ARC Reports Year-Over-Year Increases in Adjusted EBITDA and Cash Flow from Operations in First Quarter
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ARC Reports Year-Over-Year Increases in Adjusted EBITDA and Cash Flow from Operations in First Quarter

Tuesday, May 4, 2021 4:05 PM
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Topic:
Earnings

SAN RAMON, CA / ACCESSWIRE / May 4, 2021 / ARC Document Solutions, Inc. (NYSE:ARC), a leading document solutions provider to professionals in the design, marketing, commercial real estate, construction and related fields, today reported its financial results for the first quarter ended March 31, 2021.

Financial Highlights:

Financial Highlights:

   
 

Three Months Ended

 

March 31,

(All dollar amounts in millions, except EPS)
2021
2020
Net sales
$
61.7
 
$
88.4
 
Gross margin
30.4
%
31.2
%
Net income attributable to ARC
$
0.8
 
$
0.7
 
Adjusted net income attributable to ARC
$
0.9
 
$
1.2
 
Earnings per share - Diluted
$
0.02
 
$
0.02
 
Adjusted earnings per share - Diluted
$
0.02
 
$
0.03
 
Cash provided by operating activities
$
5.4
 
$
2.8
 
EBITDA
$
8.4
 
$
10.9
 
Adjusted EBITDA
$
8.8
 
$
11.4
 
Capital Expenditures
$
0.6
 
$
1.1
 
Debt & finance leases (including current)
$
88.4
 
$
121.7
 

Management Commentary:

"The company remained resilient and responsive throughout the first quarter as demonstrated by our EBITDA and cash generation performance, and we re-established our momentum after a challenging quarter of sales," said Suri Suriyakumar, Chairman, President and CEO of ARC. "The weather in February took everyone by surprise, but solid demand for our services resumed in March. The growing diversity of our market continues to provide us with new opportunities to expand our customer base and focus on growing it well-beyond the construction vertical."

"The new cost structure we established over the past year has provided us with a solid base to work from," said Jorge Avalos, Chief Financial Officer of ARC. "In addition to increased EBITDA margins, continuing strength in cash flow from operations, and a solid performance in earnings per share, we renewed the foundations of our capital structure with a very favorable credit facility that leaves us well-positioned for growth over the next five years."

2021 First Quarter Supplemental Information:

Net sales were $61.7 million, a 30.2% decrease compared to the first quarter of 2020.

Cash & cash equivalents on the consolidated balance sheet in the first quarter 2021 were $49.5 million.

Days sales outstanding were 54 in Q1 2021 and in Q1 2020.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 67% of total net sales, while customers outside of construction made up approximately 33% of total net sales.

The number of managed print services (MPS) locations dropped by approximately 200 locations year over year to approximately 10,750 as of March 31, 2021.

Net Revenue

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Total net revenue

$

61.7

 

$

289.5

 

$

64.3

 

$

72.4

 

$

64.3

 

$

88.4

 

For the first quarter 2021, net sales decreased 30.2%, compared to the same period in 2020 primarily due to the negative impact of the COVID-19 pandemic on revenues from all of our service offerings, as well as the disruptive effects of severe winter weather in much of the country during the month of February. The material decline in our net sales began in March 2020 when shelter-at-home orders were put in place by several states in the U.S. following the World Health Organization's declaration of COVID-19 as a pandemic.

Revenue by Business Lines

In millions
1Q 2021
FYE 2020
4Q 2020
3Q 2020
2Q 2020
1Q 2020
CDIM
$
37.4
 
$
175.5
 
$
38.2
 
$
47.1
 
$
41.1
 
$
49.2
 
MPS
$
17.3
 
$
79.3
 
$
18.1
 
$
17.6
 
$
16.2
 
$
27.3
 
AIM
$
3.0
 
$
12.3
 
$
3.1
 
$
2.9
 
$
2.7
 
$
3.6
 
Equipment and supplies
$
3.9
 
$
22.3
 
$
4.9
 
$
4.7
 
$
4.4
 
$
8.4
 

For the first quarter 2021, construction document and information management (CDIM) sales declined 23.9% compared to prior year, primarily due to the effects of the COVID-19 pandemic. The impact of the pandemic on CDIM was not as pronounced as other parts of our business due to the expansion of products and services beyond the construction vertical and our historical print segments that resulted from the reconfiguration of our sales and marketing functions in late-2019, as well as demand for COVID-19-related and other color signage.

For the first quarter 2021, MPS sales declined 36.5% year-over-year. MPS sales declined due to the pandemic, primarily due to the lack of workers in offices where our services are provided.

For the first quarter 2021, archiving and information management (AIM) sales decreased 16.0% year-over-year. Sales decrease in AIM were driven by reasons similar to MPS, primarily attributable to the lack of workers in offices, causing a reduction in scanning opportunities.

For the first quarter 2021, equipment and supplies sales declined 52.9% year-over-year. Declines were driven primarily by constrained capital spending in China and the U.S. due to the pandemic.

Gross Profit

In millions unless otherwise indicated
1Q 2021
FYE 2020
4Q 2020
3Q 2020
2Q 2020
1Q 2020
Gross profit
$
18.8
 
$
92.9
 
$
20.7
 
$
24.2
 
$
20.4
 
$
27.6
 
Gross margin
30.4
%
32.1
%
32.1
%
33.4
%
31.8
%
31.2
%

Despite the 30.2% drop in net sales due to the COVID-19 pandemic, gross margins for the first quarter 2021 only dropped by 80 basis points year-over-year and still remained above 30% due to the drop in low margin Equipment and Supplies sales in China and cost savings initiated in response to the pandemic.

Selling, General and Administrative Expenses

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Selling, general and administrative expenses

$

17.0

 

$

79.0

 

$

18.2

 

$

19.2

 

$

17.3

 

$

24.3

 

Selling, general and administrative (SG&A) expenses in the first quarter 2021 declined by 30.2% year-over-year. The decrease was due to cost savings initiated in response to the COVID-19 pandemic.

Net Income and Earnings Per Share

In millions unless otherwise indicated
1Q 2021
FYE 2020
4Q 2020
3Q 2020
2Q 2020
1Q 2020
Net income attributable to ARC - GAAP
$
0.8
 
$
6.2
 
$
1.3
 
$
2.8
 
$
1.5
 
$
0.7
 
Adjusted net income attributable to ARC
$
0.9
 
$
6.3
 
$
1.0
 
$
2.9
 
$
1.2
 
$
1.2
 
 
 
 
 
 
 
 
Earnings per share attributable to ARC
 
 
 
 
 
 
Diluted EPS - GAAP
$
0.02
 
$
0.14
 
$
0.03
 
$
0.07
 
$
0.03
 
$
0.02
 
Adjusted diluted EPS
$
0.02
 
$
0.15
 
$
0.02
 
$
0.07
 
$
0.03
 
$
0.03
 

Year-over-year increase in GAAP net income attributable to ARC was driven by a decrease in income taxes.

Cash Provided by Operating Activities

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Cash provided by operating activities

$

5.4

 

$

54.5

 

$

15.5

 

$

12.8

 

$

23.5

 

$

2.8

 
                                     

The increase in cash flows from operations during the first quarter of 2021, compared to the same period in 2020, resulted from improved management of operating assets and liabilities, and aggressive cash management initiatives instituted in response to the COVID-19 pandemic.

EBITDA

In millions
1Q 2021
FYE 2020
4Q 2020
3Q 2020
2Q 2020
1Q 2020
EBITDA
$
8.4
 
$
43.2
 
$
9.9
 
$
12.1
 
$
10.3
 
$
10.9
 
Adjusted EBITDA
$
8.8
 
$
44.8
 
$
10.2
 
$
12.5
 
$
10.7
 
$
11.4
 

Decline in EBITDA and adjusted EBITDA in the first quarter of 2021 were driven by a significant decline in sales. However, EBITDA margin increased by 130 basis points primarily due to significant declines in selling, general and administrative expenses as noted above.

 

Three Months Ended

 

March 31,

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

2021

2020

CDIM

60.6

%

55.6

%

MPS

28.1

%

30.9

%

AIM

4.9

%

4.1

%

Equipment and supplies sales

6.4

%

9.4

%

Outlook

Due to the economic uncertainty driven by the COVID-19 pandemic, ARC has not issued a forecast for 2021. Management will consider circumstances on a quarterly basis and determine whether the Company will issue a forecast in the future if more reliable indicators become available.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, May 4, 2021, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2021 first quarter. To access the live audio call, dial (833) 968-2212. International callers may join the conference by dialing (778) 560-2897. The conference code is 9468408 and will be required to dial in to the call. 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 provides a wide variety of document distribution and graphic production services to facilitate communication for professionals in the design, marketing, commercial real estate, construction and related fields. 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, including forward-looking statements related to the impact of the COVID-19 pandemic on the Company's operations. Words and phrases such as "continues to provide us with new opportunities to expand our customer base", "focus on growing our base well-beyond the construction vertical", "very favorable credit facility that leaves us well-positioned for growth over the next five years", 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 section titled "Part I - Item 1A. Risk Factors" of ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, 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:
2021
2020
Cash and cash equivalents
$
49,460
 
$

54,950

 
Accounts receivable, net of allowances for accounts receivable of $2,294 and $2,357
36,847
 
36,279
 
Inventory
9,751
 
9,474
 
Prepaid expenses
4,029
 
4,065
 
Other current assets
3,180
 
3,979
 
Total current assets
103,267
 
108,747
 
Property and equipment, net of accumulated depreciation of $222,665 and $219,834
52,874
 
57,830
 
Right-of-use assets from operating leases
35,749
 
37,859
 
Goodwill
121,051
 
121,051
 
Other intangible assets, net
441
 
515
 
Deferred income taxes
16,819
 
17,261
 
Other assets
2,110
 
2,175
 
Total assets
$
332,311
 
$

345,438

 
Current liabilities:
 
 
Accounts payable
$
19,468
 
$

18,661

 
Accrued payroll and payroll-related expenses
8,868
 
10,088
 
Accrued expenses
16,541
 
17,783
 
Current operating lease liabilities
11,421
 
12,158
 
Current portion of finance leases
16,600
 
17,557
 
Total current liabilities
72,898
 
76,247
 
Long-term operating lease liabilities
31,584
 
33,561
 
Long-term debt and finance leases
71,780
 
79,679
 
Other long-term liabilities
1,672
 
1,615
 
Total liabilities
177,934
 
191,102
 
Commitments and contingencies
 
 
Shareholders' equity:
 
 
ARC Document Solutions, Inc. shareholders' 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; 49,433 and 49,422 shares issued and 42,733 and 42,792 shares outstanding
49
 
49
 
Additional paid-in capital
128,108
 
127,755
 
Retained earnings
37,250
 
37,308
 
Accumulated other comprehensive loss
(2,708)
 
(2,787)
 
 
162,699
 
162,325
 
Less cost of common stock in treasury, 6,700 and 6,630 shares
14,813
 
14,657
 
Total ARC Document Solutions, Inc. shareholders' equity
147,886
 
147,668
 
Noncontrolling interest
6,491
 
6,668
 
Total equity
154,377
 
154,336
 
Total liabilities and equity
$
332,311
 
$

345,438

 

ARC Document Solutions, Inc.
 
 
Consolidated Statements of Operations
 
 
(In thousands, except per share data)
 
 
(Unaudited)
Three Months Ended
 
March 31,
 
2021
2020
Net sales
$
61,730
 
$

88,425

 
Cost of sales
42,943
 
60,828
 
Gross profit
18,787
 
27,597
 
Selling, general and administrative expenses
16,995
 
24,338
 
Amortization of intangible assets
75
 
597
 
Income from operations
1,717
 
2,662
 
Other income, net
(11)
 
(16)
 
Interest expense, net
620
 
1,109
 
Income before income tax provision
1,108
 
1,569
 
Income tax provision
496
 
1,107
 
Net income
612
 
462
 
Loss attributable to the noncontrolling interest
177
 
221
 
Net income attributable to ARC Document Solutions, Inc. shareholders
$
789
 
$

683

 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.02
 
$

0.02

 
Diluted
$
0.02
 
$

0.02

 
Weighted average common shares outstanding:
 
 
Basic
42,264
 
43,676
 
Diluted
42,634
 
43,811
 

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

March 31,

 

2021

2020

Cash flows from operating activities

   

Net income

$

612

 

$

462

 

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

   

Allowance for accounts receivable

(36)

 

266

 

Depreciation

6,449

 

7,407

 

Amortization of intangible assets

75

 

597

 

Amortization of deferred financing costs

16

 

16

 

Stock-based compensation

339

 

504

 

Deferred income taxes

392

 

751

 

Deferred tax valuation allowance

60

 

290

 

Other non-cash items, net

(38)

 

(18)

 

Changes in operating assets and liabilities:

   

Accounts receivable, net

(504)

 

(1,995)

 

Inventory

(290)

 

1,027

 

Prepaid expenses and other assets

3,350

 

3,404

 

Accounts payable and accrued expenses

(5,050)

 

(9,937)

 

Net cash provided by operating activities

5,375

 

2,774

 

Cash flows from investing activities

   

Capital expenditures

(568)

 

(1,121)

 

Other

131

 

73

 

Net cash used in investing activities

(437)

 

(1,048)

 

Cash flows from financing activities

   

Proceeds from issuance of common stock under Employee Stock Purchase Plan

14

 

20

 

Share repurchases

(156)

 

(2,432)

 

Payments on finance leases 

(4,817)

 

(4,602)

 

Borrowings under revolving credit facilities

15,000

 

40,000

 

Payments under revolving credit facilities

(20,000)

 

(25,000)

 

Dividends paid

(422)

 

(443)

 

Net cash (used in) provided by financing activities

(10,381)

 

7,543

 

Effect of foreign currency translation on cash balances

(47)

 

(484)

 

Net change in cash and cash equivalents

(5,490)

 

8,785

 

Cash and cash equivalents at beginning of period

54,950

 

29,425

 

Cash and cash equivalents at end of period

$

49,460

 

$

38,210

 

Supplemental disclosure of cash flow information

   

Noncash investing and financing activities

   

Finance lease obligations incurred

$

874

 

$

5,353

 

Operating lease obligations incurred

$

418

 

$

3,498

 


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

Three Months Ended

 

March 31,

 

2021

2020

CDIM

$

37,434

 

$

49,160

 

MPS

17,334

 

27,308

 

AIM

3,025

 

3,600

 

Equipment and supplies sales

3,937

 

8,357

 

Net sales

$

61,730

 

$

88,425

 

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

 

March 31,

 

2021

2020

Cash flows provided by operating activities

$

5,375

 

$

2,774

 

Changes in operating assets and liabilities

2,494

 

7,501

 

Non-cash expenses, including depreciation and amortization

(7,257)

 

(9,813)

 

Income tax provision

496

 

1,107

 

Interest expense, net

620

 

1,109

 

Loss attributable to the noncontrolling interest

177

 

221

 

Depreciation and amortization

6,524

 

8,004

 

EBITDA

8,429

 

10,903

 

Stock-based compensation

339

 

504

 

Adjusted EBITDA

$

8,768

 

$

11,407

 

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,

 

2021

2020

Net income attributable to ARC Document Solutions, Inc.

$

789

 

$

683

 

Interest expense, net

620

 

1,109

 

Income tax provision

496

 

1,107

 

Depreciation and amortization

6,524

 

8,004

 

EBITDA

8,429

 

10,903

 

Stock-based compensation

339

 

504

 

Adjusted EBITDA

$

8,768

 

$

11,407

 

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 unaudited adjusted net income attributable to ARC Document Solutions, Inc.
(In thousands, except per share data)
(Unaudited)

   
 
Three Months Ended
 
March 31,
 
2021

2020

Net income attributable to ARC Document Solutions, Inc.
$

789

 

$

683

 
Deferred tax valuation allowance and other discrete tax items
131
 

499

 
Adjusted net income attributable to ARC Document Solutions, Inc.
$

920

 

$

1,182

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

0.02

 

$

0.02

 
Diluted
$

0.02

 

$

0.02

 
Weighted average common shares outstanding:
 
 
Basic
42,264
 

43,676

 
Diluted
42,634
 

43,811

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

0.02

 

$

0.03

 
Diluted
$

0.02

 

$

0.03

 
Weighted average common shares outstanding:
 
 
Basic
42,264
 

43,676

 
Diluted
42,634
 

43,811

 

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, 2021 and 2020 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, 2021 and 2020.

We have presented adjusted EBITDA for the three months ended March 31, 2021 and 2020 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.

ARC Document Solutions
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