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ARC ARC Document Solutions

Filed: 4 May 21, 4:13pm

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

SAN RAMON, CA – (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:
Three Months Ended
March 31,
(All dollar amounts in millions, except EPS)20212020
Net sales$61.7 $88.4 
Gross margin30.4 %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 manged print services (MPS) locations dropped by approximately 200 locations year over year to approximately 10,750 as of March 31, 2021.












Net Revenue
In millions1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 millions1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 decreases 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 indicated1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 2020
Gross profit$18.8 $92.9 $20.7 $24.2 $20.4 $27.6 
   Gross margin30.4 %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 millions1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 indicated1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 millions1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 millions1Q 2021FYE 20204Q 20203Q 20202Q 20201Q 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 Sales20212020
CDIM60.6 %55.6 %
MPS28.1 %30.9 %
AIM4.9 %4.1 %
Equipment and supplies sales6.4 %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:20212020
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 
Inventory9,751 9,474 
Prepaid expenses4,029 4,065 
Other current assets3,180 3,979 
Total current assets103,267 108,747 
Property and equipment, net of accumulated depreciation of $222,665 and $219,834
52,874 57,830 
Right-of-use assets from operating leases35,749 37,859 
Goodwill121,051 121,051 
Other intangible assets, net441 515 
Deferred income taxes16,819 17,261 
Other assets2,110 2,175 
Total assets$332,311 $345,438 
Current liabilities:
Accounts payable$19,468 $18,661 
Accrued payroll and payroll-related expenses8,868 10,088 
Accrued expenses16,541 17,783 
Current operating lease liabilities11,421 12,158 
Current portion of finance leases16,600 17,557 
Total current liabilities72,898 76,247 
Long-term operating lease liabilities31,584 33,561 
Long-term debt and finance leases71,780 79,679 
Other long-term liabilities1,672 1,615 
Total liabilities177,934 191,102 
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 capital128,108 127,755 
Retained earnings37,250 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’ equity147,886 147,668 
Noncontrolling interest6,491 6,668 
Total equity154,377 154,336 
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,
20212020
Net sales$61,730 $88,425 
Cost of sales42,943 60,828 
Gross profit18,787 27,597 
Selling, general and administrative expenses16,995 24,338 
Amortization of intangible assets75 597 
Income from operations1,717 2,662 
Other income, net(11)(16)
Interest expense, net620 1,109 
Income before income tax provision1,108 1,569 
Income tax provision496 1,107 
Net income612 462 
Loss attributable to the noncontrolling interest177 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:
Basic42,264 43,676 
Diluted42,634 43,811 




















ARC Document Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)Three Months Ended
March 31,
20212020
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 
Depreciation6,449 7,407 
Amortization of intangible assets75 597 
Amortization of deferred financing costs16 16 
Stock-based compensation339 504 
Deferred income taxes392 751 
Deferred tax valuation allowance60 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 assets3,350 3,404 
Accounts payable and accrued expenses(5,050)(9,937)
Net cash provided by operating activities5,375 2,774 
Cash flows from investing activities
Capital expenditures(568)(1,121)
Other131 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 Plan14 20 
Share repurchases(156)(2,432)
Payments on finance leases(4,817)(4,602)
Borrowings under revolving credit facilities15,000 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 period54,950 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,
20212020
CDIM$37,434 $49,160 
MPS17,334 27,308 
AIM3,025 3,600 
Equipment and supplies sales3,937 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,
20212020
Cash flows provided by operating activities$5,375 $2,774 
Changes in operating assets and liabilities2,494 7,501 
Non-cash expenses, including depreciation and amortization(7,257)(9,813)
Income tax provision496 1,107 
Interest expense, net620 1,109 
Loss attributable to the noncontrolling interest177 221 
Depreciation and amortization6,524 8,004 
EBITDA8,429 10,903 
Stock-based compensation339 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,
20212020
Net income attributable to ARC Document Solutions, Inc.$789 $683 
Interest expense, net620 1,109 
Income tax provision496 1,107 
Depreciation and amortization6,524 8,004 
EBITDA8,429 10,903 
Stock-based compensation339 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,
20212020
Net income attributable to ARC Document Solutions, Inc.$789 $683 
Deferred tax valuation allowance and other discrete tax items131 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:
Basic42,264 43,676 
Diluted42,634 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:
Basic42,264 43,676 
Diluted42,634 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.