ARC Document Solutions(ARC)

Search documents
ARC Document Solutions(ARC) - 2020 Q4 - Annual Report
2021-02-23 16:00
Part I [Business](index=6&type=section&id=Item%201.%20Business) ARC Document Solutions provides a comprehensive suite of document distribution and graphic production services, primarily targeting the architectural, engineering, construction, and building owner/operator (AEC/O) industry - The company's core service offerings include: **Offsite Services**, **Specialized Color Printing**, **Managed Print Services (MPS)**, **Archive and Information Management (AIM)**, **Web-Based Document Management Applications**, and **Equipment and Supplies Sales**[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk) - ARC serves over **45,000 customers**, with no single customer accounting for more than 2% of overall revenue, and is the largest document solutions provider to the AEC/O market in North America[20](index=20&type=chunk)[22](index=22&type=chunk) - A significant portion of the company's revenue is geographically concentrated, with approximately **32% of total revenue in 2020 derived from California**[26](index=26&type=chunk)[58](index=58&type=chunk) - As of December 31, 2020, the company employed approximately **1,750 people**[29](index=29&type=chunk) - Key competitive strengths include **strong domain expertise in the AEC/O market**, extensive customer relationships, a wide variety of specialized printing capabilities, a large service center footprint, and a unique combination of onsite, offsite, and cloud-based offerings[36](index=36&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, high dependency on the cyclical AEC/O industry, revenue concentration in California, and high fixed costs making earnings sensitive to revenue fluctuations - The **COVID-19 pandemic** has adversely affected and is expected to continue to adversely affect the company's financial condition and results of operations[49](index=49&type=chunk)[50](index=50&type=chunk) - The business is highly dependent on the **AEC/O industry**, which accounted for approximately **69% of net sales in 2020**, and a downturn in this industry could significantly harm revenue and profitability[57](index=57&type=chunk) - A significant portion of overall costs are fixed (estimated at **36% in 2020**), making earnings highly sensitive to changes in revenue[63](index=63&type=chunk) - The company faces risks related to its debt, including **restrictive covenants** in its Credit Agreement, where a substantial downturn could cause a breach of financial ratios, leading to default[54](index=54&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - The common stock is subject to market price volatility and risks **delisting from the NYSE** if the average closing price falls below $1.00 over 30 consecutive trading days[89](index=89&type=chunk)[93](index=93&type=chunk) [Unresolved Staff Comments](index=18&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[94](index=94&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) As of year-end 2020, ARC operated 148 service centers globally, occupying approximately 1.0 million square feet, with the vast majority of facilities being leased - The company operated **148 service centers** at the end of 2020, with 126 in the U.S. and 22 internationally[94](index=94&type=chunk) - Total occupied space was approximately **1.0 million square feet** as of December 31, 2020[94](index=94&type=chunk) - Nearly all service centers and administrative facilities are leased[94](index=94&type=chunk) [Legal Proceedings](index=19&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings from normal business operations and does not expect their resolution to have a material adverse effect on its financial condition - The company is involved in routine legal proceedings from the conduct of its business[96](index=96&type=chunk) - Accruals are made for probable and reasonably estimable losses, and management does not currently anticipate a material adverse effect from these matters[96](index=96&type=chunk) [Mine Safety Disclosures](index=19&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[97](index=97&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=20&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ARC's common stock trades on the NYSE, a quarterly cash dividend of $0.01 per share was declared, and a $15.0 million stock repurchase program is active - The company's common stock is listed on the NYSE under the symbol **"ARC"**[98](index=98&type=chunk) - A quarterly cash dividend of **$0.01 per share** was declared in December 2020[100](index=100&type=chunk) Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share ($) | Dollar Value Remaining in Program (thousands) | | :--- | :--- | :--- | :--- | | Nov 2020 | 114 | 1.34 | 10,551 | | Dec 2020 | 467 | 1.39 | 9,901 | - The Board of Directors approved a stock repurchase program authorizing up to **$15.0 million** in purchases through March 31, 2023[102](index=102&type=chunk) [Selected Financial Data](index=20&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable to the company for this reporting period - Not applicable[103](index=103&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The COVID-19 pandemic caused a 24.3% sales decline to $289.5 million in 2020, but net income more than doubled to $6.2 million due to significant cost reductions and improved liquidity [COVID-19 Pandemic Impact](index=23&type=section&id=COVID-19%20Pandemic) The pandemic negatively impacted demand and profitability, prompting significant cost-saving measures while the company maintained essential business operations at reduced volumes - The pandemic caused a decline in demand for products and services starting in late March 2020, negatively impacting sales and profitability[113](index=113&type=chunk) - Mitigation efforts included reducing working capital, suspending share repurchases and dividends for a portion of 2020, postponing capital expenditures, and reducing operating and discretionary costs[116](index=116&type=chunk) - As an essential business serving infrastructure, housing, and healthcare, the company kept almost all of its **148 service centers** open at reduced volumes[117](index=117&type=chunk) [Results of Operations (2020 vs. 2019)](index=24&type=section&id=Results%20of%20Operations) Net sales fell 24.3% to $289.5 million in 2020, but significant SG&A reductions and a lower effective tax rate contributed to a rise in net income to $6.2 million Consolidated Results of Operations | Financial Metric (In millions) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total net sales** | **$289.5** | **$382.4** | **$(92.9)** | **(24.3)%** | | CDIM | $175.5 | $205.5 | $(30.0) | (14.6)% | | MPS | $79.3 | $123.3 | $(44.0) | (35.7)% | | AIM | $12.3 | $14.1 | $(1.8) | (12.7)% | | Equipment and Supplies | $22.3 | $39.5 | $(17.2) | (43.5)% | | **Gross profit** | **$92.9** | **$125.2** | **$(32.3)** | **(25.8)%** | | **SG&A expenses** | **$79.0** | **$107.3** | **$(28.2)** | **(26.3)%** | | **Net income attributable to ARC** | **$6.2** | **$3.0** | **$3.2** | **105.2%** | | **Adjusted EBITDA** | **$44.8** | **$49.4** | **$(4.6)** | **(9.3)%** | - The decline in MPS sales was primarily driven by office employees working from home, significantly reducing print volumes in customers' offices[124](index=124&type=chunk) - Gross margin decreased by only 60 basis points to **32.1%** despite the large sales drop, aided by cost savings and a reduction in lower-margin Equipment and Supplies sales[128](index=128&type=chunk) - The increase in net income was largely driven by a significant decrease in the income tax provision, as 2019 included a large tax expense related to expired nonqualified stock options[136](index=136&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company demonstrated strong liquidity management in 2020, increasing its cash to $55.0 million and generating $54.5 million in operating cash flow while reducing debt and capital expenditures Key Liquidity Metrics | Metric (In thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $54,950 | $29,425 | | Working capital | $32,500 | $20,008 | | Total debt obligations | $97,236 | $106,157 | - Cash flows from operations increased to **$54.5 million** in 2020 from $52.8 million in 2019, reflecting sustained profitability and active management of working capital[151](index=151&type=chunk)[152](index=152&type=chunk) - Capital expenditures were significantly reduced to **$6.4 million** in 2020 from $12.9 million in 2019 as a cash preservation measure during the pandemic[153](index=153&type=chunk) - As of Dec 31, 2020, the company had **$22.8 million** available for borrowing under its revolving credit facility[160](index=160&type=chunk)[164](index=164&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) Key accounting policies involve significant estimates for goodwill impairment, revenue recognition, leases, and income taxes, with no goodwill impairment found in 2020 - The annual goodwill impairment test as of September 30, 2020, indicated **no impairment**, with the fair values of the two reporting units with goodwill exceeding their carrying values by more than 100%[168](index=168&type=chunk)[171](index=171&type=chunk) - Revenue is recognized when control transfers to the customer, which for most services like CDIM and AIM, occurs at the point of delivery of the physical or digital documents[175](index=175&type=chunk)[176](index=176&type=chunk) - The company maintains a valuation allowance of **$2.1 million** against certain deferred tax assets as of December 31, 2020, for which realization is not more likely than not[181](index=181&type=chunk)[262](index=262&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - Not applicable[184](index=184&type=chunk) [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The company's audited consolidated financial statements and accompanying notes are included in Part IV, Item 15 of this Annual Report on Form 10-K - The full financial statements and supplementary data are filed as part of the report, beginning on page F-1[185](index=185&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=38&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[185](index=185&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2020[187](index=187&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2020, based on the COSO framework (2013)[188](index=188&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, internal controls[190](index=190&type=chunk) [Other Information](index=39&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[190](index=190&type=chunk) Part III [Directors, Compensation, Security Ownership, and Accountant Fees](index=40&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information for Items 10-14 is incorporated by reference from the company's 2021 Proxy Statement, to be filed within 120 days of the fiscal year-end - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the 2021 Proxy Statement[192](index=192&type=chunk) - Information regarding Executive Compensation (Item 11) is incorporated by reference from the 2021 Proxy Statement[193](index=193&type=chunk) - Information regarding Security Ownership (Item 12), Certain Relationships (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the 2021 Proxy Statement[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=41&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and all exhibits filed with the report, including debt agreements, incentive plans, and Sarbanes-Oxley certifications - The filing includes the Consolidated Financial Statements and Notes to Consolidated Financial Statements[198](index=198&type=chunk) - A list of exhibits is provided, including the Sixth Amendment to the Credit Agreement (Exhibit 10.40) and various executive employment agreements and stock plans[201](index=201&type=chunk)[204](index=204&type=chunk) - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits[205](index=205&type=chunk) [Financial Statements and Notes](index=48&type=section&id=Financial%20Statements%20and%20Notes) The consolidated financial statements present ARC's financial position and results of operations, with key notes detailing goodwill, debt, leases, and income taxes [Report of Independent Registered Public Accounting Firm](index=49&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The company's financial statements received unqualified audit opinions for 2020 and 2019, with Revenue Recognition and Goodwill Impairment identified as Critical Audit Matters for 2020 - Armanino LLP audited the 2020 financial statements and issued an **unqualified opinion**[225](index=225&type=chunk) - Deloitte & Touche LLP audited the 2019 financial statements and issued an **unqualified opinion**[220](index=220&type=chunk) - The 2020 audit identified two **Critical Audit Matters (CAMs)**: Revenue Recognition and Goodwill Impairment, due to the complexity and judgment involved[229](index=229&type=chunk)[230](index=230&type=chunk)[233](index=233&type=chunk) [Notes to Consolidated Financial Statements](index=58&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant revenue concentration in California, a goodwill balance of $121.1 million with no impairment, total debt of $97.2 million, and total lease liabilities of $88.0 million - Sales in California represented approximately **32% of total sales** in 2020, and purchases from the three largest vendors comprised approximately **53% of total inventory and supplies purchases** (Note 2)[256](index=256&type=chunk)[257](index=257&type=chunk) - The carrying amount of goodwill was **$121.1 million** as of December 31, 2020, with **no impairment** recorded during the year (Note 3)[305](index=305&type=chunk)[309](index=309&type=chunk) - Total lease liabilities were **$88.0 million** as of December 31, 2020, composed of $45.7 million for operating leases and $42.2 million for finance leases (Note 7)[330](index=330&type=chunk)[332](index=332&type=chunk) - The company had federal net operating loss carryforwards of approximately **$79.6 million** as of December 31, 2020 (Note 8)[351](index=351&type=chunk)
ARC Document Solutions(ARC) - 2020 Q3 - Quarterly Report
2020-11-05 17:53
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________ Form 10-Q _______________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-32407 _____________________________________ ...
ARC Document Solutions(ARC) - 2020 Q3 - Earnings Call Transcript
2020-11-05 04:08
ARC Document Solutions, Inc. (NYSE:ARC) Q3 2020 Earnings Conference Call November 4, 2020 5:00 PM ET Company Participants David Stickney - Vice President, Corp Communications and Investor Relations Suri Suriyakumar - Chairman, President and Chief Executive Officer Dilo Wijesuriya - Chief Operating Officer Jorge Avalos - Chief Financial Officer Conference Call Participants Ben Andrews - Andrews Capital Glenn Primack - Primestor Asset Operator Ladies and gentlemen, thank you for standing by, and welcome to th ...
ARC Document Solutions(ARC) - 2020 Q2 - Earnings Call Transcript
2020-08-09 14:49
ARC Document Solutions, Inc. (NYSE:ARC) Q2 2020 Earnings Conference Call August 4, 2020 5:00 PM ET Company Participants David Stickney - Vice President, Investor Relations Suri Suriyakumar - Chairman, President and Chief Executive Officer Dilo Wijesuriya - Chief Operating Officer Jorge Avalos - Chief Financial Officer Conference Call Participants Steven Schuster - Bridge Street Glenn Primack - Private Investor Walter Schenker - MAZ Partners Operator Ladies and gentlemen, thank you for standing by, and welco ...
ARC Document Solutions(ARC) - 2020 Q2 - Quarterly Report
2020-08-05 16:20
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________ Form 10-Q _______________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | |--------------------------------------------------|-------------------------------- ...
ARC Document Solutions(ARC) - 2020 Q1 - Earnings Call Transcript
2020-05-10 03:28
ARC Document Solutions, Inc. (NYSE:ARC) Q1 2020 Earnings Conference Call May 5, 2020 5:00 PM ET Company Participants David Stickney - Vice President Corporate Communications and Investor Relations Suri Suriyakumar - Chairman, President and Chief Executive Officer Dilo Wijesuriya - Chief Operating Officer Jorge Avalos - Chief Financial Officer Conference Call Participants Operator Ladies and gentlemen, thank you for standing by, and welcome to the ARC 2020 Q1 Earnings Report Conference call. [Operator Instru ...
ARC Document Solutions(ARC) - 2020 Q1 - Quarterly Report
2020-05-06 21:13
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________ Form 10-Q _______________________________________ (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |---------------------------------------------------------------------------------------------- ...
ARC Document Solutions(ARC) - 2019 Q4 - Annual Report
2020-03-12 18:17
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________ Form 10-K _______________________________________ (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-32407 _______________________________________ ARC DO ...
ARC Document Solutions(ARC) - 2019 Q3 - Quarterly Report
2019-11-08 20:54
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________ Form 10-Q _______________________________________ (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |------------------------------------------------------------------------------------------ ...
ARC Document Solutions(ARC) - 2019 Q3 - Earnings Call Transcript
2019-11-07 03:59
Financial Data and Key Metrics Changes - Overall sales for the quarter declined by 6.3% year-over-year, attributed to a double-digit drop in international equipment and supply sales, particularly due to a softening economy in China [16][17] - Cash flows from operations increased by $3.7 million year-over-year, primarily due to aggressive inventory management and improved accounts receivable collections [17][18] - The company maintained strong gross margins despite the sales decline, thanks to cost controls implemented prior to the third quarter [17] Business Line Data and Key Metrics Changes - The traditional service line experienced declining revenues, prompting a reexamination of operations and services offered [7][9] - The Managed Print Services (MPS) business saw new sales from clients outside the construction industry, although the construction sector remained a strong sales area [14][16] - Scan and archival services continued to attract customer interest, while equipment and supplies sales were affected by a drop in the Chinese joint venture [15] Market Data and Key Metrics Changes - The company noted a significant decline in printing services from construction and design companies, with work from homebuilders also decreasing [14] - The MPS business in the construction phase has been somewhat stagnant, but there are emerging opportunities in non-construction sectors [10][14] Company Strategy and Development Direction - The company is focusing on leveraging technology to differentiate services and sustain market share, particularly in MPS and archival services [10][12] - Strategic changes were made to align operations with sales levels, including closing two print locations in non-strategic markets [16] - The company is exploring ways to return value to shareholders, such as paying annual dividends or expanding the share repurchase program [12][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the business is not suffering from a loss of customers or competitive pressures, but rather a shift in how traditional services are utilized [8][9] - The company anticipates earnings per share for 2019 to be in the range of $0.14 to $0.18, with cash provided by operating activities expected to be between $45 million and $50 million [13] - Management remains optimistic about maintaining cash flows and protecting financial health despite the current challenges [12][41] Other Important Information - The company achieved over $10 million in annualized savings by the end of the year, which is expected to ease pressure on margins [7][12] - The effective tax rate for the year is projected to be approximately 30% due to new tax laws, with historical operating losses available to offset cash taxes [19] Q&A Session Summary Question: Can you provide examples of non-traditional channels being pursued? - The company is focusing on management services for large companies in sectors like insurance and energy, as well as exploring opportunities in retail, hospitality, and healthcare for color printing [22][24] Question: What is the projection for MPS revenue growth over the next year or two? - MPS revenues are unpredictable due to the nature of contracts and customer acquisitions, with potential for low single-digit growth in good years [25][28] Question: Why was there a limitation on stock buybacks? - The company faced restrictions on the amount of shares it could buy back based on market liquidity and trading volumes [30][32] Question: Can you elaborate on the $10 million in cost savings? - Approximately 60% of the savings come from cost of goods sold (COGS) and 40% from depreciation and amortization (D&A), with expectations for these savings to positively impact operating profits starting in 2020 [30][33] Question: What are the expectations for cash flow in 2020? - While exact predictions are difficult, the company aims to maintain cash flows at similar levels to 2019, focusing on protecting cash generation [40][41]