ARC Reports Quarterly and Annual Results Above Expectations – 2018 Sales Grow Despite Headwinds, EPS and Cash Provided by Operating Activities Above Forecast, Meets Adjusted EBITDA Forecast

WALNUT CREEK, CA / ACCESSWIRE / February 26, 2019 / 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 fourth quarter and full year ended December 31, 2018.

Financial Highlights:

Three Months Ended

Twelve Months Ended

December 31,

(All dollar amounts in millions, except EPS)

2018

2017

2018

2017

Net
Sales

$
98.4

$
97.1

$
400.8

$
394.6

Gross
Margin

32.7
%

30.3
%

32.6
%

31.4
%

Net
income (loss) attributable to ARC

$
1.6

$
(12.2
)

$
8.9

$
(21.5
)

Adjusted net income attributable to ARC

$
1.6

$
0.9

$
8.5

$
6.8

Earnings (loss) per share – Diluted

$
0.04

$
(0.27
)

$
0.20

$
(0.47
)

Adjusted earnings per share – Diluted

$
0.03

$
0.02

$
0.19

$
0.15

Cash
provided by operating activities

$
24.9

$
15.6

$
55.0

$
52.4

EBITDA

$
12.1

$
11.3

$
51.0

$
33.2

Adjusted EBITDA

$
12.7

$
12.0

$
53.4

$
54.0

Capital Expenditures

$
4.5

$
1.9

$
14.9

$
9.1

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

$
127.2

$
144.4

Management Commentary

“ARC delivered overall revenue growth of 1.6% for 2018, driven by more than a 3% increase in sales from CDIM,” said K. “Suri” Suriyakumar CEO of ARC Document Solutions. “Considering that our primary strategic objective has been to protect print revenue in the face of declining volume, driving company-wide sales growth from print with the help of our technology initiatives is a remarkable achievement. We also capitalized on our growth by posting significant year-over-year improvements in gross margin, beating our own estimates for cash flow from operations and exceeding our earnings per share expectations.”

“Our performance also contributed to ARC achieving its target of annual adjusted EBITDA of $53.4 million despite our higher-than-usual medical costs,” Mr. Suriyakumar continued. “Absent those expenses for the year, annual adjusted EBITDA would have been nearly $3 million higher than our 2017 results. I’m very proud of our team.”

“Essentially, we did exactly what we planned to do, and ARC’s annual and quarterly performance demonstrated our success,” said Jorge Avalos, Chief Financial Officer for ARC Document Solutions. “We’ve delivered our third consecutive quarter of revenue growth, and our second consecutive quarter of adjusted EBITDA growth. Cash flow from operations for the quarter grew by $9.3 million, and EPS of four cents for the quarter contributed to our strong annual performance. With the additional debt reduction of $5 million during the quarter, we also continued to improve our capital structure.”

2018 Fourth Quarter Supplemental Information:

Net sales were $98.4 million, a 1.3% increase compared to the fourth quarter of 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 fourth quarter has grown to approximately 10,500, a net gain of approximately 400 locations over Q4 2017.

Adjusted EBITDA excludes loss on extinguishment and modification of debt, goodwill impairment, and stock-based compensation expense.

Sales from Services and Product Lines as a Percentage of
Net Sales

Three Months Ended

Twelve Months Ended

December 31,

Services and Product Line

2018

2017

2018

2017

CDIM

51.9%

51.6%

52.7%

52.0%

MPS

32.1%

32.7%

32.1%

32.8%

AIM

3.5%

3.1%

3.3%

3.2%

Equipment and supplies sales

12.5%

12.6%

11.9%

12.0%

Outlook

Management introduced its annual outlook for 2019, anticipating fully-diluted annual adjusted earnings per share to be in the range of $0.17 to $0.22; annual cash provided by operating activities is projected to be in the range of $47 million to $52 million; and annual adjusted EBITDA is forecast to be in the range of $52 million to $57 million.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, February 26, 2019, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company’s 2018 fourth quarter and fiscal year. To access the live audio call, dial (877) 823-7014. The conference code is 7591655. 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 replay of the webcast will be available on the website 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 “forecast,” “outlook,” “anticipate,” “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.

Contact Information:

David Stickney
VP Corporate Communications & Investor Relations
925-949-5114

ARC Document Solutions, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)

December 31,

Current assets:

2018

2017

Cash
and cash equivalents

$
29,433

$
28,059

Accounts receivable, net of allowances for accounts receivable of $2,016 and $2,341

58,035

57,011

Inventories, net

16,768

19,937

Prepaid expenses

4,937

4,208

Other current assets

6,202

5,266

Total current assets

115,375

114,481

Property and equipment, net of accumulated depreciation of $199,480 and $198,693

70,668

64,245

Goodwill

121,051

Other
intangible assets, net

5,126

9,068

Deferred income taxes

24,946

28,029

Other
assets

2,550

2,551

Total assets

$
339,716

$
339,425

Current liabilities:

Accounts payable

$
24,218

$
24,289

Accrued payroll and payroll-related expenses

17,029

12,617

Accrued expenses

17,571

17,201

Current portion of long-term debt and capital leases

22,132

20,791

Total current liabilities

80,950

74,898

Long-term debt and capital leases

105,060

123,626

Other
long-term liabilities

6,404

3,290

Total liabilities

192,414

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;48,492 and 47,913 shares issued and 45,818 and 45,266 shares outstanding

Additional paid-in capital

123,525

120,953

Retained earnings

29,397

20,524

Accumulated other comprehensive loss

(3,351
)

(1,998
)

149,619

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

140,269

130,237

Noncontrolling interest

7,033

7,374

Total equity

147,302

137,611

Total liabilities and equity

$
339,716

$
339,425

ARC Document Solutions, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

2018

2017

2018

2017

Service sales

$
86,140

$
84,867

$
353,300

$
347,326

Equipment and supplies sales

12,273

12,243

47,484

47,253

Total net sales

98,413

97,110

400,784

394,579

Cost
of sales

66,255

67,638

269,934

270,556

Gross profit

32,158

29,472

130,850

124,023

Selling, general and administrative expenses

27,342

25,349

109,122

101,889

Amortization of intangible assets

926

1,030

3,868

4,280

Goodwill impairment

–

17,637

Income from operations

3,890

3,093

17,860

217

Other
income, net

(18
)

(21
)

(81
)

Loss
on extinguishment and modification of debt

–

230

Interest expense, net

1,444

1,500

5,880

6,179

Income (loss) before income tax provision

2,464

1,614

12,061

(6,111
)

Income tax provision

808

13,670

3,334

15,244

Net
income (loss)

1,656

(12,056
)

8,727

(21,355
)

(Income) loss attributable to noncontrolling interest

(44
)

(101
)

146

(156
)

Net
income (loss) attributable to ARC Document Solutions, Inc.
shareholders

$
1,612

$
(12,157
)

$
8,873

$
(21,511
)

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

Basic

$
0.04

$
(0.27
)

$
0.20

$
(0.47
)

Diluted

$
0.04

$
(0.27
)

$
0.20

$
(0.47
)

Weighted average common shares outstanding:

Basic

45,009

45,414

44,918

45,669

Diluted

45,218

45,414

45,050

45,669

ARC Document Solutions
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

2018

2017

2018

2017

Cash flows from operating activities

Net income (loss)

$
1,656

$
(12,056
)

$
8,727

$
(21,355
)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Allowance for accounts receivable

446

382

1,083

1,249

Depreciation

7,311

7,256

29,019

29,043

Amortization of intangible assets

926

1,030

3,868

4,280

Amortization of deferred financing costs

232

306

Goodwill impairment

–

17,637

Stock-based compensation

621

696

2,445

2,947

Deferred income taxes

953

12,757

3,128

13,802

Deferred tax valuation allowance

(211
)

543

(140
)

1,031

Loss
on extinguishment and modification of debt

–

230

Other non-cash items, net

(113
)

284

(314
)

(56
)

Changes in operating assets and liabilities:

Accounts receivable

3,827

1,752

(2,767
)

2,158

Inventory

1,446

(689
)

2,737

(1,339
)

Prepaid expenses and other assets

512

573

(1,814
)

(556
)

Accounts payable and accrued expenses

7,471

3,026

8,760

2,993

Net
cash provided by operating activities

24,902

15,614

54,964

52,370

Cash flows from investing activities

Capital expenditures

(4,467
)

(1,860
)

(14,930
)

(9,106
)

Other

139

278

695

744

Net
cash used in investing activities

(4,328
)

(1,582
)

(14,235
)

(8,362
)

Cash flows from financing activities

Proceeds from stock option exercises

–

Proceeds from issuance of common stock under Employee Stock Purchase Plan

127

133

Share
repurchases

–

(3,381
)

(60
)

(3,381
)

Contingent consideration on prior acquisitions

(60
)

(236
)

(275
)

Early
extinguishment of long-term debt

–

(14,150
)

Payments on long-term debt agreements and capital leases

(5,831
)

(5,456
)

(23,031
)

(65,516
)

Borrowings under revolving credit facilities

7,625

8,250

16,875

63,100

Payments under revolving credit facilities

(11,500
)

(12,125
)

(32,375
)

(21,800
)

Payment of deferred financing costs

–

(270
)

Net
cash used in financing activities

(9,739
)

(12,720
)

(38,700
)

(42,063
)

Effect of foreign currency translation on cash balances

194

384

(655
)

875

Net
change in cash and cash equivalents

11,029

1,696

1,374

2,820

Cash
and cash equivalents at beginning of period

18,404

26,363

28,059

25,239

Cash
and cash equivalents at end of period

$
29,433

$
28,059

$
29,433

$
28,059

Supplemental disclosure of cash flow
information:

Noncash financing activities:

Capital lease obligations incurred

$
4,971

$
4,478

$
21,531

$
25,192

Contingent liabilities in connection with the acquisition of businesses

$
–

$
27

ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

2018

2017

2018

2017

Service Sales

CDIM

$
51,119

$
50,052

$
211,389

$
205,083

MPS

31,594

31,782

128,775

129,479

AIM

3,427

3,033

13,136

12,764

Total services sales

86,140

84,867

353,300

347,326

Equipment and supplies sales

12,273

12,243

47,484

47,253

Total net sales

$
98,413

$
97,110

$
400,784

$
394,579

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

Twelve Months Ended

December 31,

2018

2017

2018

2017

Cash
flows provided by operating activities

$
24,902

$
15,614

$
54,964

$
52,370

Changes in operating assets and liabilities

(13,256
)

(4,662
)

(6,916
)

(3,256
)

Non-cash expenses, including goodwill impairment

(1,753
)

(14,722
)

(6,434
)

(37,146
)

Income tax provision

808

13,670

3,334

15,244

Interest expense, net

1,444

1,500

5,880

6,179

(Income) loss attributable to noncontrolling interest

(44
)

(101
)

146

(156
)

EBITDA

12,101

11,299

50,974

33,235

Loss
on extinguishment and modification of debt

–

230

Goodwill impairment

–

17,637

Stock-based compensation

621

696

2,445

2,947

Adjusted EBITDA

$
12,722

$
11,995

$
53,419

$
54,049

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures Reconciliation of net income (loss) attributable to ARC Document Solutions, Inc. shareholders to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

2018

2017

2018

2017

Net
income (loss) attributable to ARC Document Solutions, Inc.
shareholders

$
1,612

$
(12,157
)

$
8,873

$
(21,511
)

Interest expense, net

1,444

1,500

5,880

6,179

Income tax provision

808

13,670

3,334

15,244

Depreciation and amortization

8,237

8,286

32,887

33,323

EBITDA

12,101

11,299

50,974

33,235

Loss
on extinguishment and modification of debt

–

230

Goodwill impairment

–

17,637

Stock-based compensation

621

696

2,445

2,947

Adjusted EBITDA

$
12,722

$
11,995

$
53,419

$
54,049

ARC Document Solutions, Inc.
Non-GAAP Measures Reconciliation of net income (loss) attributable to ARC to unaudited adjusted net income attributable to ARC
(In thousands, except per share data)
(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

2018

2017

2018

2017

Net
income (loss) attributable to ARC Document Solutions, Inc.
shareholders

$
1,612

$
(12,157
)

$
8,873

$
(21,511
)

Loss
on extinguishment and modification of debt

–

230

Goodwill impairment

–

17,637

Income tax benefit related to above items

–

(3,194
)

Deferred tax impact due to new tax laws, valuation allowance and other discrete tax items

(51
)

13,069

(341
)

13,663

Unaudited adjusted net income attributable to ARC Document Solutions, Inc.

$
1,561

$
912

$
8,532

$
6,825

Actual:

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

Basic

$
0.04

$
(0.27
)

$
0.20

$
(0.47
)

Diluted

$
0.04

$
(0.27
)

$
0.20

$
(0.47
)

Weighted average common shares outstanding:

Basic

45,009

45,414

44,918

45,669

Diluted

45,218

45,414

45,050

45,669

Adjusted:

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

Basic

$
0.03

$
0.02

$
0.19

$
0.15

Diluted

$
0.03

$
0.02

$
0.19

$
0.15

Weighted average common shares outstanding:

Basic

45,009

45,414

44,918

45,669

Diluted

45,218

45,804

45,050

46,207

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. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

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 twelve months ended December 31, 2018 and 2017 to reflect the exclusion of loss on extinguishment and modification of debt, goodwill impairment, and changes in the valuation allowances related to certain deferred tax assets and other discrete tax items, including the impact of new tax laws enacted in 2017. This presentation facilitates a meaningful comparison of our operating results for the three and twelve months ended December 31, 2018 and 2017.

We have presented adjusted EBITDA for the three and twelve months ended December 31, 2018 and 2017 to exclude loss on extinguishment and modification of debt, goodwill impairment, 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.

SOURCE: ARC Document Solutions, Inc.

ReleaseID: 537115

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