SAN RAMON, CA / ACCESSWIRE / February 25, 2020 / 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 fourth quarter and full year ended December 31, 2019.

'While 2019 challenged us to reconfigure our product and service portfolios to adapt to a transforming market, our cash flows from operations remained a steady source of strength and stability,' said Suri Suriyakumar, Chairman and CEO of ARC Document Solutions. 'While sales declined moderately here in the U.S., our Chinese equipment and supplies division accounted for more than a third of the decline in overall sales for the year.'

'Despite the drop in sales, we met our adjusted EBITDA and EPS forecast, and exceeded our target for cash flow from operations,' said Mr. Suriyakumar. 'We kept our gross margins well above 30 percent, reduced annualized costs by $10 million in the second half of the year, and opened up new markets in color, archiving and MPS.'

'Our previous capital allocation strategy - which for several years has been to aggressively reduce our debt - allowed us to convert 100% of our long-term bank debt to a revolving facility in the fourth quarter,' said Jorge Avalos, Chief Financial Officer. 'This, in turn, supported the creation of our new dividend program and continued share repurchases in the open market. Ending the year with lower levels of debt, a better cost structure, solid margins, and a resilient capital structure creates a clear path for progress in 2020.'

2019 Fourth Quarter and Full Year Supplemental Information:

ARC has provided supplemental information to its earnings announcement to supply shareholders and analysts with additional information in advance of our quarterly conference call. As previously scheduled, the conference call will begin today, February 25, 2020 at 2:00 pm PST (5:00 pm EST) and will include only brief comments followed by a question and answer period. Supplemental information will not be read on the call.

Overview

The fourth quarter capped a year of significant change for ARC in 2019. Demand for traditional architectural, engineering and construction (AEC) printing business continued to decline throughout the year, offset by non-AEC business in color and MPS. Equipment and Supplies sales rose early in the year, but fell dramatically in the last two quarters, driven primarily by significant declines in our Chinese business. This low-margin, non-strategic business accounted for half of the decline in our overall sales for the fourth quarter and more than a third of our overall sales decline for the year. The initial results of our third quarter restructuring had a positive impact on margins in the fourth quarter and helped drive a dramatic improvement on cash flow from operations.

Net Revenue

For the fourth quarter 2019, net revenue declined 6.2%, or $6.1 million, compared to the fourth quarter of 2018. Net revenue for full-year 2019 declined 4.6%, or $18.4 million, year-over-year compared to the full year of 2018. Our Chinese Equipment and Supplies division accounted for $3.3 million of the revenue drop in the fourth quarter and $7 million of the revenue drop for the full year.

Revenue by Business Lines

For the fourth quarter 2019, construction document and information management (CDIM) sales declined 2.5% compared to prior year, and for the full-year 2019 declined 2.8% year-over-year. Declines in CDIM sales were driven by a lack of demand for traditional printing services, particularly in the construction space, offset partially by non-traditional printing services such as color imaging for retail, promotional and marketing projects.

For the fourth quarter 2019, managed print services (MPS) sales declined 4.5% compared to prior year, and sales for the full-year 2019 declined 4.3% year-over-year as compared to the full year of 2018. MPS sales declined due to decreases in print volumes at existing customer accounts, offset by growth in new accounts.

For the fourth quarter 2019, archiving and information management (AIM) sales increased 8.5% compared to prior year and sales for the full-year 2019 increased 7.3% year-over-year as compared to the full year of 2018. Sales increases in AIM were driven by increased demand for archival and scanning services, as well as growth in our facilities management offering.

For the fourth quarter 2019, equipment and supplies sales declined 30.1% compared to prior year, and sales for the full-year 2019 declined 16.8% year-over-year as compared to the full year of 2018. Declines were driven primarily by constrained capital spending in China and its effect on our Chinese joint venture.

Gross Profit

Gross profit in the fourth quarter 2019 declined 6.0% year over year, and gross profit for the full-year 2019 declined 4.3% year-over-year as compared to the full year of 2018. Declines in gross profit dollars were driven by lower sales volume, but gross profit margin remained stable despite $18 million in overall annual sales declines.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses in the fourth quarter declined 3.5% year-over-year, and for the full year 2019 declined 1.7% compared to the full year of 2018. The decreases were driven by lower sales and marketing costs related to our third quarter restructuring exercise.

Net Income and Earnings Per Share

Decreases in GAAP net income and adjusted net income attributable to ARC and GAAP and adjusted EPS in 2019 were driven by lower sales and related profits, partially offset by the previously disclosed third quarter restructuring plan.

Cash Provided by Operating Activities

Cash provided by operating activities in the fourth quarter 2019 decreased 7.7% year over year, and for the full-year 2019 decreased 4.0% year-over-year as compared to the full year of 2018.

Results from 2018 included a $2.7 million cash in-flow from operating activities and a corresponding $2.7 million out-flow from investing activities for landlord-tenant improvement allowances as required by GAAP. Excluding this, cash provided from operating activities would have increased, despite the decrease in net income, due to working capital improvements.

EBITDA

Decreases in EBITDA and adjusted EBITDA during 2019 were driven by lower net income, partially offset by our previously disclosed third quarter restructuring exercise.

Additional Information:

• Cash & cash equivalents on the balance sheet at the end of 2019 were $29.4 million.
• On December 17, 2019 the Company entered into an amendment to its Credit Agreement, initially dated as of November 20, 2014. The Amendment increases the maximum aggregate principal amount of revolving loans ('Revolving Loans') under the Credit Agreement from $65 million to $80 million. Proceeds of a portion of the Revolving Loans available to be drawn under the Credit Agreement were used to fully repay the $49.5 million term loan that was outstanding under the Credit Agreement at the time of the amendment. Senior debt facility payments in 2019 were $20 million.
• The Company purchased 0.7 million of its own shares in the open market in the fourth quarter for $0.9 million, and in total, purchased 1.3 million of its own shares during the full-year 2019 for $1.9 million.
• ARC's second quarterly cash dividend of one cent was announced on February 14, 2019 with a record date of April 30, 2020, and a payment date of May 29, 2020.
• Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 76% of our total net sales, while customers outside of construction made up approximately 24% of our total net sales.
• Total number of MPS locations at the end of the fourth quarter has grown to approximately 10,900, a net gain of approximately 400 locations over Q4 2018.

Outlook

Management introduced its annual outlook for 2020, anticipating fully-diluted annual adjusted earnings per share to be in the range of $0.13 to $0.18; annual cash provided by operating activities is projected to be in the range of $43 million to $48 million; and annual adjusted EBITDA is forecast to be in the range of $45 million to $50 million. ARC's 2020 forecast includes a 27^th payroll period for the year caused by annual timing differences in payroll, including leap years. This 'catch up' payroll period affects ARC every 11 years.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, February 25, 2020, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2019 fourth quarter and fiscal year. To access the live audio call, dial (877) 823-7014. International callers may join the conference by dialing (647) 689-4066. The conference code is 2081499. 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. Words and phrases such as 'forecast', 'outlook', 'clear path for progress', 'projected', 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, 2018, 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.
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ARC Document Solutions, Inc.
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