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: April 30, 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) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | ARC | The New York Stock Exchange |
For | Withheld | Broker Non-Votes | |||
Kumarakulasingam Suriyakumar | 27,962,142 | 3,376,227 | 0 | ||
Bradford L. Brooks | 28,038,098 | 3,300,271 | 0 | ||
Cheryl Cook | 28,071,940 | 3,266,429 | 0 | ||
Tracey Luttrell | 27,995,119 | 3,343,250 | 0 | ||
Dewitt Kerry McCluggage | 28,027,041 | 3,311,328 | 0 | ||
Mark W. Mealy | 28,061,246 | 3,277,123 | 0 |
For | Against | Abstain | |||
31,265,475 | 68,452 | 4,442 |
For | Against | Abstain | Broker Non-Votes | |||
23,319,876 | 3,055,919 | 4,962,574 | 0 |
For | Against | Abstain | Broker Non-Votes | |||
28,131,759 | 34,651 | 3,171,959 | 0 |
Dated: May 5, 2020 | ARC DOCUMENT SOLUTIONS, INC. By: /s/ Jorge Avalos Jorge Avalos Chief Financial Officer |
Exhibit Index | ||
Exhibit No. | Description | |
Financial Highlights: | ||||||
Three Months Ended | ||||||
March 31, | ||||||
(All dollar amounts in millions, except EPS) | 2020 | 2019 | ||||
Net Sales | $ | 88.4 | $ | 97.1 | ||
Gross Margin | 31.2 | % | 31.6 | % | ||
Net income attributable to ARC | $ | 0.7 | $ | 0.6 | ||
Adjusted net income attributable to ARC | $ | 1.2 | $ | 0.6 | ||
Earnings per share - Diluted | $ | 0.02 | $ | 0.01 | ||
Adjusted earnings per share - Diluted | $ | 0.03 | $ | 0.01 | ||
Cash provided by operating activities | $ | 2.8 | $ | 2.7 | ||
EBITDA | $ | 10.9 | $ | 10.6 | ||
Adjusted EBITDA | $ | 11.4 | $ | 11.2 | ||
Capital Expenditures | $ | 1.1 | $ | 3.2 |
In millions | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
Total Net Revenue | $ | 88.4 | $ | 382.4 | $ | 92.3 | $ | 94.1 | $ | 98.9 | $ | 97.1 |
In millions | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
CDIM | $ | 49.2 | $ | 205.5 | $ | 49.8 | $ | 50.5 | $ | 54.4 | $ | 50.8 | ||||||
MPS | $ | 27.3 | $ | 123.3 | $ | 30.2 | $ | 30.6 | $ | 31.6 | $ | 30.9 | ||||||
AIM | $ | 3.6 | $ | 14.1 | $ | 3.7 | $ | 3.5 | $ | 3.6 | $ | 3.3 | ||||||
Equipment and supplies | $ | 8.4 | $ | 39.5 | $ | 8.6 | $ | 9.5 | $ | 9.3 | $ | 12.1 |
In millions unless otherwise indicated | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
Gross Profit | $ | 27.6 | $ | 125.2 | $ | 30.2 | $ | 30.4 | $ | 33.8 | $ | 30.7 | ||||||
Gross Margin | 31.2 | % | 32.7 | % | 32.8 | % | 32.3 | % | 34.2 | % | 31.6 | % |
In millions | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
Selling, general and administrative expenses | $ | 24.3 | $ | 107.3 | $ | 26.4 | $ | 26.0 | $ | 27.2 | $ | 27.6 |
In millions unless otherwise indicated | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
Net Income Attributable to ARC – GAAP | $ | 0.7 | $ | 3.0 | $ | 0.8 | $ | 1.1 | $ | 0.5 | $ | 0.6 | ||||||
Adjusted Net Income Attributable to ARC | $ | 1.2 | $ | 6.8 | $ | 1.4 | $ | 1.6 | $ | 3.1 | $ | 0.6 | ||||||
Earnings per share Attributable to ARC | ||||||||||||||||||
Diluted EPS – GAAP | $ | 0.02 | $ | 0.07 | $ | 0.02 | $ | 0.02 | $ | 0.01 | $ | 0.01 | ||||||
Adjusted Diluted EPS | $ | 0.03 | $ | 0.15 | $ | 0.03 | $ | 0.04 | $ | 0.07 | $ | 0.01 |
In millions | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
Cash provided by operating activities | $ | 2.8 | $ | 52.8 | $ | 23.0 | $ | 10.8 | $ | 16.3 | $ | 2.7 |
In millions | 1Q 2020 | FYE 2019 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | ||||||||||||
EBITDA | $ | 10.9 | $ | 45.9 | $ | 10.3 | $ | 11.1 | $ | 13.8 | $ | 10.6 | ||||||
Adjusted EBITDA | $ | 11.4 | $ | 49.4 | $ | 11.7 | $ | 12.1 | $ | 14.4 | $ | 11.2 |
• | Cash & cash equivalents on the balance sheet in the first quarter 2020 were $38.2 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. The Company drew $15 million from the new revolving credit facility to hold in reserve during the pandemic. |
• | Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 75% of our total net sales, while customers outside of construction made up approximately 25% of our total net sales. |
• | Total number of MPS locations at the end of the first quarter has grown to approximately 10,950, a net gain of approximately 370 locations over Q1 2019. |
Three Months Ended | ||||
March 31, | ||||
Sales from Services and Product Lines as a Percentage of Net Sales | 2020 | 2019 | ||
CDIM | 55.6 | % | 52.3 | % |
MPS | 30.9 | % | 31.8 | % |
AIM | 4.1 | % | 3.4 | % |
Equipment and supplies sales | 9.4 | % | 12.5 | % |
ARC Document Solutions, Inc. | ||||||
Consolidated Balance Sheets | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
March 31, | December 31, | |||||
Current assets: | 2020 | 2019 | ||||
Cash and cash equivalents | $ | 38,210 | $ | 29,425 | ||
Accounts receivable, net of allowances for accounts receivable of $2,342 and $2,099 | 52,763 | 51,432 | ||||
Inventory | 12,819 | 13,936 | ||||
Prepaid expenses | 4,790 | 4,783 | ||||
Other current assets | 5,951 | 6,807 | ||||
Total current assets | 114,533 | 106,383 | ||||
Property and equipment, net of accumulated depreciation of $214,908 and $210,849 | 68,750 | 70,334 | ||||
Right-of-use assets from operating leases | 41,962 | 41,238 | ||||
Goodwill | 121,051 | 121,051 | ||||
Other intangible assets, net | 1,363 | 1,996 | ||||
Deferred income taxes | 18,629 | 19,755 | ||||
Other assets | 2,421 | 2,400 | ||||
Total assets | $ | 368,709 | $ | 363,157 | ||
Current liabilities: | ||||||
Accounts payable | $ | 22,952 | $ | 23,231 | ||
Accrued payroll and payroll-related expenses | 8,558 | 14,569 | ||||
Accrued expenses | 18,992 | 20,440 | ||||
Current operating lease liabilities | 10,885 | 11,060 | ||||
Current portion of finance leases | 17,364 | 17,075 | ||||
Total current liabilities | 78,751 | 86,375 | ||||
Long-term operating lease liabilities | 38,024 | 37,260 | ||||
Long-term debt and finance leases | 104,351 | 89,082 | ||||
Other long-term liabilities | 389 | 400 | ||||
Total liabilities | 221,515 | 213,117 | ||||
Commitments and contingencies | ||||||
Shareholders’ equity: | ||||||
ARC Document Solutions, Inc. shareholders’ 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; 49,517 and 49,189 shares issued and 43,469 and 45,228 shares outstanding | 50 | 49 | ||||
Additional paid-in capital | 126,641 | 126,117 | ||||
Retained earnings | 32,225 | 31,969 | ||||
Accumulated other comprehensive loss | (4,198 | ) | (3,357 | ) | ||
154,718 | 154,778 | |||||
Less cost of common stock in treasury, 6,048 and 3,960 shares | 13,842 | 11,410 | ||||
Total ARC Document Solutions, Inc. shareholders’ equity | 140,876 | 143,368 | ||||
Noncontrolling interest | 6,318 | 6,672 | ||||
Total equity | 147,194 | 150,040 | ||||
Total liabilities and equity | $ | 368,709 | $ | 363,157 |
ARC Document Solutions, Inc. | ||||||
Consolidated Statements of Operations | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | Three Months Ended | |||||
March 31, | ||||||
2020 | 2019 | |||||
Net sales | $ | 88,425 | $ | 97,122 | ||
Cost of sales | 60,828 | 66,447 | ||||
Gross profit | 27,597 | 30,675 | ||||
Selling, general and administrative expenses | 24,338 | 27,637 | ||||
Amortization of intangible assets | 597 | 895 | ||||
Income from operations | 2,662 | 2,143 | ||||
Other income, net | (16 | ) | (18 | ) | ||
Interest expense, net | 1,109 | 1,430 | ||||
Income before income tax provision | 1,569 | 731 | ||||
Income tax provision | 1,107 | 284 | ||||
Net income | 462 | 447 | ||||
Loss attributable to the noncontrolling interest | 221 | 145 | ||||
Net income attributable to ARC Document Solutions, Inc. shareholders | $ | 683 | $ | 592 | ||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||
Basic | $ | 0.02 | $ | 0.01 | ||
Diluted | $ | 0.02 | $ | 0.01 | ||
Weighted average common shares outstanding: | ||||||
Basic | 43,676 | 45,118 | ||||
Diluted | 43,811 | 45,355 |
ARC Document Solutions, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) | Three Months Ended | |||||
March 31, | ||||||
2020 | 2019 | |||||
Cash flows from operating activities | ||||||
Net income | $ | 462 | $ | 447 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Allowance for accounts receivable | 266 | 232 | ||||
Depreciation | 7,407 | 7,423 | ||||
Amortization of intangible assets | 597 | 895 | ||||
Amortization of deferred financing costs | 16 | 55 | ||||
Stock-based compensation | 504 | 608 | ||||
Deferred income taxes | 751 | 175 | ||||
Deferred tax valuation allowance | 290 | (8 | ) | |||
Other non-cash items, net | (18 | ) | (60 | ) | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | (1,995 | ) | (2,537 | ) | ||
Inventory | 1,027 | 359 | ||||
Prepaid expenses and other assets | 3,404 | 1,798 | ||||
Accounts payable and accrued expenses | (9,937 | ) | (6,722 | ) | ||
Net cash provided by operating activities | 2,774 | 2,665 | ||||
Cash flows from investing activities | ||||||
Capital expenditures | (1,121 | ) | (3,196 | ) | ||
Other | 73 | 166 | ||||
Net cash used in investing activities | (1,048 | ) | (3,030 | ) | ||
Cash flows from financing activities | ||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 20 | 50 | ||||
Share repurchases | (2,432 | ) | (66 | ) | ||
Contingent consideration on prior acquisitions | — | (3 | ) | |||
Payments on finance leases | (4,602 | ) | (5,750 | ) | ||
Borrowings under revolving credit facilities | 40,000 | 8,250 | ||||
Payments under revolving credit facilities | (25,000 | ) | (12,125 | ) | ||
Dividends paid | (443 | ) | — | |||
Net cash provided by (used in) financing activities | 7,543 | (9,644 | ) | |||
Effect of foreign currency translation on cash balances | (484 | ) | (654 | ) | ||
Net change in cash and cash equivalents | 8,785 | (10,663 | ) | |||
Cash and cash equivalents at beginning of period | 29,425 | 29,433 | ||||
Cash and cash equivalents at end of period | $ | 38,210 | $ | 18,770 | ||
Supplemental disclosure of cash flow information | ||||||
Noncash investing and financing activities | ||||||
Finance lease obligations incurred | $ | 5,353 | $ | 3,664 | ||
Operating lease obligations incurred | $ | 3,498 | $ | 1,068 |
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||
Three Months Ended | ||||||
March 31, | ||||||
2020 | 2019 | |||||
CDIM | $ | 49,160 | $ | 50,805 | ||
MPS | 27,308 | 30,907 | ||||
AIM | 3,600 | 3,262 | ||||
Equipment and supplies sales | 8,357 | 12,148 | ||||
Net sales | $ | 88,425 | $ | 97,122 |
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 | ||||||
March 31, | ||||||
2020 | 2019 | |||||
Cash flows provided by operating activities | $ | 2,774 | $ | 2,665 | ||
Changes in operating assets and liabilities | 7,501 | 7,102 | ||||
Non-cash expenses, including depreciation and amortization | (9,813 | ) | (9,320 | ) | ||
Income tax provision | 1,107 | 284 | ||||
Interest expense, net | 1,109 | 1,430 | ||||
Loss attributable to the noncontrolling interest | 221 | 145 | ||||
Depreciation and amortization | 8,004 | 8,318 | ||||
EBITDA | 10,903 | 10,624 | ||||
Stock-based compensation | 504 | 608 | ||||
Adjusted EBITDA | $ | 11,407 | $ | 11,232 |
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 | ||||||
March 31, | ||||||
2020 | 2019 | |||||
Net income attributable to ARC Document Solutions, Inc. | $ | 683 | $ | 592 | ||
Interest expense, net | 1,109 | 1,430 | ||||
Income tax provision | 1,107 | 284 | ||||
Depreciation and amortization | 8,004 | 8,318 | ||||
EBITDA | 10,903 | 10,624 | ||||
Stock-based compensation | 504 | 608 | ||||
Adjusted EBITDA | $ | 11,407 | $ | 11,232 |
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 | ||||||
March 31, | ||||||
2020 | 2019 | |||||
Net income attributable to ARC Document Solutions, Inc. | $ | 683 | $ | 592 | ||
Deferred tax valuation allowance and other discrete tax items | 499 | 26 | ||||
Adjusted net income attributable to ARC Document Solutions, Inc. | $ | 1,182 | $ | 618 | ||
Actual: | ||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||
Basic | $ | 0.02 | $ | 0.01 | ||
Diluted | $ | 0.02 | $ | 0.01 | ||
Weighted average common shares outstanding: | ||||||
Basic | 43,676 | 45,118 | ||||
Diluted | 43,811 | 45,355 | ||||
Adjusted: | ||||||
Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | ||||||
Basic | $ | 0.03 | $ | 0.01 | ||
Diluted | $ | 0.03 | $ | 0.01 | ||
Weighted average common shares outstanding: | ||||||
Basic | 43,676 | 45,118 | ||||
Diluted | 43,811 | 45,355 |
• | 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. |