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ARC Reports Increased EBITDA, Gross Margin and Cash in Shorter Q1

Monday, 06 May 2019 04:05 PM

ARC Document Solutions

SAN RAMON, CA / ACCESSWIRE / May 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 first quarter ended March 31, 2019.

Financial Highlights:


Three Months Ended
March 31,
(All dollar amounts in millions, except EPS)
2019
2018
Net Sales
$ 97.1 $ 97.7
Gross Margin
31.6 % 30.9 %
Net income attributable to ARC
$ 0.6 $ 0.6
Adjusted net income attributable to ARC
$ 0.6 $ 0.5
Earnings per share - Diluted
$ 0.01 $ 0.01
Adjusted earnings per share - Diluted
$ 0.01 $ 0.01
Cash provided by (used in) operating activities
$ 2.7 $ (2.0 )
EBITDA
$ 10.6 $ 10.2
Adjusted EBITDA
$ 11.2 $ 10.9
Capital Expenditures
$ 3.2 $ 2.9
Debt & Finance Leases (including current), net of unamortized deferred financing fees
$ 121.3 $ 138.1

Management Commentary

''We had one less day of sales in the first quarter this year, but its impact was offset by increases in our profitability,'' said ARC's CEO, Suri Suriyakumar. ''We were gratified to see continued double-digit growth in AIM, and we were pleased with the sales increase in our equipment and supplies for the period. Print-driven sales in the first quarter were softer due to local and macro-economic conditions on the West Coast, and minor weather disruptions at our service centers in the Midwest and on the East Coast, but we remain focused on overcoming print volume declines in the long-term.''

''Increased EBITDA and cash flows were our biggest wins during the quarter,'' said Jorge Avalos, ARC's CFO. ''We made adjustments to our cost structure to manage an estimated decrease of $1.5 million in sales due to one less day in the period, and delivered an increase of $4.6 million in cash flows from operations as compared to prior year. A noteworthy change on the balance sheet this period is a roughly $50 million gross-up due to the recent changes in lease accounting rules. It had no material impact on our statement of operations or cash flows.''

Management also announced that ARC's Board of Directors authorized a share repurchase program that allows the company to purchase up to $15 million of the company's outstanding common stock through March 31, 2021.

2019 First Quarter Supplemental Information:

Net sales were $97.1 million, a 0.6% decrease compared to the first quarter of 2018.

Days sales outstanding were 56 in Q1 2019 and 55 in Q1 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 first quarter grew to approximately 10,580, a net gain of approximately 310 locations over Q1 2018.

Adjusted EBITDA excludes stock-based compensation expense.

Three Months Ended
March 31,
Sales from Services and Product Lines as a Percentage of Net Sales
2019
2018
CDIM
52.3 % 53.5 %
MPS
31.8 % 32.2 %
AIM
3.4 % 3.0 %
Equipment and supplies sales
12.5 % 11.3 %

Outlook

Management maintained its annual outlook for 2019, with fully-diluted annual adjusted earnings per share in the range of $0.17 to $0.22, annual adjusted EBITDA in the range of $52 to $57 million, and cash provided by operating activities in the range of $47 to $52 million.

Authorization for Share Repurchase

At its most recent meeting ARC's Board of Directors approved a share repurchase program that allows the company to purchase up to $15 million of the company's outstanding common stock through March 31, 2021.

Under the new repurchase program, purchases of shares of common stock may be made from time to time in the open market, or in privately negotiated transactions, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements, and capital availability. The share buyback program does not obligate the company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time without prior notice.

The company expects that any exercise of the program will be funded by cash flows generated from its operations.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Monday, May 6, 2019, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2019 first 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 9955617. 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 ''overcoming print volume declines in the long-term'', ''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, 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)

March 31,
December 31,
Current assets:
2019
2018
Cash and cash equivalents
$ 18,770 $ 29,433
Accounts receivable, net of allowances for accounts receivable of $2,082 and $2,016
60,108 58,035
Inventories, net
16,278 16,768
Prepaid expenses
5,315 4,937
Other current assets
7,318 6,202
Total current assets
107,789 115,375
Property and equipment, net of accumulated depreciation of $203,924 and $199,480
69,984 70,668
Right-of-use assets from operating leases
44,783 -
Goodwill
121,051 121,051
Other intangible assets, net
4,253 5,126
Deferred income taxes
24,779 24,946
Other assets
2,266 2,550
Total assets
$ 374,905 $ 339,716
Current liabilities:
Accounts payable
$ 24,739 $ 24,218
Accrued payroll and payroll-related expenses
9,626 17,029
Accrued expenses
19,418 17,571
Current operating lease liabilities
11,756 -
Current portion of long-term debt and finance leases
22,312 22,132
Total current liabilities
87,851 80,950
Long-term operating lease liabilities
40,013 -
Long-term debt and finance leases
99,006 105,060
Other long-term liabilities
468 6,404
Total liabilities
227,338 192,414
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; 48,969 and 48,492 shares issued and 46,269 and 45,818 shares outstanding
49 48
Additional paid-in capital
124,182 123,525
Retained earnings
29,989 29,397
Accumulated other comprehensive loss
(3,919 ) (3,351 )
150,301 149,619
Less cost of common stock in treasury, 2,700 and 2,674 shares
9,416 9,350
Total ARC Document Solutions, Inc. stockholders' equity
140,885 140,269
Noncontrolling interest
6,682 7,033
Total equity
147,567 147,302
Total liabilities and equity
$ 374,905 $ 339,716

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


Three Months Ended
March 31,
2019
2018
Net sales
$ 97,122 $ 97,708
Cost of sales
66,447 67,523
Gross profit
30,675 30,185
Selling, general and administrative expenses
27,637 27,301
Amortization of intangible assets
895 1,008
Income from operations
2,143 1,876
Other income, net
(18 ) (81 )
Interest expense, net
1,430 1,442
Income before income tax provision
731 515
Income tax provision
284 39
Net income
447 476
Loss attributable to the noncontrolling interest
145 152
Net income attributable to ARC Document Solutions, Inc. shareholders
$ 592 $ 628
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic
$ 0.01 $ 0.01
Diluted
$ 0.01 $ 0.01
Weighted average common shares outstanding:
Basic
45,118 44,741
Diluted
45,355 44,855

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


Three Months Ended
March 31,
2019
2018
Cash flows from operating activities
Net income
$ 447 $ 476
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Allowance for accounts receivable
232 327
Depreciation
7,423 7,129
Amortization of intangible assets
895 1,008
Amortization of deferred financing costs
55 60
Stock-based compensation
608 653
Deferred income taxes
175 (92 )
Deferred tax valuation allowance
(8 ) 57
Other non-cash items, net
(60 ) (44 )
Changes in operating assets and liabilities:
Accounts receivable
(2,537 ) (2,913 )
Inventory
359 524
Prepaid expenses and other assets
1,798
(150 )
Accounts payable and accrued expenses
(6,722 ) (9,014 )
Net cash provided by (used in) operating activities
2,665 (1,979 )
Cash flows from investing activities
Capital expenditures
(3,196 ) (2,892 )
Other
166 380
Net cash used in investing activities
(3,030 ) (2,512 )
Cash flows from financing activities
Proceeds from issuance of common stock under Employee Stock Purchase Plan
50 44
Share repurchases
(66 ) (60 )
Contingent consideration on prior acquisitions
(3 ) (53 )
Payments on long-term debt agreements and finance leases
(5,750 ) (5,751 )
Borrowings under revolving credit facilities
8,250 2,000
Payments under revolving credit facilities
(12,125 ) (5,875 )
Net cash used in financing activities
(9,644 ) (9,695 )
Effect of foreign currency translation on cash balances
(654 ) 95
Net change in cash and cash equivalents
(10,663 ) (14,091 )
Cash and cash equivalents at beginning of period
29,433 28,059
Cash and cash equivalents at end of period
$ 18,770 $ 13,968
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Finance lease obligations incurred
$ 3,664 $ 3,275

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


Three Months Ended
March 31,
2019
2018
CDIM
$ 50,805 $ 52,320
MPS
30,907 31,467
AIM
3,262 2,923
Equipment and supplies sales
12,148 10,998
Net sales
$ 97,122 $ 97,708

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by (used in) operating activities to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)


Three Months Ended
March 31,
2019
2018
Cash flows provided by (used in) operating activities
$ 2,665 $ (1,979 )
Changes in operating assets and liabilities
7,102 11,553
Non-cash expenses, including depreciation and amortization
(9,320 ) (9,098 )
Income tax provision
284 39
Interest expense, net
1,430 1,442
Loss attributable to the noncontrolling interest
145 152
Depreciation and amortization
8,318 8,137
EBITDA
10,624 10,246
Stock-based compensation
608 653
Adjusted EBITDA
$ 11,232 $ 10,899

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
March 31,
2019
2018
Net income attributable to ARC Document Solutions, Inc.
$ 592 $ 628
Interest expense, net
1,430 1,442
Income tax provision
284 39
Depreciation and amortization
8,318 8,137
EBITDA
10,624 10,246
Stock-based compensation
608 653
Adjusted EBITDA
$ 11,232 $ 10,899

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
March 31,
2019
2018
Net income attributable to ARC Document Solutions, Inc.
$ 592 $ 628
Deferred tax valuation allowance and other discrete tax items
26 (149 )
Adjusted net income attributable to ARC Document Solutions, Inc.
$ 618 $ 479
Actual:
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic
$ 0.01 $ 0.01
Diluted
$ 0.01 $ 0.01
Weighted average common shares outstanding:
Basic
45,118 44,741
Diluted
45,355 44,855
Adjusted:
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic
$ 0.01 $ 0.01
Diluted
$ 0.01 $ 0.01
Weighted average common shares outstanding:
Basic
45,118 44,741
Diluted
45,355 44,855

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 months ended March 31, 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 months ended March 31, 2019 and 2018.

We have presented adjusted EBITDA for the three months ended March 31, 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

Topic:
Company Update
Earnings
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