Management Commentary
"We faced another challenging quarter in our continuing transformation even as we made progress in protecting our print revenue and built momentum in our new technology initiatives," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "While there were smaller declines in print volumes year over year, the sales mix and higher employee costs weighed on our margins, as did the effects of the recent hurricanes that swept through the Southeastern part of the U.S."
"The combination of lower sales and the pressure on our margins left us no choice but to revise our annual guidance for 2017," said Mr. Suriyakumar. "As we have stated on numerous occasions, managing change is never easy, and periods of disruption are part of the process. We remain encouraged by our efforts and the response from our markets, and are staying the course as we move through our transformation."
"We expect our fourth quarter performance to be similar to the third quarter, which supports our revised guidance," said Jorge Avalos, Chief Financial Officer. "Despite the pressures we faced in the period, ARC continues to generate strong cash flows, as evidenced by the 8% year-to-date growth, and is benefiting from a capital structure designed to support us through our transformation."
2017 Third Quarter Supplemental Information:
Net sales were $96.5 million, a 4.0% decrease compared to the third quarter of 2016.
Based on our performance in the third quarter of 2017, and the adoption of the new simplified goodwill impairment measurement accounting standard, we recognized a non-cash goodwill impairment charge of $17.6 million.
There was one less business day in the third quarter of 2017 as compared to the third quarter of 2016.
Days sales outstanding were 55 in Q3 2017 and Q3 2016.
Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 78% of our total net sales, while customers outside of construction made up approximately 22% of our total net sales.
Total number of MPS locations at the end of the third quarter has grown to approximately 10,000, a net gain of approximately 630 locations over Q3 2016.
Adjusted EBITDA excludes loss on extinguishment of debt, goodwill impairment, restructuring expense and stock-based compensation expense.
|
Sales from Services and Product Lines as a Percentage of Net Sales |
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|
Three Months Ended |
Nine Months Ended |
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|
September 30, |
September 30, |
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|
Services and Product Line |
2017 |
2016 |
2017 |
2016 |
||||||||||||
|
CDIM |
52.0 |
% |
53.0 |
% |
52.1 |
% |
52.6 |
% |
||||||||
|
MPS |
33.3 |
% |
32.7 |
% |
32.8 |
% |
32.5 |
% |
||||||||
|
AIM |
3.5 |
% |
3.1 |
% |
3.3 |
% |
3.4 |
% |
||||||||
|
Equipment and supplies sales |
11.2 |
% |
11.2 |
% |
11.8 |
% |
11.5 |
% |
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Outlook
ARC Document Solutions revised its annual forecast for 2017, anticipating fully-diluted annual adjusted earnings per share to be in the range of $0.12 to $0.15, as compared to the previous forecast of $0.24 to $0.29; annual cash provided by operating activities is projected to be in the range of $45 to $49 million as compared to the previous forecast of $49 to $54 million; and annual adjusted EBITDA is forecast to be in the range of $52 to $55 million as compared to the previous forecast of $58 million to $63 million.
Teleconference and Webcast
ARC Document Solutions will hold a conference call with investors and analysts on Wednesday, November 1, 2017, at 2 P.M. Pacific Time (5 P.M. Eastern Time ) to discuss results for the Company's 2017 third quarter. To access the live audio call, dial 866-564-2842. International callers may join the conference by dialing +1 323-794-2094. The conference ID number is 6216256. 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.
