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: November 1, 2017 (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: November 1, 2017 | ARC DOCUMENT SOLUTIONS, INC. By: /s/ Jorge Avalos Jorge Avalos Chief Financial Officer |
Exhibit Index | ||
Exhibit No. | Description | |
99.1 | ||
Financial Highlights: | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(All dollar amounts in millions, except EPS) | 2017 | 2016 | 2017 | 2016 | |||||||||
Net Sales | $ | 96.5 | $ | 100.4 | $ | 297.5 | $ | 307.8 | |||||
Gross Margin | 30.3 | % | 32.6 | % | 31.8 | % | 33.4 | % | |||||
Goodwill impairment | $ | 17.6 | $ | — | $ | 17.6 | $ | 73.9 | |||||
Net (loss) income attributable to ARC | $ | (14.8 | ) | $ | 2.8 | $ | (9.4 | ) | $ | (50.5 | ) | ||
Adjusted net income attributable to ARC | $ | 0.4 | $ | 3.0 | $ | 5.9 | $ | 10.5 | |||||
Earnings per share - Diluted | $ | (0.32 | ) | $ | 0.06 | $ | (0.20 | ) | $ | (1.10 | ) | ||
Adjusted earnings per share - Diluted | $ | 0.01 | $ | 0.07 | $ | 0.13 | $ | 0.23 | |||||
Cash provided by operating activities | $ | 11.3 | $ | 12.2 | $ | 36.8 | $ | 34.0 | |||||
EBITDA | $ | (7.0 | ) | $ | 14.4 | $ | 21.9 | $ | (28.1 | ) | |||
Adjusted EBITDA | $ | 11.5 | $ | 15.1 | $ | 42.1 | $ | 48.1 | |||||
Capital Expenditures | $ | 2.3 | $ | 2.4 | $ | 7.2 | $ | 7.6 | |||||
Debt & Capital Leases (including current), net of unamortized deferred financing fees | $ | 149.2 | $ | 158.9 |
Sales from Services and Product Lines as a Percentage of Net Sales | ||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
Services and Product Line | 2017 | 2016 | 2017 | 2016 | ||||
CDIM | 52.0 | % | 53.0 | % | 52.1 | % | 52.6 | % |
MPS | 33.3 | % | 32.7 | % | 32.8 | % | 32.5 | % |
AIM | 3.5 | % | 3.1 | % | 3.3 | % | 3.4 | % |
Equipment and supplies sales | 11.2 | % | 11.2 | % | 11.8 | % | 11.5 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
September 30, | December 31, | |||||
Current assets: | 2017 | 2016 | ||||
Cash and cash equivalents | $ | 26,363 | $ | 25,239 | ||
Accounts receivable, net of allowances for accounts receivable of $2,495 and $2,060 | 59,006 | 59,735 | ||||
Inventories, net | 19,095 | 18,184 | ||||
Prepaid expenses | 5,008 | 3,861 | ||||
Other current assets | 5,034 | 4,785 | ||||
Total current assets | 114,506 | 111,804 | ||||
Property and equipment, net of accumulated depreciation of $205,435 and $201,192 | 65,645 | 60,735 | ||||
Goodwill | 121,051 | 138,688 | ||||
Other intangible assets, net | 10,087 | 13,202 | ||||
Deferred income taxes | 41,364 | 42,667 | ||||
Other assets | 2,590 | 2,185 | ||||
Total assets | $ | 355,243 | $ | 369,281 | ||
Current liabilities: | ||||||
Accounts payable | $ | 25,027 | $ | 24,782 | ||
Accrued payroll and payroll-related expenses | 10,908 | 12,219 | ||||
Accrued expenses | 15,041 | 16,138 | ||||
Current portion of long-term debt and capital leases | 20,268 | 13,773 | ||||
Total current liabilities | 71,244 | 66,912 | ||||
Long-term debt and capital leases | 128,917 | 143,400 | ||||
Other long-term liabilities | 3,329 | 2,148 | ||||
Total liabilities | 203,490 | 212,460 | ||||
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; 47,891 and 47,428 shares issued and 46,451 and 45,988 shares outstanding | 48 | 47 | ||||
Additional paid-in capital | 120,204 | 117,749 | ||||
Retained earnings | 32,681 | 41,822 | ||||
Accumulated other comprehensive loss | (2,545 | ) | (3,793 | ) | ||
150,388 | 155,825 | |||||
Less cost of common stock in treasury, 1,440 shares | 5,909 | 5,909 | ||||
Total ARC Document Solutions, Inc. stockholders’ equity | 144,479 | 149,916 | ||||
Noncontrolling interest | 7,274 | 6,905 | ||||
Total equity | 151,753 | 156,821 | ||||
Total liabilities and equity | $ | 355,243 | $ | 369,281 |
ARC Document Solutions, Inc. | ||||||||||||
Consolidated Statements of Operations | ||||||||||||
(In thousands, except per share data) | ||||||||||||
(Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Service sales | $ | 85,625 | $ | 89,178 | $ | 262,459 | $ | 272,394 | ||||
Equipment and supplies sales | 10,833 | 11,265 | 35,010 | 35,369 | ||||||||
Total net sales | 96,458 | 100,443 | 297,469 | 307,763 | ||||||||
Cost of sales | 67,231 | 67,713 | 202,918 | 204,904 | ||||||||
Gross profit | 29,227 | 32,730 | 94,551 | 102,859 | ||||||||
Selling, general and administrative expenses | 25,843 | 24,893 | 76,540 | 76,752 | ||||||||
Amortization of intangible assets | 1,053 | 1,160 | 3,250 | 3,705 | ||||||||
Goodwill impairment | 17,637 | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
(Loss) income from operations | (15,306 | ) | 6,677 | (2,876 | ) | (51,525 | ) | |||||
Other income, net | (19 | ) | (16 | ) | (60 | ) | (54 | ) | ||||
Loss on extinguishment and modification of debt | 124 | 66 | 230 | 156 | ||||||||
Interest expense, net | 1,530 | 1,563 | 4,679 | 4,535 | ||||||||
(Loss) income before income tax (benefit) provision | (16,941 | ) | 5,064 | (7,725 | ) | (56,162 | ) | |||||
Income tax (benefit) provision | (2,174 | ) | 2,162 | 1,574 | (5,884 | ) | ||||||
Net (loss) income | (14,767 | ) | 2,902 | (9,299 | ) | (50,278 | ) | |||||
Income attributable to the noncontrolling interest | (7 | ) | (61 | ) | (55 | ) | (211 | ) | ||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (14,774 | ) | $ | 2,841 | $ | (9,354 | ) | $ | (50,489 | ) | |
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (0.32 | ) | $ | 0.06 | $ | (0.20 | ) | $ | (1.10 | ) | |
Diluted | $ | (0.32 | ) | $ | 0.06 | $ | (0.20 | ) | $ | (1.10 | ) | |
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,834 | 45,599 | 45,756 | 46,055 | ||||||||
Diluted | 45,834 | 46,189 | 45,756 | 46,055 |
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 | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Cash flows provided by operating activities | $ | 11,326 | $ | 12,163 | $ | 36,756 | $ | 34,046 | ||||
Changes in operating assets and liabilities, net of effect of business acquisitions | (959 | ) | 1,958 | 1,406 | 9,976 | |||||||
Non-cash expenses, including depreciation, amortization and goodwill impairment | (25,134 | ) | (11,219 | ) | (47,461 | ) | (94,300 | ) | ||||
Income tax (benefit) provision | (2,174 | ) | 2,162 | 1,574 | (5,884 | ) | ||||||
Interest expense, net | 1,530 | 1,563 | 4,679 | 4,535 | ||||||||
Income attributable to the noncontrolling interest | (7 | ) | (61 | ) | (55 | ) | (211 | ) | ||||
Depreciation and amortization | 8,430 | 7,857 | 25,037 | 23,737 | ||||||||
EBITDA | (6,988 | ) | 14,423 | 21,936 | (28,101 | ) | ||||||
Loss on extinguishment and modification of debt | 124 | 66 | 230 | 156 | ||||||||
Goodwill impairment | 17,637 | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Stock-based compensation | 699 | 650 | 2,251 | 2,073 | ||||||||
Adjusted EBITDA | $ | 11,472 | $ | 15,139 | $ | 42,054 | $ | 48,055 |
ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net (loss) income attributable to ARC Document Solutions, Inc. to EBITDA and Adjusted EBITDA (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (14,774 | ) | $ | 2,841 | $ | (9,354 | ) | $ | (50,489 | ) | |
Interest expense, net | 1,530 | 1,563 | 4,679 | 4,535 | ||||||||
Income tax (benefit) provision | (2,174 | ) | 2,162 | 1,574 | (5,884 | ) | ||||||
Depreciation and amortization | 8,430 | 7,857 | 25,037 | 23,737 | ||||||||
EBITDA | (6,988 | ) | 14,423 | 21,936 | (28,101 | ) | ||||||
Loss on extinguishment and modification of debt | 124 | 66 | 230 | 156 | ||||||||
Goodwill impairment | 17,637 | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Stock-based compensation | 699 | 650 | 2,251 | 2,073 | ||||||||
Adjusted EBITDA | $ | 11,472 | $ | 15,139 | $ | 42,054 | $ | 48,055 |
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 | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (14,774 | ) | $ | 2,841 | $ | (9,354 | ) | $ | (50,489 | ) | |
Loss on extinguishment and modification of debt | 124 | 66 | 230 | 156 | ||||||||
Goodwill impairment | 17,637 | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Income tax benefit related to above items | (3,144 | ) | (26 | ) | (3,186 | ) | (13,395 | ) | ||||
Deferred tax valuation allowance and other discrete tax items | 515 | 138 | 594 | 341 | ||||||||
Unaudited adjusted net income attributable to ARC Document Solutions, Inc. | $ | 358 | $ | 3,019 | $ | 5,921 | $ | 10,540 | ||||
Actual: | ||||||||||||
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (0.32 | ) | $ | 0.06 | $ | (0.20 | ) | $ | (1.10 | ) | |
Diluted | $ | (0.32 | ) | $ | 0.06 | $ | (0.20 | ) | $ | (1.10 | ) | |
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,834 | 45,599 | 45,756 | 46,055 | ||||||||
Diluted | 45,834 | 46,189 | 45,756 | 46,055 | ||||||||
Adjusted: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.01 | $ | 0.07 | $ | 0.13 | $ | 0.23 | ||||
Diluted | $ | 0.01 | $ | 0.07 | $ | 0.13 | $ | 0.23 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,834 | 45,599 | 45,756 | 46,055 | ||||||||
Diluted | 46,342 | 46,189 | 46,335 | 46,655 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Service sales | ||||||||||||
CDIM | $ | 50,089 | $ | 53,228 | $ | 155,031 | $ | 161,753 | ||||
MPS | 32,153 | 32,796 | 97,697 | 100,082 | ||||||||
AIM | 3,383 | 3,154 | 9,731 | 10,559 | ||||||||
Total service sales | 85,625 | 89,178 | 262,459 | 272,394 | ||||||||
Equipment and supplies sales | 10,833 | 11,265 | 35,010 | 35,369 | ||||||||
Total net sales | $ | 96,458 | $ | 100,443 | $ | 297,469 | $ | 307,763 |
• | 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, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Cash flows from operating activities | ||||||||||||
Net (loss) income | $ | (14,767 | ) | $ | 2,902 | $ | (9,299 | ) | $ | (50,278 | ) | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Allowance for accounts receivable | 306 | 324 | 867 | 644 | ||||||||
Depreciation | 7,377 | 6,697 | 21,787 | 20,032 | ||||||||
Amortization of intangible assets | 1,053 | 1,160 | 3,250 | 3,705 | ||||||||
Amortization of deferred financing costs | 69 | 111 | 246 | 344 | ||||||||
Goodwill impairment | 17,637 | — | 17,637 | 73,920 | ||||||||
Stock-based compensation | 699 | 650 | 2,251 | 2,073 | ||||||||
Deferred income taxes | (2,380 | ) | 2,299 | 1,045 | (6,018 | ) | ||||||
Deferred tax valuation allowance | 454 | (1 | ) | 488 | (16 | ) | ||||||
Loss on extinguishment and modification of debt | 124 | 66 | 230 | 156 | ||||||||
Other non-cash items, net | (205 | ) | (87 | ) | (340 | ) | (540 | ) | ||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 554 | (897 | ) | 406 | (2,285 | ) | ||||||
Inventory | (142 | ) | (429 | ) | (650 | ) | (3,196 | ) | ||||
Prepaid expenses and other assets | 1,029 | 1,179 | (1,129 | ) | 513 | |||||||
Accounts payable and accrued expenses | (482 | ) | (1,811 | ) | (33 | ) | (5,008 | ) | ||||
Net cash provided by operating activities | 11,326 | 12,163 | 36,756 | 34,046 | ||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | (2,335 | ) | (2,430 | ) | (7,246 | ) | (7,580 | ) | ||||
Other | 72 | 135 | 466 | 842 | ||||||||
Net cash used in investing activities | (2,263 | ) | (2,295 | ) | (6,780 | ) | (6,738 | ) | ||||
Cash flows from financing activities | ||||||||||||
Proceeds from stock option exercises | 2 | 46 | 73 | 76 | ||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 37 | 26 | 103 | 96 | ||||||||
Share repurchases | — | (200 | ) | — | (5,297 | ) | ||||||
Contingent consideration on prior acquisitions | (63 | ) | (86 | ) | (214 | ) | (453 | ) | ||||
Early extinguishment of long-term debt | — | (7,000 | ) | (14,150 | ) | (16,000 | ) | |||||
Payments on long-term debt agreements and capital leases | (52,146 | ) | (3,310 | ) | (60,060 | ) | (9,651 | ) | ||||
Borrowings under revolving credit facilities | 52,350 | — | 54,850 | — | ||||||||
Payments under revolving credit facilities | (9,375 | ) | — | (9,675 | ) | — | ||||||
Payment of deferred financing costs | (270 | ) | (76 | ) | (270 | ) | (106 | ) | ||||
Net cash used in financing activities | (9,465 | ) | (10,600 | ) | (29,343 | ) | (31,335 | ) | ||||
Effect of foreign currency translation on cash balances | 161 | (80 | ) | 491 | (296 | ) | ||||||
Net change in cash and cash equivalents | (241 | ) | (812 | ) | 1,124 | (4,323 | ) | |||||
Cash and cash equivalents at beginning of period | 26,604 | 20,452 | 25,239 | 23,963 | ||||||||
Cash and cash equivalents at end of period | $ | 26,363 | $ | 19,640 | $ | 26,363 | $ | 19,640 | ||||
Supplemental disclosure of cash flow information | ||||||||||||
Noncash investing and financing activities | ||||||||||||
Capital lease obligations incurred | $ | 6,404 | $ | 3,738 | $ | 20,714 | $ | 12,345 | ||||
Contingent liabilities in connection with acquisition of businesses | $ | — | $ | — | $ | 27 | $ | 85 |