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, 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) | ||
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: August 2, 2018 | ARC DOCUMENT SOLUTIONS, INC. By: /s/ Jorge Avalos Jorge Avalos Chief Financial Officer |
Exhibit Index | ||
Exhibit No. | Description | |
Financial Highlights: | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
(All dollar amounts in millions, except EPS) | 2018 | 2017 | 2018 | 2017 | |||||||||
Net Sales | $ | 104.2 | $ | 102.3 | $ | 201.9 | $ | 201.0 | |||||
Gross Margin | 34.4 | % | 33.7 | % | 32.7 | % | 32.5 | % | |||||
Net income attributable to ARC | $ | 4.1 | $ | 3.6 | $ | 4.7 | $ | 5.4 | |||||
Adjusted net income attributable to ARC | $ | 4.1 | $ | 3.7 | $ | 4.6 | $ | 5.6 | |||||
Earnings per share - Diluted | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | |||||
Adjusted earnings per share - Diluted | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | |||||
Cash provided by operating activities | $ | 24.9 | $ | 18.5 | $ | 23.0 | $ | 25.4 | |||||
EBITDA | $ | 15.6 | $ | 16.1 | $ | 25.9 | $ | 28.9 | |||||
Adjusted EBITDA | $ | 16.2 | $ | 17.0 | $ | 27.1 | $ | 30.6 | |||||
Capital Expenditures | $ | 3.8 | $ | 2.9 | $ | 6.7 | $ | 4.9 | |||||
Debt & Capital Leases (including current), net of unamortized deferred financing fees | $ | 136.2 | $ | 152.0 |
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 | 2018 | 2017 | 2018 | 2017 | ||||
CDIM | 53.3 | % | 52.5 | % | 53.4 | % | 52.2 | % |
MPS | 32.0 | % | 32.3 | % | 32.1 | % | 32.6 | % |
AIM | 3.0 | % | 3.1 | % | 3.0 | % | 3.2 | % |
Equipment and supplies sales | 11.7 | % | 12.1 | % | 11.5 | % | 12.0 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
June 30, | December 31, | |||||
Current assets: | 2018 | 2017 | ||||
Cash and cash equivalents | $ | 24,738 | $ | 28,059 | ||
Accounts receivable, net of allowances for accounts receivable of $2,586 and $2,341 | 60,689 | 57,011 | ||||
Inventories, net | 18,481 | 19,937 | ||||
Prepaid expenses | 5,168 | 4,208 | ||||
Other current assets | 5,056 | 5,266 | ||||
Total current assets | 114,132 | 114,481 | ||||
Property and equipment, net of accumulated depreciation of $198,045 and $198,693 | 68,059 | 64,245 | ||||
Goodwill | 121,051 | 121,051 | ||||
Other intangible assets, net | 7,040 | 9,068 | ||||
Deferred income taxes | 26,219 | 28,029 | ||||
Other assets | 2,463 | 2,551 | ||||
Total assets | $ | 338,964 | $ | 339,425 | ||
Current liabilities: | ||||||
Accounts payable | $ | 25,895 | $ | 24,289 | ||
Accrued payroll and payroll-related expenses | 13,834 | 12,617 | ||||
Accrued expenses | 16,535 | 17,201 | ||||
Current portion of long-term debt and capital leases | 20,785 | 20,791 | ||||
Total current liabilities | 77,049 | 74,898 | ||||
Long-term debt and capital leases | 115,394 | 123,626 | ||||
Other long-term liabilities | 4,500 | 3,290 | ||||
Total liabilities | 196,943 | 201,814 | ||||
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; 48,345 and 47,913 shares issued and 45,671 and 45,266 shares outstanding | 48 | 48 | ||||
Additional paid-in capital | 122,252 | 120,953 | ||||
Retained earnings | 25,226 | 20,524 | ||||
Accumulated other comprehensive loss | (3,367 | ) | (1,998 | ) | ||
144,159 | 139,527 | |||||
Less cost of common stock in treasury, 2,674 and 2,647 shares | 9,350 | 9,290 | ||||
Total ARC Document Solutions, Inc. stockholders’ equity | 134,809 | 130,237 | ||||
Noncontrolling interest | 7,212 | 7,374 | ||||
Total equity | 142,021 | 137,611 | ||||
Total liabilities and equity | $ | 338,964 | $ | 339,425 |
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, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Service sales | $ | 92,031 | $ | 89,870 | $ | 178,741 | $ | 176,834 | ||||
Equipment and supplies sales | 12,159 | 12,410 | 23,157 | 24,177 | ||||||||
Total net sales | 104,190 | 102,280 | 201,898 | 201,011 | ||||||||
Cost of sales | 68,355 | 67,794 | 135,878 | 135,687 | ||||||||
Gross profit | 35,835 | 34,486 | 66,020 | 65,324 | ||||||||
Selling, general and administrative expenses | 27,506 | 25,550 | 54,807 | 50,697 | ||||||||
Amortization of intangible assets | 985 | 1,082 | 1,993 | 2,197 | ||||||||
Income from operations | 7,344 | 7,854 | 9,220 | 12,430 | ||||||||
Other income, net | (20 | ) | (22 | ) | (101 | ) | (41 | ) | ||||
Loss on extinguishment and modification of debt | — | 40 | — | 106 | ||||||||
Interest expense, net | 1,516 | 1,594 | 2,958 | 3,149 | ||||||||
Income before income tax provision | 5,848 | 6,242 | 6,363 | 9,216 | ||||||||
Income tax provision | 1,840 | 2,522 | 1,879 | 3,748 | ||||||||
Net income | 4,008 | 3,720 | 4,484 | 5,468 | ||||||||
Loss (income) attributable to the noncontrolling interest | 66 | (84 | ) | 218 | (48 | ) | ||||||
Net income attributable to ARC Document Solutions, Inc. shareholders | $ | 4,074 | $ | 3,636 | $ | 4,702 | $ | 5,420 | ||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Diluted | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,936 | 45,792 | 44,839 | 45,716 | ||||||||
Diluted | 44,979 | 46,258 | 44,924 | 46,329 |
ARC Document Solutions, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) | Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 4,008 | $ | 3,720 | $ | 4,484 | $ | 5,468 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Allowance for accounts receivable | 228 | 353 | 555 | 561 | ||||||||
Depreciation | 7,190 | 7,271 | 14,319 | 14,410 | ||||||||
Amortization of intangible assets | 985 | 1,082 | 1,993 | 2,197 | ||||||||
Amortization of deferred financing costs | 59 | 83 | 119 | 177 | ||||||||
Stock-based compensation | 574 | 816 | 1,227 | 1,553 | ||||||||
Deferred income taxes | 1,799 | 2,248 | 1,707 | 3,425 | ||||||||
Deferred tax valuation allowance | (6 | ) | 45 | 51 | 34 | |||||||
Loss on extinguishment and modification of debt | — | 40 | — | 106 | ||||||||
Other non-cash items, net | (62 | ) | (163 | ) | (106 | ) | (136 | ) | ||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (1,761 | ) | (95 | ) | (4,674 | ) | (148 | ) | ||||
Inventory | 550 | 1,026 | 1,074 | (508 | ) | |||||||
Prepaid expenses and other assets | (613 | ) | (1,956 | ) | (763 | ) | (2,158 | ) | ||||
Accounts payable and accrued expenses | 11,993 | 4,018 | 2,979 | 449 | ||||||||
Net cash provided by operating activities | 24,944 | 18,488 | 22,965 | 25,430 | ||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | (3,825 | ) | (2,899 | ) | (6,717 | ) | (4,911 | ) | ||||
Other | (8 | ) | 262 | 372 | 394 | |||||||
Net cash used in investing activities | (3,833 | ) | (2,637 | ) | (6,345 | ) | (4,517 | ) | ||||
Cash flows from financing activities | ||||||||||||
Proceeds from stock option exercises | — | 3 | — | 71 | ||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 28 | 30 | 72 | 66 | ||||||||
Share repurchases | — | — | (60 | ) | — | |||||||
Contingent consideration on prior acquisitions | (61 | ) | (81 | ) | (114 | ) | (151 | ) | ||||
Early extinguishment of long-term debt | — | (5,650 | ) | — | (14,150 | ) | ||||||
Payments on long-term debt agreements and capital leases | (5,663 | ) | (4,106 | ) | (11,414 | ) | (7,914 | ) | ||||
Borrowings under revolving credit facilities | 4,125 | 1,000 | 6,125 | 2,500 | ||||||||
Payments under revolving credit facilities | (8,000 | ) | (175 | ) | (13,875 | ) | (300 | ) | ||||
Net cash used in financing activities | (9,571 | ) | (8,979 | ) | (19,266 | ) | (19,878 | ) | ||||
Effect of foreign currency translation on cash balances | (770 | ) | 63 | (675 | ) | 330 | ||||||
Net change in cash and cash equivalents | 10,770 | 6,935 | (3,321 | ) | 1,365 | |||||||
Cash and cash equivalents at beginning of period | 13,968 | 19,669 | 28,059 | 25,239 | ||||||||
Cash and cash equivalents at end of period | $ | 24,738 | $ | 26,604 | $ | 24,738 | $ | 26,604 | ||||
Supplemental disclosure of cash flow information | ||||||||||||
Noncash investing and financing activities | ||||||||||||
Capital lease obligations incurred | $ | 7,653 | $ | 6,390 | $ | 10,928 | $ | 14,310 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Service sales | ||||||||||||
CDIM | $ | 55,531 | $ | 53,684 | $ | 107,851 | $ | 104,942 | ||||
MPS | 33,330 | 33,050 | 64,797 | 65,544 | ||||||||
AIM | 3,170 | 3,136 | 6,093 | 6,348 | ||||||||
Total service sales | 92,031 | 89,870 | 178,741 | 176,834 | ||||||||
Equipment and supplies sales | 12,159 | 12,410 | 23,157 | 24,177 | ||||||||
Total net sales | $ | 104,190 | $ | 102,280 | $ | 201,898 | $ | 201,011 |
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, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Cash flows provided by operating activities | $ | 24,944 | $ | 18,488 | $ | 22,965 | $ | 25,430 | ||||
Changes in operating assets and liabilities | (10,169 | ) | (2,993 | ) | 1,384 | 2,365 | ||||||
Non-cash expenses, including depreciation and amortization | (10,767 | ) | (11,775 | ) | (19,865 | ) | (22,327 | ) | ||||
Income tax provision | 1,840 | 2,522 | 1,879 | 3,748 | ||||||||
Interest expense, net | 1,516 | 1,594 | 2,958 | 3,149 | ||||||||
Loss (income) attributable to the noncontrolling interest | 66 | (84 | ) | 218 | (48 | ) | ||||||
Depreciation and amortization | 8,175 | 8,353 | 16,312 | 16,607 | ||||||||
EBITDA | 15,605 | 16,105 | 25,851 | 28,924 | ||||||||
Loss on extinguishment and modification of debt | — | 40 | — | 106 | ||||||||
Stock-based compensation | 574 | 816 | 1,227 | 1,553 | ||||||||
Adjusted EBITDA | $ | 16,179 | $ | 16,961 | $ | 27,078 | $ | 30,583 |
ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net income attributable to ARC Document Solutions, Inc. to EBITDA and Adjusted EBITDA (In thousands) (Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Net income attributable to ARC Document Solutions, Inc. | $ | 4,074 | $ | 3,636 | $ | 4,702 | $ | 5,420 | ||||
Interest expense, net | 1,516 | 1,594 | 2,958 | 3,149 | ||||||||
Income tax provision | 1,840 | 2,522 | 1,879 | 3,748 | ||||||||
Depreciation and amortization | 8,175 | 8,353 | 16,312 | 16,607 | ||||||||
EBITDA | 15,605 | 16,105 | 25,851 | 28,924 | ||||||||
Loss on extinguishment and modification of debt | — | 40 | — | 106 | ||||||||
Stock-based compensation | 574 | 816 | 1,227 | 1,553 | ||||||||
Adjusted EBITDA | $ | 16,179 | $ | 16,961 | $ | 27,078 | $ | 30,583 |
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 | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Net income attributable to ARC Document Solutions, Inc. | $ | 4,074 | $ | 3,636 | $ | 4,702 | $ | 5,420 | ||||
Loss on extinguishment and modification of debt | — | 40 | — | 106 | ||||||||
Income tax benefit related to above items | — | (16 | ) | — | (42 | ) | ||||||
Deferred tax valuation allowance and other discrete tax items | 72 | 51 | (77 | ) | 79 | |||||||
Adjusted net income attributable to ARC Document Solutions, Inc. | $ | 4,146 | $ | 3,711 | $ | 4,625 | $ | 5,563 | ||||
Actual: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Diluted | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,936 | 45,792 | 44,839 | 45,716 | ||||||||
Diluted | 44,979 | 46,258 | 44,924 | 46,329 | ||||||||
Adjusted: | ||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||||||||
Basic | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Diluted | $ | 0.09 | $ | 0.08 | $ | 0.10 | $ | 0.12 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 44,936 | 45,792 | 44,839 | 45,716 | ||||||||
Diluted | 44,979 | 46,258 | 44,924 | 46,329 |
• | 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. |