40



106


Income tax benefit related to above items


(16)



(42)


Deferred tax valuation allowance and other discrete tax items

72


51


(77)


79


Adjusted net income attributable to ARC Document Solutions, Inc.

$

4,146


$

3,711


$

4,625


$

5,563







Actual:





Earnings per share attributable to ARC Document Solutions, Inc. shareholders:





Basic

$

0.09


$

0.08


$

0.10


$

0.12


Diluted

$

0.09


$

0.08


$

0.10


$

0.12


Weighted average common shares outstanding:





Basic

44,936


45,792


44,839


45,716


Diluted

44,979


46,258


44,924


46,329







Adjusted:





Earnings per share attributable to ARC Document Solutions, Inc. shareholders:





Basic

$

0.09


$

0.08


$

0.10


$

0.12


Diluted

$

0.09


$

0.08


$

0.10


$

0.12


Weighted average common shares outstanding:





Basic

44,936


45,792


44,839


45,716


Diluted

44,979


46,258


44,924


46,329



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 and six months ended June 30, 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 and six months ended June 30, 2018 and 2017.

We have presented adjusted EBITDA for the three and six months ended June 30, 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