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 27, 2018 (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) |
Item 2.02. Results of Operations and Financial Condition Fourth Quarter and Full Year 2017 Financial Results Item 9.01. Financial Statements and Exhibits (d) Exhibits |
Dated: February 27, 2018 | 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 | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
(All dollar amounts in millions, except EPS) | 2017 | 2016 | 2017 | 2016 | ||||||||
Net Sales | $ | 97.1 | $ | 98.6 | $ | 394.6 | $ | 406.3 | ||||
Gross Margin | 30.3 | % | 30.8 | % | 31.4 | % | 32.8 | % | ||||
Net (loss) income attributable to ARC | $ | (12.2 | ) | $ | 2.6 | $ | (21.5 | ) | $ | (47.9 | ) | |
Adjusted net income attributable to ARC | $ | 0.9 | $ | 2.6 | $ | 6.8 | $ | 13.1 | ||||
(Loss) earnings per share - Diluted | $ | (0.27 | ) | $ | 0.06 | $ | (0.47 | ) | $ | (1.04 | ) | |
Adjusted earnings per share - Diluted | $ | 0.02 | $ | 0.06 | $ | 0.15 | $ | 0.28 | ||||
Cash provided by operating activities | $ | 15.6 | $ | 19.1 | $ | 52.4 | $ | 53.1 | ||||
EBITDA | $ | 11.3 | $ | 13.6 | $ | 33.2 | $ | (14.5 | ) | |||
Adjusted EBITDA | $ | 12.0 | $ | 14.3 | $ | 54.0 | $ | 62.3 | ||||
Capital Expenditures | $ | (1.9 | ) | $ | (4.5 | ) | $ | (9.1 | ) | $ | (12.1 | ) |
Debt & Capital Leases (including current), net of unamortized deferred financing fees | $ | 144.4 | $ | 157.2 |
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 | 2017 | 2016 | 2017 | 2016 | |||||
CDIM | 51.6 | % | 51.5 | % | 52.0 | % | 52.3 | % | |
MPS | 32.7 | % | 32.2 | % | 32.8 | % | 32.4 | % | |
AIM | 3.1 | % | 3.5 | % | 3.2 | % | 3.5 | % | |
Equipment and supplies sales | 12.6 | % | 12.8 | % | 12.0 | % | 11.8 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
December 31, | December 31, | |||||
Current assets: | 2017 | 2016 | ||||
Cash and cash equivalents | $ | 28,059 | $ | 25,239 | ||
Accounts receivable, net of allowances for accounts receivable of $2,341 and $2,060 | 57,011 | 59,735 | ||||
Inventories, net | 19,937 | 18,184 | ||||
Prepaid expenses | 4,208 | 3,861 | ||||
Other current assets | 5,266 | 4,785 | ||||
Total current assets | 114,481 | 111,804 | ||||
Property and equipment, net of accumulated depreciation of $198,693 and $201,192 | 64,245 | 60,735 | ||||
Goodwill | 121,051 | 138,688 | ||||
Other intangible assets, net | 9,068 | 13,202 | ||||
Deferred income taxes | 28,029 | 42,667 | ||||
Other assets | 2,551 | 2,185 | ||||
Total assets | $ | 339,425 | $ | 369,281 | ||
Current liabilities: | ||||||
Accounts payable | $ | 24,289 | $ | 24,782 | ||
Accrued payroll and payroll-related expenses | 12,617 | 12,219 | ||||
Accrued expenses | 17,201 | 16,138 | ||||
Current portion of long-term debt and capital leases | 20,791 | 13,773 | ||||
Total current liabilities | 74,898 | 66,912 | ||||
Long-term debt and capital leases | 123,626 | 143,400 | ||||
Other long-term liabilities | 3,290 | 2,148 | ||||
Total liabilities | 201,814 | 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; 47,913 and 47,428 shares issued and 45,266 and 45,988 shares outstanding | 48 | 47 | ||||
Additional paid-in capital | 120,953 | 117,749 | ||||
Retained earnings | 20,524 | 41,822 | ||||
Accumulated other comprehensive loss | (1,998 | ) | (3,793 | ) | ||
139,527 | 155,825 | |||||
Less cost of common stock in treasury, 2,647 and 1,440 shares | 9,290 | 5,909 | ||||
Total ARC Document Solutions, Inc. stockholders’ equity | 130,237 | 149,916 | ||||
Noncontrolling interest | 7,374 | 6,905 | ||||
Total equity | 137,611 | 156,821 | ||||
Total liabilities and equity | $ | 339,425 | $ | 369,281 |
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, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Service sales | $ | 84,867 | $ | 85,947 | $ | 347,326 | $ | 358,341 | ||||
Equipment and supplies sales | 12,243 | 12,611 | 47,253 | 47,980 | ||||||||
Total net sales | 97,110 | 98,558 | 394,579 | 406,321 | ||||||||
Cost of sales | 67,638 | 68,174 | 270,556 | 273,078 | ||||||||
Gross profit | 29,472 | 30,384 | 124,023 | 133,243 | ||||||||
Selling, general and administrative expenses | 25,349 | 23,462 | 101,889 | 100,214 | ||||||||
Amortization of intangible assets | 1,030 | 1,128 | 4,280 | 4,833 | ||||||||
Goodwill impairment | — | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Income (loss) from operations | 3,093 | 5,794 | 217 | (45,731 | ) | |||||||
Other income, net | (21 | ) | (18 | ) | (81 | ) | (72 | ) | ||||
Loss on extinguishment and modification of debt | — | 52 | 230 | 208 | ||||||||
Interest expense, net | 1,500 | 1,461 | 6,179 | 5,996 | ||||||||
Income (loss) before income tax provision (benefit) | 1,614 | 4,299 | (6,111 | ) | (51,863 | ) | ||||||
Income tax provision (benefit) | 13,670 | 1,520 | 15,244 | (4,364 | ) | |||||||
Net (loss) income | (12,056 | ) | 2,779 | (21,355 | ) | (47,499 | ) | |||||
Income attributable to noncontrolling interest | (101 | ) | (155 | ) | (156 | ) | (366 | ) | ||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (12,157 | ) | $ | 2,624 | $ | (21,511 | ) | $ | (47,865 | ) | |
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (0.27 | ) | $ | 0.06 | $ | (0.47 | ) | $ | (1.04 | ) | |
Diluted | $ | (0.27 | ) | $ | 0.06 | $ | (0.47 | ) | $ | (1.04 | ) | |
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,414 | 45,567 | 45,669 | 45,932 | ||||||||
Diluted | 45,414 | 46,274 | 45,669 | 45,932 |
ARC Document Solutions Consolidated Statements of Cash Flows | Three Months Ended | Twelve Months Ended | ||||||||||
(In thousands) (Unaudited) | December 31, | December 31, | ||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Cash flows from operating activities | ||||||||||||
Net (loss) income | $ | (12,056 | ) | $ | 2,779 | $ | (21,355 | ) | $ | (47,499 | ) | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Allowance for accounts receivable | 382 | 274 | 1,249 | 918 | ||||||||
Depreciation | 7,256 | 6,886 | 29,043 | 26,918 | ||||||||
Amortization of intangible assets | 1,030 | 1,128 | 4,280 | 4,833 | ||||||||
Amortization of deferred financing costs | 60 | 101 | 306 | 445 | ||||||||
Goodwill impairment | — | — | 17,637 | 73,920 | ||||||||
Stock-based compensation | 696 | 620 | 2,947 | 2,693 | ||||||||
Deferred income taxes | 12,757 | 1,307 | 13,802 | (4,711 | ) | |||||||
Deferred tax valuation allowance | 543 | 67 | 1,031 | 51 | ||||||||
Loss on extinguishment and modification of debt | — | 52 | 230 | 208 | ||||||||
Other non-cash items, net | 284 | (176 | ) | (56 | ) | (716 | ) | |||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 1,752 | 991 | 2,158 | (1,294 | ) | |||||||
Inventory | (689 | ) | 1,606 | (1,339 | ) | (1,590 | ) | |||||
Prepaid expenses and other assets | 573 | (404 | ) | (556 | ) | 109 | ||||||
Accounts payable and accrued expenses | 3,026 | 3,865 | 2,993 | (1,143 | ) | |||||||
Net cash provided by operating activities | 15,614 | 19,096 | 52,370 | 53,142 | ||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | (1,860 | ) | (4,517 | ) | (9,106 | ) | (12,097 | ) | ||||
Other | 278 | 259 | 744 | 1,101 | ||||||||
Net cash used in investing activities | (1,582 | ) | (4,258 | ) | (8,362 | ) | (10,996 | ) | ||||
Cash flows from financing activities | ||||||||||||
Proceeds from stock option exercises | 22 | 22 | 96 | 98 | ||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 30 | 24 | 133 | 120 | ||||||||
Share repurchases | (3,381 | ) | — | (3,381 | ) | (5,297 | ) | |||||
Contingent consideration on prior acquisitions | (60 | ) | (118 | ) | (275 | ) | (571 | ) | ||||
Early extinguishment of long-term debt | — | (6,000 | ) | (14,150 | ) | (22,000 | ) | |||||
Payments on long-term debt agreements and capital leases | (5,456 | ) | (3,339 | ) | (65,516 | ) | (12,990 | ) | ||||
Borrowings under revolving credit facilities | 8,250 | 1,000 | 63,100 | 1,000 | ||||||||
Payments under revolving credit facilities | (12,125 | ) | (50 | ) | (21,800 | ) | (50 | ) | ||||
Payment of deferred financing costs | — | — | (270 | ) | (106 | ) | ||||||
Net cash used in financing activities | (12,720 | ) | (8,461 | ) | (42,063 | ) | (39,796 | ) | ||||
Effect of foreign currency translation on cash balances | 384 | (778 | ) | 875 | (1,074 | ) | ||||||
Net change in cash and cash equivalents | 1,696 | 5,599 | 2,820 | 1,276 | ||||||||
Cash and cash equivalents at beginning of period | 26,363 | 19,640 | 25,239 | 23,963 | ||||||||
Cash and cash equivalents at end of period | $ | 28,059 | $ | 25,239 | $ | 28,059 | $ | 25,239 | ||||
Supplemental disclosure of cash flow information: | ||||||||||||
Noncash financing activities: | ||||||||||||
Capital lease obligations incurred | $ | 4,478 | $ | 6,603 | $ | 25,192 | $ | 18,948 | ||||
Contingent liabilities in connection with the acquisition of businesses | $ | — | $ | — | $ | 27 | $ | 75 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Service Sales | ||||||||||||
CDIM | $ | 50,052 | $ | 50,758 | $ | 205,083 | $ | 212,511 | ||||
MPS | 31,782 | 31,729 | 129,479 | 131,811 | ||||||||
AIM | 3,033 | 3,460 | 12,764 | 14,019 | ||||||||
Total services sales | 84,867 | 85,947 | 347,326 | 358,341 | ||||||||
Equipment and supplies sales | 12,243 | 12,611 | 47,253 | 47,980 | ||||||||
Total net sales | $ | 97,110 | $ | 98,558 | $ | 394,579 | $ | 406,321 |
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, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Cash flows provided by operating activities | $ | 15,614 | $ | 19,096 | $ | 52,370 | $ | 53,142 | ||||
Changes in operating assets and liabilities | (4,662 | ) | (6,058 | ) | (3,256 | ) | 3,918 | |||||
Non-cash expenses, including goodwill impairment | (14,722 | ) | (2,245 | ) | (37,146 | ) | (72,808 | ) | ||||
Income tax provision (benefit) | 13,670 | 1,520 | 15,244 | (4,364 | ) | |||||||
Interest expense, net | 1,500 | 1,461 | 6,179 | 5,996 | ||||||||
Income attributable to noncontrolling interest | (101 | ) | (155 | ) | (156 | ) | (366 | ) | ||||
EBITDA | 11,299 | 13,619 | 33,235 | (14,482 | ) | |||||||
Loss on extinguishment and modification of debt | — | 52 | 230 | 208 | ||||||||
Goodwill impairment | — | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Stock-based compensation | 696 | 620 | 2,947 | 2,693 | ||||||||
Adjusted EBITDA | $ | 11,995 | $ | 14,291 | $ | 54,049 | $ | 62,346 |
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 | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (12,157 | ) | $ | 2,624 | $ | (21,511 | ) | $ | (47,865 | ) | |
Interest expense, net | 1,500 | 1,461 | 6,179 | 5,996 | ||||||||
Income tax provision (benefit) | 13,670 | 1,520 | 15,244 | (4,364 | ) | |||||||
Depreciation and amortization | 8,286 | 8,014 | 33,323 | 31,751 | ||||||||
EBITDA | 11,299 | 13,619 | 33,235 | (14,482 | ) | |||||||
Loss on extinguishment and modification of debt | — | 52 | 230 | 208 | ||||||||
Goodwill impairment | — | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Stock-based compensation | 696 | 620 | 2,947 | 2,693 | ||||||||
Adjusted EBITDA | $ | 11,995 | $ | 14,291 | $ | 54,049 | $ | 62,346 |
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 | Twelve Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (12,157 | ) | $ | 2,624 | $ | (21,511 | ) | $ | (47,865 | ) | |
Loss on extinguishment and modification of debt | — | 52 | 230 | 208 | ||||||||
Goodwill impairment | — | — | 17,637 | 73,920 | ||||||||
Restructuring expense | — | — | — | 7 | ||||||||
Income tax benefit related to above items | — | (24 | ) | (3,194 | ) | (13,419 | ) | |||||
Deferred tax impact due to new tax laws, valuation allowance and other discrete tax items | 13,069 | (94 | ) | 13,663 | 247 | |||||||
Unaudited adjusted net income attributable to ARC Document Solutions, Inc. | $ | 912 | $ | 2,558 | $ | 6,825 | $ | 13,098 | ||||
Actual: | ||||||||||||
(Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | (0.27 | ) | $ | 0.06 | $ | (0.47 | ) | $ | (1.04 | ) | |
Diluted | $ | (0.27 | ) | $ | 0.06 | $ | (0.47 | ) | $ | (1.04 | ) | |
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,414 | 45,567 | 45,669 | 45,932 | ||||||||
Diluted | 45,414 | 46,274 | 45,669 | 45,932 | ||||||||
Adjusted: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.02 | $ | 0.06 | $ | 0.15 | $ | 0.29 | ||||
Diluted | $ | 0.02 | $ | 0.06 | $ | 0.15 | $ | 0.28 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 45,414 | 45,567 | 45,669 | 45,932 | ||||||||
Diluted | 45,804 | 46,274 | 46,207 | 46,561 |
• | 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. |