SOURCE: ARC Document Solutions

ARC Document Solutions

May 07, 2013 16:05 ET

ARC Document Solutions Reports Results for First Quarter 2013

WALNUT CREEK, CA--(Marketwired - May 7, 2013) -  ARC Document Solutions, Inc. (NYSE: ARC), the nation's leading document solutions company for the architecture, engineering, and construction (AEC) industry, today reported its financial results for the first quarter ended March 31, 2013.

Business Highlights:

  • Q1 cash from operations was $11.9 million
  • Q1 gross margin was 32.4% reflecting a year-over-year expansion of 160 bps
  • Nine percent year-over-year sales increase in Onsite Services sales led by MPS
  • Q1 adjusted earnings per share was $0.01
  • Company maintains 2013 annual adjusted earnings per share outlook of $0.03 to $0.07 and annual cash from operations of $38-45 million

Financial Highlights:

    Three Months Ended  
       March 31  
(All dollar figures in millions, except EPS)   2013     2012  
Net Sales   $ 100.0     $ 103.6  
Gross Margin     32.4 %     30.8 %
Net Income (Loss) attributable to ARC   $ 0.4     $ (4.9 )
Adjusted Net Income attributable to ARC   $ 0.55     $ 0.01  
EPS   $ 0.01     $ (0.11 )
Adjusted EPS*   $ 0.01     $ 0.00  
                 
Cash from Operations   $ 11.9     $ 12.4  
Capital Expenditures   $ 5.6     $ 3.8  
                 
Debt & Capital Leases (including current)   $ 219.4     $ 226.5  
                 

*Please refer to the accompanying tables for explanations of adjusted EPS

Management Commentary:

"We posted solid sales in the first quarter of 2013 largely due to our continuing growth in MPS, and we saw significant improvement in gross margin thanks to the aggressive restructuring efforts we made in the fourth quarter of 2012," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "Management remains focused on selling our new portfolio of services within the broader context of document solutions. Given current conditions in our traditional market, this strategy is already paying dividends as we continue to make headway with our larger MPS customers, and garner interest in archiving and information management."

"We maintain a cautiously optimistic view of the AEC market," continued Mr. Suriyakumar. "While homebuilding activity is taking the headlines, the market for larger non-residential construction projects remains very early in its recovery. In both cases, we continue to see an increased use of technology for managing and distributing documents."

"The benefit of our restructuring measures taken in the fourth quarter are evident in our expanded gross margin in first quarter of this year and we continue to execute on opportunities to refine our cost base and further expand our margins," said John Toth, ARC Document Solution's Chief Financial Officer. "Our balance sheet remains strong and our debt ratios continue to improve."

Sales Reporting Format
In February 2013, ARC Document Solutions announced that in its statement of operations the Company would begin reporting net sales under "Service sales" and "Equipment and supplies sales" to better identify and report its individual business lines. The two new categories replace the three categories previously used to report net sales of "Reprographics services," "Facilities management," and "Equipment and supplies sales."

"Service sales" includes traditional reprographics services, onsite services, color printing services, and digital services. "Equipment and supplies sales" is self-explanatory. Net sales for the individual business lines that comprise each category are reported and reconciled in the Company's "Net Sales by Product Line" table included herein.

Outlook:
ARC Document Solutions maintains its current annual adjusted earnings per share forecast for 2013 to be in the range of $0.03 to $0.07 on a fully-diluted basis, and annual cash flow from operations to be in the range of $38 million to $45 million.

Teleconference and Webcast:
ARC Document Solutions will host a conference call and audio webcast today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time) to discuss results for the Company's first quarter of 2013. The conference call can be accessed by dialing (888) 265-9177. The conference ID number is 32478929.

A live Webcast will also be made available on the investor relations page of ARC's website at www.e-arc.com.

A replay will be available approximately one hour after the call for seven days following the call's conclusion. To access the replay, dial (855) 859-2056. The conference ID number to access the replay is 32478929. A Web archive will be made available at http://www.e-arc.com for approximately 90 days following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions is a leading document solutions company serving businesses of all types, with an emphasis on the non-residential segment of the architecture, engineering and construction industries. The Company helps more than 90,000 customers reduce costs and increase efficiency in the use of their documents, improve document access and control, and offers a wide variety of ways to print, produce, and store documents. ARC provides its solutions onsite in more than 7,000 of its customers' offices, offsite in service centers around the world, and digitally in the form of proprietary software and web applications. For more information please visit 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 such as "continuing growth" "make headway," "opportunities," 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. Factors that could cause our actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, current economic conditions and downturn in the architectural, engineering and construction (AEC) industries specifically, and the timing and nature of any economic recovery; our inability to mitigate revenue exposure to the cyclical nature of the AEC industries; our inability to streamline operations and reduce and/or manage costs; our failure to develop and introduce new services successfully, including expansion of client service capabilities in our core AEC market; competition in our industry and innovation by our competitors; our failure to anticipate and adapt to future changes in our industry; our failure to take advantage of market opportunities and/or to complete acquisitions; our dependence on certain key vendors for equipment, maintenance services and supplies; and damage or disruption to our facilities, our technology centers, our vendors or a majority of our customers. The foregoing list of risks and uncertainties is illustrative but is by no means exhaustive. For more information on factors that may affect our future performance, please review our periodic filings with the U.S. Securities and Exchange Commission, and specifically the risk factors set forth in our most recent reports on Form 10-K and Form 10-Q. 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.

 
 
ARC Document Solutions, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
    March 31,   December 31,
    2013   2012
Assets            
Current assets:            
Cash and cash equivalents   $ 30,219   $ 28,021
Accounts receivable, net of allowances for accounts receivable of $2,565 and $2,634     60,758     51,855
Inventories, net     13,907     14,251
Deferred income taxes     382     -
Prepaid expenses     3,553     3,277
Other current assets     2,819     6,819
Total current assets     111,638     104,223
             
Property and equipment, net of accumulated depreciation of $198,309 and $197,830     56,345     56,471
Goodwill     212,608     212,608
Other intangible assets, net     32,723     34,498
Deferred financing costs, net     3,936     4,219
Deferred income taxes     1,316     1,246
Other assets     2,536     2,574
Total assets   $ 421,102   $ 415,839
             
Liabilities and Equity            
Current liabilities:            
Accounts payable   $ 20,558   $ 21,215
Accrued payroll and payroll-related expenses     9,460     6,774
Accrued expenses     27,578     22,321
Current portion of long-term debt and capital leases     11,264     13,263
Total current liabilities     68,860     63,573
             
Long-term debt and capital leases     208,124     209,262
Deferred income taxes     29,018     28,936
Other long-term liabilities     3,141     3,231
Total liabilities     309,143     305,002
             
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; 46,264 and 46,274 shares issued and 46,251 and 46,262 shares outstanding     46     46
Additional paid-in capital     103,102     102,510
Retained earnings     1,110     695
Accumulated other comprehensive income     495     689
      104,753     103,940
Less cost of common stock in treasury, 12 shares     44     44
Total ARC Document Solutions, Inc. stockholders' equity     104,709     103,896
Noncontrolling interest     7,250     6,941
Total equity     111,959     110,837
Total liabilities and equity   $ 421,102   $ 415,839
             
             
             
ARC Document Solutions, Inc.  
Consolidated Statements of Operations  
(In thousands, except per share data)  
(Unaudited)  
    Three Months Ended  
    March 31,  
    2013     2012  
                 
Service sales   $ 87,800     $ 89,672  
Equipment and supplies sales     12,236       13,901  
  Total net sales     100,036       103,573  
Cost of sales     67,657       71,695  
  Gross profit     32,379       31,878  
Selling, general and administrative expenses     23,773       23,457  
Amortization of intangible assets     1,747       4,593  
Restructuring expense     472       -  
  Income from operations     6,387       3,828  
Other income     (26 )     (30 )
Interest expense, net     6,041       7,438  
Income before income tax (benefit) provision     372       (3,580 )
Income tax (benefit) provision     (311 )     1,310  
  Net income (loss)     683       (4,890 )
Income attributable to the noncontrolling interest     (268 )     (17 )
  Net income (loss) attributable to ARC Document Solutions, Inc. shareholders   $ 415     $ (4,907 )
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:                
  Basic   $ 0.01     $ (0.11 )
  Diluted   $ 0.01     $ (0.11 )
                 
Weighted average common shares outstanding:                
  Basic     45,762       45,541  
  Diluted     45,791       45,541  
                   
                   
                   
ARC Document Solutions, Inc.  
Non-GAAP Measures  
Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA  
(In thousands)  
(Unaudited)  
    Three Months Ended
March 31,
 
    2013     2012  
                 
                 
Cash flows provided by operating activities (1)   $ 11,881     $ 12,395  
  Changes in operating assets and liabilities, net of business acquisitions     (1,756 )     (2,145 )
  Non-cash expenses, including depreciation, amortization, and restructuring     (9,442 )     (15,140 )
  Income tax (benefit) provision     (311 )     1,310  
  Interest expense, net     6,041       7,438  
  Income attributable to the noncontrolling interest     (268 )     (17 )
EBIT     6,145       3,841  
  Depreciation and amortization     8,702       11,655  
EBITDA     14,847       15,496  
  Restructuring expense     472       -  
  Stock-based compensation     592       444  
Adjusted EBITDA   $ 15,911     $ 15,940  
                 
(1) For the three months ended March 31, 2013 cash flows provided by operating activities includes $1.6 million in cash payments related to restructuring.  
                 
                 
                 
ARC Document Solutions, Inc.  
Non-GAAP Measures  
Reconciliation of net income (loss) attributable to ARC to unaudited adjusted net income attributable to ARC  
(In thousands, except per share data)  
(Unaudited)  
             
    Three Months Ended
March 31,
 
    2013     2012  
                 
         
Net income (loss) attributable to ARC   $ 415     $ (4,907 )
  Change in trade name impact to amortization     -       2,369  
  Restructuring expense     472       -  
  Interest rate swap related costs     -       1,255  
  Income tax benefit, related to above items     (179 )     (1,355 )
  Deferred tax valuation allowance and other discrete tax items     (154 )     2,645  
  Unaudited adjusted net income attributable to ARC   $ 554     $ 7  
                 
Actual:                
Earnings (loss) per share attributable to ARC shareholders:                
  Basic   $ 0.01     $ (0.11 )
  Diluted   $ 0.01     $ (0.11 )
                 
Weighted average common shares outstanding:                
  Basic     45,762       45,541  
  Diluted     45,791       45,541  
                 
Adjusted:                
Earnings per share attributable to ARC shareholders:                
  Basic   $ 0.01     $ 0.00  
  Diluted   $ 0.01     $ 0.00  
                 
Weighted average common shares outstanding:                
  Basic     45,762       45,541  
  Diluted     45,791       45,587  
                 
                 
                 
ARC Document Solutions, Inc.  
Non-GAAP Measures  
Reconciliation of net income (loss) attributable to ARC to EBIT, EBITDA and Adjusted EBITDA  
(In thousands)  
(Unaudited)  
   
    Three Months Ended
March 31,
 
    2013     2012  
                 
                 
Net income (loss) attributable to ARC   $ 415     $ (4,907 )
  Interest expense, net     6,041       7,438  
  Income tax (benefit) provision     (311 )     1,310  
EBIT     6,145       3,841  
  Depreciation and amortization     8,702       11,655  
EBITDA     14,847       15,496  
  Restructuring expense     472       -  
  Stock-based compensation     592       444  
Adjusted EBITDA   $ 15,911     $ 15,940  
                 
                 
                 
ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
 
    Three Months Ended
March 31, 
    2013   2012
             
             
Service Sales            
  Traditional Reprographics   $ 29,558   $ 33,323
  Color     20,905     20,003
  Digital     8,361     9,690
    Subtotal (1)     58,824     63,016
  Onsite Services (2)     28,976     26,656
    Total Service Sales     87,800     89,672
             
Equipment and Supplies Sales     12,236     13,901
Total net sales   $ 100,036   $ 103,573
             
(1) For comparison purposes, this subtotal agrees with Reprographics Services historically reported prior to the 2012 Annual Report on Form 10-K.
(2) Represents work done at our customer sites which includes Facilities Management ("FM") and Managed Print Services ("MPS")
 
 

Non-GAAP Financial Measures.
EBIT, 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.

EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. EBIT margin is a non-GAAP measure calculated by dividing EBIT by net sales. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

We present EBIT, 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 EBIT and 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. As a result, we believe EBIT is the best measure of operating segment 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 operating segment-level compensation and we use EBITDA to measure performance for determining consolidated-level compensation. In addition, we use EBIT and EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBIT, 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, EBIT, 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 EBIT, EBITDA and related ratios only as supplements. For more information, see our 2012 Annual Report on Form 10-K.

Our presentation of adjusted net income and adjusted EBITDA over certain periods 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, 2013 and 2012 to reflect the exclusion of amortization impact related specifically to the change in useful lives of trade names, restructuring expense, interest rate swap related costs, and the establishment or reversal of valuation allowances related to certain deferred tax assets and other discrete items. This presentation facilitates a meaningful comparison of our operating results for the three months ended March 31, 2013 and 2012. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We presented adjusted EBITDA in three months ended March 31, 2013 and 2012 to exclude stock-based compensation expense and restructuring expense. The adjustment of EBITDA for non-cash adjustments 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.

   
   
ARC Document Solutions, Inc.  
Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
    Three Months Ended  
    March 31,  
    2013     2012  
Cash flows from operating activities                
Net income (loss)   $ 683     $ (4,890 )
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
    Allowance for accounts receivable     145       240  
    Depreciation     6,955       7,062  
    Amortization of intangible assets     1,747       4,593  
    Amortization of deferred financing costs     283       255  
    Amortization of bond discount     165       147  
    Stock-based compensation     592       444  
    Deferred income taxes     (409 )     (325 )
    Deferred tax valuation allowance     20       1,968  
    Restructuring expense, non-cash portion     58       -  
    Amortization of derivative, net of tax effect     -       786  
    Other non-cash items, net     (114 )     (30 )
    Changes in operating assets and liabilities, net of effect of business acquisitions:                
      Accounts receivable     (9,183 )     (5,634 )
      Inventory     46       (521 )
      Prepaid expenses and other assets     3,709       (266 )
      Accounts payable and accrued expenses     7,184       8,566  
Net cash provided by operating activities     11,881       12,395  
Cash flows from investing activities                
  Capital expenditures     (5,612 )     (3,805 )
  Other     357       191  
Net cash used in investing activities     (5,255 )     (3,614 )
Cash flows from financing activities                
  Proceeds from issuance of common stock under Employee Stock Purchase Plan     -       21  
  Payments on long-term debt agreements and capital leases     (3,332 )     (4,388 )
  Net (repayments) borrowings under revolving credit facilities     (1,139 )     552  
  Payment of deferred financing costs     -       (712 )
Net cash used in financing activities     (4,471 )     (4,527 )
Effect of foreign currency translation on cash balances     43       123  
Net change in cash and cash equivalents     2,198       4,377  
Cash and cash equivalents at beginning of period     28,021       25,437  
Cash and cash equivalents at end of period   $ 30,219     $ 29,814  
                 
Supplemental disclosure of cash flow information                
Noncash investing and financing activities                
Noncash transactions include the following:                
  Capital lease obligations incurred   $ 1,254     $ 3,846  

Contact Information

  • Contact Information:
    David Stickney
    VP Corporate Communications
    925-949-5114