ARC Document Solutions Financial Statements – Looking at some of the numbers within the numbers

ARC very recently filed its annual 10K Report with the SEC, and I decided to take a quick scroll through the 10K.

These are my takeaways on some of the “numbers within the numbers”:

From “Revenue Recognition” (page F-12 of 10K)

“Revenues from hosted software licensing activities are recognized ratably over the term of the license. Revenues from software licensing activities comprise less than 1% of the Company’s consolidated revenues during the years ended December 31, 2016 , 2015 and 2014.”

	Total Sales	Percent of Sales attributable to Software Licensing activities	$Range of Sales attributable to Software Licensing activities
Year 2016	$406.32 mil	“Less than 1%”	$1.00 - $4.06 mil
Year 2015	$428.67 mil	“Less than 1%”	$1.00 - $4.29 mil
Year 2014	$423.76 mil	“Less than 1%”	$1.00 - $4.24 mil

Blog Publisher’s Comments:

In its Sales (revenue) reporting by “segment”, ARC does not specifically break out revenues specifically attributable to Skysite, Planwell and Abacus.  Instead, sales of those (ARC technology products/services) are included in ARC’s CDIM revenue segment.

However, given that ARC has made it very clear to the industry that it is pursuing technology revenues to hopefully replace print revenues – the difficult transition that ARC’s management team has been referring to in recent earnings calls – one wonders (at least I do) how ARC is fairing, sales-wise, with regard to its technology products/services.  In the 10K, ARC stated that its revenues – in 2016, 2015, and 2014 - from software licensing activities were “less than 1%.  If that’s so, that means that for year 2016 ARC’s sales of technology products/services (Skysite, Planwell, Abacus) ranged somewhere between $1.00 (on the low end) and $4.06 million (on the high end.)

If Sales of Skysite “breakout”, at some point down the road, you will, in future 10K reports, see ARC state that Sales attributable to Software Licensing activities have grown beyond 1%.

Before you read the “Geographic Reporting” numbers below, first read these two paragraphs, which were taken from the 10K:

“Our products and services are available from any of our 177 service centers around the world, and nearly all of our services can be made available in our customers’ offices.  Our geographic presence is concentrated in the U.S., with additional service centers in Canada, China, India and the United Kingdom.”

“At the end of 2016, we operated 177 service centers, of which 147 were in the U.S., 10 were in Canada, 16 were in China, 1 was in London (UK), 2 were in India and 1 was in the United Arab Emirates.”

From “Geographic Reporting” (page F-13 of 10K)

“The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. Operations outside the United States have historically been small. See table below for revenues and long-lived assets, net, excluding intangible assets, attributable to the Company’s U.S. operations and foreign operations.”

	Total Sales	Non-US Sales	US Sales
Year 2016	$406.32 mil	$53.24 mil	$353.08 mil
Year 2015	$428.67 mil	$62.58 mil	$366.09 mil
Year 2014	$423.76 mil	$59.37 mil	$364.39 mil

“Research and Development Expenses” (page F-14 of 10K)

“Research and development activities relate to costs associated with the design and testing of new technology or enhancements and maintenance to existing technology. Such costs are expensed as incurred are primarily recorded to cost of sales. In total, research and development amounted to $6.2 million , $5.8 million and $6.3 million during the fiscal years ended December 31, 2016 , 2015 and 2014 , respectively.”

Blog Publisher’s Comments:

Based on the information presented in the above paragraph and based on information ARC presented in the paragraph that indicated that ARC’s revenues from Software Licensing activities are less than 1% of total sales revenues, it does appear that ARC’s expense for R&D of its technology products/services exceeds the revenues that ARC is currently generating from technology products/services.  Look for that situation to change if ARC's Skysite "breaks out."