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ARC Reports Year-Over-Year Increases in Adjusted EBITDA and Cash Flow from Operations in First Quarter

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SAN RAMON, CA / ACCESSWIRE / May 4, 2021 / ARC Document Solutions, Inc. (NYSE:ARC), a leading document solutions provider to professionals in the design, marketing, commercial real estate, construction and related fields, today reported its financial results for the first quarter ended March 31, 2021.

Financial Highlights:

Financial Highlights:

Three Months Ended

March 31,

(All dollar amounts in millions, except EPS)

2021

2020

Net sales

$

61.7

$

88.4

Gross margin

30.4

%

31.2

%

Net income attributable to ARC

$

0.8

$

0.7

Adjusted net income attributable to ARC

$

0.9

$

1.2

Earnings per share - Diluted

$

0.02

$

0.02

Adjusted earnings per share - Diluted

$

0.02

$

0.03

Cash provided by operating activities

$

5.4

$

2.8

EBITDA

$

8.4

$

10.9

Adjusted EBITDA

$

8.8

$

11.4

Capital Expenditures

$

0.6

$

1.1

Debt & finance leases (including current)

$

88.4

$

121.7

Management Commentary:

"The company remained resilient and responsive throughout the first quarter as demonstrated by our EBITDA and cash generation performance, and we re-established our momentum after a challenging quarter of sales," said Suri Suriyakumar, Chairman, President and CEO of ARC. "The weather in February took everyone by surprise, but solid demand for our services resumed in March. The growing diversity of our market continues to provide us with new opportunities to expand our customer base and focus on growing it well-beyond the construction vertical."

"The new cost structure we established over the past year has provided us with a solid base to work from," said Jorge Avalos, Chief Financial Officer of ARC. "In addition to increased EBITDA margins, continuing strength in cash flow from operations, and a solid performance in earnings per share, we renewed the foundations of our capital structure with a very favorable credit facility that leaves us well-positioned for growth over the next five years."

2021 First Quarter Supplemental Information:

Net sales were $61.7 million, a 30.2% decrease compared to the first quarter of 2020.

Cash & cash equivalents on the consolidated balance sheet in the first quarter 2021 were $49.5 million.

Days sales outstanding were 54 in Q1 2021 and in Q1 2020.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 67% of total net sales, while customers outside of construction made up approximately 33% of total net sales.

The number of managed print services (MPS) locations dropped by approximately 200 locations year over year to approximately 10,750 as of March 31, 2021.

Net Revenue

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Total net revenue

$

61.7

$

289.5

$

64.3

$

72.4

$

64.3

$

88.4

For the first quarter 2021, net sales decreased 30.2%, compared to the same period in 2020 primarily due to the negative impact of the COVID-19 pandemic on revenues from all of our service offerings, as well as the disruptive effects of severe winter weather in much of the country during the month of February. The material decline in our net sales began in March 2020 when shelter-at-home orders were put in place by several states in the U.S. following the World Health Organization's declaration of COVID-19 as a pandemic.

Revenue by Business Lines

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

CDIM

$

37.4

$

175.5

$

38.2

$

47.1

$

41.1

$

49.2

MPS

$

17.3

$

79.3

$

18.1

$

17.6

$

16.2

$

27.3

AIM

$

3.0

$

12.3

$

3.1

$

2.9

$

2.7

$

3.6

Equipment and supplies

$

3.9

$

22.3

$

4.9

$

4.7

$

4.4

$

8.4

For the first quarter 2021, construction document and information management (CDIM) sales declined 23.9% compared to prior year, primarily due to the effects of the COVID-19 pandemic. The impact of the pandemic on CDIM was not as pronounced as other parts of our business due to the expansion of products and services beyond the construction vertical and our historical print segments that resulted from the reconfiguration of our sales and marketing functions in late-2019, as well as demand for COVID-19-related and other color signage.

For the first quarter 2021, MPS sales declined 36.5% year-over-year. MPS sales declined due to the pandemic, primarily due to the lack of workers in offices where our services are provided.

For the first quarter 2021, archiving and information management (AIM) sales decreased 16.0% year-over-year. Sales decrease in AIM were driven by reasons similar to MPS, primarily attributable to the lack of workers in offices, causing a reduction in scanning opportunities.

For the first quarter 2021, equipment and supplies sales declined 52.9% year-over-year. Declines were driven primarily by constrained capital spending in China and the U.S. due to the pandemic.

Gross Profit

In millions unless otherwise indicated

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Gross profit

$

18.8

$

92.9

$

20.7

$

24.2

$

20.4

$

27.6

Gross margin

30.4

%

32.1

%

32.1

%

33.4

%

31.8

%

31.2

%

Despite the 30.2% drop in net sales due to the COVID-19 pandemic, gross margins for the first quarter 2021 only dropped by 80 basis points year-over-year and still remained above 30% due to the drop in low margin Equipment and Supplies sales in China and cost savings initiated in response to the pandemic.

Selling, General and Administrative Expenses

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Selling, general and administrative expenses

$

17.0

$

79.0

$

18.2

$

19.2

$

17.3

$

24.3

Selling, general and administrative (SG&A) expenses in the first quarter 2021 declined by 30.2% year-over-year. The decrease was due to cost savings initiated in response to the COVID-19 pandemic.

Net Income and Earnings Per Share

In millions unless otherwise indicated

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Net income attributable to ARC - GAAP

$

0.8

$

6.2

$

1.3

$

2.8

$

1.5

$

0.7

Adjusted net income attributable to ARC

$

0.9

$

6.3

$

1.0

$

2.9

$

1.2

$

1.2

Earnings per share attributable to ARC

Diluted EPS - GAAP

$

0.02

$

0.14

$

0.03

$

0.07

$

0.03

$

0.02

Adjusted diluted EPS

$

0.02

$

0.15

$

0.02

$

0.07

$

0.03

$

0.03

Year-over-year increase in GAAP net income attributable to ARC was driven by a decrease in income taxes.

Cash Provided by Operating Activities

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

Cash provided by operating activities

$

5.4

$

54.5

$

15.5

$

12.8

$

23.5

$

2.8

The increase in cash flows from operations during the first quarter of 2021, compared to the same period in 2020, resulted from improved management of operating assets and liabilities, and aggressive cash management initiatives instituted in response to the COVID-19 pandemic.

EBITDA

In millions

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

1Q 2020

EBITDA

$

8.4

$

43.2

$

9.9

$

12.1

$

10.3

$

10.9

Adjusted EBITDA

$

8.8

$

44.8

$

10.2

$

12.5

$

10.7

$

11.4

Decline in EBITDA and adjusted EBITDA in the first quarter of 2021 were driven by a significant decline in sales. However, EBITDA margin increased by 130 basis points primarily due to significant declines in selling, general and administrative expenses as noted above.

Three Months Ended

March 31,

Sales from Services and Product Lines as a Percentage of Net Sales

2021

2020

CDIM

60.6

%

55.6

%

MPS

28.1

%

30.9

%

AIM

4.9

%

4.1

%

Equipment and supplies sales

6.4

%

9.4

%

Outlook

Due to the economic uncertainty driven by the COVID-19 pandemic, ARC has not issued a forecast for 2021. Management will consider circumstances on a quarterly basis and determine whether the Company will issue a forecast in the future if more reliable indicators become available.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, May 4, 2021, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2021 first quarter. To access the live audio call, dial (833) 968-2212. International callers may join the conference by dialing (778) 560-2897. The conference code is 9468408 and will be required to dial in to the call. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at http://ir.e-arc.com. A replay of the webcast will be available on the website following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)

ARC provides a wide variety of document distribution and graphic production services to facilitate communication for professionals in the design, marketing, commercial real estate, construction and related fields. Follow ARC at www.e-arc.com.

Forward-Looking Statements

This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company, including forward-looking statements related to the impact of the COVID-19 pandemic on the Company's operations. Words and phrases such as "continues to provide us with new opportunities to expand our customer base", "focus on growing our base well-beyond the construction vertical", "very favorable credit facility that leaves us well-positioned for growth over the next five years", and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the construction, managed print services, document management or reprographics industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the section titled "Part I - Item 1A. Risk Factors" of ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Contact Information:

David Stickney
VP Corporate Communications & Investor Relations
925-949-5114

ARC Document Solutions, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

March 31,

December 31,

Current assets:

2021

2020

Cash and cash equivalents

$

49,460

$

54,950

Accounts receivable, net of allowances for accounts receivable of $2,294 and $2,357

36,847

36,279

Inventory

9,751

9,474

Prepaid expenses

4,029

4,065

Other current assets

3,180

3,979

Total current assets

103,267

108,747

Property and equipment, net of accumulated depreciation of $222,665 and $219,834

52,874

57,830

Right-of-use assets from operating leases

35,749

37,859

Goodwill

121,051

121,051

Other intangible assets, net

441

515

Deferred income taxes

16,819

17,261

Other assets

2,110

2,175

Total assets

$

332,311

$

345,438

Current liabilities:

Accounts payable

$

19,468

$

18,661

Accrued payroll and payroll-related expenses

8,868

10,088

Accrued expenses

16,541

17,783

Current operating lease liabilities

11,421

12,158

Current portion of finance leases

16,600

17,557

Total current liabilities

72,898

76,247

Long-term operating lease liabilities

31,584

33,561

Long-term debt and finance leases

71,780

79,679

Other long-term liabilities

1,672

1,615

Total liabilities

177,934

191,102

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; 49,433 and 49,422 shares issued and 42,733 and 42,792 shares outstanding

49

49

Additional paid-in capital

128,108

127,755

Retained earnings

37,250

37,308

Accumulated other comprehensive loss

(2,708)

(2,787)

162,699

162,325

Less cost of common stock in treasury, 6,700 and 6,630 shares

14,813

14,657

Total ARC Document Solutions, Inc. shareholders' equity

147,886

147,668

Noncontrolling interest

6,491

6,668

Total equity

154,377

154,336

Total liabilities and equity

$

332,311

$

345,438


ARC Document Solutions, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended

March 31,

2021

2020

Net sales

$

61,730

$

88,425

Cost of sales

42,943

60,828

Gross profit

18,787

27,597

Selling, general and administrative expenses

16,995

24,338

Amortization of intangible assets

75

597

Income from operations

1,717

2,662

Other income, net

(11)

(16)

Interest expense, net

620

1,109

Income before income tax provision

1,108

1,569

Income tax provision

496

1,107

Net income

612

462

Loss attributable to the noncontrolling interest

177

221

Net income attributable to ARC Document Solutions, Inc. shareholders

$

789

$

683

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

$

0.02

$

0.02

Diluted

$

0.02

$

0.02

Weighted average common shares outstanding:

Basic

42,264

43,676

Diluted

42,634

43,811


ARC Document Solutions, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

March 31,

2021

2020

Cash flows from operating activities

Net income

$

612

$

462

Adjustments to reconcile net income to net cash provided by operating activities:

Allowance for accounts receivable

(36)

266

Depreciation

6,449

7,407

Amortization of intangible assets

75

597

Amortization of deferred financing costs

16

16

Stock-based compensation

339

504

Deferred income taxes

392

751

Deferred tax valuation allowance

60

290

Other non-cash items, net

(38)

(18)

Changes in operating assets and liabilities:

Accounts receivable, net

(504)

(1,995)

Inventory

(290)

1,027

Prepaid expenses and other assets

3,350

3,404

Accounts payable and accrued expenses

(5,050)

(9,937)

Net cash provided by operating activities

5,375

2,774

Cash flows from investing activities

Capital expenditures

(568)

(1,121)

Other

131

73

Net cash used in investing activities

(437)

(1,048)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

14

20

Share repurchases

(156)

(2,432)

Payments on finance leases

(4,817)

(4,602)

Borrowings under revolving credit facilities

15,000

40,000

Payments under revolving credit facilities

(20,000)

(25,000)

Dividends paid

(422)

(443)

Net cash (used in) provided by financing activities

(10,381)

7,543

Effect of foreign currency translation on cash balances

(47)

(484)

Net change in cash and cash equivalents

(5,490)

8,785

Cash and cash equivalents at beginning of period

54,950

29,425

Cash and cash equivalents at end of period

$

49,460

$

38,210

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

$

874

$

5,353

Operating lease obligations incurred

$

418

$

3,498



ARC Document Solutions, Inc.

Net Sales by Product Line

(In thousands)

(Unaudited)

Three Months Ended

March 31,

2021

2020

CDIM

$

37,434

$

49,160

MPS

17,334

27,308

AIM

3,025

3,600

Equipment and supplies sales

3,937

8,357

Net sales

$

61,730

$

88,425

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,

2021

2020

Cash flows provided by operating activities

$

5,375

$

2,774

Changes in operating assets and liabilities

2,494

7,501

Non-cash expenses, including depreciation and amortization

(7,257)

(9,813)

Income tax provision

496

1,107

Interest expense, net

620

1,109

Loss attributable to the noncontrolling interest

177

221

Depreciation and amortization

6,524

8,004

EBITDA

8,429

10,903

Stock-based compensation

339

504

Adjusted EBITDA

$

8,768

$

11,407

See Non-GAAP Financial Measures discussion below.

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,

2021

2020

Net income attributable to ARC Document Solutions, Inc.

$

789

$

683

Interest expense, net

620

1,109

Income tax provision

496

1,107

Depreciation and amortization

6,524

8,004

EBITDA

8,429

10,903

Stock-based compensation

339

504

Adjusted EBITDA

$

8,768

$

11,407

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures

Reconciliation of net income attributable to ARC Document Solutions, Inc. to unaudited adjusted net income attributable to ARC Document Solutions, Inc.
(In thousands, except per share data)
(Unaudited)

Three Months Ended

March 31,

2021

2020

Net income attributable to ARC Document Solutions, Inc.

$

789

$

683

Deferred tax valuation allowance and other discrete tax items

131

499

Adjusted net income attributable to ARC Document Solutions, Inc.

$

920

$

1,182

Actual:

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

$

0.02

$

0.02

Diluted

$

0.02

$

0.02

Weighted average common shares outstanding:

Basic

42,264

43,676

Diluted

42,634

43,811

Adjusted:

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

$

0.02

$

0.03

Diluted

$

0.02

$

0.03

Weighted average common shares outstanding:

Basic

42,264

43,676

Diluted

42,634

43,811

See Non-GAAP Financial Measures discussion below.

Non-GAAP Financial Measures

EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.

EBITDA represents net income before interest, taxes, depreciation and amortization.

We have presented EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.

We use EBITDA to measure and compare the performance of our operating segments. Our operating segments' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating segments. We use EBITDA to compare the performance of our operating segments and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBITDA and related ratios have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

  • 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.

Because of these limitations, EBITDA and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and related ratios only as supplements.

Our presentation of adjusted net income and adjusted EBITDA is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three months ended March 31, 2021 and 2020 to reflect the exclusion of changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three months ended March 31, 2021 and 2020.

We have presented adjusted EBITDA for the three months ended March 31, 2021 and 2020 to exclude stock-based compensation expense. The adjustment of EBITDA is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.

SOURCE: ARC Document Solutions, Inc.



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