ARC Reports Results for Third Quarter 2019, Projects More than $10 million in Annualized Cost Savings

SAN RAMON, CA / ACCESSWIRE / November 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 third quarter ended September 30, 2019.

Financial Highlights:

Three Months Ended

Nine Months Ended

September 30,

(All dollar amounts in millions, except EPS)

2019

2018

2019

2018

Net Sales

94.1

100.5

290.1

302.4

Gross Margin

32.3

32.5

32.7

32.6

Net income attributable to ARC

1.1

2.6

2.2

7.3

Adjusted net income attributable to ARC

1.6

2.3

5.4

7.0

Earnings per share – Diluted

0.02

0.06

0.05

0.16

Adjusted earnings per share – Diluted

0.04

0.05

0.12

0.15

Cash provided by operating activities

10.8

7.1

29.8

30.1

EBITDA

11.1

13.0

35.6

38.9

Adjusted EBITDA

12.1

13.6

37.7

40.7

Capital Expenditures

2.4

3.7

8.4

10.5

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

111.4

132.2

Management announced changes to ARC's business offerings that will drive more than $10 million in annualized cost savings by year-end 2019. The impact to future sales is expected to be minimal.

Cost savings were accomplished by:

Eliminating underperforming business initiatives and related sales & marketing costs
Optimization of regional organization structure and labor force
System and equipment upgrades to increase operating efficiency

The majority of the savings will contribute directly to the improvement of the company's adjusted EBITDA. While these actions will support the company's most recent forecast for 2019, the material result of these changes will be evident in 2020.

Management Commentary:

"Continuing pressure on our topline revenue has forced us to optimize the way we offer our services to the market," said Suri Suriyakumar, CEO of ARC Document Solutions. "We cannot control the market or change how our customers are using our services, but we can certainly adapt quickly to protect our cash flows and the financial well-being of the company."

"Our business has been constantly challenged by emerging trends in the marketplace, but we are not being pressured from the loss of customers, a lack of relevant services, or from our competition. We have what our clients want and need, but they are simply not consuming it in the volume we've seen historically," said Mr. Suriyakumar. "Our pivot to color and non-traditional uses of our print services will help expand our addressable market, but the optimization of our sales, marketing and workforce is important to make the most of what we already have."

"Our year-to-date cash flows are on par with our performance in 2018,"said Jorge Avalos, Chief Financial Officer. "Also notable in the quarter was our ability to maintain our gross margins despite the drop in sales. Our operations team remained nimble and responsive even in the midst of our reconfiguration, the optimization exercise, and systems upgrades."

2019 Third Quarter Supplemental Information:

Net sales were $94.1 million, a 6.3% decrease compared to the third quarter of 2018.

Days sales outstanding were 55 in Q3 2019 and 56 in Q3 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 third quarter grew to approximately 10,800, a net gain of approximately 300 locations over Q3 2018.

Adjusted EBITDA excludes stock-based compensation expense and restructuring expense.

Three Months Ended

Nine Months Ended

September 30,

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

2019

2018

2019

2018

CDIM

53.7

52.2

53.7

53.0

MPS

32.5

32.2

32.0

32.1

AIM

3.7

3.6

3.2

Equipment and supplies sales

10.1

12.0

10.7

11.7

Outlook

Based on the financial results for the first nine months of the year, management maintained its annual forecast for 2019. The Company 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 Wednesday, November 6, 2019, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2019 third quarter. To access the live audio call, (877) 823-7014. International callers may join the conference by dialing (647) 689-4066. The conference code is 3379417. 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", "help expand our addressable market", and "material result of these changes will be evident," 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)

September 30,

December 31,

Current assets:

2019

2018

Cash and cash equivalents

$
20,803

$
29,433

Accounts receivable, net of allowances for accounts receivable of $2,084 and $2,016

57,662

58,035

Inventories, net

15,384

16,768

Prepaid expenses

5,586

4,937

Other current assets

7,435

6,202

Total current assets

106,870

115,375

Property and equipment, net of accumulated depreciation of $208,515 and $199,480

70,226

70,668

Right-of-use assets from operating leases

40,753

–

Goodwill

121,051

121,051

Other intangible assets, net

2,636

5,126

Deferred income taxes

20,164

24,946

Other assets

2,479

2,550

Total assets

$
364,179

$
339,716

Current liabilities:

Accounts payable

$
23,197

$
24,218

Accrued payroll and payroll-related expenses

12,130

17,029

Accrued expenses

19,690

17,571

Current operating lease liabilities

10,899

–

Current portion of long-term debt and finance leases

22,976

22,132

Total current liabilities

88,892

80,950

Long-term operating lease liabilities

37,008

–

Long-term debt and finance leases

88,437

105,060

Other long-term liabilities

497

6,404

Total liabilities

214,834

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; 49,169 and 48,492 shares issued and 45,887 and 45,818 shares outstanding

49

48

Additional paid-in capital

125,488

123,525

Retained earnings

31,588

29,397

Accumulated other comprehensive loss

(3,740)

(3,351
)

153,385

149,619

Less cost of common stock in treasury, 3,282 and 2,674 shares

10,536

9,350

Total ARC Document Solutions, Inc. stockholders' equity

142,849

140,269

Noncontrolling interest

6,496

7,033

Total equity

149,345

147,302

Total liabilities and equity

$
364,179

$
339,716

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net sales

$
94,104

$
100,473

290,099

302,371

Cost of sales

63,702

67,801

195,174

203,679

Gross profit

30,402

32,672

94,925

98,692

Selling, general and administrative expenses

26,025

26,973

80,881

81,780

Amortization of intangible assets

718

949

2,480

2,942

Restructuring expense

311

–

311

–

Income from operations

3,348

4,750

11,253

13,970

Other (income) expense, net

(17)

38

(53)

(63
)

Interest expense, net

1,264

1,478

4,066

4,436

Income before income tax provision

2,101

3,234

7,240

9,597

Income tax provision

1,042

647

5,222

2,526

Net income

1,059

2,587

2,018

7,071

Loss (income) attributable to the noncontrolling interest

16

(28
)

173

190

Net income attributable to ARC Document Solutions, Inc. shareholders

$
1,075

$
2,559

$
2,191

$
7,261

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

Basic

$
0.02

$
0.06

$
0.05

$
0.16

Diluted

$
0.02

$
0.06

$
0.05

$
0.16

Weighted average common shares outstanding:

Basic

44,978

44,983

45,107

44,888

Diluted

44,992

45,188

45,213

44,993

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Cash flows from operating activities

Net income

$
1,059

$
2,587

$
2,018

$
7,071

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

Allowance for accounts receivable

76

82

430

637

Depreciation

7,030

7,389

21,600

21,708

Amortization of intangible assets

718

949

2,480

2,942

Amortization of deferred financing costs

52

56

162

175

Stock-based compensation

622

597

1,854

1,824

Deferred income taxes

782

468

4,684

2,175

Deferred tax valuation allowance

89

20

115

71

Other non-cash items, net

(120)

(95
)

(209)

(201
)

Changes in operating assets and liabilities:

Accounts receivable

1,836

(1,920
)

(258)

(6,594
)

Inventory

1,011

217

1,242

1,291

Prepaid expenses and other assets

3,113

(1,563
)

7,094

(2,326
)

Accounts payable and accrued expenses

(5,507)

(1,690
)

(11,464)

1,289

Net cash provided by operating activities

10,807

7,097

29,794

30,062

Cash flows from investing activities

Capital expenditures

(2,401)

(3,746
)

(8,406)

(10,463
)

Other

41

184

342

556

Net cash used in investing activities

(2,360)

(3,562
)

(8,064)

(9,907
)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

28

28

109

100

Share repurchases

(319)

–

(1,186)

(60
)

Contingent consideration on prior acquisitions

–

(62
)

(3)

(176
)

Payments on long-term debt agreements and finance leases

(6,105)

(5,786
)

(17,551)

(17,200
)

Borrowings under revolving credit facilities

6,500

3,125

19,750

9,250

Payments under revolving credit facilities

(10,000)

(7,000
)

(31,000)

(20,875
)

Net cash used in financing activities

(9,896)

(9,695
)

(29,881)

(28,961
)

Effect of foreign currency translation on cash balances

511

(174
)

(479)

(849
)

Net change in cash and cash equivalents

(938)

(6,334
)

(8,630)

(9,655
)

Cash and cash equivalents at beginning of period

21,741

24,738

29,433

28,059

Cash and cash equivalents at end of period

$
20,803

$
18,404

$
20,803

$
18,404

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

$
4,193

$
5,632

$
13,010

$
16,560

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

CDIM

$
50,502

$
52,418

$
155,701

$
160,270

MPS

30,607

32,384

93,092

97,181

AIM

3,516

3,617

10,380

9,709

Equipment and supplies sales

9,479

12,054

30,926

35,211

Net sales

$
94,104

$
100,473

$
290,099

$
302,371

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

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Cash flows provided by operating activities

$
10,807

$
7,097

$
29,794

$
30,062

Changes in operating assets and liabilities

(453)

4,956

3,386

6,340

Non-cash expenses, including depreciation and amortization

(9,295)

(9,466
)

(31,162)

(29,331
)

Income tax provision

1,042

647

5,222

2,526

Interest expense, net

1,264

1,478

4,066

4,436

Loss (income) attributable to the noncontrolling interest

16

(28
)

173

190

Depreciation and amortization

7,748

8,338

24,080

24,650

EBITDA

11,129

13,022

35,559

38,873

Restructuring expense

311

–

311

–

Stock-based compensation

622

597

1,854

1,824

Adjusted EBITDA

$
12,062

$
13,619

$
37,724

$
40,697

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

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc.

$
1,075

$
2,559

$
2,191

$
7,261

Interest expense, net

1,264

1,478

4,066

4,436

Income tax provision

1,042

647

5,222

2,526

Depreciation and amortization

7,748

8,338

24,080

24,650

EBITDA

11,129

13,022

35,559

38,873

Restructuring expense

311

–

311

–

Stock-based compensation

622

597

1,854

1,824

Adjusted EBITDA

$
12,062

$
13,619

$
37,724

$
40,697

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

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc.

$
1,075

$
2,559

$
2,191

$
7,261

Restructuring expense

311

–

311

–

Income tax benefit related to above items

(81)

–

(81)

–

Deferred tax valuation allowance and other discrete tax items

321

(213
)

2,939

(290
)

Adjusted net income attributable to ARC Document Solutions, Inc.

$
1,626

$
2,346

$
5,360

$
6,971

Actual:

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

Basic

$
0.02

$
0.06

$
0.05

$
0.16

Diluted

$
0.02

$
0.06

$
0.05

$
0.16

Weighted average common shares outstanding:

Basic

44,978

44,983

45,107

44,888

Diluted

44,992

45,188

45,213

44,993

Adjusted:

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

Basic

$
0.04

$
0.05

$
0.12

$
0.16

Diluted

$
0.04

$
0.05

$
0.12

$
0.15

Weighted average common shares outstanding:

Basic

44,978

44,983

45,107

44,888

Diluted

44,992

45,188

45,213

44,993

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 nine months ended September 30, 2019 and 2018 to exclude the restructuring expense and 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 nine months ended September 30, 2019 and 2018.

We have presented adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018 to exclude stock-based compensation expense and restructuring 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

ReleaseID: 565445

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