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: August 2, 2016 (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) | ||
1981 N. Broadway, Walnut Creek, CA (Address of principal executive offices) | 94596 (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: August 2, 2016 | ARC DOCUMENT SOLUTIONS, INC. By: /s/ Jorge Avalos Jorge Avalos Chief Financial Officer |
Exhibit Index | ||
Exhibit No. | Description | |
99.1 | ARC Document Solutions, Inc. Press Release dated August 2, 2016. | |
• | Net sales of $103.8 million vs. $113.4 million in Q2 2015 |
• | Adjusted diluted earnings per share were $0.10 vs. $0.13 in Q2 2015 |
• | Gross margin of 35.1% vs. 36.0% in Q2 2015 due to lower sales volume |
• | Cash flow from operations of $16.6 million vs. $16.9 million in Q2 2015 |
• | Adjusted EBITDA of $18.1 million or 17.5% |
• | Approximately 581,000 shares of ARC common stock repurchased in the open market |
• | Revised 2016 forecast is for annual adjusted earnings per share to be in the range of $0.24 to $0.28; annual cash flow from operations to be in the range of $48 million to $52 million; and annual adjusted EBITDA is expected to be in the range of $59 million to $63 million. |
Financial Highlights: | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
(All dollar amounts in millions, except EPS) | 2016 | 2015 | 2016 | 2015 | |||||||||
Net Sales | $ | 103.8 | $ | 113.4 | $ | 207.3 | $ | 217.7 | |||||
Gross Margin | 35.1 | % | 36.0 | % | 33.8 | % | 35.3 | % | |||||
Net (loss) income attributable to ARC | $ | (55.9 | ) | $ | 9.3 | $ | (53.3 | ) | $ | 13.7 | |||
Adjusted Net Income attributable to ARC | $ | 4.8 | $ | 6.2 | $ | 7.5 | $ | 9.4 | |||||
(Loss) earnings per share - Diluted | $ | (1.22 | ) | $ | 0.19 | $ | (1.15 | ) | $ | 0.29 | |||
Adjusted earnings per share - Diluted | $ | 0.10 | $ | 0.13 | $ | 0.16 | $ | 0.20 | |||||
Adjusted EBITDA | $ | 18.1 | $ | 21.6 | $ | 32.9 | $ | 38.4 | |||||
Cash provided by operating activities | $ | 16.6 | $ | 16.9 | $ | 21.9 | $ | 22.2 | |||||
Capital Expenditures | $ | 2.6 | $ | 4.1 | $ | 5.2 | $ | 7.6 | |||||
Debt & Capital Leases (including current), net of unamortized deferred financing fees | $ | 164.9 | $ | 187.0 |
Sales from Services and Product Lines as a Percentage of Net Sales | ||||||||
Three Months Ended | Six Months Ended | |||||||
June 30, | June 30, | |||||||
Services and Product Line | 2016 | 2015 | 2016 | 2015 | ||||
CDIM | 52.9 | % | 51.9 | % | 52.3 | % | 52.2 | % |
MPS | 32.8 | % | 32.7 | % | 32.5 | % | 33.5 | % |
AIM | 3.5 | % | 3.0 | % | 3.6 | % | 2.8 | % |
Equipment and supplies sales | 10.8 | % | 12.4 | % | 11.6 | % | 11.5 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
June 30, | December 31, | |||||
Current assets: | 2016 | 2015 | ||||
Cash and cash equivalents | $ | 20,452 | $ | 23,963 | ||
Accounts receivable, net of allowances for accounts receivable of $1,850 and $2,094 | 60,933 | 60,085 | ||||
Inventories, net | 19,570 | 16,972 | ||||
Prepaid expenses | 4,766 | 4,555 | ||||
Other current assets | 4,347 | 4,131 | ||||
Total current assets | 110,068 | 109,706 | ||||
Property and equipment, net of accumulated depreciation of $206,584 and $202,457 | 57,754 | 57,590 | ||||
Goodwill | 138,688 | 212,608 | ||||
Other intangible assets, net | 15,580 | 17,946 | ||||
Deferred income taxes | 76,019 | 74,196 | ||||
Other assets | 2,372 | 2,492 | ||||
Total assets | $ | 400,481 | $ | 474,538 | ||
Current liabilities: | ||||||
Accounts payable | $ | 22,148 | $ | 23,989 | ||
Accrued payroll and payroll-related expenses | 11,811 | 12,118 | ||||
Accrued expenses | 18,023 | 19,194 | ||||
Current portion of long-term debt and capital leases | 14,863 | 14,374 | ||||
Total current liabilities | 66,845 | 69,675 | ||||
Long-term debt and capital leases | 150,059 | 157,018 | ||||
Deferred income taxes | 29,412 | 35,933 | ||||
Other long-term liabilities | 2,623 | 2,778 | ||||
Total liabilities | 248,939 | 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; 47,390 and 47,130 shares issued and 46,008 and 47,029 shares outstanding | 47 | 47 | ||||
Additional paid-in capital | 116,494 | 115,089 | ||||
Retained earnings | 36,357 | 89,687 | ||||
Accumulated other comprehensive loss | (2,653 | ) | (2,097 | ) | ||
150,245 | 202,726 | |||||
Less cost of common stock in treasury, 1,382 and 101 shares | 5,709 | 612 | ||||
Total ARC Document Solutions, Inc. stockholders’ equity | 144,536 | 202,114 | ||||
Noncontrolling interest | 7,006 | 7,020 | ||||
Total equity | 151,542 | 209,134 | ||||
Total liabilities and equity | $ | 400,481 | $ | 474,538 |
ARC Document Solutions, Inc. | ||||||||||||
Consolidated Statements of Operations | ||||||||||||
(In thousands, except per share data) | ||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Service sales | $ | 92,581 | $ | 99,336 | $ | 183,216 | $ | 192,661 | ||||
Equipment and supplies sales | 11,189 | 14,053 | 24,104 | 25,047 | ||||||||
Total net sales | 103,770 | 113,389 | 207,320 | 217,708 | ||||||||
Cost of sales | 67,378 | 72,530 | 137,191 | 140,828 | ||||||||
Gross profit | 36,392 | 40,859 | 70,129 | 76,880 | ||||||||
Selling, general and administrative expenses | 25,503 | 27,132 | 51,859 | 54,587 | ||||||||
Amortization of intangible assets | 1,232 | 1,442 | 2,545 | 2,931 | ||||||||
Goodwill impairment | 73,920 | — | 73,920 | — | ||||||||
Restructuring expense | 5 | 11 | 7 | 85 | ||||||||
(Loss) income from operations | (64,268 | ) | 12,274 | (58,202 | ) | 19,277 | ||||||
Other income, net | (15 | ) | (30 | ) | (38 | ) | (56 | ) | ||||
Loss on extinguishment of debt | 44 | 97 | 90 | 97 | ||||||||
Interest expense, net | 1,526 | 1,939 | 2,972 | 3,796 | ||||||||
(Loss) income before income tax (benefit) provision | (65,823 | ) | 10,268 | (61,226 | ) | 15,440 | ||||||
Income tax (benefit) provision | (10,015 | ) | 811 | (8,046 | ) | 1,572 | ||||||
Net (loss) income | (55,808 | ) | 9,457 | (53,180 | ) | 13,868 | ||||||
Income attributable to the noncontrolling interest | (96 | ) | (200 | ) | (150 | ) | (175 | ) | ||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (55,904 | ) | $ | 9,257 | $ | (53,330 | ) | $ | 13,693 | ||
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (1.22 | ) | $ | 0.20 | $ | (1.15 | ) | $ | 0.29 | ||
Diluted | $ | (1.22 | ) | $ | 0.19 | $ | (1.15 | ) | $ | 0.29 | ||
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,955 | 46,611 | 46,285 | 46,528 | ||||||||
Diluted | 45,955 | 47,558 | 46,285 | 47,634 |
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 | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Cash flows provided by operating activities | $ | 16,580 | $ | 16,864 | $ | 21,883 | $ | 22,152 | ||||
Changes in operating assets and liabilities, net of effect of business acquisitions | 209 | 2,928 | 8,018 | 12,344 | ||||||||
Non-cash expenses, including depreciation, amortization and goodwill impairment | (72,597 | ) | (10,335 | ) | (83,081 | ) | (20,628 | ) | ||||
Income tax (benefit) provision | (10,015 | ) | 811 | (8,046 | ) | 1,572 | ||||||
Interest expense, net | 1,526 | 1,939 | 2,972 | 3,796 | ||||||||
Income attributable to the noncontrolling interest | (96 | ) | (200 | ) | (150 | ) | (175 | ) | ||||
Depreciation and amortization | 7,890 | 8,520 | 15,880 | 17,075 | ||||||||
EBITDA | (56,503 | ) | 20,527 | (42,524 | ) | 36,136 | ||||||
Loss on extinguishment of debt | 44 | 97 | 90 | 97 | ||||||||
Goodwill impairment | 73,920 | — | 73,920 | — | ||||||||
Trade secret litigation costs(1) | — | — | — | 34 | ||||||||
Restructuring expense(2) | 5 | 11 | 7 | 85 | ||||||||
Stock-based compensation | 651 | 921 | 1,423 | 2,004 | ||||||||
Adjusted EBITDA | $ | 18,117 | $ | 21,556 | $ | 32,916 | $ | 38,356 |
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 | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (55,904 | ) | $ | 9,257 | $ | (53,330 | ) | $ | 13,693 | ||
Loss on extinguishment of debt | 44 | 97 | 90 | 97 | ||||||||
Goodwill impairment | 73,920 | — | 73,920 | — | ||||||||
Restructuring expense | 5 | 11 | 7 | 85 | ||||||||
Trade secret litigation costs | — | — | — | 34 | ||||||||
Income tax benefit related to above items | (13,350 | ) | (42 | ) | (13,369 | ) | (84 | ) | ||||
Deferred tax valuation allowance and other discrete tax items | 95 | (3,151 | ) | 203 | (4,407 | ) | ||||||
Unaudited adjusted net income attributable to ARC Document Solutions, Inc. | $ | 4,810 | $ | 6,172 | $ | 7,521 | $ | 9,418 | ||||
Actual: | ||||||||||||
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (1.22 | ) | $ | 0.20 | $ | (1.15 | ) | $ | 0.29 | ||
Diluted | $ | (1.22 | ) | $ | 0.19 | $ | (1.15 | ) | $ | 0.29 | ||
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,955 | 46,611 | 46,285 | 46,528 | ||||||||
Diluted | 45,955 | 47,558 | 46,285 | 47,634 | ||||||||
Adjusted: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.10 | $ | 0.13 | $ | 0.16 | $ | 0.20 | ||||
Diluted | $ | 0.10 | $ | 0.13 | $ | 0.16 | $ | 0.20 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,955 | 46,611 | 46,285 | 46,528 | ||||||||
Diluted | 46,568 | 47,558 | 46,889 | 47,634 |
ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net (loss) income attributable to ARC Document Solutions, Inc. shareholders to EBITDA and Adjusted EBITDA (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (55,904 | ) | $ | 9,257 | $ | (53,330 | ) | $ | 13,693 | ||
Interest expense, net | 1,526 | 1,939 | 2,972 | 3,796 | ||||||||
Income tax (benefit) provision | (10,015 | ) | 811 | (8,046 | ) | 1,572 | ||||||
Depreciation and amortization | 7,890 | 8,520 | 15,880 | 17,075 | ||||||||
EBITDA | (56,503 | ) | 20,527 | (42,524 | ) | 36,136 | ||||||
Loss on extinguishment of debt | 44 | 97 | 90 | 97 | ||||||||
Goodwill impairment | 73,920 | — | 73,920 | — | ||||||||
Trade secret litigation costs | — | — | — | 34 | ||||||||
Restructuring expense | 5 | 11 | 7 | 85 | ||||||||
Stock-based compensation | 651 | 921 | 1,423 | 2,004 | ||||||||
Adjusted EBITDA | $ | 18,117 | $ | 21,556 | $ | 32,916 | $ | 38,356 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Service sales | ||||||||||||
CDIM | $ | 54,860 | $ | 58,835 | 108,525 | 113,477 | ||||||
MPS | 34,055 | 37,134 | 67,286 | 73,011 | ||||||||
AIM | 3,666 | 3,367 | 7,405 | 6,173 | ||||||||
Total service sales | 92,581 | 99,336 | 183,216 | 192,661 | ||||||||
Equipment and supplies sales | 11,189 | 14,053 | 24,104 | 25,047 | ||||||||
Total net sales | $ | 103,770 | $ | 113,389 | $ | 207,320 | $ | 217,708 |
• | 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. |
ARC Document Solutions Consolidated Statements of Cash Flows (In thousands) (Unaudited) | Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Cash flows from operating activities | ||||||||||||
Net (loss) income | $ | (55,808 | ) | $ | 9,457 | $ | (53,180 | ) | $ | 13,868 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Allowance for accounts receivable | 249 | 156 | 320 | 182 | ||||||||
Depreciation | 6,658 | 7,078 | 13,335 | 14,144 | ||||||||
Amortization of intangible assets | 1,232 | 1,442 | 2,545 | 2,931 | ||||||||
Amortization of deferred financing costs | 115 | 161 | 233 | 322 | ||||||||
Goodwill impairment | 73,920 | — | 73,920 | — | ||||||||
Stock-based compensation | 651 | 921 | 1,423 | 2,004 | ||||||||
Deferred income taxes | (10,066 | ) | 3,847 | (8,317 | ) | 6,023 | ||||||
Deferred tax valuation allowance | (87 | ) | (3,257 | ) | (15 | ) | (4,791 | ) | ||||
Loss on early extinguishment of debt | 44 | 97 | 90 | 97 | ||||||||
Other non-cash items, net | (119 | ) | (110 | ) | (453 | ) | (284 | ) | ||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (124 | ) | (2,111 | ) | (1,388 | ) | (6,633 | ) | ||||
Inventory | (1,199 | ) | (1,765 | ) | (2,767 | ) | (2,858 | ) | ||||
Prepaid expenses and other assets | (1,063 | ) | (282 | ) | (666 | ) | 1,717 | |||||
Accounts payable and accrued expenses | 2,177 | 1,230 | (3,197 | ) | (4,570 | ) | ||||||
Net cash provided by operating activities | 16,580 | 16,864 | 21,883 | 22,152 | ||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | (2,645 | ) | (4,136 | ) | (5,150 | ) | (7,637 | ) | ||||
Other | 481 | 93 | 707 | 248 | ||||||||
Net cash used in investing activities | (2,164 | ) | (4,043 | ) | (4,443 | ) | (7,389 | ) | ||||
Cash flows from financing activities | ||||||||||||
Proceeds from stock option exercises | 19 | 16 | 30 | 561 | ||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 31 | 31 | 70 | 58 | ||||||||
Share repurchases | (2,364 | ) | (204 | ) | (5,097 | ) | (204 | ) | ||||
Contingent consideration on prior acquisitions | (302 | ) | — | (367 | ) | — | ||||||
Early extinguishment of long-term debt | (4,600 | ) | (7,250 | ) | (9,000 | ) | (7,250 | ) | ||||
Payments on long-term debt agreements and capital leases | (3,220 | ) | (6,713 | ) | (6,341 | ) | (12,780 | ) | ||||
Net repayments under revolving credit facilities | — | (760 | ) | — | (1,744 | ) | ||||||
Payment of deferred financing costs | — | (1 | ) | (30 | ) | (25 | ) | |||||
Payment of hedge premium | — | — | — | (632 | ) | |||||||
Net cash used in financing activities | (10,436 | ) | (14,881 | ) | (20,735 | ) | (22,016 | ) | ||||
Effect of foreign currency translation on cash balances | (321 | ) | (65 | ) | (216 | ) | 53 | |||||
Net change in cash and cash equivalents | 3,659 | (2,125 | ) | (3,511 | ) | (7,200 | ) | |||||
Cash and cash equivalents at beginning of period | 16,793 | 17,561 | 23,963 | 22,636 | ||||||||
Cash and cash equivalents at end of period | $ | 20,452 | $ | 15,436 | $ | 20,452 | $ | 15,436 | ||||
Supplemental disclosure of cash flow information | ||||||||||||
Noncash investing and financing activities | ||||||||||||
Capital lease obligations incurred | $ | 5,742 | $ | 3,542 | $ | 8,607 | $ | 7,042 | ||||
Contingent liabilities in connection with acquisition of businesses | $ | — | $ | — | $ | 89 | $ | — | ||||
Liabilities in connection with deferred financing fees | $ | 76 | $ | — | $ | 76 | $ | — |