SOURCE: American Reprographics Company

November 01, 2007 16:05 ET

American Reprographics Company Reports Third Quarter 2007 Results

Third Quarter Revenue $176.2 million; 15.5% Increase Over Q3 '06

Third Quarter EPS $0.35

Annual Growth Forecast Reduced to Reflect Anticipated Near-Term Weakness; Revenue of $682-$687, EPS of $1.42 - $1.46

WALNUT CREEK, CA--(Marketwire - November 1, 2007) - American Reprographics Company (NYSE: ARP), the nation's leading provider of reprographics services and technology today announced financial results for the three months ended September 30, 2007.

The Company reported net revenue for the third quarter of 2007 of $176.2 million, compared to $152.5 million in the third quarter of 2006, an increase of 15.5%. The Company's gross margin for the third quarter was 41.2% compared to 43.9% in the same period in 2006, due largely to the temporary dilutive effects of three large acquisitions completed earlier in the year, and the lack of absorption in labor and overhead costs due to lower quarterly sales volume. Net income for the second quarter of 2007 was $15.9 million, or $0.35 per diluted share. This compares to net income for the third quarter of 2006 of $15.8 million, or $0.35 per diluted share.

Revenue for the first nine months of 2007 was $514.2 million, compared to $444.9 million for the same period in 2006. Net income for the first nine months of 2007 was $52.4 million, or $1.14 per diluted share, compared to net income of $38.6 million, or $0.85 per diluted share for the first nine months of 2006. Adjusted to exclude the Louis Frey litigation charge in 2006, net income for the first nine months of 2006 was $46.8 million.

"The company continues to make strong progress on several fronts and our fundamentals remain strong," said K. "Suri" Suriyakumar, President and CEO of American Reprographics Company. "While our efforts to enhance sales are starting to show results they have not been adequate to counter the downturn on the residential front. Short-term results may be further aggravated by the recent fires in Southern California, the impact of which has yet to be determined. As a result, our growth will be less than anticipated for the rest of the year. Short-term concerns aside, our recently announced joint venture with Unisplendour in China, our marketing alliance with KIP, and the pace of our acquisition activity are just a few of the reasons I remain confident in our continued long-term growth."

Jonathan Mather, Chief Financial Officer, said, "We remain committed to positioning the company for continued growth. The Company is also taking steps to refinance our current debt which, among other expected benefits, would ease restrictions on our ability to consider a stock repurchase. Our discussions with various lenders have been uniformly positive and we anticipate completing a refinancing agreement by the end of the year."

2007 Outlook

American Reprographics Company is lowering its prior forecast for 2007 in anticipation of a weaker near-term construction market. Revenue is forecasted to be in the range of $682-$687 million. Earnings per share will be in the range of $1.42 - $1.46. The Company's previous forecast called for revenues in the range of $690-$710 million and earnings per share in the range of $1.58-$1.62.

Teleconference and Webcast

American Reprographics Company will host a conference call and audio webcast today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss financial results for the third quarter ended September 30, 2007. The conference call can be accessed by dialing 201-689-8562.

A replay of this call will be available approximately one hour after the call for seven days following the conclusion of the call. This replay can be accessed by dialing 201-612-7415. The account number to access the phone replay is 3055 and the Conference ID number is 257452.

A Web archive will be made available at: http://www.e-arc.com for approximately 90 days following end of the call.

About American Reprographics Company

American Reprographics Company is the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction, or AEC, industries. The Company provides these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, which also require sophisticated document management services. American Reprographics Company provides its core services through its suite of reprographics technology products, a network of more than 280 locally-branded reprographics service centers across the U.S., and on-site at their customers' locations. The Company's service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing the provision of services both locally and nationally to more than 140,000 active customers.

Forward-Looking Statements Disclaimer

This press release contains forward-looking statements that fall within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the Company. Words such as "forecast," "will," and similar expressions also identify forward-looking statements. We wish to caution you that such statements are only predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. These risks and uncertainties include, among others:

--  A downturn in the architectural, engineering and construction
    industries could diminish demand for our products and services
--  Competition in our industry and innovation by our competitors may
    hinder our ability to execute our business strategy and maintain our
    profitability
--  Failure to anticipate and adapt to future changes in our industry
    could harm our competitive position
--  Failure to complete acquisitions, or failure to manage our
    acquisitions, including our inability to integrate and merge the business
    operations of the acquired companies or failure to retain key personnel and
    customers of acquired companies, could have a negative effect on our future
    performance, results of operations and financial condition
--  Dependence on certain key vendors for equipment, maintenance services
    and supplies, could make us vulnerable to supply shortages and price
    fluctuations
--  Damage or disruption to our facilities, our technology centers, our
    vendors or a majority of our customers could impair our ability to
    effectively provide our services and may have a significant impact on our
    revenues, expenses and financial condition
--  If we fail to continue to develop and introduce new services
    successfully, our competitive positioning and our ability to grow our
    business could be harmed.
    

The foregoing list of risks and uncertainties is illustrative but is by no means exhaustive. For more information on factors that may affect future performance, please review our SEC filings, specifically our annual report on Form 10-K for the year ended December 31, 2006, our final prospectus supplement dated March 8, 2007, and our quarterly report on Form 10-Q for the quarter ended March 31, 2007, and June 30, 2007. These documents contain important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. These forward-looking statements are based on information as of November 1, 2007, and except as required by law, the Company undertakes no obligation to update or revise any forward-looking statements.

American Reprographics Company
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)


                                                December 31,  September 30,
                                                ------------  ------------
                                                    2006          2007
                                                ------------  ------------
Assets
Current assets:
Cash and cash equivalents                       $     11,642  $     20,157
Restricted cash                                        8,491         8,802
Accounts receivable, net                              85,277       103,737
Inventories, net                                       7,899        10,588
Deferred income taxes                                 10,963        10,969
Prepaid expenses and other current assets              6,796         7,473
                                                ------------  ------------
Total current assets                                 131,068       161,726

Property and equipment, net                           60,138        79,064
Goodwill                                             291,290       356,084
Other intangible assets, net                          50,971        73,665
Deferred financing costs, net                            895           970
Deferred income taxes                                 11,245         7,730
Other assets                                           1,974         2,135
                                                ------------  ------------
Total assets                                    $    547,581  $    681,374
                                                ============  ============

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                $     33,447  $     34,285
Accrued payroll and payroll-related expenses          15,666        16,880
Accrued expenses                                      25,810        19,117
Accrued litigation charge                             13,947        14,358
Current portion of long-term debt and capital
 leases                                               21,048       107,615
                                                ------------  ------------
Total current liabilities                            109,918       192,255

Long-term debt and capital leases                    252,097       244,280
Other long-term liabilities                            1,322         2,380
                                                ------------  ------------

Total liabilities                                    363,337       438,915
                                                ------------  ------------

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.001 par value, 25,000,000
 shares authorized;  zero and zero shares
 issued and outstanding                                   --            --
Common stock, $0.001 par value, 150,000,000
 shares authorized;  44,346,099 and
 45,558,629 shares issued and outstanding                 45            46
Additional paid-in capital                            75,465        80,328
Deferred stock-based compensation                     (1,224)         (789)
Retained earnings                                    109,955       162,357
Accumulated other comprehensive income                     3           517
                                                ------------  ------------
Total stockholders' equity                           184,244       242,459
                                                ------------  ------------
Total liabilities and stockholders' equity      $    547,581  $    681,374
                                                ============  ============



American Reprographics Company
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)

                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------  -----------------------
                               2006        2007        2006        2007
                            ----------  ----------- ----------- -----------

Reprographics services      $  111,176  $   131,655 $   330,652 $   384,690
Facilities management           25,814       29,241      73,437      84,581
Equipment and supplies
 sales                          15,548       15,316      40,778      44,937
                            ----------  ----------- ----------- -----------
Total net sales                152,538      176,212     444,867     514,208
Cost of sales                   85,531      103,548     251,686     298,948
                            ----------  ----------- ----------- -----------
Gross profit                    67,007       72,664     193,181     215,260
Selling, general and
 administrative expenses        34,516       37,175      99,113     105,908
Litigation reserve                   0            0      11,262           0
Amortization of intangible
 assets                          1,574        2,423       3,227       6,619
                            ----------  ----------- ----------- -----------
Income from operations          30,917       33,066      79,579     102,733
Other (expense) income, net       (358)           0         442           0
Interest expense, net            5,810        6,872      17,270      18,675
                            ----------  ----------- ----------- -----------
Income before income tax
 provision                      24,749       26,194      62,751      84,058
Income tax provision             8,993       10,249      24,193      31,656
                            ----------  ----------- ----------- -----------
Net income                  $   15,756  $    15,945 $    38,558 $    52,402
                            ==========  =========== =========== ===========

Earnings per share:
 Basic                      $     0.35  $      0.35 $      0.86 $      1.15
                            ==========  =========== =========== ===========
 Diluted                    $     0.35  $      0.35 $      0.85 $      1.14
                            ==========  =========== =========== ===========

Weighted average common
 shares outstanding:
  Basic                     45,177,627   45,486,012  44,923,884  45,429,238
  Diluted                   45,663,040   45,865,453  45,483,702  45,848,177



American Reprographics Company
Non-GAAP Measures
Reconciliation of Net Income to EBIT and EBITDA
Reconciliation of Cash Flows provided by Operating Activities to EBIT and
EBITDA
(Dollars in thousands)
(Unaudited)


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2006       2007       2006       2007
                                ---------  ---------  ---------  ---------
                                          (Dollars in thousands)

Net income                      $  15,756  $  15,945  $  38,558  $  52,402
  Interest expense, net             5,810      6,872     17,270     18,675
  Income tax provision              8,993     10,249     24,193     31,656
                                ---------  ---------  ---------  ---------
EBIT                            $  30,559  $  33,066  $  80,021  $ 102,733
  Depreciation and amortization     7,461     10,500     19,467     28,887
                                ---------  ---------  ---------  ---------
EBITDA                          $  38,020  $  43,566  $  99,488  $ 131,620
                                =========  =========  =========  =========


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2006       2007       2006       2007
                                ---------  ---------  ---------  ---------

                                          (Dollars in thousands)

Cash flows provided by
 operating activities           $  30,180  $  25,754  $  72,580  $  71,120
Changes in operating assets
 and liabilities                   (4,958)     2,695     (3,783)    14,817
Non-cash (expenses) income,
 including depreciation and
 amortization                      (9,466)   (12,504)   (30,239)   (33,535)
Income tax provision                8,993     10,249     24,193     31,656
Interest expense                    5,810      6,872     17,270     18,675

                                ---------  ---------  ---------  ---------
EBIT                            $  30,559  $  33,066  $  80,021  $ 102,733
  Depreciation and amortization     7,461     10,500     19,467     28,887
                                ---------  ---------  ---------  ---------

EBITDA                          $  38,020  $  43,566  $  99,488  $ 131,620
                                =========  =========  =========  =========

See Note 1 for additional information regarding non-GAAP measures.

Note 1. Non -GAAP Measures

EBIT and EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with 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 flow from operating, investing or financing activities as a measure of our liquidity.

EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization.

We present EBIT and EBITDA 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 EBIT to measure and compare the performance of our operating segments. Our operating segments' financial performance includes all of the operating activities except for debt and taxation which are managed at the corporate level. As a result, EBIT is the best measure of divisional profitability and the most useful metric by which to measure and compare the performance of our operating segments. We also use EBIT to measure performance for determining division-level compensation and use EBITDA to measure performance for determining consolidated-level compensation. We also use EBITDA as a metric to manage cash flow from our operating segments to the corporate level and to determine the financial health of each operating segment. As noted above, since debt and taxation are managed at the corporate level the cash flow from each operating segment should be equal to the corresponding EBITDA of each operating segment, assuming no other changes to an operating segment's balance sheet. As a result, we reconcile EBITDA to cash flow monthly as one of our key internal controls. We also use EBIT and EBITDA to evaluate potential acquisitions and to evaluate whether to incur capital expenditures.

EBIT, and EBITDA have limitations as analytical tools, and you should not consider them 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, EBIT and EBITDA 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 EBIT and EBITDA only as supplements.

American Reprographics Company
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

                                                        Nine Months Ended
                                                          September 30,
                                                        ------------------
                                                          2006      2007
                                                        --------  --------
Cash flows from operating activities
Net income                                              $ 38,558  $ 52,402
Adjustments to reconcile net income to net cash
 provided by operating activities:
     Depreciation                                         16,240    22,268
     Amortization of intangible assets                     3,227     6,619
     Amortization of deferred financing costs                294       357
     Stock-based compensation                              1,454     2,578
     Excess tax benefit related to stock options
      exercised                                           (3,591)   (1,541)
     Deferred income taxes                                (1,334)    2,278
     Write-off of deferred financing costs                   117         -
     Litigation charge                                    13,743       612
     Other noncash items, net                                 89       364
     Changes in operating assets and liabilities, net
      of effect of business acquisitions:
       Accounts receivable                               (13,755)  (10,837)
       Inventory                                             909      (488)
       Prepaid expenses and other assets                     507       654
       Income taxes payable                                9,851    (6,243)
       Accounts payable and accrued expenses               6,271     2,097
                                                        --------  --------
Net cash provided by operating activities                 72,580    71,120
                                                        --------  --------
Cash flows from investing activities
Capital expenditures                                      (6,043)   (7,112)
Payments for businesses acquired, net of cash acquired
 and including other cash payments associated with
 the acquisitions                                        (59,179)  (97,831)
Restricted cash                                           (7,460)        -
Other                                                       (203)      345
                                                        --------  --------
Net cash used in investing activities                    (72,885) (104,598)
                                                        --------  --------
Cash flows from financing activities
Proceeds from stock option exercises                       1,807     1,098
Proceeds from issuance of common stock under Employee
 Stock Purchase Plan                                         290        82
Excess tax benefit related to stock options exercised      3,591     1,541
Proceeds from borrowings under debt agreements            41,000    75,000
Payments on debt agreements and capital leases           (55,071)  (35,525)
Payment of loan fees                                        (435)     (433)
                                                        --------  --------
Net cash (used in) provided by financing activities       (8,818)   41,763
                                                        --------  --------
Effect of foreign currency translation on cash balances        -       230
                                                        --------  --------
Net change in cash and cash equivalents                   (9,123)    8,515
Cash and cash equivalents at beginning of period          22,643    11,642
                                                        --------  --------
Cash and cash equivalents at end of period              $ 13,520  $ 20,157
                                                        ========  ========

 Supplemental disclosure of cash flow information
Noncash investing and financing activities
Noncash transactions include the following:
   Capital lease obligations incurred                   $ 17,339  $ 28,738
   Issuance of subordinated notes in connection with
    the acquisition of businesses                       $ 11,432  $  7,342
   Stock issued for acquisition                         $  8,500  $      -
   Change in fair value of derivatives                  $   (100) $    (95)

Contact Information

  • Contacts:
    David Stickney
    VP of Corporate Communications
    Phone: 925-949-5100
    Email: Email Contact

    David Pasquale
    EVP of The Ruth Group
    Phone: 646-536-7006
    Email:dpasquale@theruthgroup.com