UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 26, 2018
(Date of earliest event reported)
 
ARC Document Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction
of incorporation)
001-32407
(Commission File Number)
20-1700361
(IRS Employer
Identification Number)
 
1981 N. Broadway, Walnut Creek, CA
(Address of principal executive offices)
 
94596
(Zip Code)
(925) 949-5100
(Registrant's telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  







Item 2.02. Results of Operations and Financial Condition

On May 1, 2018, ARC Document Solutions, Inc. (the “Company”) issued a press release reporting its financial results for the first quarter 2018. A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

The information contained in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 5.07. Submission of Matters to a Vote of Security Holders

On April 26, 2018, the Company held its 2018 annual meeting of stockholders. A total of 45,238,690 shares of the Company’s common stock were entitled to vote as of February 26, 2018, which was the record date for the annual meeting. There were 36,936,616 shares present in person or by proxy at the annual meeting. Set forth below are the matters voted upon by the Company’s stockholders at the 2018 annual meeting and the final voting results of each such proposal.

Proposal 1 - Election of Directors
The stockholders elected seven directors, each to serve a one-year term until the Company’s next annual meeting of stockholders and until their respective successors are elected and qualified. The results of the vote were as follows:
 
For
 
Withheld
 
Broker Non-Votes
Kumarakulasingam Suriyakumar
27,977,462
 
1,109,917
 
7,849,237
Bradford L. Brooks
28,031,880
 
1,055,499
 
7,849,237
Thomas J. Formolo
27,964,849
 
1,122,530
 
7,849,237
John G. Freeland
27,872,676
 
1,214,703
 
7,849,237
Dewitt Kerry McCluggage
27,082,376
 
2,005,003
 
7,849,237
James F. McNulty
27,854,922
 
1,232,457
 
7,849,237
Mark W. Mealy
27,844,414
 
1,242,965
 
7,849,237

Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm
The Company’s stockholders voted to ratify the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending December 31, 2018. The results of the vote were as follows:
For
 
Against
 
Abstain
 
Broker Non-Votes
36,732,037
 
75,888
 
128,691
 
0

Brokers were permitted to cast stockholder non-votes at their discretion on this proposal.
Proposal 3 - Advisory, Non-Binding Vote on Executive Compensation
The Company’s stockholders approved, on a non-binding advisory basis, the compensation paid to the Company’s named executive officers for fiscal year 2017, as disclosed in the Company’s 2018 proxy statement. The results of the advisory, non-binding vote were as follows:
For
 
Against
 
Abstain
 
Broker Non-Votes
28,076,916
 
443,551
 
566,912
 
7,849,237

Proposal 4 - Approval of Amendment to 2014 Stock Incentive Plan
The Company’s stockholders voted to approve the amendment to the Company’s 2014 Stock Incentive Plan. The results of the vote were as follows:
For
 
Against
 
Abstain
 
Broker Non-Votes
26,385,976
 
2,659,607
 
41,796
 
7,849,237







Item 9.01. Financial Statements and Exhibits

(d) Exhibits
           
     10.1 Amendment to the ARC Document Solutions, Inc. 2014 Stock Incentive Plan
    
99.1       Press Release of ARC Document Solutions, Inc. dated May 1, 2018






SIGNATURE
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: May 1, 2018
ARC DOCUMENT SOLUTIONS, INC.
By:  /s/ Jorge Avalos                    
     Jorge Avalos
      Chief Financial Officer






Exhibit Index
Exhibit No.

 
Description

 
 
  
 
 
 
  






Exhibit 10.1
Amendment to the ARC Document Solutions, Inc. 2014 Stock Incentive Plan
Section 5(a) of the Plan is hereby amended as follows:
(a) Basic Limitation. Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares authorized for issuance as Awards under the Plan shall not exceed the sum of (x) 6,520,327 shares, plus (y) the sum of the number of Shares subject to outstanding awards under the Company’s 2005 Stock Plan (the “Predecessor Plan”) on the Effective Date that are subsequently forfeited or terminated for any reason before being exercised or settled, plus the number of Shares subject to vesting restrictions under the Predecessor Plan on the Effective Date that are subsequently forfeited, plus the number of reserved Shares not issued or subject to outstanding grants under the Predecessor Plan on the Effective Date, in an aggregate amount not to exceed 7,000,000 shares. Notwithstanding the foregoing, (i) the number of Shares that may be delivered in the aggregate pursuant to Restricted Shares and Stock Units awarded under the Plan shall not exceed 2,100,000 Shares, and (ii) the number of Shares that may be delivered in the aggregate pursuant to the exercise of ISOs granted under the Plan shall not exceed 3,500,000 Shares plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Section 5(c). The limitations of this Section 5(a) shall be subject to adjustment pursuant to Section 12. The number of Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.





ARC Document Solutions Reports Results for First Quarter 2018
WALNUT CREEK, CA – ( May 1, 2018 ) – 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 first quarter ended March 31, 2018 .

Financial Highlights:
 
 
 
Three Months Ended
 
March 31,
(All dollar amounts in millions, except EPS)
2018
2017
Net Sales
$
97.7

$
98.7

Gross Margin
30.9
%
31.2
%
Net income attributable to ARC
$
0.6

$
1.8

Adjusted net income attributable to ARC
$
0.5

$
1.9

Earnings per share - Diluted
$
0.01

$
0.04

Adjusted earnings per share - Diluted
$
0.01

$
0.04

Cash (used in) provided by operating activities
$
(2.0
)
$
6.9

EBITDA
$
10.2

$
12.8

Adjusted EBITDA
$
10.9

$
13.6

Capital Expenditures
$
2.9

$
2.0

Debt & Capital Leases (including current), net of unamortized deferred financing fees
$
138.1

$
154.3

Management Commentary
“We are starting to see our sales declines moderating, while we experience a return to growth in our more traditional business lines. This is encouraging and clear evidence that we are making progress against our strategic objectives laid out last year,” said K. “Suri” Suriyakumar, Chairman, President and CEO of ARC Document Solutions. “Our renewed focus on ARC’s print business gained considerable traction during the quarter with a 2.1% increase in CDIM.”
 
“While our efforts to protect our print business and grow our tech business are starting to show results, recent experience shows that we must continue to make changes as we move forward and stay ahead of the curve in an ever-changing business environment,” said Mr. Suriyakumar. “We remain upbeat about the coming year and our strategic direction, and in pursuit of further progress, we will continue to support initiatives that are growing, but shrink costs associated with products and services that have not.”

“Medical costs were exceptionally high during the period, having a 140 basis point impact on our operating margins and a two cent impact on earnings per share. Despite these costs, gross margin declined just 30 basis points,” said Jorge Avalos, Chief Financial Officer. “Negative cash flow from operations was due to changes in working capital, and more specifically the timing of payables. This is a trend that is likely to be familiar to our long-term investors, and as usual, we expect this trend to reverse by the second half of the year, and anticipate strong cash flows for the year as our forecast demonstrates.”





















2018 First Quarter Supplemental Information:
Net sales were $97.7 million , a 1.0% decrease compared to the first quarter of 2017 .

Days sales outstanding were 55 in Q1 2018 and 54 in Q1 2017 .

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 79% of our total net sales, while customers outside of construction made up approximately 21% of our total net sales.

Total number of MPS locations at the end of the first quarter has grown to approximately 10,270 , a net gain of approximately 590 locations over Q1 2017 .

Adjusted EBITDA excludes loss on extinguishment and modification of debt and stock-based compensation expense.


Sales from Services and Product Lines as a Percentage of Net Sales
 
 
 
Three Months Ended
 
March 31,
Services and Product Line
2018
2017
CDIM
53.5
%
51.9
%
MPS
32.2
%
32.9
%
AIM
3.0
%
3.3
%
Equipment and supplies sales
11.3
%
11.9
%
Outlook
The outlook for ARC Document Solutions remains unchanged with 2018 fully-diluted annual adjusted earnings per share anticipated to be in the range of $0.10 to $0.16; 2018 annual cash provided by operating activities projected to be in the range of $44 to $50 million; and 2018 annual adjusted EBITDA forecast to be in the range of $48 to $54 million.
Teleconference and Webcast
ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, May 1, 2018, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2018 first quarter. To access the live audio call, dial 800-239-9838. International callers may join the conference by dialing +1 323-794-2551. The conference code is 9761261. 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 recording of the webcast will be available for approximately 90 days following the call's conclusion.
 
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 "return to growth," "making progress," "remain upbeat," “guidance,” "expect," “projected,” "forecast," "outlook,” 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, 2017, 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:
2018
2017
Cash and cash equivalents
$
13,968

$
28,059

Accounts receivable, net of allowances for accounts receivable of $2,516  and $2,341
59,893

57,011

Inventories, net
19,577

19,937

Prepaid expenses
5,220

4,208

Other current assets
4,313

5,266

Total current assets
102,971

114,481

Property and equipment, net of accumulated depreciation of $199,231  and $198,693
63,083

64,245

Goodwill
121,051

121,051

Other intangible assets, net
8,078

9,068

Deferred income taxes
28,043

28,029

Other assets
2,577

2,551

Total assets
$
325,803

$
339,425

Current liabilities:
 
 
Accounts payable
$
20,850

$
24,289

Accrued payroll and payroll-related expenses
9,552

12,617

Accrued expenses
14,912

17,201

Current portion of long-term debt and capital leases
20,198

20,791

Total current liabilities
65,512

74,898

Long-term debt and capital leases
117,888

123,626

Other long-term liabilities
3,279

3,290

Total liabilities
186,679

201,814

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; 47,936  and 47,913 shares issued and 45,262  and 45,266 shares outstanding
48

48

Additional paid-in capital
121,650

120,953

Retained earnings
21,152

20,524

Accumulated other comprehensive loss
(1,954
)
(1,998
)
 
140,896

139,527

Less cost of common stock in treasury, 2,674  and 2,647 shares
9,350

9,290

Total ARC Document Solutions, Inc. stockholders’ equity
131,546

130,237

Noncontrolling interest
7,578

7,374

Total equity
139,124

137,611

Total liabilities and equity
$
325,803

$
339,425






ARC Document Solutions, Inc.
 
 
Consolidated Statements of Operations
 
 
(In thousands, except per share data)
 
 
(Unaudited)
Three Months Ended
 
March 31,
 
2018
2017
Service sales
$
86,710

$
86,964

Equipment and supplies sales
10,998

11,767

Total net sales
97,708

98,731

Cost of sales
67,523

67,893

Gross profit
30,185

30,838

Selling, general and administrative expenses
27,301

25,147

Amortization of intangible assets
1,008

1,115

Income from operations
1,876

4,576

Other income, net
(81
)
(19
)
Loss on extinguishment and modification of debt

66

Interest expense, net
1,442

1,555

Income before income tax provision
515

2,974

Income tax provision
39

1,226

Net income
476

1,748

Loss attributable to the noncontrolling interest
152

36

Net income attributable to ARC Document Solutions, Inc. shareholders
$
628

$
1,784

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.01

$
0.04

Diluted
$
0.01

$
0.04

Weighted average common shares outstanding:
 
 
Basic
44,741

45,639

Diluted
44,855

46,382































ARC Document Solutions, Inc.
Consolidated Statements of Cash Flows (In thousands)
(Unaudited)
Three Months Ended
 
March 31,
 
2018
2017
Cash flows from operating activities
 
 
Net income
$
476

$
1,748

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
Allowance for accounts receivable
327

208

Depreciation
7,129

7,139

Amortization of intangible assets
1,008

1,115

Amortization of deferred financing costs
60

94

Stock-based compensation
653

737

Deferred income taxes
(92
)
1,177

Deferred tax valuation allowance
57

(11
)
Loss on extinguishment and modification of debt

66

Other non-cash items, net
(44
)
27

Changes in operating assets and liabilities:
 
 
Accounts receivable
(2,913
)
(53
)
Inventory
524

(1,534
)
Prepaid expenses and other assets
(150
)
(202
)
Accounts payable and accrued expenses
(9,014
)
(3,569
)
Net cash (used in) provided by operating activities
(1,979
)
6,942

Cash flows from investing activities
 
 
Capital expenditures
(2,892
)
(2,012
)
Other
380

132

Net cash used in investing activities
(2,512
)
(1,880
)
Cash flows from financing activities
 
 
Proceeds from stock option exercises

68

Proceeds from issuance of common stock under Employee Stock Purchase Plan
44

36

Share repurchases
(60
)

Contingent consideration on prior acquisitions
(53
)
(70
)
Early extinguishment of long-term debt

(8,500
)
Payments on long-term debt agreements and capital leases
(5,751
)
(3,808
)
Borrowings under revolving credit facilities
2,000

1,500

Payments under revolving credit facilities
(5,875
)
(125
)
Net cash used in financing activities
(9,695
)
(10,899
)
Effect of foreign currency translation on cash balances
95

267

Net change in cash and cash equivalents
(14,091
)
(5,570
)
Cash and cash equivalents at beginning of period
28,059

25,239

Cash and cash equivalents at end of period
$
13,968

$
19,669

Supplemental disclosure of cash flow information
 
 
Noncash investing and financing activities
 
 
Capital lease obligations incurred
$
3,275

$
7,920














ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
March 31,
 
2018
2017
Service sales
 
 
CDIM
$
52,320

$
51,258

MPS
31,467

32,494

AIM
2,923

3,212

Total service sales
86,710

86,964

Equipment and supplies sales
10,998

11,767

Total net sales
$
97,708

$
98,731


ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows (used in) provided by operating activities to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2018
2017
Cash flows (used in) provided by operating activities
$
(1,979
)
$
6,942

Changes in operating assets and liabilities
11,553

5,358

Non-cash expenses, including depreciation and amortization
(9,098
)
(10,552
)
Income tax provision
39

1,226

Interest expense, net
1,442

1,555

Loss attributable to the noncontrolling interest
152

36

Depreciation and amortization
8,137

8,254

EBITDA
10,246

12,819

Loss on extinguishment and modification of debt

66

Stock-based compensation
653

737

Adjusted EBITDA
$
10,899

$
13,622


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,
 
2018
2017
Net income attributable to ARC Document Solutions, Inc.
$
628

$
1,784

Interest expense, net
1,442

1,555

Income tax provision
39

1,226

Depreciation and amortization
8,137

8,254

EBITDA
10,246

12,819

Loss on extinguishment and modification of debt

66

Stock-based compensation
653

737

Adjusted EBITDA
$
10,899

$
13,622


See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited adjusted net income attributable to ARC
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended
 
March 31,
 
2018
2017
Net income attributable to ARC Document Solutions, Inc.
$
628

$
1,784

Loss on extinguishment and modification of debt

66

Income tax benefit related to above items

(26
)
Deferred tax valuation allowance and other discrete tax items
(149
)
28

Adjusted net income attributable to ARC Document Solutions, Inc.
$
479

$
1,852

 
 
 
Actual:
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.01

$
0.04

Diluted
$
0.01

$
0.04

Weighted average common shares outstanding:
 
 
Basic
44,741

45,639

Diluted
44,855

46,382

 
 
 
Adjusted:
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
Basic
$
0.01

$
0.04

Diluted
$
0.01

$
0.04

Weighted average common shares outstanding:
 
 
Basic
44,741

45,639

Diluted
44,855

46,382


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, 2018 and 2017 to reflect the exclusion of loss on extinguishment and modification of debt 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 months ended March 31, 2018 and 2017 .
We have presented adjusted EBITDA for the three months ended March 31, 2018 and 2017 to exclude loss on extinguishment and modification of debt 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.