ARC Document Solutions Reports Results for Third Quarter 2017
WALNUT CREEK, Calif., Nov. 1, 2017 /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 third quarter ended September 30, 2017.
Financial Highlights:
Three Months Ended Nine Months Ended
September 30, September 30,
(All dollar
amounts in
millions, except
EPS) 2017 2016 2017 2016
---- ---- ---- ----
Net Sales $96.5 $100.4 $297.5 $307.8
Gross Margin 30.3% 32.6% 31.8% 33.4%
Goodwill
impairment $17.6 $ - $17.6 $73.9
Net (loss) income
attributable to
ARC $(14.8) $2.8 $(9.4) $(50.5)
Adjusted net
income
attributable to
ARC $0.4 $3.0 $5.9 $10.5
Earnings per share
-Diluted $(0.32) $0.06 $(0.20) $(1.10)
Adjusted earnings
per share -
Diluted $0.01 $0.07 $0.13 $0.23
Cash provided by
operating
activities $11.3 $12.2 $36.8 $34.0
EBITDA $(7.0) $14.4 $21.9 $(28.1)
Adjusted EBITDA $11.5 $15.1 $42.1 $48.1
Capital
Expenditures $2.3 $2.4 $7.2 $7.6
Debt & Capital
Leases (including
current), net of
unamortized
deferred
financing fees $149.2 $158.9
Management Commentary
"We faced another challenging quarter in our continuing transformation even as we made progress in protecting our print revenue and built momentum in our new technology initiatives," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "While there were smaller declines in print volumes year over year, the sales mix and higher employee costs weighed on our margins, as did the effects of the recent hurricanes that swept through the Southeastern part of the U.S."
"The combination of lower sales and the pressure on our margins left us no choice but to revise our annual guidance for 2017," said Mr. Suriyakumar. "As we have stated on numerous occasions, managing change is never easy, and periods of disruption are part of the process. We remain encouraged by our efforts and the response from our markets, and are staying the course as we move through our transformation."
"We expect our fourth quarter performance to be similar to the third quarter, which supports our revised guidance," said Jorge Avalos, Chief Financial Officer. "Despite the pressures we faced in the period, ARC continues to generate strong cash flows, as evidenced by the 8% year-to-date growth, and is benefiting from a capital structure designed to support us through our transformation."
2017 Third Quarter Supplemental Information:
Net sales were $96.5 million, a 4.0% decrease compared to the third quarter of 2016.
Based on our performance in the third quarter of 2017, and the adoption of the new simplified goodwill impairment measurement accounting standard, we recognized a non-cash goodwill impairment charge of $17.6 million.
There was one less business day in the third quarter of 2017 as compared to the third quarter of 2016.
Days sales outstanding were 55 in Q3 2017 and Q3 2016.
Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 78% of our total net sales, while customers outside of construction made up approximately 22% of our total net sales.
Total number of MPS locations at the end of the third quarter has grown to approximately 10,000, a net gain of approximately 630 locations over Q3 2016.
Adjusted EBITDA excludes loss on extinguishment of debt, goodwill impairment, restructuring expense and stock-based compensation expense.
Sales from Services and Product Lines as a Percentage of Net Sales
Three Months Ended Nine Months Ended
September 30, September 30,
Services and
Product Line 2017 2016 2017 2016
------------- ---- ---- ---- ----
CDIM 52.0% 53.0% 52.1% 52.6%
MPS 33.3% 32.7% 32.8% 32.5%
AIM 3.5% 3.1% 3.3% 3.4%
Equipment and
supplies
sales 11.2% 11.2% 11.8% 11.5%
Outlook
ARC Document Solutions revised its annual forecast for 2017, anticipating fully-diluted annual adjusted earnings per share to be in the range of $0.12 to $0.15, as compared to the previous forecast of $0.24 to $0.29; annual cash provided by operating activities is projected to be in the range of $45 to $49 million as compared to the previous forecast of $49 to $54 million; and annual adjusted EBITDA is forecast to be in the range of $52 to $55 million as compared to the previous forecast of $58 million to $63 million.
Teleconference and Webcast
ARC Document Solutions will hold a conference call with investors and analysts on Wednesday, November 1, 2017, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2017 third quarter. To access the live audio call, dial 866-564-2842. International callers may join the conference by dialing +1 323-794-2094. The conference ID number is 6216256. 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 "building momentum," "guidance," "expect," "believe," "forecast," "outlook," 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, 2016, 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)
September 30, December 31,
Current assets: 2017 2016
---- ----
Cash and cash
equivalents $26,363 $25,239
Accounts receivable,
net of allowances for
accounts receivable of
$2,495 and $2,060 59,006 59,735
Inventories, net 19,095 18,184
Prepaid expenses 5,008 3,861
Other current assets 5,034 4,785
----- -----
Total current assets 114,506 111,804
Property and equipment,
net of accumulated
depreciation of
$205,435 and $201,192 65,645 60,735
Goodwill 121,051 138,688
Other intangible
assets, net 10,087 13,202
Deferred income taxes 41,364 42,667
Other assets 2,590 2,185
----- -----
Total assets $355,243 $369,281
======== ========
Current liabilities:
Accounts payable $25,027 $24,782
Accrued payroll and
payroll-related
expenses 10,908 12,219
Accrued expenses 15,041 16,138
Current portion of
long-term debt and
capital leases 20,268 13,773
------ ------
Total current
liabilities 71,244 66,912
Long-term debt and
capital leases 128,917 143,400
Other long-term
liabilities 3,329 2,148
Total liabilities 203,490 212,460
------- -------
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;
47,891 and 47,428
shares issued and
46,451 and 45,988
shares outstanding 48 47
Additional paid-in
capital 120,204 117,749
Retained earnings 32,681 41,822
Accumulated other
comprehensive loss (2,545) (3,793)
------ ------
150,388 155,825
Less cost of common
stock in treasury,
1,440 shares 5,909 5,909
----- -----
Total ARC Document
Solutions, Inc.
stockholders' equity 144,479 149,916
Noncontrolling interest 7,274 6,905
----- -----
Total equity 151,753 156,821
------- -------
Total liabilities and
equity $355,243 $369,281
======== ========
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,
2017 2016 2017 2016
---- ---- ---- ----
Service sales $85,625 $89,178 $262,459 $272,394
Equipment and supplies
sales 10,833 11,265 35,010 35,369
------ ------ ------ ------
Total net sales 96,458 100,443 297,469 307,763
Cost of sales 67,231 67,713 202,918 204,904
------ ------ ------- -------
Gross profit 29,227 32,730 94,551 102,859
Selling, general and
administrative expenses 25,843 24,893 76,540 76,752
Amortization of intangible
assets 1,053 1,160 3,250 3,705
Goodwill impairment 17,637 - 17,637 73,920
Restructuring expense - - - 7
--- --- --- ---
(Loss) income from
operations (15,306) 6,677 (2,876) (51,525)
Other income, net (19) (16) (60) (54)
Loss on extinguishment and
modification of debt 124 66 230 156
Interest expense, net 1,530 1,563 4,679 4,535
----- ----- ----- -----
(Loss) income before
income tax (benefit)
provision (16,941) 5,064 (7,725) (56,162)
Income tax (benefit)
provision (2,174) 2,162 1,574 (5,884)
------ ----- ----- ------
Net (loss) income (14,767) 2,902 (9,299) (50,278)
Income attributable to the
noncontrolling interest (7) (61) (55) (211)
--- --- --- ----
Net (loss) income
attributable to ARC
Document Solutions, Inc.
shareholders $(14,774) $2,841 $(9,354) $(50,489)
======== ====== ======= ========
(Loss) earnings per share attributable to
ARC Document Solutions, Inc. shareholders:
Basic $(0.32) $0.06 $(0.20) $(1.10)
====== ===== ====== ======
Diluted $(0.32) $0.06 $(0.20) $(1.10)
====== ===== ====== ======
Weighted average common shares outstanding:
Basic 45,834 45,599 45,756 46,055
Diluted 45,834 46,189 45,756 46,055
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,
2017 2016 2017 2016
---- ---- ---- ----
Cash flows provided by
operating activities $11,326 $12,163 $36,756 $34,046
Changes in operating assets
and liabilities, net of
effect of business
acquisitions (959) 1,958 1,406 9,976
Non-cash expenses, including
depreciation, amortization
and goodwill impairment (25,134) (11,219) (47,461) (94,300)
Income tax (benefit) provision (2,174) 2,162 1,574 (5,884)
Interest expense, net 1,530 1,563 4,679 4,535
Income attributable to the
noncontrolling interest (7) (61) (55) (211)
Depreciation and amortization 8,430 7,857 25,037 23,737
----- ----- ------ ------
EBITDA (6,988) 14,423 21,936 (28,101)
Loss on extinguishment and
modification of debt 124 66 230 156
Goodwill impairment 17,637 - 17,637 73,920
Restructuring expense - - - 7
Stock-based compensation 699 650 2,251 2,073
--- --- ----- -----
Adjusted EBITDA $11,472 $15,139 $42,054 $48,055
======= ======= ======= =======
See Non-GAAP Financial Measures discussion below.
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net (loss) 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,
2017 2016 2017 2016
---- ---- ---- ----
Net (loss) income attributable
to ARC Document Solutions,
Inc. $(14,774) $2,841 $(9,354) $(50,489)
Interest expense, net 1,530 1,563 4,679 4,535
Income tax (benefit) provision (2,174) 2,162 1,574 (5,884)
Depreciation and amortization 8,430 7,857 25,037 23,737
----- ----- ------ ------
EBITDA (6,988) 14,423 21,936 (28,101)
Loss on extinguishment and
modification of debt 124 66 230 156
Goodwill impairment 17,637 - 17,637 73,920
Restructuring expense - - - 7
Stock-based compensation 699 650 2,251 2,073
--- --- ----- -----
Adjusted EBITDA $11,472 $15,139 $42,054 $48,055
======= ======= ======= =======
See Non-GAAP Financial Measures discussion below.
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net (loss) 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,
2017 2016 2017 2016
---- ---- ---- ----
Net (loss) income attributable
to ARC Document Solutions,
Inc. $(14,774) $2,841 $(9,354) $(50,489)
Loss on extinguishment and
modification of debt 124 66 230 156
Goodwill impairment 17,637 - 17,637 73,920
Restructuring expense - - - 7
Income tax benefit related to
above items (3,144) (26) (3,186) (13,395)
Deferred tax valuation
allowance and other discrete
tax items 515 138 594 341
--- --- --- ---
Unaudited adjusted net income
attributable to ARC Document
Solutions, Inc. $358 $3,019 $5,921 $10,540
==== ====== ====== =======
Actual:
(Loss) earnings per share attributable to ARC
Document Solutions, Inc. shareholders:
Basic $(0.32) $0.06 $(0.20) $(1.10)
====== ===== ====== ======
Diluted $(0.32) $0.06 $(0.20) $(1.10)
====== ===== ====== ======
Weighted average common shares outstanding:
Basic 45,834 45,599 45,756 46,055
Diluted 45,834 46,189 45,756 46,055
Adjusted:
Earnings per share attributable to ARC Document
Solutions, Inc. shareholders:
Basic $0.01 $0.07 $0.13 $0.23
===== ===== ===== =====
Diluted $0.01 $0.07 $0.13 $0.23
===== ===== ===== =====
Weighted average common shares outstanding:
Basic 45,834 45,599 45,756 46,055
Diluted 46,342 46,189 46,335 46,655
See Non-GAAP Financial Measures discussion below.
ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Service sales
CDIM $50,089 $53,228 $155,031 $161,753
MPS 32,153 32,796 97,697 100,082
AIM 3,383 3,154 9,731 10,559
----- ----- ----- ------
Total
service
sales 85,625 89,178 262,459 272,394
Equipment
and
supplies
sales 10,833 11,265 35,010 35,369
------ ------ ------ ------
Total
net
sales $96,458 $100,443 $297,469 $307,763
======= ======== ======== ========
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 over certain periods 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, 2017 and 2016 to reflect the exclusion of loss on extinguishment and modification of debt, goodwill impairment, restructuring expense, 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 nine months ended September 30, 2017 and 2016. We believe these charges were the result of our capital restructuring, or other items which are not indicative of our actual operating performance.
We have presented adjusted EBITDA for the three and nine months ended September 30, 2017 and 2016 to exclude loss on extinguishment and modification of debt, goodwill impairment, restructuring expense 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.
ARC Document Solutions, Inc. Three Months Ended Nine Months Ended
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Cash flows from operating activities
Net (loss) income $(14,767) $2,902 $(9,299) $(50,278)
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Allowance for accounts receivable 306 324 867 644
Depreciation 7,377 6,697 21,787 20,032
Amortization of intangible assets 1,053 1,160 3,250 3,705
Amortization of deferred financing costs 69 111 246 344
Goodwill impairment 17,637 - 17,637 73,920
Stock-based compensation 699 650 2,251 2,073
Deferred income taxes (2,380) 2,299 1,045 (6,018)
Deferred tax valuation allowance 454 (1) 488 (16)
Loss on extinguishment and modification of debt 124 66 230 156
Other non-cash items, net (205) (87) (340) (540)
Changes in operating assets and liabilities:
Accounts receivable 554 (897) 406 (2,285)
Inventory (142) (429) (650) (3,196)
Prepaid expenses and other assets 1,029 1,179 (1,129) 513
Accounts payable and accrued expenses (482) (1,811) (33) (5,008)
---- ------ --- ------
Net cash provided by operating activities 11,326 12,163 36,756 34,046
------ ------ ------ ------
Cash flows from investing activities
Capital expenditures (2,335) (2,430) (7,246) (7,580)
Other 72 135 466 842
--- --- --- ---
Net cash used in investing activities (2,263) (2,295) (6,780) (6,738)
------ ------ ------ ------
Cash flows from financing activities
Proceeds from stock option exercises 2 46 73 76
Proceeds from issuance of common stock under Employee Stock Purchase Plan 37 26 103 96
Share repurchases - (200) - (5,297)
Contingent consideration on prior acquisitions (63) (86) (214) (453)
Early extinguishment of long-term debt - (7,000) (14,150) (16,000)
Payments on long-term debt agreements and capital leases (52,146) (3,310) (60,060) (9,651)
Borrowings under revolving credit facilities 52,350 - 54,850 -
Payments under revolving credit facilities (9,375) - (9,675) -
Payment of deferred financing costs (270) (76) (270) (106)
---- ----
Net cash used in financing activities (9,465) (10,600) (29,343) (31,335)
------ ------- ------- -------
Effect of foreign currency translation on cash balances 161 (80) 491 (296)
--- --- --- ----
Net change in cash and cash equivalents (241) (812) 1,124 (4,323)
Cash and cash equivalents at beginning of period 26,604 20,452 25,239 23,963
------ ------ ------ ------
Cash and cash equivalents at end of period $26,363 $19,640 $26,363 $19,640
======= ======= ======= =======
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Capital lease obligations incurred $6,404 $3,738 $20,714 $12,345
Contingent liabilities in connection with acquisition of businesses $ - $ - $27 $85
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SOURCE ARC Document Solutions, Inc.
