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,

 

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,

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

%

3.6

%

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

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