ARC Document Solutions Meets or Exceeds Revised Financial Guidance for Full Year 2016
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ARC Document Solutions Meets or Exceeds Revised Financial Guidance for Full Year 2016

(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 fourth quarter and full year ended December 31, 2016.

Financial Highlights:

 

Three Months Ended

Twelve Months Ended

 

December 31,

December 31,

(All dollar amounts in millions, except EPS)

2016

2015

2016

2015

Net Sales

$

98.6

 

$

104.5

 

$

406.3

 

$

428.7

 

Gross Margin

30.8

%

33.8

%

32.8

%

34.6

%

Net income (loss) attributable to ARC

$

2.6

 

$

3.1

 

$

(47.9)

 

$

97.0

 

Adjusted net income attributable to ARC

$

2.6

 

$

3.2

 

$

13.1

 

$

16.8

 

Earnings (loss) per share - Diluted

$

0.06

 

$

0.06

 

$

(1.04)

 

$

2.04

 

Adjusted earnings per share - Diluted

$

0.06

 

$

0.07

 

$

0.28

 

$

0.35

 

Cash provided by operating activities

$

19.1

 

$

16.9

 

$

53.1

 

$

60.0

 

EBITDA

$

13.6

 

$

15.1

 

$

(14.5)

 

$

68.2

 

Adjusted EBITDA

$

14.3

 

$

15.9

 

$

62.3

 

$

72.2

 

Capital Expenditures

$

(4.5)

 

$

(2.7)

 

$

(12.1)

 

$

(14.2)

 

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

   

$

157.2

 

$

171.4

 

 

Management Commentary

"ARC's transformation continues. Our 24-to-36-month plan is on track to both accelerate our technology services sales and protect our core print revenue," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "In spite of the disruptions we made while reconfiguring sales and operations in the second half of 2016, we met or exceeded our revised financial performance goals for the year."

Management issued its 2017 forecast for diluted annual adjusted earnings per share to be in the range of $0.24 to $0.29; annual adjusted cash provided by operating activities is projected to be in the range of $49 to $54 million; and annual adjusted EBITDA is forecast to be in the range of $58 million to $63 million.

"As reflected by our forecast for 2017, we expect the disruption from the changes we've made to soften sales in the first half of the year, and prudent investments in our overall sales and marketing structure will likely mute our full-year financial performance," Mr. Suriyakumar said. "I remain excited about our potential, and strongly believe the changes we are making will deliver results in the near future."

"Even during a year of transition we maintained a strong gross margin, and we were quick to exert control over costs to improve our performance on lower sales volume," said Jorge Avalos, Chief Financial Officer of ARC Document Solutions. "We generated more than $50 million in cash flows from operations in 2016, which allowed us to pay down $22 million of Term A debt, and repurchase more than five million dollars of stock in the open market. Even if we experience sales disruptions early this year, we still anticipate continuing strong cash flow for 2017."

2016 Fourth Quarter Supplemental Information:

Net sales were $98.6 million, a 5.7% decrease compared to the fourth quarter of 2015.

Days sales outstanding in Q4 2016 were 55, compared to 52 days in Q4 2015.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 77% of our total net sales, while customers outside of construction made up approximately 23% of our total net sales.

Total number of MPS locations at the end of the third quarter has grown to approximately 9,400, a net gain of approximately 400 locations over Q4 2015. This information reflects the reduction of approximately 200 locations associated with a large client that did not renew their MPS engagement with us at the end of 2015.

Adjusted EBITDA excludes loss on extinguishment of debt, goodwill impairment, the impact of trade secret litigation costs, stock-based compensation expense, and restructuring expense.

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

 
 

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

Services and Product Line

2016

2015

 

2016

2015

CDIM

51.5

%

50.7

%

 

52.3

%

51.6

%

MPS

32.2

%

33.8

%

 

32.4

%

33.6

%

AIM

3.5

%

3.2

%

 

3.5

%

3.1

%

Equipment and supplies sales

12.8

%

12.3

%

 

11.8

%

11.7

%

 

Outlook

ARC Document Solutions anticipates 2017 fully-diluted annual adjusted earnings per share to be in the range of $0.24 to $0.29; 2017 annual adjusted cash provided by operating activities is projected to be in the range of $49 to $54 million; and 2017 annual adjusted EBITDA is forecast to be in the range of $58 million to $63 million.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, February 21, 2017, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the company's 2016 fourth quarter and fiscal year. To access the live audio call, dial 888-539-3679. International callers may join the conference by dialing 719-325-2244. The conference ID number is 8445562. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at ir.e-arc.com. The webcast of the call will be available at www.e-arc.com 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 " plan is on track," "forecast," "expect," "believe," "anticipate," "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, 2015, 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)

 

December 31,

December 31,

Current assets:

2016

2015

Cash and cash equivalents

$

25,239

 

$

23,963

 

Accounts receivable, net of allowances for accounts receivable of $2,060 and $2,094

59,735

 

60,085

 

Inventories, net

18,184

 

16,972

 

Prepaid expenses

3,861

 

4,555

 

Other current assets

4,785

 

4,131

 

Total current assets

111,804

 

109,706

 

Property and equipment, net of accumulated depreciation of $201,192 and $202,457

60,735

 

57,590

 

Goodwill

138,688

 

212,608

 

Other intangible assets, net

13,202

 

17,946

 

Deferred income taxes

72,963

 

74,196

 

Other assets

2,185

 

2,492

 

Total assets

$

399,577

 

$

474,538

 

Current liabilities:

   

Accounts payable

$

24,782

 

$

23,989

 

Accrued payroll and payroll-related expenses

12,219

 

12,118

 

Accrued expenses

16,138

 

19,194

 

Current portion of long-term debt and capital leases

13,773

 

14,374

 

Total current liabilities

66,912

 

69,675

 

Long-term debt and capital leases

143,400

 

157,018

 

Deferred income taxes

30,296

 

35,933

 

Other long-term liabilities

2,148

 

2,778

 

Total liabilities

242,756

 

265,404

 

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; 47,428 and 47,130 shares issued and 45,988 and 47,029 shares outstanding

47

 

47

 

Additional paid-in capital

117,749

 

115,089

 

Retained earnings

41,822

 

89,687

 

Accumulated other comprehensive loss

(3,793)

 

(2,097)

 
 

155,825

 

202,726

 

Less cost of common stock in treasury, 1,440 and 101 shares

5,909

 

612

 

Total ARC Document Solutions, Inc. stockholders' equity

149,916

 

202,114

 

Noncontrolling interest

6,905

 

7,020

 

Total equity

156,821

 

209,134

 

Total liabilities and equity

$

399,577

 

$

474,538

 

 

 

ARC Document Solutions, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Twelve Months Ended

 

December 31,

December 31,

 

2016

2015

2016

2015

Service sales

$

85,947

 

$

91,593

 

$

358,341

 

$

378,638

 

Equipment and supplies sales

12,611

 

12,946

 

47,980

 

50,027

 

Total net sales

98,558

 

104,539

 

406,321

 

428,665

 

Cost of sales

68,174

 

69,238

 

273,078

 

280,541

 

Gross profit

30,384

 

35,301

 

133,243

 

148,124

 

Selling, general and administrative expenses

23,462

 

26,877

 

100,214

 

107,280

 

Amortization of intangible assets

1,128

 

1,336

 

4,833

 

5,642

 

Goodwill impairment

 

 

73,920

 

 

Restructuring expense

 

 

7

 

89

 

Income from operations

5,794

 

7,088

 

(45,731)

 

35,113

 

Other income, net

(18)

 

(18)

 

(72)

 

(99)

 

Loss on extinguishment of debt

52

 

89

 

208

 

282

 

Interest expense, net

1,461

 

1,499

 

5,996

 

6,974

 

Income (loss) before income tax provision (benefit)

4,299

 

5,518

 

(51,863)

 

27,956

 

Income tax provision (benefit)

1,520

 

2,334

 

(4,364)

 

(69,432)

 

Net income (loss)

2,779

 

3,184

 

(47,499)

 

97,388

 

Income attributable to noncontrolling interest

(155)

 

(123)

 

(366)

 

(348)

 

Net income (loss) attributable to ARC Document Solutions, Inc. shareholders

$

2,624

 

$

3,061

 

$

(47,865)

 

$

97,040

 

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

       

Basic

$

0.06

 

$

0.07

 

$

(1.04)

 

$

2.08

 

Diluted

$

0.06

 

$

0.06

 

$

(1.04)

 

$

2.04

 

Weighted average common shares outstanding:

       

Basic

45,567

 

46,722

 

45,932

 

46,631

 

Diluted

46,274

 

47,400

 

45,932

 

47,532

 

 

 

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

Twelve Months Ended

 

December 31,

December 31,

 

2016

2015

2016

2015

Cash flows provided by operating activities

$

19,096

 

$

16,864

 

$

53,142

 

$

59,981

 

Changes in operating assets and liabilities, net of effect of business acquisitions

(6,058)

 

(2,338)

 

3,918

 

4,905

 

Non-cash expenses, including depreciation, amortization and restructuring

(10,259)

 

(11,342)

 

(104,559)

 

32,502

 

Income tax provision (benefit)

1,520

 

2,334

 

(4,364)

 

(69,432)

 

Interest expense, net

1,461

 

1,499

 

5,996

 

6,974

 

Income attributable to noncontrolling interest

(155)

 

(123)

 

(366)

 

(348)

 

Depreciation and amortization

8,014

 

8,171

 

31,751

 

33,661

 

EBITDA

13,619

 

15,065

 

(14,482)

 

68,243

 

Loss on extinguishment of debt

52

 

89

 

208

 

282

 

Goodwill impairment

 

 

73,920

 

 

Trade secret litigation costs (1)

 

 

 

34

 

Restructuring expense (2)

 

 

7

 

89

 

Stock-based compensation

620

 

773

 

2,693

 

3,512

 

Adjusted EBITDA

$

14,291

 

$

15,927

 

$

62,346

 

$

72,160

 
 

(1) On February 1, 2013, we filed a civil complaint against a competitor and a former employee in the Superior Court of California for Orange County, which alleged, among other claims, the misappropriation of ARC trade secrets; namely, proprietary customer lists that were used to communicate with ARC customers in an attempt to unfairly acquire their business. In prior litigation with the competitor based on related facts, in 2007 the competitor entered into a settlement agreement and stipulated judgment, which included an injunction. We instituted this suit to stop the defendant from using similar unfair business practices against us in the Southern California market. The case proceeded to trial in May 2014, and a jury verdict was entered for the defendants. In the first quarter of 2015, we entered into a settlement and paid the defendant. Legal fees associated with the litigation were recorded as selling, general and administrative expense.

 

(2) In October 2012, we initiated a restructuring plan which included the closure or downsizing of the Company's service center locations, as well as a reduction in headcount. Restructuring expenses in 2016 and 2015 primarily consist of revised estimated lease termination and obligation costs resulting from facilities closed in 2013.

 

 

 

ARC Document Solutions, Inc.

 

Non-GAAP Measures

Reconciliation of net income (loss) attributable to ARC to unaudited adjusted net income attributable to ARC

(In thousands, except per share data)

(Unaudited)

 
 

 Three Months Ended

Twelve Months Ended

 

December 31,

December 31,

 

2016

2015

2016

2015

Net income (loss) attributable to ARC Document Solutions, Inc. shareholders

$

2,624

 

$

3,061

 

$

(47,865)

 

$

97,040

 

Loss on extinguishment of debt

52

 

89

 

208

 

282

 

Goodwill impairment

 

 

73,920

 

 

Restructuring expense

 

 

7

 

89

 

Trade secret litigation costs

 

 

 

34

 

Income tax benefit related to above items

(24)

 

(33)

 

(13,419)

 

(158)

 

Deferred tax valuation allowance and other discrete tax items

(94)

 

41

 

247

 

(80,513)

 

Unaudited adjusted net income attributable to ARC Document Solutions, Inc.

$

2,558

 

$

3,158

 

$

13,098

 

$

16,774

 
         

Actual:

       

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

       

Basic

$

0.06

 

$

0.07

 

$

(1.04)

 

$

2.08

 

Diluted

$

0.06

 

$

0.06

 

$

(1.04)

 

$

2.04

 

Weighted average common shares outstanding:

       

Basic

45,567

 

46,722

 

45,932

 

46,631

 

Diluted

46,274

 

47,400

 

45,932

 

47,532

 
         

Adjusted:

       

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

       

Basic

$

0.06

 

$

0.07

 

$

0.29

 

$

0.36

 

Diluted

$

0.06

 

$

0.07

 

$

0.28

 

$

0.35

 

Weighted average common shares outstanding:

       

Basic

45,567

 

46,722

 

45,932

 

46,631

 

Diluted

46,274

 

47,400

 

46,561

 

47,532

 

 

 

ARC Document Solutions, Inc.

Non-GAAP Measures

Reconciliation of net income (loss) attributable to ARC Document Solutions, Inc. shareholders to EBITDA and Adjusted EBITDA

(In thousands)

(Unaudited)

 
 

 Three Months Ended

Twelve Months Ended

 

December 31,

December 31,

 

2016

2015

2016

2015

Net income (loss) attributable to ARC Document Solutions, Inc. shareholders

$

2,624

 

$

3,061

 

$

(47,865)

 

$

97,040

 

Interest expense, net

1,461

 

1,499

 

5,996

 

6,974

 

Income tax provision (benefit)

1,520

 

2,334

 

(4,364)

 

(69,432)

 

Depreciation and amortization

8,014

 

8,171

 

31,751

 

33,661

 

EBITDA

13,619

 

15,065

 

(14,482)

 

68,243

 

Loss on extinguishment of debt

52

 

89

 

208

 

282

 

Goodwill impairment

 

 

73,920

 

 

Trade secret litigation costs

 

 

 

34

 

Restructuring expense

 

 

7

 

89

 

Stock-based compensation

620

 

773

 

2,693

 

3,512

 

Adjusted EBITDA

$

14,291

 

$

15,927

 

$

62,346

 

$

72,160

 

 

ARC Document Solutions, Inc.

 

Net Sales by Product Line

(In thousands)

(Unaudited)

 
 

 Three Months Ended

Twelve Months Ended

 

December 31,

December 31,

 

2016

2015

2016

2015

Service Sales

       

CDIM

$

50,758

 

$

52,987

 

$

212,511

 

$

221,174

 

MPS

31,729

 

35,310

 

131,811

 

144,244

 

AIM

3,460

 

3,296

 

14,019

 

13,220

 

Total services sales

85,947

 

91,593

 

358,341

 

378,638

 

Equipment and supplies sales

12,611

 

12,946

 

47,980

 

50,027

 

Total net sales

$

98,558

 

$

104,539

 

$

406,321

 

$

428,665

 

 

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. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

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:

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. For more information, see our 2015 Annual Report on Form 10-K.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and twelve months ended December 31, 2016 and 2015 to reflect the exclusion of loss on extinguishment of debt, goodwill impairment, restructuring expense, trade secret litigation costs, 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 twelve months ended December 31, 2016 and 2015. We believe these charges were the result of the then current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We have presented adjusted EBITDA for the three and twelve months ended December 31, 2016 and 2015 to exclude loss on extinguishment of debt, goodwill impairment, trade secret litigation costs, 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
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)

Three Months Ended

December 31,

Twelve Months Ended

December 31,

 

2016

2015

2016

2015

Cash flows from operating activities

       

Net income (loss)

$

2,779

 

$

3,184

 

$

(47,499)

 

$

97,388

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

       

Allowance for accounts receivable

274

 

48

 

918

 

340

 

Depreciation

6,886

 

6,835

 

26,918

 

28,019

 

Amortization of intangible assets

1,128

 

1,336

 

4,833

 

5,642

 

Amortization of deferred financing costs

101

 

129

 

445

 

589

 

Goodwill impairment

 

 

73,920

 

 

Stock-based compensation

620

 

773

 

2,693

 

3,512

 

Deferred income taxes

1,307

 

1,952

 

(4,711)

 

10,173

 

Deferred tax valuation allowance

67

 

213

 

51

 

(80,669)

 

Loss on early extinguishment of debt

52

 

89

 

208

 

282

 

Other non-cash items, net

(176)

 

(33)

 

(716)

 

(390)

 

Changes in operating assets and liabilities, net of effect of business acquisitions:

       

Accounts receivable

991

 

4,366

 

(1,294)

 

729

 

Inventory

1,606

 

808

 

(1,590)

 

(967)

 

Prepaid expenses and other assets

(404)

 

(645)

 

109

 

2,296

 

Accounts payable and accrued expenses

3,865

 

(2,191)

 

(1,143)

 

(6,963)

 

Net cash provided by operating activities

19,096

 

16,864

 

53,142

 

59,981

 

Cash flows from investing activities

       

Capital expenditures

(4,517)

 

(2,728)

 

(12,097)

 

(14,245)

 

Other

259

 

75

 

1,101

 

589

 

Net cash used in investing activities

(4,258)

 

(2,653)

 

(10,996)

 

(13,656)

 

Cash flows from financing activities

       

Proceeds from stock option exercises

22

 

112

 

98

 

673

 

Proceeds from issuance of common stock under Employee Stock Purchase Plan

24

 

28

 

120

 

111

 

Share repurchases

 

 

(5,297)

 

(204)

 

Contingent consideration on prior acquisitions

(118)

 

(54)

 

(571)

 

(413)

 

Early extinguishment of long-term debt

(6,000)

 

(3,625)

 

(22,000)

 

(14,500)

 

Payments on long-term debt agreements and capital leases

(3,339)

 

(7,287)

 

(12,990)

 

(27,329)

 

Net borrowings (repayments) under revolving credit facilities

950

 

 

950

 

(1,888)

 

Payment of deferred financing costs

 

 

(106)

 

(25)

 

Payment of hedge premium

 

 

 

(632)

 

Net cash used in financing activities

(8,461)

 

(10,826)

 

(39,796)

 

(44,207)

 

Effect of foreign currency translation on cash balances

(778)

 

(246)

 

(1,074)

 

(791)

 

Net change in cash and cash equivalents

5,599

 

3,139

 

1,276

 

1,327

 

Cash and cash equivalents at beginning of period

19,640

 

20,824

 

23,963

 

22,636

 

Cash and cash equivalents at end of period

$

25,239

 

$

23,963

 

$

25,239

 

$

23,963

 

Supplemental disclosure of cash flow information:

       

Noncash financing activities:

       

Capital lease obligations incurred

$

6,603

 

$

3,490

 

$

18,948

 

$

13,157

 

Contingent liabilities in connection with the acquisition of businesses

$

 

$

 

$

75

 

$

 

 

 

 

To view the original version on PR Newswire, visit: http://www.prnewswire.com/news-releases/arc-document-solutions-meets-or-exceeds-revised-financial-guidance-for-full-year-2016-300411064.html

SOURCE ARC Document Solutions, Inc.

Contact:
ARC Document Solutions, Inc.
David Stickney, VP Corporate Communications & Investor Relations, 925-949-5114
Web: http://www.e-arc.com