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ARC Document Solutions, Inc. (ARC)

NYSE - NYSE Delayed Price. Currency in USD
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2.08000.0000 (0.00%)
At close: 4:00PM EDT
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  • N
    Nacho Libre
    let’s ride the AMC and GME wave on Reddit and put ARC on the radar... it deserve to be back in the $35/share range like in the year 2005-2006...
    Bullish
  • M
    Maximus
    Share equity offering to pay management... 2010/2014 stock options that were expiring. It was old news from the AGM. They are being paid handsomely for the kind of returns they are producing for shareholders.
    https://www.sec.gov/Archives/edgar/data/1305168/000162828021009379/form-sx8x2021xincentivexpl.htm

    Let's hope someone do the numbers correctly and finds that there's more value to this company than USD100 mn
    Document
    www.sec.gov
  • l
    lovely_nature_impresses
    Let's take ARC to $4.44
    Bullish
  • Y
    Yahoo Finance Insights
    ARC Document is up 7.24% to 2.37
  • l
    lovely_nature_impresses
    This trading pattern does seems to me an institutional buying activity, correct me if I am wrong. Sign of new investor entry, hoping to see it flying soon.
    Bullish
  • Y
    Yahoo Finance Insights
    ARC Document is up 8.19% to 2.51
  • N
    Nacho Libre
    after hours down $0.28 to $1.99/share, what gives!?!? short sellers prob...
    Bullish
  • M
    Maximus
    New shareholder - almost 6% - Verdad Asset Management. They look like the kind of long-term holders the share needs. Deep Value analysts. Representative position for them.
  • M
    Maximus
    Well, the longer they stay at these prices the more shares they can buy back, selling shares of ARC at these prices makes no sense.

    My estimate is they have bought 2/3 million shares @1.7/1.8 since they re-started the program in December according to what they published together with the 100% dividend hike (USD5 million spent in buybacks - 2 million of those in 2019 - and USD10 million left for buybacks, plus the dividend). They will authorize more buybacks for 2021 and the 0.08 dividend (100% hike) might be a prudent way of telling us the net income we can expect for FY2020 (50% Pay-out?, 0.16 EPS???).

    As I posted a while ago I expect the No. of shares outstanding at 40/41 mn (down from 43 mn). They have been slow at buying and remember management has been paid in stock (30%/50% salary cuts - compensated by almost 500,000 of stock options due February 12th)... Now shareholders and management are better aligned, the higher the SP goes the more they get. So employees have every incentive to keep the SP going up.

    My estimates for FY 2020: USD7-8 mn FY Net Income (USD4,5mn 9 months + another 3 million like last quarter). Remember they have less sales, but fewer salaries and interest payments. The USD60 mn outstanding revolving credit facility pays at 1.6% (they are paying USD1 - 1.5 mn less interest per year than in 2019... that USD1 – 1,5 mn was roughly the prior dividend!).

    So, USD7.5 mn Net Income / 40/41 mn shares = 0.17 EPS (13x PE at today's prices Vs. market @23x PE, with 3.5% Dividend Yield). That tell us that we should be trading at least at 5 USD now.

    But PE doesn't tell the true story about this investment (the company related to its SP). It is Free Cash Flow what needs to be compared with total debt obligations - bank debt (revolving credit facility) plus Finance and Operating Leases - to get the whole picture.

    FCF = USD40 mn? (let’s be prudent).
    Financial debt = USD 50 mn? (USD60 mn outstanding revolving debt Q3 2020 - USD10 repaid in Q4?).
    Cash = USD45/50 mn (same as Q3 2020 - USD10 mn debt repaid + USD5/10 mn FCF generated in Q4?).
    NET DEBT = USD50 mn - USD50 cash = USD0 mn
    Finance & Operating Leases = USD100 mn.

    If we take the average historical multiple for the market: 15x FCF.

    15 x 40 FCF = USD600 mn - USD0 mn Net Debt (0 = USD50 mn cash - USD50 mn revolver) - USD100 mn Leases = USD500 mn or implied Share Price of USD12.5 per share (500mn / 40 mn shares outstanding) if fairly valued in a normal market.

    I agree USD12.5 sounds high, and that the Company has operational risks and that they can get disrupted and so on (remember, as any company in the World... even Apple or Amazon), but as long as they can sustain the USD40 mn FCF (which they have been surprisingly good at even with 30% sales declines), and they keep buying shares at these prices and repaying debt, the sky is the limit for shareholders.

    As a reminder, in 2019 they bought 2 mn shares in the open market @USD1.2 per share (that's a 100% capital gain on those shares).

    Besides, with thr USD10 mn they have left from 2019/2020 they could end up with 4 mn shares less if they keep buying at today's prices, but if SP goes up to 5 / 6 USD I would argue that the best use for cash flows would be hiking dividends again.

    The story is: they have USD40 mn per year to burn. USD50 mn in bank debt of which they can pay down USD20 mn per year (that would free up to USD500,000 in interests for dividends or other uses) and the rest is for Shareholders. So USD20 mn for shareholders in the form of dividends or buybacks and a USD100 mn market cap (20% return per year). If it goes up to USD5 per share (USD200 mn market cap) and they decide to pay USD20 mn in dividends... 10% dividend yield. That is why it should be trading at USD10 per share (5% implied dividend yield), and why I don’t mind holding to the shares.

    We will have an update on February 23rd and we will see if I’m right because these are only estimates based on 10 years plus observation of the Company.
  • M
    Maximus
    Cheapest share in terms of FCF in the whole investment universe. Boring but profitable business, sinage needed during the pandemic... (largest printing company in the US). Smart enough to be considered essential business because they print for hospitals...

    Efficient after they got rid of 30% of redundant costs. 50% Free Cash Flow yield is insain. No one could buy a healthy and boring business like this at these prices outside the stock market.

    Trading at 2x FCF after 50% share price increase - market currently at 22 - 25 x (15x historical average last 125 years). If we get a conservative 10x FCF valuation... 10 USD per share. Good luck if you are short.

    When large funds could buy the stock and they increase liquidity this could easily go to 10 USD per share in this kind of market in virtually days/months. If the market turns down they still get the buybacks at better prices which they haven't used much.

    15 million annual allowance for dividends and share repurchases under financing agreement... (20% plus annual return to shareholders at these prices) and virtually no bank debt (65 mn withdrawn and 50 million in cash + Q4 10 mn FCF?). The rest are leases, which are not really financial debt.

    Take a look at the number of shares outstanding in the next financial release... below 40 mn is my guess. That would increase Earnings and FCF per share, plus the capital gain of shares bought below 1,9 USD.

    Increasing business dut to sinage. The pandemic is not going away anytime soon and re-opening will be phased and need for sinage everywhere.

    83 million market cap
    Net Financial Debt: 30 mn - 80mn Revolving Credit Facility - 60 mn withdrawn of which 50 mn sits on the Balance sheet
    Conservative 40 mn FCF with 30% sales decline due to pandemic. 30% plus gross margins.

    No brainer...
    Bullish
  • B
    B
    imo we need some operational shake up, a new CEO and staff cuts as part of a dynamic cost cutting plan to drastically cut cost structure and reduce debt. definitely encouraged by latest round of profitable quarters, but since company is not growing g top line by leaps and bounds, needs to focus on bottom line which should be more controllable. need something to get shareholders excited and company needs to increase share value from current languish.
  • M
    Maximus
    Impressive how resilient cash flows are. Let’s hope they can grow sales as they say and more diversified.
    Almost 40 mn in debt payed down in a year (incredible)
    Share buybacks and compensation plan for management not impressive at all.

    I hope they step up to the plate.
  • M
    Maximus
    Dividend up 100%... one more step in the right direction. Good sign for February 23rd. They’ve got so much cash... unbelievable this is trading at these prices
  • b
    bbb
    Very nice, great announcement with only meager gains, meaning more pps increase to come. Glta (except the shorts and inpatient). Also thanks arc for reinstating the dividend and thanks traders for the cheap shares over the last month :-)
  • M
    Maximus
    Below my Investment Thesis taking the new data from 2020 10-K and after yesterday’s share price behavior. Algo trading presumably from Quant Funds that own the stock could be behind it.
    Summary: ARC should be trading @USD8-10 today (8x 2020 FCF Vs. Market 25x).
    Investment Thesis: (1) Smaller healthy business + (2) no net debt + (3) dividends + buybacks at a depressed price + (4) Management incentives better aligned with shareholders.
    I encourage you to find a business with no debt trading at 2x Free Cash Flow (50% yield at today's price) in today’s market. If you find something remotely similar please tell me, I can’t.
    Below Comparison 2019 Vs. 2020. I hope it helps to make better informed INVESTMENT (NOT SPECULATIVE) decisions:

    1. Improved efficiency:
    Less locations 148 Vs 173
    Less employees 500 less
    Less net interests USD1.3 million saved (USD5.2 mn 2019 / USD3.9 mn 2020). It will go down even more.
    Note: with less employees and locations I doubt they could make USD400 mn in sales in the coming future.

    2. Free Cash Flow / cash & debt:
    Net debt repayment in excess of USD10 million
    Net financial debt= 0. USD55 mn revolver (2% interest rate) - USD55 mn cash (of which most is in the US now, 30% in China, this has improved a lot).
    Finance & Operating leases: approx. 40 mn. Remember this is leases of equipment and locations. For you to determine if it is real financial debt.
    Free cash flow up: UP TO USD49 mn from USD40 mn. That is UNBELIEVABLE!!!!. In part from lower Capex, marginally higher operating cash flow, lower taxes and lower interests paid. Working capital change was not the main driver. In fact, I think it could help during next quarters to increase cash flows.

    3. Shareholders: net 2 mn shares outstanding less. And I hope that is even better now. Approx. 4% dividend yield.

    Sales have gone down 25/30% with all the offices closed. I assume shares would be USD250/300 mn for the foreseeable future and that they can make USD40 mn of Free Cash Flow on those sales which is incredible (almost 20%, that is a healthy business).

    No goodwill impairments for the time being. But if they were that is less taxes.
  • b
    bbb
    Great article if you didn’t catch from Seeking Alpha. Spelling out the details on why the pps has started its Upward march ($2+ AND beyond). Will prove to be a great investment for those that started accumulating below $1.25 over the last few months and recently (bonus will be a nice dividend for those long term holders). $3+ in our future? Very possible imo if sales move back to previous levels with the restructure of the business model (eps has lots of upward movement). Can’t wait for the quarter announcement next week. The turnaround is upon us....Gita!

    ARC Document Solutions, If You Loved Seabiscuit

    ARC Document Solutions, If You Loved Seabiscuit
  • M
    Maximus
    https://seekingalpha.com/article/4404170-arc-document-solutions-2_0-grossly-undervalued-despite-perpetually-shrinking

    Nice article, but he is missing that the Company has paid down more than 125 million in debt since 2013/2014 (that is how we know that they have real cash flows), And he didn't talk either about the share buy backs, which is the most relevant part about this investment. After they pay down the revolving credit facility (40/50 million left) they can only give us back the cash flows (40/50 mn a year) through dividends or buy backs...

    I hope we have not bad surprises on February 23rd. Otherwise this should climb towards more normal valuations 4/5 USD per share. Good luck if you are long.
    ARC is starting fresh and its 2020 operating metrics prove it. The company is managing to stay relevant in a declining industry.
    ARC is starting fresh and its 2020 operating metrics prove it. The company is managing to stay relevant in a declining industry.
    seekingalpha.com
  • b
    bbb
    .90 cents, really? Patience should be rewarded, hoping management will make extra effort to get pps rolling, like step up and retire a few million shares at these price levels (why not buy 10million to give eps a big boast, they have the cash). Where are the buyers? Technically way over sold, Should see reinstatement of dividend next year as well as resurgent in demand for their products.Seems
    Worth the risk at these price levels. Glta
  • J
    J
    OK, ARC is officially a mess in MHO, MPS is mentioned in earnings and can be very profitable yet the web site does not promote it out front. and they still advertise art supplies, good lord it seems management has no incentive based on their personal wealth.
    MY Q2 in this industry kicked butt including print revenue. Issue a dividend instead of paying down debt, the stock price will go up and the employees will be excited.
  • S
    Steve
    Poorly ran company, CEO is out of touch with the market and the company is always playing catch up. Most of the Exec staff is cronies and yes men, so no original thinking going on. MPS is still strong, AIM should be a money maker as not a lot of other companies can handle the workload they can take on. Facilities is smoke and mirrors, most places can do what they do on their own with Bluebeam, thats why they are losing the market there contractors are doing it on their own. Continuous cutting of high performing employees to save a buck has become a standard and they seem to be OK with the status quo. Hate to say it, but this company isn't going anywhere until they have a shake up at the top, and get new blood in. It won't happen as the exec staff are some of the largest stake holders, but it needs to be done soon or this company will be a distant memory