WALNUT CREEK, Calif.,
Nov. 2, 2016 /PRNewswire/ -- ARC
Document Solutions, Inc. (NYSE: ARC), a leading document solutions
provider to design, engineering, construction, and facilities
management professionals, today reported its financial results for
the third quarter ended September 30, 2016.
2016 Third Quarter Business Highlights:
- Net sales of $100.4 million vs.
$106.4 million in Q3 2015
- Diluted earnings per share were $0.06 vs. $1.69 in
Q3 2015; adjusted diluted EPS were $0.07 vs. $0.09 in
Q3 2015
- Net income attributable to ARC of $2.8
million, adjusted net income attributable to ARC of
$3.0 million
- YTD Cash flow from operations of $34.0
million vs. $43.1 million in
2015
- EBITDA of $14.4 million or 14.4%;
adjusted EBITDA of $15.1 million or
15.1%
- Uses of cash in the third quarter included additional
$7 million in additional senior debt
repayment
- Management maintains 2016 forecast for annual adjusted earnings
per share to be in the range of $0.24 to
$0.28; annual cash flow from operations to be in the range
of $48 million to $52 million; and
annual adjusted EBITDA in the range of $59
million to $63 million.
|
Financial
Highlights:
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
(All dollar
amounts in millions, except EPS)
|
2016
|
2015
|
|
2016
|
2015
|
|
Net Sales
|
$
|
100.4
|
|
$
|
106.4
|
|
|
$
|
307.8
|
|
$
|
324.1
|
|
|
Gross
Margin
|
32.6
|
%
|
33.8
|
%
|
|
33.4
|
%
|
34.8
|
%
|
|
Net income (loss)
attributable to ARC
|
$
|
2.8
|
|
$
|
80.3
|
|
|
$
|
(50.5)
|
|
$
|
94.0
|
|
|
Adjusted Net Income
attributable to ARC
|
$
|
3.0
|
|
$
|
4.2
|
|
|
$
|
10.5
|
|
$
|
13.6
|
|
|
Earnings (loss) per
share - Diluted
|
$
|
0.06
|
|
$
|
1.69
|
|
|
$
|
(1.10)
|
|
$
|
1.98
|
|
|
Adjusted earnings per
share - Diluted
|
$
|
0.07
|
|
$
|
0.09
|
|
|
$
|
0.23
|
|
$
|
0.29
|
|
|
Cash provided by
operating activities
|
$
|
12.2
|
|
$
|
21.0
|
|
|
$
|
34.0
|
|
$
|
43.1
|
|
|
EBITDA
|
$
|
14.4
|
|
$
|
17.0
|
|
|
$
|
(28.1)
|
|
$
|
53.2
|
|
|
Adjusted
EBITDA
|
$
|
15.1
|
|
$
|
17.9
|
|
|
$
|
48.1
|
|
$
|
56.2
|
|
|
Capital
Expenditures
|
$
|
2.4
|
|
$
|
3.9
|
|
|
$
|
7.6
|
|
$
|
11.5
|
|
|
Debt & Capital
Leases (including current), net of unamortized deferred financing
fees
|
|
|
|
$
|
158.9
|
|
$
|
178.6
|
|
Management Commentary
"This has been a tough quarter for us," said K. "Suri"
Suriyakumar, Chairman, President and CEO of ARC Document Solutions.
"However, given our revised guidance earlier in the year, and the
transformation we are going through, it was not unexpected. From
the beginning of the year we have consistently maintained that we
will need 24 to 36 months to implement the changes required to put
the company back on a growth track. Making these changes and
driving this transformation has had a disruptive effect on sales
and operations, but they are necessary to build value in the
future.
"The good news is that despite the challenges and weaker
year-over-year sales and profit comparisons, our financial
performance was healthy," continued Mr. Suriyakumar. "We delivered
solid cash generation and EBITDA, and our capital structure remains
a source of strength."
"During the third quarter we maintained solid control of our
costs and minimized the effect of lower sales on our
profitability," said Jorge Avalos,
Chief Financial Officer. "Cash flow from operations for the year
remained healthy despite quarterly timing differences in working
capital. We chose to use $7 million
during the period to reduce our senior debt and future interest
costs, knowing that we will have additional opportunities to return
value to our shareholders in the future."
2016 Third Quarter Supplemental Information:
Net sales were $100.4 million, a
5.6% decrease compared to the third quarter of 2015.
Days sales outstanding in Q3 2016 were 55, consistent with same
period in 2015.
Architectural, engineering, construction and building
owner/operators (AEC/O) customers comprised approximately 77% of
our total net sales, while customers outside of construction made
up approximately 23% of our total net sales.
Total number of MPS locations at the end of the third quarter
has grown to approximately 9,370, a gain of 630 locations over Q3
2015. This information reflects the reduction of approximately 200
locations associated with a large client that did not renew their
MPS engagement with us at the end of 2015.
Adjusted EBITDA excludes loss on extinguishment of debt,
goodwill impairment, the impact of trade secret litigation costs,
stock-based compensation expense, and restructuring expense.
|
Sales from
Services and Product Lines as a Percentage of Net
Sales
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
Services and Product
Line
|
2016
|
2015
|
2016
|
2015
|
|
CDIM
|
53.0
|
%
|
51.4
|
%
|
52.6
|
%
|
51.9
|
%
|
|
MPS
|
32.7
|
%
|
33.8
|
%
|
32.5
|
%
|
33.6
|
%
|
|
AIM
|
3.1
|
%
|
3.5
|
%
|
3.4
|
%
|
3.1
|
%
|
|
Equipment and
supplies sales
|
11.2
|
%
|
11.3
|
%
|
11.5
|
%
|
11.4
|
%
|
Outlook
ARC Document Solutions is maintaining its 2016 annual forecast
and anticipates annual adjusted earnings per share to be in the
range of $0.24 to $0.28 on a fully
diluted basis. Annual cash flow from operations is projected to be
in the range of $48 million to $52
million. The Company's outlook for annual adjusted EBITDA is
expected to be in the range of $59 million
to $63 million.
Teleconference and Webcast
A conference call with investors and analysts will occur today,
Wednesday, November 2, 2016, at
2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the
company's 2016 third quarter. To access the live audio call, dial
800-946-0744. International callers may join the conference by
dialing 719-457-2731. The conference ID number is 1916977. A live
webcast will also be made available on the investor relations page
of ARC Document Solution's website at ir.e-arc.com.
The webcast of the call will be available at www.e-arc.com for
approximately 90 days following the call's conclusion. A telephone
replay of the call also will be available for five days after the
call's conclusion. To access the replay, dial 888-203-1112. The
conference ID number is 1916977.
About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions distributes Documents and Information to
facilitate communication for design, engineering and construction
professionals, real estate managers and developers, facilities
owners, and a variety of similar disciplines. The Company provides
cloud and mobile solutions, professional services, and hardware to
help its customers around the world reduce costs and increase
efficiency, improve information access and control, and communicate
faster, easier, and better. 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. Words and phrases such as "we will need 24 to 36 months,"
"forecast," "project," "outlook," "put the company back on a growth
track," "build value in the future," 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 caption entitled "Risk Factors" in Item 1A in ARC
Document Solution's Annual Report on Form 10-K for the fiscal year
ended December 31, 2015, 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.
|
ARC Document
Solutions, Inc.
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
(In thousands,
except per share data)
|
|
|
|
(Unaudited)
|
|
|
|
September
30,
|
December
31,
|
|
Current
assets:
|
2016
|
2015
|
|
Cash and cash
equivalents
|
$
|
19,640
|
|
$
|
23,963
|
|
|
Accounts receivable,
net of allowances for accounts receivable of $2,007 and
$2,094
|
61,373
|
|
60,085
|
|
|
Inventories,
net
|
19,981
|
|
16,972
|
|
|
Prepaid
expenses
|
4,689
|
|
4,555
|
|
|
Other current
assets
|
3,485
|
|
4,131
|
|
|
Total
current assets
|
109,168
|
|
109,706
|
|
|
Property and
equipment, net of accumulated depreciation of $208,749 and
$202,457
|
56,923
|
|
57,590
|
|
|
Goodwill
|
138,688
|
|
212,608
|
|
|
Other intangible
assets, net
|
14,393
|
|
17,946
|
|
|
Deferred income
taxes
|
74,138
|
|
74,196
|
|
|
Other
assets
|
2,255
|
|
2,492
|
|
|
Total
assets
|
$
|
395,565
|
|
$
|
474,538
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
22,534
|
|
$
|
23,989
|
|
|
Accrued payroll and
payroll-related expenses
|
10,196
|
|
12,118
|
|
|
Accrued
expenses
|
16,793
|
|
19,194
|
|
|
Current portion of
long-term debt and capital leases
|
12,926
|
|
14,374
|
|
|
Total
current liabilities
|
62,449
|
|
69,675
|
|
|
Long-term debt and
capital leases
|
145,978
|
|
157,018
|
|
|
Deferred income
taxes
|
29,845
|
|
35,933
|
|
|
Other long-term
liabilities
|
2,482
|
|
2,778
|
|
|
Total
liabilities
|
240,754
|
|
265,404
|
|
|
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; 47,415 and 47,130
shares issued and 45,975 and 47,029 shares
outstanding
|
47
|
|
47
|
|
|
Additional paid-in
capital
|
117,264
|
|
115,089
|
|
|
Retained
earnings
|
39,198
|
|
89,687
|
|
|
Accumulated other
comprehensive loss
|
(2,831)
|
|
(2,097)
|
|
|
153,678
|
|
202,726
|
|
|
Less cost of common
stock in treasury, 1,440 and 101 shares
|
5,909
|
|
612
|
|
|
Total
ARC Document Solutions, Inc. stockholders' equity
|
147,769
|
|
202,114
|
|
|
Noncontrolling
interest
|
7,042
|
|
7,020
|
|
|
Total
equity
|
154,811
|
|
209,134
|
|
|
Total
liabilities and equity
|
$
|
395,565
|
|
$
|
474,538
|
|
|
ARC Document
Solutions, Inc.
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
(In thousands,
except per share data)
|
|
|
|
|
|
(Unaudited)
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Service
sales
|
$
|
89,178
|
|
$
|
94,384
|
|
$
|
272,394
|
|
$
|
287,045
|
|
|
Equipment and
supplies sales
|
11,265
|
|
12,034
|
|
35,369
|
|
37,081
|
|
|
Total net
sales
|
100,443
|
|
106,418
|
|
307,763
|
|
324,126
|
|
|
Cost of
sales
|
67,713
|
|
70,475
|
|
204,904
|
|
211,303
|
|
|
Gross
profit
|
32,730
|
|
35,943
|
|
102,859
|
|
112,823
|
|
|
Selling, general and
administrative expenses
|
24,893
|
|
25,816
|
|
76,752
|
|
80,403
|
|
|
Amortization of
intangible assets
|
1,160
|
|
1,375
|
|
3,705
|
|
4,306
|
|
|
Goodwill
impairment
|
—
|
|
—
|
|
73,920
|
|
—
|
|
|
Restructuring
expense
|
—
|
|
4
|
|
7
|
|
89
|
|
|
Income (loss) from
operations
|
6,677
|
|
8,748
|
|
(51,525)
|
|
28,025
|
|
|
Other income,
net
|
(16)
|
|
(25)
|
|
(54)
|
|
(81)
|
|
|
Loss on
extinguishment of debt
|
66
|
|
96
|
|
156
|
|
193
|
|
|
Interest expense,
net
|
1,563
|
|
1,679
|
|
4,535
|
|
5,475
|
|
|
Income (loss) before
income tax provision (benefit)
|
5,064
|
|
6,998
|
|
(56,162)
|
|
22,438
|
|
|
Income tax provision
(benefit)
|
2,162
|
|
(73,338)
|
|
(5,884)
|
|
(71,766)
|
|
|
Net income
(loss)
|
2,902
|
|
80,336
|
|
(50,278)
|
|
94,204
|
|
|
Income attributable
to the noncontrolling interest
|
(61)
|
|
(50)
|
|
(211)
|
|
(225)
|
|
|
Net income (loss)
attributable to ARC Document Solutions, Inc.
shareholders
|
$
|
2,841
|
|
$
|
80,286
|
|
$
|
(50,489)
|
|
$
|
93,979
|
|
|
Earnings (loss) per
share attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
|
|
|
Basic
|
$
|
0.06
|
|
$
|
1.72
|
|
$
|
(1.10)
|
|
$
|
2.02
|
|
|
Diluted
|
$
|
0.06
|
|
$
|
1.69
|
|
$
|
(1.10)
|
|
$
|
1.98
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
45,599
|
|
46,698
|
|
46,055
|
|
46,601
|
|
|
Diluted
|
46,189
|
|
47,557
|
|
46,055
|
|
47,541
|
|
|
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
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Cash flows provided
by operating activities
|
$
|
12,163
|
|
$
|
20,965
|
|
$
|
34,046
|
|
$
|
43,117
|
|
|
Changes in operating
assets and liabilities, net of effect of business
acquisitions
|
1,958
|
|
(5,101)
|
|
9,976
|
|
7,243
|
|
|
Non-cash expenses,
including depreciation, amortization and goodwill
impairment
|
(11,219)
|
|
64,472
|
|
(94,300)
|
|
43,844
|
|
|
Income tax provision
(benefit)
|
2,162
|
|
(73,338)
|
|
(5,884)
|
|
(71,766)
|
|
|
Interest expense,
net
|
1,563
|
|
1,679
|
|
4,535
|
|
5,475
|
|
|
Income attributable
to the noncontrolling interest
|
(61)
|
|
(50)
|
|
(211)
|
|
(225)
|
|
|
Depreciation and
amortization
|
7,857
|
|
8,415
|
|
23,737
|
|
25,490
|
|
|
EBITDA
|
14,423
|
|
17,042
|
|
(28,101)
|
|
53,178
|
|
|
Loss on
extinguishment of debt
|
66
|
|
96
|
|
156
|
|
193
|
|
|
Goodwill
impairment
|
—
|
|
—
|
|
73,920
|
|
—
|
|
|
Trade secret
litigation costs(1)
|
—
|
|
—
|
|
—
|
|
34
|
|
|
Restructuring
expense(2)
|
—
|
|
4
|
|
7
|
|
89
|
|
|
Stock-based
compensation
|
650
|
|
735
|
|
2,073
|
|
2,739
|
|
|
Adjusted
EBITDA
|
$
|
15,139
|
|
$
|
17,877
|
|
$
|
48,055
|
|
$
|
56,233
|
|
|
|
|
(1)
On February 1, 2013, we filed a civil complaint against a
competitor and a former employee in the Superior Court of
California for Orange County, which alleged, among other claims,
the misappropriation of ARC trade secrets; namely, proprietary
customer lists that were used to communicate with ARC customers in
an attempt to unfairly acquire their business. In prior litigation
with the competitor based on related facts, in 2007 the competitor
entered into a settlement agreement and stipulated judgment, which
included an injunction. We instituted this suit to stop the
defendant from using similar unfair business practices against us
in the Southern California market. The case proceeded to trial in
May 2014, and a jury verdict was entered for the defendants. In the
first quarter of 2015, we entered into a settlement and paid the
defendant. Legal fees associated with the litigation were recorded
as selling, general and administrative expense.
|
|
|
(2)
In October 2012, we initiated a restructuring plan which included
the closure or downsizing of the Company's service center
locations, as well as a reduction in headcount. Restructuring
expenses in 2016 and 2015 primarily consist of revised estimated
lease termination and obligation costs resulting from facilities
closed in 2013.
|
|
ARC Document
Solutions, Inc.
Non-GAAP Measures
Reconciliation of
net income (loss) attributable to ARC to unaudited adjusted net
income attributable to ARC
(In thousands,
except per share data)
(Unaudited)
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Net income (loss)
attributable to ARC Document Solutions, Inc.
|
$
|
2,841
|
|
$
|
80,286
|
|
$
|
(50,489)
|
|
$
|
93,979
|
|
|
Loss on
extinguishment of debt
|
66
|
|
96
|
|
156
|
|
193
|
|
|
Goodwill
impairment
|
—
|
|
—
|
|
73,920
|
|
—
|
|
|
Restructuring
expense
|
—
|
|
4
|
|
7
|
|
89
|
|
|
Trade secret
litigation costs
|
—
|
|
—
|
|
—
|
|
34
|
|
|
Income tax benefit
related to above items
|
(26)
|
|
(41)
|
|
(13,395)
|
|
(125)
|
|
|
Deferred tax
valuation allowance and other discrete tax items
|
138
|
|
(76,147)
|
|
341
|
|
(80,554)
|
|
|
Unaudited adjusted
net income attributable to ARC Document Solutions, Inc.
|
$
|
3,019
|
|
$
|
4,198
|
|
$
|
10,540
|
|
$
|
13,616
|
|
|
|
|
|
|
|
Actual:
|
|
|
|
|
|
Earnings (loss) per
share attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
|
|
|
Basic
|
$
|
0.06
|
|
$
|
1.72
|
|
$
|
(1.10)
|
|
$
|
2.02
|
|
|
Diluted
|
$
|
0.06
|
|
$
|
1.69
|
|
$
|
(1.10)
|
|
$
|
1.98
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
45,599
|
|
46,698
|
|
46,055
|
|
46,601
|
|
|
Diluted
|
46,189
|
|
47,557
|
|
46,055
|
|
47,541
|
|
|
|
|
|
|
|
Adjusted:
|
|
|
|
|
|
Earnings per
share attributable to ARC Document Solutions, Inc.
shareholders:
|
|
|
|
|
|
Basic
|
$
|
0.07
|
|
$
|
0.09
|
|
$
|
0.23
|
|
$
|
0.29
|
|
|
Diluted
|
$
|
0.07
|
|
$
|
0.09
|
|
$
|
0.23
|
|
$
|
0.29
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
45,599
|
|
46,698
|
|
46,055
|
|
46,601
|
|
|
Diluted
|
46,189
|
|
47,557
|
|
46,655
|
|
47,541
|
|
|
ARC Document Solutions, Inc.
Non-GAAP
Measures
Reconciliation of
net income (loss) attributable to ARC Document Solutions, Inc.
shareholders to EBITDA and Adjusted EBITDA
(In
thousands)
(Unaudited)
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Net income (loss)
attributable to ARC Document Solutions, Inc.
shareholders
|
$
|
2,841
|
|
$
|
80,286
|
|
$
|
(50,489)
|
|
$
|
93,979
|
|
|
Interest expense,
net
|
1,563
|
|
1,679
|
|
4,535
|
|
5,475
|
|
|
Income tax provision
(benefit)
|
2,162
|
|
(73,338)
|
|
(5,884)
|
|
(71,766)
|
|
|
Depreciation and
amortization
|
7,857
|
|
8,415
|
|
23,737
|
|
25,490
|
|
|
EBITDA
|
14,423
|
|
17,042
|
|
(28,101)
|
|
53,178
|
|
|
Loss on
extinguishment of debt
|
66
|
|
96
|
|
156
|
|
193
|
|
|
Goodwill
impairment
|
—
|
|
—
|
|
73,920
|
|
—
|
|
|
Trade secret
litigation costs
|
—
|
|
—
|
|
—
|
|
34
|
|
|
Restructuring
expense
|
—
|
|
4
|
|
7
|
|
89
|
|
|
Stock-based
compensation
|
650
|
|
735
|
|
2,073
|
|
2,739
|
|
|
Adjusted
EBITDA
|
$
|
15,139
|
|
$
|
17,877
|
|
$
|
48,055
|
|
$
|
56,233
|
|
|
ARC Document
Solutions, Inc.
Net Sales by
Product Line
(In
thousands)
(Unaudited)
|
|
|
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Service
sales
|
|
|
|
|
|
CDIM
|
$
|
53,228
|
|
$
|
54,710
|
|
161,753
|
|
168,187
|
|
|
MPS
|
32,796
|
|
35,923
|
|
100,082
|
|
108,934
|
|
|
AIM
|
3,154
|
|
3,751
|
|
10,559
|
|
9,924
|
|
|
Total service
sales
|
89,178
|
|
94,384
|
|
272,394
|
|
287,045
|
|
|
Equipment and
supplies sales
|
11,265
|
|
12,034
|
|
35,369
|
|
37,081
|
|
|
Total net
sales
|
$
|
100,443
|
|
$
|
106,418
|
|
$
|
307,763
|
|
$
|
324,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. EBITDA margin is a non-GAAP measure
calculated by dividing EBITDA by net sales.
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 over certain periods 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 and nine months ended September 30,
2016 and 2015 to reflect the exclusion of loss on extinguishment of
debt, goodwill impairment, restructuring expense, trade secret
litigation costs, and 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 and nine months ended September 30, 2016
and 2015. We believe these charges were the result of the then
current macroeconomic environment, our capital restructuring, or
other items which are not indicative of our actual operating
performance.
We have presented adjusted EBITDA in the three and nine months
ended September 30, 2016 and 2015 to exclude loss on
extinguishment of debt, goodwill impairment, trade secret
litigation costs, restructuring expense and stock-based
compensation expense. The adjustment of EBITDA for these items 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.
|
ARC Document
Solutions
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
|
2016
|
2015
|
2016
|
2015
|
|
Cash flows from
operating activities
|
|
|
|
|
|
Net income
(loss)
|
$
|
2,902
|
|
$
|
80,336
|
|
$
|
(50,278)
|
|
$
|
94,204
|
|
|
Adjustments to
reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
Allowance for
accounts receivable
|
324
|
|
110
|
|
644
|
|
292
|
|
|
Depreciation
|
6,697
|
|
7,040
|
|
20,032
|
|
21,184
|
|
|
Amortization of
intangible assets
|
1,160
|
|
1,375
|
|
3,705
|
|
4,306
|
|
|
Amortization of
deferred financing costs
|
111
|
|
138
|
|
344
|
|
460
|
|
|
Goodwill
impairment
|
—
|
|
—
|
|
73,920
|
|
—
|
|
|
Stock-based
compensation
|
650
|
|
735
|
|
2,073
|
|
2,739
|
|
|
Deferred income
taxes
|
2,299
|
|
2,198
|
|
(6,018)
|
|
8,221
|
|
|
Deferred tax
valuation allowance
|
(1)
|
|
(76,091)
|
|
(16)
|
|
(80,882)
|
|
|
Loss on early
extinguishment of debt
|
66
|
|
96
|
|
156
|
|
193
|
|
|
Other non-cash items,
net
|
(87)
|
|
(73)
|
|
(540)
|
|
(357)
|
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
(897)
|
|
2,996
|
|
(2,285)
|
|
(3,637)
|
|
|
Inventory
|
(429)
|
|
1,083
|
|
(3,196)
|
|
(1,775)
|
|
|
Prepaid expenses and
other assets
|
1,179
|
|
1,224
|
|
513
|
|
2,941
|
|
|
Accounts payable and
accrued expenses
|
(1,811)
|
|
(202)
|
|
(5,008)
|
|
(4,772)
|
|
|
Net cash provided by
operating activities
|
12,163
|
|
20,965
|
|
34,046
|
|
43,117
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
Capital
expenditures
|
(2,430)
|
|
(3,880)
|
|
(7,580)
|
|
(11,517)
|
|
|
Other
|
135
|
|
266
|
|
842
|
|
514
|
|
|
Net cash used in
investing activities
|
(2,295)
|
|
(3,614)
|
|
(6,738)
|
|
(11,003)
|
|
|
Cash flows from
financing activities
|
|
|
|
|
|
Proceeds from stock
option exercises
|
46
|
|
1
|
|
76
|
|
562
|
|
|
Proceeds from
issuance of common stock under Employee Stock Purchase
Plan
|
26
|
|
25
|
|
96
|
|
83
|
|
|
Share
repurchases
|
(200)
|
|
—
|
|
(5,297)
|
|
(204)
|
|
|
Contingent
consideration on prior acquisitions
|
(86)
|
|
(360)
|
|
(453)
|
|
(360)
|
|
|
Early extinguishment
of long-term debt
|
(7,000)
|
|
(3,625)
|
|
(16,000)
|
|
(10,875)
|
|
|
Payments on long-term
debt agreements and capital leases
|
(3,310)
|
|
(7,262)
|
|
(9,651)
|
|
(20,042)
|
|
|
Net repayments under
revolving credit facilities
|
—
|
|
(144)
|
|
—
|
|
(1,888)
|
|
|
Payment of deferred
financing costs
|
(76)
|
|
—
|
|
(106)
|
|
(25)
|
|
|
Payment of hedge
premium
|
—
|
|
—
|
|
—
|
|
(632)
|
|
|
Net cash used in
financing activities
|
(10,600)
|
|
(11,365)
|
|
(31,335)
|
|
(33,381)
|
|
|
Effect of foreign
currency translation on cash balances
|
(80)
|
|
(598)
|
|
(296)
|
|
(545)
|
|
|
Net change in cash
and cash equivalents
|
(812)
|
|
5,388
|
|
(4,323)
|
|
(1,812)
|
|
|
Cash and cash
equivalents at beginning of period
|
20,452
|
|
15,436
|
|
23,963
|
|
22,636
|
|
|
Cash and cash
equivalents at end of period
|
$
|
19,640
|
|
$
|
20,824
|
|
$
|
19,640
|
|
$
|
20,824
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
Noncash investing
and financing activities
|
|
|
|
|
|
Capital lease
obligations incurred
|
$
|
3,738
|
|
$
|
2,625
|
|
$
|
12,345
|
|
$
|
9,667
|
|
|
Contingent
liabilities in connection with acquisition of businesses
|
$
|
—
|
|
$
|
—
|
|
$
|
85
|
|
$
|
—
|
|
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SOURCE ARC Document Solutions, Inc.