UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of Report: February 25, 2020 (Date of earliest event reported) | ||||
ARC Document Solutions, Inc. (Exact name of registrant as specified in its charter) | ||||
Delaware (State or other jurisdiction of incorporation) | 001-32407 (Commission File Number) | 20-1700361 (IRS Employer Identification Number) | ||
12657 Alcosta Blvd, Suite 200, San Ramon, CA (Address of principal executive offices) | 94583 (Zip Code) | |||
(925) 949-5100 (Registrant's telephone number, including area code) | ||||
Not Applicable (Former Name or Former Address, if changed since last report) |
Dated: February 25, 2020 | ARC DOCUMENT SOLUTIONS, INC. By: /s/ Jorge Avalos Jorge Avalos Chief Financial Officer |
Exhibit Index | |
Exhibit No. | Description |
Financial Highlights: | ||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
(All dollar amounts in millions, except EPS) | 2019 | 2018 | 2019 | 2018 | ||||||||
Net Sales | $ | 92.3 | $ | 98.4 | $ | 382.4 | $ | 400.8 | ||||
Gross Margin | 32.8 | % | 32.7 | % | 32.7 | % | 32.6 | % | ||||
Net income attributable to ARC | $ | 0.8 | $ | 1.6 | $ | 3.0 | $ | 8.9 | ||||
Adjusted net income attributable to ARC | $ | 1.4 | $ | 1.6 | $ | 6.8 | $ | 8.5 | ||||
Earnings per share - Diluted | $ | 0.02 | $ | 0.04 | $ | 0.07 | $ | 0.20 | ||||
Adjusted earnings per share - Diluted | $ | 0.03 | $ | 0.03 | $ | 0.15 | $ | 0.19 | ||||
Cash provided by operating activities | $ | 23.0 | $ | 24.9 | $ | 52.8 | $ | 55.0 | ||||
EBITDA | $ | 10.3 | $ | 12.1 | $ | 45.9 | $ | 51.0 | ||||
Adjusted EBITDA | $ | 11.7 | $ | 12.7 | $ | 49.4 | $ | 53.4 | ||||
Capital Expenditures | $ | 4.5 | $ | 4.5 | $ | 12.9 | $ | 14.9 | ||||
Debt & Capital Leases (including current), net of unamortized deferred financing fees | $ | 106.2 | $ | 127.2 |
In millions | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
Total Net Revenue | $ | 382.4 | $ | 92.3 | $ | 94.1 | $ | 98.9 | $ | 97.1 | $ | 400.8 | $ | 98.4 |
In millions | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
CDIM | $ | 205.5 | $ | 49.8 | $ | 50.5 | $ | 54.4 | $ | 50.8 | $ | 211.4 | $ | 51.1 | |||||||
MPS | $ | 123.3 | $ | 30.2 | $ | 30.6 | $ | 31.6 | $ | 30.9 | $ | 128.8 | $ | 31.6 | |||||||
AIM | $ | 14.1 | $ | 3.7 | $ | 3.5 | $ | 3.6 | $ | 3.3 | $ | 13.1 | $ | 3.4 | |||||||
Equipment and supplies | $ | 39.5 | $ | 8.6 | $ | 9.5 | $ | 9.3 | $ | 12.1 | $ | 47.5 | $ | 12.3 |
In millions unless otherwise indicated | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
Gross Profit | $ | 125.2 | $ | 30.2 | $ | 30.4 | $ | 33.8 | $ | 30.7 | $ | 130.9 | $ | 32.2 | |||||||
Gross Margin | 32.7 | % | 32.8 | % | 32.3 | % | 34.2 | % | 31.6 | % | 32.6 | % | 32.7 | % |
In millions | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
Selling, general and administrative expenses | $ | 107.3 | $ | 26.4 | $ | 26.0 | $ | 27.2 | $ | 27.6 | $ | 109.1 | $ | 27.3 |
In millions unless otherwise indicated | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
Net Income Attributable to ARC – GAAP | $ | 3.0 | $ | 0.8 | $ | 1.1 | $ | 0.5 | $ | 0.6 | $ | 8.9 | $ | 1.6 | |||||||
Adjusted Net Income Attributable to ARC | $ | 6.8 | $ | 1.4 | $ | 1.6 | $ | 3.1 | $ | 0.6 | $ | 8.5 | $ | 1.6 | |||||||
Earnings per share Attributable to ARC | |||||||||||||||||||||
Diluted EPS – GAAP | $ | 0.07 | $ | 0.02 | $ | 0.02 | $ | 0.01 | $ | 0.01 | $ | 0.20 | $ | 0.04 | |||||||
Adjusted Diluted EPS | $ | 0.15 | $ | 0.03 | $ | 0.04 | $ | 0.07 | $ | 0.01 | $ | 0.19 | $ | 0.03 |
In millions | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
Cash provided by operating activities | $ | 52.8 | $ | 23.0 | $ | 10.8 | $ | 16.3 | $ | 2.7 | $ | 55.0 | $ | 24.9 |
In millions | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | FYE 2018 | 4Q 2018 | ||||||||||||||
EBITDA | $ | 45.9 | $ | 10.3 | $ | 11.1 | $ | 13.8 | $ | 10.6 | $ | 51.0 | $ | 12.1 | |||||||
Adjusted EBITDA | $ | 49.4 | $ | 11.7 | $ | 12.1 | $ | 14.4 | $ | 11.2 | $ | 53.4 | $ | 12.7 |
• | Cash & cash equivalents on the balance sheet at the end of 2019 were $29.4 million. |
• | On December 17, 2019 the Company entered into an amendment to its Credit Agreement, initially dated as of November 20, 2014. The Amendment increases the maximum aggregate principal amount of revolving loans (“Revolving Loans”) under the Credit Agreement from $65 million to $80 million. Proceeds of a portion of the Revolving Loans available to be drawn under the Credit Agreement were used to fully repay the $49.5 million term loan that was outstanding under the Credit Agreement at the time of the amendment. Senior debt facility payments in 2019 were $20 million. |
• | The Company purchased 0.7 million of its own shares in the open market in the fourth quarter for $0.9 million, and in total, purchased 1.3 million of its own shares during the full-year 2019 for $1.9 million. |
• | ARC’s second quarterly cash dividend of one cent was announced on February 14, 2019 with a record date of April 30, 2020, and a payment date of May 29, 2020. |
• | Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 76% of our total net sales, while customers outside of construction made up approximately 24% of our total net sales. |
• | Total number of MPS locations at the end of the fourth quarter has grown to approximately 10,900, a net gain of approximately 400 locations over Q4 2018. |
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 | 2019 | 2018 | 2019 | 2018 | |||||
CDIM | 54.0 | % | 51.9 | % | 53.7 | % | 52.7 | % | |
MPS | 32.7 | % | 32.1 | % | 32.2 | % | 32.1 | % | |
AIM | 4.0 | % | 3.5 | % | 3.7 | % | 3.3 | % | |
Equipment and supplies sales | 9.3 | % | 12.5 | % | 10.4 | % | 11.9 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
December 31, | December 31, | |||||
Current assets: | 2019 | 2018 | ||||
Cash and cash equivalents | $ | 29,425 | $ | 29,433 | ||
Accounts receivable, net of allowances for accounts receivable of $2,099 and $2,016 | 51,432 | 58,035 | ||||
Inventories, net | 13,936 | 16,768 | ||||
Prepaid expenses | 4,783 | 4,937 | ||||
Other current assets | 6,807 | 6,202 | ||||
Total current assets | 106,383 | 115,375 | ||||
Property and equipment, net of accumulated depreciation of $210,849 and $199,480 | 70,334 | 70,668 | ||||
Right-of-use assets from operating leases | 41,238 | — | ||||
Goodwill | 121,051 | 121,051 | ||||
Other intangible assets, net | 1,996 | 5,126 | ||||
Deferred income taxes | 19,755 | 24,946 | ||||
Other assets | 2,400 | 2,550 | ||||
Total assets | $ | 363,157 | $ | 339,716 | ||
Current liabilities: | ||||||
Accounts payable | $ | 23,231 | $ | 24,218 | ||
Accrued payroll and payroll-related expenses | 14,569 | 17,029 | ||||
Accrued expenses | 20,440 | 17,571 | ||||
Current operating lease liabilities | 11,060 | — | ||||
Current portion of long-term debt and capital leases | 17,075 | 22,132 | ||||
Total current liabilities | 86,375 | 80,950 | ||||
Long-term operating lease liabilities | 37,260 | — | ||||
Long-term debt and capital leases | 89,082 | 105,060 | ||||
Other long-term liabilities | 400 | 6,404 | ||||
Total liabilities | 213,117 | 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; 49,189 and 48,492 shares issued and 45,228 and 45,818 shares outstanding | 49 | 48 | ||||
Additional paid-in capital | 126,117 | 123,525 | ||||
Retained earnings | 31,969 | 29,397 | ||||
Accumulated other comprehensive loss | (3,357 | ) | (3,351 | ) | ||
154,778 | 149,619 | |||||
Less cost of common stock in treasury, 3,960 and 2,674 shares | 11,410 | 9,350 | ||||
Total ARC Document Solutions, Inc. stockholders’ equity | 143,368 | 140,269 | ||||
Noncontrolling interest | 6,672 | 7,033 | ||||
Total equity | 150,040 | 147,302 | ||||
Total liabilities and equity | $ | 363,157 | $ | 339,716 |
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, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Service sales | $ | 83,740 | $ | 86,140 | $ | 342,912 | $ | 353,300 | ||||
Equipment and supplies sales | 8,576 | 12,273 | 39,503 | 47,484 | ||||||||
Total net sales | 92,316 | 98,413 | 382,415 | 400,784 | ||||||||
Cost of sales | 62,072 | 66,255 | 257,246 | 269,934 | ||||||||
Gross profit | 30,244 | 32,158 | 125,169 | 130,850 | ||||||||
Selling, general and administrative expenses | 26,379 | 27,342 | 107,260 | 109,122 | ||||||||
Amortization of intangible assets | 661 | 926 | 3,141 | 3,868 | ||||||||
Restructuring expense | 349 | — | 660 | — | ||||||||
Income from operations | 2,855 | 3,890 | 14,108 | 17,860 | ||||||||
Other income, net | (18 | ) | (18 | ) | (71 | ) | (81 | ) | ||||
Loss on extinguishment and modification of debt | 389 | — | 389 | — | ||||||||
Interest expense, net | 1,160 | 1,444 | 5,226 | 5,880 | ||||||||
Income before income tax provision | 1,324 | 2,464 | 8,564 | 12,061 | ||||||||
Income tax provision | 502 | 808 | 5,724 | 3,334 | ||||||||
Net income | 822 | 1,656 | 2,840 | 8,727 | ||||||||
Loss (income) attributable to noncontrolling interest | 2 | (44 | ) | 175 | 146 | |||||||
Net income attributable to ARC Document Solutions, Inc. shareholders | $ | 824 | $ | 1,612 | $ | 3,015 | $ | 8,873 | ||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.02 | $ | 0.04 | $ | 0.07 | $ | 0.20 | ||||
Diluted | $ | 0.02 | $ | 0.04 | $ | 0.07 | $ | 0.20 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,670 | 45,009 | 44,997 | 44,918 | ||||||||
Diluted | 44,725 | 45,218 | 45,083 | 45,050 |
ARC Document Solutions Consolidated Statements of Cash Flows | Three Months Ended | Twelve Months Ended | ||||||||||
(In thousands) (Unaudited) | December 31, | December 31, | ||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 822 | $ | 1,656 | $ | 2,840 | $ | 8,727 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Allowance for accounts receivable | 160 | 446 | 590 | 1,083 | ||||||||
Depreciation | 7,163 | 7,311 | 28,763 | 29,019 | ||||||||
Amortization of intangible assets | 661 | 926 | 3,141 | 3,868 | ||||||||
Amortization of deferred financing costs | 46 | 57 | 208 | 232 | ||||||||
Stock-based compensation | 605 | 621 | 2,459 | 2,445 | ||||||||
Deferred income taxes | 473 | 953 | 5,157 | 3,128 | ||||||||
Deferred tax valuation allowance | (64 | ) | (211 | ) | 51 | (140 | ) | |||||
Restructuring expense, non-cash portion | 102 | — | 148 | — | ||||||||
Loss on extinguishment and modification of debt | 389 | — | 389 | — | ||||||||
Other non-cash items, net | (235 | ) | (113 | ) | (444 | ) | (314 | ) | ||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 6,377 | 3,827 | 6,119 | (2,767 | ) | |||||||
Inventory | 1,549 | 1,446 | 2,791 | 2,737 | ||||||||
Prepaid expenses and other assets | 4,734 | 512 | 11,828 | (1,814 | ) | |||||||
Accounts payable and accrued expenses | 205 | 7,471 | (11,259 | ) | 8,760 | |||||||
Net cash provided by operating activities | 22,987 | 24,902 | 52,781 | 54,964 | ||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | (4,479 | ) | (4,467 | ) | (12,885 | ) | (14,930 | ) | ||||
Other | 299 | 139 | 641 | 695 | ||||||||
Net cash used in investing activities | (4,180 | ) | (4,328 | ) | (12,244 | ) | (14,235 | ) | ||||
Cash flows from financing activities | ||||||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 24 | 27 | 133 | 127 | ||||||||
Share repurchases | (874 | ) | — | (2,060 | ) | (60 | ) | |||||
Contingent consideration on prior acquisitions | — | (60 | ) | (3 | ) | (236 | ) | |||||
Payments on long-term debt agreements and capital leases | (54,106 | ) | (5,831 | ) | (71,657 | ) | (23,031 | ) | ||||
Borrowings under revolving credit facilities | 51,500 | 7,625 | 71,250 | 16,875 | ||||||||
Payments under revolving credit facilities | (7,000 | ) | (11,500 | ) | (38,000 | ) | (32,375 | ) | ||||
Payment of deferred financing costs | (96 | ) | — | (96 | ) | — | ||||||
Net cash used in financing activities | (10,552 | ) | (9,739 | ) | (40,433 | ) | (38,700 | ) | ||||
Effect of foreign currency translation on cash balances | 367 | 194 | (112 | ) | (655 | ) | ||||||
Net change in cash and cash equivalents | 8,622 | 11,029 | (8 | ) | 1,374 | |||||||
Cash and cash equivalents at beginning of period | 20,803 | 18,404 | 29,433 | 28,059 | ||||||||
Cash and cash equivalents at end of period | $ | 29,425 | $ | 29,433 | $ | 29,425 | $ | 29,433 | ||||
Supplemental disclosure of cash flow information: | ||||||||||||
Noncash financing activities: | ||||||||||||
Finance lease obligations incurred | $ | 4,047 | $ | 4,971 | $ | 17,057 | $ | 21,531 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Service Sales | ||||||||||||
CDIM | $ | 49,835 | $ | 51,119 | $ | 205,536 | $ | 211,389 | ||||
MPS | 30,187 | 31,594 | 123,279 | 128,775 | ||||||||
AIM | 3,718 | 3,427 | 14,097 | 13,136 | ||||||||
Total services sales | 83,740 | 86,140 | 342,912 | 353,300 | ||||||||
Equipment and supplies sales | 8,576 | 12,273 | 39,503 | 47,484 | ||||||||
Total net sales | $ | 92,316 | $ | 98,413 | $ | 382,415 | $ | 400,784 |
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, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Cash flows provided by operating activities | $ | 22,987 | $ | 24,902 | $ | 52,781 | $ | 54,964 | ||||
Changes in operating assets and liabilities | (12,865 | ) | (13,256 | ) | (9,479 | ) | (6,916 | ) | ||||
Non-cash expenses | (1,476 | ) | (1,753 | ) | (8,558 | ) | (6,434 | ) | ||||
Income tax provision | 502 | 808 | 5,724 | 3,334 | ||||||||
Interest expense, net | 1,160 | 1,444 | 5,226 | 5,880 | ||||||||
Loss (income) attributable to noncontrolling interest | 2 | (44 | ) | 175 | 146 | |||||||
EBITDA | 10,310 | 12,101 | 45,869 | 50,974 | ||||||||
Loss on extinguishment and modification of debt | 389 | — | 389 | — | ||||||||
Restructuring expense | 349 | — | 660 | — | ||||||||
Stock-based compensation | 605 | 621 | 2,459 | 2,445 | ||||||||
Adjusted EBITDA | $ | 11,653 | $ | 12,722 | $ | 49,377 | $ | 53,419 |
ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net income 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, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Net income attributable to ARC Document Solutions, Inc. shareholders | $ | 824 | $ | 1,612 | $ | 3,015 | $ | 8,873 | ||||
Interest expense, net | 1,160 | 1,444 | 5,226 | 5,880 | ||||||||
Income tax provision | 502 | 808 | 5,724 | 3,334 | ||||||||
Depreciation and amortization | 7,824 | 8,237 | 31,904 | 32,887 | ||||||||
EBITDA | 10,310 | 12,101 | 45,869 | 50,974 | ||||||||
Loss on extinguishment and modification of debt | 389 | — | 389 | — | ||||||||
Restructuring expense | 349 | — | 660 | — | ||||||||
Stock-based compensation | 605 | 621 | 2,459 | 2,445 | ||||||||
Adjusted EBITDA | $ | 11,653 | $ | 12,722 | $ | 49,377 | $ | 53,419 |
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 | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Net income attributable to ARC Document Solutions, Inc. shareholders | $ | 824 | $ | 1,612 | $ | 3,015 | $ | 8,873 | ||||
Loss on extinguishment and modification of debt | 389 | — | 389 | — | ||||||||
Restructuring expense | 349 | — | 660 | — | ||||||||
Income tax benefit related to above items | (192 | ) | — | (273 | ) | — | ||||||
Deferred tax valuation allowance and other discrete tax items | 67 | (51 | ) | 3,006 | (341 | ) | ||||||
Unaudited adjusted net income attributable to ARC Document Solutions, Inc. | $ | 1,437 | $ | 1,561 | $ | 6,797 | $ | 8,532 | ||||
Actual: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.02 | $ | 0.04 | $ | 0.07 | $ | 0.20 | ||||
Diluted | $ | 0.02 | $ | 0.04 | $ | 0.07 | $ | 0.20 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,670 | 45,009 | 44,997 | 44,918 | ||||||||
Diluted | 44,725 | 45,218 | 45,083 | 45,050 | ||||||||
Adjusted: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.03 | $ | 0.03 | $ | 0.15 | $ | 0.19 | ||||
Diluted | $ | 0.03 | $ | 0.03 | $ | 0.15 | $ | 0.19 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,670 | 45,009 | 44,997 | 44,918 | ||||||||
Diluted | 44,725 | 45,218 | 45,083 | 45,050 |
• | 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. |