August 11, 2022

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ARC Reports Fifth Consecutive Quarter of Growth in Sales and EPS – Stocks News Feed

SAN RAMON, CA / ACCESSWIRE / August 3, 2022 / ARC Document Solutions, Inc. (NYSE:ARC), a leading provider of digital printing and document-related services, today reported its financial results for the second quarter ended June 30, 2022.

Financial Highlights:

Three Months Ended Six Months Ended June 30, June 30,

(All dollar amounts in millions, except EPS)

2022 2021 2022 2021

$74.6 $68.8 $144.1 $130.5

Gross margin

34.2% 33.1% 33.3% 31.9%

Net income attributable to ARC

$3.3 $2.6 $5.2 $3.4

Adjusted net income attributable to ARC

$3.7 $2.6 $5.7 $3.6

Earnings per share – Diluted

$0.08 $0.06 $0.12 $0.08

Adjusted earnings per share – Diluted

$0.08 $0.06 $0.13 $0.08

Cash provided by operating activities

$8.6 $11.5 $11.5 $16.9

$10.9 $10.7 $19.5 $19.1

Adjusted EBITDA

$11.3 $11.1 $20.4 $19.9

Capital expenditures

$1.4 $1.0 $2.7 $1.6

Debt & finance leases (including current)

$72.1 $83.6

Management Commentary:

“The second quarter was our fifth consecutive quarter of year-over-year growth in both revenue and earnings,” said Suri Suriyakumar, Chairman and CEO of ARC. “We are also on track to deliver EPS of more than 25 cents in 2022. This is the best earnings performance we will have produced since 2016 when our revenues were well over $400 million dollars.”

“Our ability to leverage strong sales not only helped produce the impressive gross margins, operating income, and EPS we reported today, but it also helped minimize the worst effects of inflation,” said Jorge Avalos, Chief Financial Officer. “Going forward, we think quarterly sales of $70 million dollars or more are within our reach for the balance of the year, which should produce continuing strength in margins, earnings and EBITDA.”

Management also reiterated their commitment to continue returning shareholder value via the company’s five-cent quarterly cash dividend, as well as opportunistic purchasing of ARC stock in the open market.

2022 Second Quarter Supplemental Information:

Net sales were $74.6 million, a 8.4% increase compared to the second quarter of 2021.

Cash & cash equivalents on the consolidated balance sheet in the second quarter 2022 were $44.6 million.

ARC’s next quarterly cash dividend of $0.05 will be paid on August 31, 2022 with a record date of July 29, 2022.

Days sales outstanding were 54 in Q2 2022 and 50 in Q2 2021.

The number of MPS locations remained relatively flat year-over-year at approximately 10,800.

Net Revenue

In millions

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Total net revenue

$74.6 $69.5 $272.2 $69.2 $72.4 $68.8

For the second quarter 2022, net sales increased 8.4%, compared to the same period in 2021, primarily due to the expansion of industries we serve and selling more of our services to existing customers. The increase in economic activity in 2022 as compared to 2021 has also contributed to the sales growth.

Revenue by Business Lines

In millions

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Digital Printing

$46.2 $41.9 $166.7 $41.3 $44.9 $43.1

$19.2 $18.7 $72.4 $18.6 $18.5 $18.0

Scanning and Digital Imaging

$4.3 $4.2 $14.5 $4.1 $4.1 $3.3

Equipment and supplies

$4.8 $4.7 $18.6 $5.3 $5.0 $4.4

For the second quarter 2022, Digital Printing sales increased 7.1% compared to prior year. The increase is due to an increase in digital color graphic printing from new and existing customers, as well as an increase in sales in digital plan printing from our construction-oriented customers.

For the second quarter 2022, MPS sales increased 6.9% year-over-year. The increase in MPS sales reflect an increase of on-site printing volume as moderation of work-from-home directives encouraged more employees to return to offices during the period, as well as continuing activity on construction job sites where our equipment is often placed in job trailers for the duration of building projects.

For the second quarter 2022, Scanning and Digital Imaging sales increased 31.5% year-over-year. The increase in sales of our Scanning and Digital Imaging services was due to increased demand for paper-to-digital document conversions in re-opened offices and in response to increased marketing activity.

For the second quarter 2022, Equipment and Supplies sales grew 9.3% year-over-year. The increase was driven by demand from offices and job sites as they re-opened to employees, especially in the U.S.

Gross Profit

In millions unless otherwise indicated

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Gross profit

$25.5 $22.4 $87.7 $22.3 $23.8 $22.8

Gross margin

34.2% 32.3% 32.2% 32.2% 32.8% 33.1%

Second quarter 2022 gross profit improved by $2.7 million over the same period in 2021 driven by higher sales in the period. Gross margin improvement was largely driven by the new cost structure we put in place in 2020, which we were able to leverage with the increase in sales.

Selling, General and Administrative Expenses

In millions

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Selling, general and administrative expenses

$19.9 $19.4 $72.3 $17.9 $18.8 $18.5

Selling, general and administrative (SG&A) expenses in the second quarter 2022 increased in absolute dollars, but as a percentage of sales decreased by 30 basis points.

Net Income and Earnings Per Share

In millions unless otherwise indicated

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Net income attributable to ARC – GAAP

$3.3 $2.0 $9.1 $2.6 $3.2 $2.6

Adjusted net income attributable to ARC

$3.7 $2.0 $9.5 $2.7 $3.2 $2.6

Earnings per share attributable to ARC
Diluted EPS – GAAP

$0.08 $0.05 $0.21 $0.06 $0.07 $0.06

Adjusted diluted EPS

$0.08 $0.05 $0.22 $0.06 $0.08 $0.06

Year-over-year, net income attributable to ARC and earnings per share increased in the second quarter of 2022. Earnings growth was driven by the increase in net sales and the decrease in depreciation expense of $1.2 million, partially offset by the increase in selling, general and administrative expenses described above. As hybrid work schedules reduced office printing volumes, our need for printing equipment has significantly decreased and reduced our depreciation expense.

Cash Provided by Operating Activities

In millions

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

Cash provided by operating activities

$8.6 $2.9 $35.8 $7.6 $11.3 $11.5

The year-over-year decrease in cash flows from operations during the second quarter of 2022, compared to the same period in 2021, was primarily due to the timing of accounts receivable collections and timing of payroll.

EBITDA

In millions

2Q 2022 1Q 2022 FYE 2021 4Q 2021 3Q 2021 2Q 2021

$10.9 $8.6 $40.0 $9.9 $11.0 $10.7

Adjusted EBITDA

$11.3 $9.1 $41.7 $10.4 $11.5 $11.1

EBITDA and adjusted EBITDA grew in the second quarter of 2022 due to increased sales, offset by the increase in selling, general and administrative expenses described above.

Three Months Ended Six Months Ended June 30, June 30,

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

2022 2021 2022 2021

Digital Printing

61.9% 62.6% 61.2% 61.7%

25.8% 26.2% 26.3% 27.1%

Scanning and Digital Imaging

5.8% 4.8% 5.9% 4.8%

Equipment and supplies sales

6.5% 6.4% 6.6% 6.4%

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on August 3, 2022, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company’s second quarter of 2022. To access the live conference call, dial (888) 330-2446. International callers may join the conference by dialing (240) 789-2732. The conference code is 4600919 and will be required to dial into the call. A live webcast will also be made available from the “Overview” and “Events & Presentation” pages of ARC Document Solution’s investor relations 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 “should,” “we are on track” “we are confident,” “we think,” “are within our reach,” “we will have produced,” 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, digital printing 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, 2021, 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)

June 30, December 31,

Current assets:

2022 2021

Cash and cash equivalents

$44,595 $55,929

Accounts receivable, net of allowances for accounts receivable of $2,190 and $2,104

44,363 39,441

9,882 8,842

Prepaid expenses

4,654 4,125

Other current assets

3,279 4,207

Total current assets

106,773 112,544

Property and equipment, net of accumulated depreciation of $233,976 and $229,803

41,384 45,153

Right-of-use assets from operating leases

29,329 29,360

121,051 121,051

Other intangible assets, net

243 325

Deferred income taxes

10,639 13,293

Other assets

2,236 2,273

Total assets

$311,655 $323,999

Current liabilities:
Accounts payable

$23,690 $22,753

Accrued payroll and payroll-related expenses

10,145 11,857

Accrued expenses

16,462 16,752

Current operating lease liabilities

10,126 10,284

Current portion of finance leases

12,137 13,816

Total current liabilities

72,560 75,462

Long-term operating lease liabilities

24,579 24,952

Long-term debt and finance leases

59,995 64,426

Other long-term liabilities

177 167

Total liabilities

157,311 165,007

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; 50,896 and 50,584 shares issued and 42,998 and 43,108 shares outstanding

51 50

Additional paid-in capital

131,119 129,881

Retained earnings

42,773 41,768

Accumulated other comprehensive loss

(3,549) (2,501) 170,394 169,198

Less cost of common stock in treasury, 7,898 and 7,476 shares

18,101 16,771

Total ARC Document Solutions, Inc. shareholders’ equity

152,293 152,427

Noncontrolling interest

2,051 6,565

Total equity

154,344 158,992

Total liabilities and equity

$311,655 $323,999

ARC Document Solutions, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021

$74,564 $68,799 $144,052 $130,529

Cost of sales

49,026 46,007 96,065 88,950

Gross profit

25,538 22,792 47,987 41,579

Selling, general and administrative expenses

19,939 18,549 39,294 35,544

Amortization of intangible assets

35 56 70 131

Income from operations

5,564 4,187 8,623 5,904

Other income, net

(9) (12) (34) (23)

Interest expense, net

446 576 876 1,196

Income before income tax provision

5,127 3,623 7,781 4,731

Income tax provision

2,001 1,155 2,799 1,651

Net income

3,126 2,468 4,982 3,080

Loss attributable to the noncontrolling interest

136 106 252 283

Net income attributable to ARC Document Solutions, Inc. shareholders

$3,262 $2,574 $5,234 $3,363

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

$0.08 $0.06 $0.12 $0.08

$0.08 $0.06 $0.12 $0.08

Weighted average common shares outstanding:

42,250 42,304 42,172 42,284

43,490 42,597 43,630 42,613

ARC Document Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021

Cash flows from operating activities
Net income

$3,126 $2,468 $4,982 $3,080

Adjustments to reconcile net income to net cash provided by operating activities:
Allowance for accounts receivable

129 42 201 6

Depreciation

5,153 6,319 10,547 12,768

Amortization of intangible assets

35 56 70 131

Amortization of deferred financing costs

15 16 30 32

Stock-based compensation

439 404 890 743

Deferred income taxes

1,843 1,042 2,578 1,434

Deferred tax valuation allowance

8 43 16 103

Other non-cash items, net

(56) (41) (106) (79)

Changes in operating assets and liabilities:
Accounts receivable

(4,217) (1,355) (5,607) (1,859)

(289) 504 (1,156) 214

Prepaid expenses and other assets

1,984 1,973 5,197 5,323

Accounts payable and accrued expenses

428 43 (6,113) (5,007)

Net cash provided by operating activities

8,598 11,514 11,529 16,889

Cash flows from investing activities
Capital expenditures

(1,424) (986) (2,666) (1,554)

54 89 142 220

Net cash used in investing activities

(1,370) (897) (2,524) (1,334)

Cash flows from financing activities
Proceeds from stock option exercises

23311

Proceeds from issuance of common stock under Employee Stock Purchase Plan

18 12 38 26

Share repurchases

(1,049) (869) (1,330) (1,025)

Distribution to noncontrolling interest

(3,908)(3,908)

Payments on finance leases

(3,794) (4,748) (7,827) (9,565)

Borrowings under revolving credit facilities

38,000 23,750 76,000 38,750

Payments under revolving credit facilities

(39,250) (25,000) (78,500) (45,000)

Payment of deferred financing costs

(281) (281)

Dividends paid

(2,110) (847) (4,218) (1,269)

Net cash used in financing activities

(12,070) (7,983) (19,434) (18,364)

Effect of foreign currency translation on cash balances

(937) 278 (905) 231

Net change in cash and cash equivalents

(5,779) 2,912 (11,334) (2,578)

Cash and cash equivalents at beginning of period

50,374 49,460 55,929 54,950

Cash and cash equivalents at end of period

$44,595 $52,372 $44,595 $52,372

Supplemental disclosure of cash flow information
Noncash investing and financing activities
Finance lease obligations incurred

$2,674 $1,220 $4,363 $2,094

Operating lease obligations incurred

$3,652 $780 $4,799 $1,198

ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021

Service sales
Digital Printing

$46,165 $43,089 $88,112 $80,523

19,248 18,005 37,902 35,340

Scanning and Digital Imaging

4,320 3,286 8,489 6,310

Total service sales

69,733 64,380 134,503 122,173

Equipment and Supplies Sales

4,831 4,419 9,549 8,356

Total net sales

$74,564 $68,799 $144,052 $130,529

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 Six Months Ended June 30, June 30, 2022 2021 2022 2021

Cash flows provided by operating activities

$8,598 $11,514 $11,529 $16,889

Changes in operating assets and liabilities

2,094 (1,165) 7,679 1,329

Non-cash expenses, including depreciation and amortization

(7,566) (7,881) (14,226) (15,138)

Income tax provision

2,001 1,155 2,799 1,651

Interest expense, net

446 576 876 1,196

Loss attributable to the noncontrolling interest

136 106 252 283

Depreciation and amortization

5,188 6,375 10,617 12,899

10,897 10,680 19,526 19,109

Stock-based compensation

439 404 890 743

Adjusted EBITDA

$11,336 $11,084 $20,416 $19,852

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 Six Months Ended June 30, June 30, 2022 2021 2022 2021

Net income attributable to ARC Document Solutions, Inc.

$3,262 $2,574 $5,234 $3,363

Interest expense, net

446 576 876 1,196

Income tax provision

2,001 1,155 2,799 1,651

Depreciation and amortization

5,188 6,375 10,617 12,899

10,897 10,680 19,526 19,109

Stock-based compensation

439 404 890 743

Adjusted EBITDA

$11,336 $11,084 $20,416 $19,852

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 Six Months Ended June 30, June 30, 2022 2021 2022 2021

Net income attributable to ARC Document Solutions, Inc.

$3,262 $2,574 $5,234 $3,363

Deferred tax valuation allowance and other discrete tax items

432 68 438 199

Adjusted net income attributable to ARC Document Solutions, Inc.

$3,694 $2,642 $5,672 $3,562

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

$0.08 $0.06 $0.12 $0.08

$0.08 $0.06 $0.12 $0.08

Weighted average common shares outstanding:

42,250 42,304 42,172 42,284

43,490 42,597 43,630 42,613

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

$0.09 $0.06 $0.13 $0.08

$0.08 $0.06 $0.13 $0.08

Weighted average common shares outstanding:

42,250 42,304 42,172 42,284

43,490 42,597 43,630 42,613

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, net income margin 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 divisions. Our operating divisions’ financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating divisions. We use EBITDA to compare the performance of our operating divisions 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; andOther 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 and six months ended June 30, 2022 and 2021 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 and six months ended June 30, 2022 and 2021. We believe these changes were the result of items which are not indicative of our actual operating performance.

We have presented adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 to exclude stock-based compensation expense. The adjustment to exclude stock-based compensation expense to 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

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