ARC Reports Results for Second Quarter 2019

SAN RAMON, CA / ACCESSWIRE / August 6, 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 second quarter ended June 30, 2019.

Financial Highlights:

Three Months Ended

Six Months Ended

June 30,

(All dollar amounts in millions, except EPS)

2019

2018

2019

2018

Net Sales

$
98.9

$
104.2

$
196.0

$
201.9

Gross Margin

34.2
%

34.4
%

32.9
%

32.7
%

Net income attributable to ARC

$
0.5

$
4.1

$
1.1

$
4.7

Adjusted net income attributable to ARC

$
3.1

$
4.1

$
3.7

$
4.6

Earnings per share – Diluted

$
0.01

$
0.09

$
0.02

$
0.10

Adjusted earnings per share – Diluted

$
0.07

$
0.09

$
0.08

$
0.10

Cash provided by operating activities

$
16.3

$
24.9

$
19.0

$
23.0

EBITDA

$
13.8

$
15.6

$
24.4

$
25.9

Adjusted EBITDA

$
14.4

$
16.2

$
25.7

$
27.1

Capital Expenditures

$
2.8

$
3.8

$
6.0

$
6.7

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

$
117.0

$
136.2

Management Commentary

“The second quarter challenged our forecast for 2019,” said Suri Suriyakumar, CEO of ARC Document Solutions. “Given the softness in markets across the board, and the weakness in housing starts combined with a weaker Architectural Billings Index toward the end of the quarter, it wasn’t entirely unexpected. While half of our year-over-year sales decline was due to a drop in international equipment and supplies sales, such an environment, coupled with ongoing erosion in print volumes, makes it difficult for us to sustain our growth. Thankfully, management has been making changes in the business to adapt and took steps to protect the profitability of the company during the quarter.”

“Having reviewed ARC’s results for the past six months, we believe it is time for us to critically examine and re-evaluate the products and services we offer,” said Mr. Suriyakumar. “We are facing a constantly-changing sales environment that continues to move away from traditional uses of print. We must move with it. Going forward, we need to focus our sales teams on business lines where we can sustain or grow our market share, build new ways to determine the needs of the industry, and identify opportunities for ARC.”

“Our cash flows remain robust and the strength of our capital structure continues to provide a solid platform to consider options,” said Jorge Avalos, CFO. “With regard to the second quarter, a drop of just 20 basis points in our gross margins speaks to our ability to manage our costs aggressively, especially in light of the 5.1% drop in sales for the quarter. We continued to reduce our debt by $5 million during the period, and we also re-purchased more than 350,000 shares of ARC stock.”

2019 Second Quarter Supplemental Information:

Net sales were $98.9 million, a 5.1% decrease compared to the second quarter of 2018.

Days sales outstanding were 54 in Q2 2019 and 52 in Q2 2018.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 79% of total net sales, while customers outside of construction made up approximately 21% of total net sales.

Total number of MPS locations at the end of the second quarter grew to approximately 10,675, a net gain of approximately 285 locations over Q2 2018.

Adjusted EBITDA excludes stock-based compensation expense.

Three Months Ended

Six Months Ended

June 30,

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

2019

2018

2019

2018

CDIM

55.1
%

53.3
%

53.7
%

53.4
%

MPS

31.9
%

32.0
%

31.9
%

32.1
%

AIM

3.6
%

3.0
%

3.5
%

3.0
%

Equipment and supplies sales

9.4
%

11.7
%

10.9
%

11.5
%

Outlook

Based on the financial results for the first six months of the year, management updated its annual forecast for 2019. The Company now anticipates fully-diluted annual adjusted earnings per share to be in the range of $0.14 to $0.18; annual cash provided by operating activities is projected to be in the range of $45 million to $50 million; and annual adjusted EBITDA is forecast to be in the range of $49 million to $54 million.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, August 6, 2019, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company’s 2019 second quarter. To access the live audio call, dial (877) 823-7014. International callers may join the conference by dialing (647) 689-4066. The conference code is 2180699 .

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 “outlook”, “forecast”, “sustain or grow our market share” 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, 2018, 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)

June 30,

December 31,

Current assets:

2019

2018

Cash and cash equivalents

$
21,741

$
29,433

Accounts receivable, net of allowances for accounts receivable of $2,074 and $2,016

59,681

58,035

Inventories, net

16,498

16,768

Prepaid expenses

5,965

4,937

Other current assets

7,763

6,202

Total current assets

111,648

115,375

Property and equipment, net of accumulated depreciation of $205,791 and $199,480

70,330

70,668

Right-of-use assets from operating leases

42,845

–

Goodwill

121,051

Other intangible assets, net

3,378

5,126

Deferred income taxes

21,055

24,946

Other assets

2,155

2,550

Total assets

$
372,462

$
339,716

Current liabilities:

Accounts payable

$
23,778

$
24,218

Accrued payroll and payroll-related expenses

13,605

17,029

Accrued expenses

20,018

17,571

Current operating lease liabilities

11,372

–

Current portion of long-term debt and finance leases

22,916

22,132

Total current liabilities

91,689

80,950

Long-term operating lease liabilities

38,550

–

Long-term debt and finance leases

94,070

105,060

Other long-term liabilities

400

6,404

Total liabilities

224,709

192,414

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; 49,144 and 48,492 shares issued and 46,066 and 45,818 shares outstanding

Additional paid-in capital

124,837

123,525

Retained earnings

30,513

29,397

Accumulated other comprehensive loss

(3,823)

(3,351
)

151,576

149,619

Less cost of common stock in treasury, 3,078 and 2,674 shares

10,217

9,350

Total ARC Document Solutions, Inc. stockholders’ equity

141,359

140,269

Noncontrolling interest

6,394

7,033

Total equity

147,753

147,302

Total liabilities and equity

$
372,462

$
339,716

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

Three Months Ended

Six Months Ended

June 30,

2019

2018

2019

2018

Net sales

$
98,873

$
104,190

195,995

201,898

Cost of sales

65,025

68,355

131,472

135,878

Gross profit

33,848

35,835

64,523

66,020

Selling, general and administrative expenses

27,219

27,506

54,856

54,807

Amortization of intangible assets

867

985

1,762

1,993

Income from operations

5,762

7,344

7,905

9,220

Other income, net

(18)

(20
)

(36)

(101
)

Interest expense, net

1,372

1,516

2,802

2,958

Income before income tax provision

4,408

5,848

5,139

6,363

Income tax provision

3,896

1,840

4,180

1,879

Net income

512

4,008

959

4,484

Loss attributable to the noncontrolling interest

157

218

Net income attributable to ARC Document Solutions, Inc. shareholders

$
524

$
4,074

$
1,116

$
4,702

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

Basic

$
0.01

$
0.09

$
0.02

$
0.10

Diluted

$
0.01

$
0.09

$
0.02

$
0.10

Weighted average common shares outstanding:

Basic

45,225

44,936

45,172

44,839

Diluted

45,298

44,979

45,328

44,924

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

Three Months Ended

Six Months Ended

June 30,

2019

2018

2019

2018

Cash flows from operating activities

Net income

$
512

$
4,008

$
959

$
4,484

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

Allowance for accounts receivable

122

228

354

555

Depreciation

7,147

7,190

14,570

14,319

Amortization of intangible assets

867

985

1,762

1,993

Amortization of deferred financing costs

110

119

Stock-based compensation

624

574

1,232

1,227

Deferred income taxes

3,727

1,799

3,902

1,707

Deferred tax valuation allowance

(6
)

Other non-cash items, net

(29)

(62
)

(89)

(106
)

Changes in operating assets and liabilities:

Accounts receivable

443

(1,761
)

(2,094)

(4,674
)

Inventory

(128)

550

231

1,074

Prepaid expenses and other assets

2,183

(613
)

3,981

(763
)

Accounts payable and accrued expenses

765

11,993

(5,957)

2,979

Net cash provided by operating activities

16,322

24,944

18,987

22,965

Cash flows from investing activities

Capital expenditures

(2,809)

(3,825
)

(6,005)

(6,717
)

Other

135

(8
)

301

372

Net cash used in investing activities

(2,674)

(3,833
)

(5,704)

(6,345
)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

Share repurchases

(801)

–

(867)

(60
)

Contingent consideration on prior acquisitions

–

(61
)

(3)

(114
)

Payments on long-term debt agreements and finance leases

(5,696)

(5,663
)

(11,446)

(11,414
)

Borrowings under revolving credit facilities

5,000

4,125

13,250

6,125

Payments under revolving credit facilities

(8,875)

(8,000
)

(21,000)

(13,875
)

Net cash used in financing activities

(10,341)

(9,571
)

(19,985)

(19,266
)

Effect of foreign currency translation on cash balances

(336)

(770
)

(990)

(675
)

Net change in cash and cash equivalents

2,971

10,770

(7,692)

(3,321
)

Cash and cash equivalents at beginning of period

18,770

13,968

29,433

28,059

Cash and cash equivalents at end of period

$
21,741

$
24,738

$
21,741

$
24,738

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

$
5,153

$
7,653

$
8,817

$
10,928

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

Three Months Ended

Six Months Ended

June 30,

2019

2018

2019

2018

CDIM

$
54,394

$
55,531

$
105,199

$
107,851

MPS

31,578

33,330

62,485

64,797

AIM

3,601

3,170

6,863

6,093

Equipment and supplies sales

9,300

12,159

21,448

23,157

Net sales

$
98,873

$
104,190

$
195,995

$
201,898

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,

2019

2018

2019

2018

Cash flows provided by operating activities

$
16,322

$
24,944

$
18,987

$
22,965

Changes in operating assets and liabilities

(3,263)

(10,169
)

3,839

1,384

Non-cash expenses, including depreciation and amortization

(12,547)

(10,767
)

(21,867)

(19,865
)

Income tax provision

3,896

1,840

4,180

1,879

Interest expense, net

1,372

1,516

2,802

2,958

Loss attributable to the noncontrolling interest

157

218

Depreciation and amortization

8,014

8,175

16,332

16,312

EBITDA

13,806

15,605

24,430

25,851

Stock-based compensation

624

574

1,232

1,227

Adjusted EBITDA

$
14,430

$
16,179

$
25,662

$
27,078

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,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc.

$
524

$
4,074

$
1,116

$
4,702

Interest expense, net

1,372

1,516

2,802

2,958

Income tax provision

3,896

1,840

4,180

1,879

Depreciation and amortization

8,014

8,175

16,332

16,312

EBITDA

13,806

15,605

24,430

25,851

Stock-based compensation

624

574

1,232

1,227

Adjusted EBITDA

$
14,430

$
16,179

$
25,662

$
27,078

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,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc.

$
524

$
4,074

$
1,116

$
4,702

Deferred tax valuation allowance and other discrete tax items

2,592

2,618

(77
)

Adjusted net income attributable to ARC Document Solutions, Inc.

$
3,116

$
4,146

$
3,734

$
4,625

Actual:

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

Basic

$
0.01

$
0.09

$
0.02

$
0.10

Diluted

$
0.01

$
0.09

$
0.02

$
0.10

Weighted average common shares outstanding:

Basic

45,225

44,936

45,172

44,839

Diluted

45,298

44,979

45,328

44,924

Adjusted:

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

Basic

$
0.07

$
0.09

$
0.08

$
0.10

Diluted

$
0.07

$
0.09

$
0.08

$
0.10

Weighted average common shares outstanding:

Basic

45,225

44,936

45,172

44,839

Diluted

45,298

44,979

45,328

44,924

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, 2019 and 2018 to reflect the exclusion of 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, 2019 and 2018.

We have presented adjusted EBITDA for the three and six months ended June 30, 2019 and 2018 to exclude stock-based compensation expense. The adjustment of EBITDA 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: 554814

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