SOURCE: ARC Document Solutions, Inc.

ARC Document Solutions, Inc.

May 06, 2014 16:01 ET

ARC Document Solutions Reports Results for First Quarter 2014

WALNUT CREEK, CA--(Marketwired - May 6, 2014) - ARC Document Solutions, Inc. (NYSE: ARC), the nation's leading document solutions provider for the architecture, engineering, and construction (AEC) industry, today reported its financial results for the first quarter ended March 31, 2014.

Quarterly Business Highlights:

  • Quarterly revenue has continued to grow year-over-year since the third quarter of 2013, though increase was muted due to effects of severe weather
  • Adjusted earnings per share of $0.03 vs. $0.01 in Q1 2013
  • Gross margin of 33.8%; year-over-year increase of 140 basis points
  • Q1 Adjusted EBITDA margin of 15.7%; year-over-year decrease of 20 basis points largely due to lower than anticipated sales
  • YTD cash flow from operations of $7.7 million vs. $11.9 million for the same period last year; comparison influenced by receipt of a tax refund in 2013 
  • Maintains 2014 diluted annual adjusted earnings per share outlook in the range $0.19 to $0.23 and outlook for 2014 annual cash provided by operating activities in the range of $51-$56 million
  • Introducing annual adjusted EBITDA guidance of $69-$73 million
             
Financial Highlights:            
 
 
 
 
Three Months Ended
March 31,
 
(All dollar amounts in millions, except EPS)   2014     2013  
Net Revenue   $ 100.4     $ 100.0  
Gross Margin     33.8 %     32.4 %
Net Income attributable to ARC   $ 1.4     $ 0.4  
Adjusted Net Income attributable to ARC   $ 1.5     $ 0.6  
Earnings per share   $ 0.03     $ 0.01  
Adjusted earnings per share   $ 0.03     $ 0.01  
Adjusted EBITDA   $ 15.7     $ 15.9  
Cash provided by operating activities   $ 7.7     $ 11.9  
Capital Expenditures   $ 3.6     $ 5.6  
Debt & Capital Leases (including current)   $ 216.4     $ 219.4  
                 

Management Commentary

"We generated good results in the first quarter, thanks largely to the strength of our margin structure and the diversification of our business lines," said K. Suri Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "We were also pleased to see activity rise substantially in March after experiencing the dampening effects of severe weather during January and February. Despite a year-over-year sales increase of less than one percent during the quarter, our gross margin grew by  140 basis points. This kind of leverage demonstrates the sustainable strength of our new business model. Combined with the improving economic environment, better news in employment, and incremental gains throughout the construction industry, our first quarter results give me confidence in our increasing value throughout 2014."

John Toth, ARC's CFO, said, "We experienced weather-related sales losses between $1 million and $1.5 million in the early part of the quarter, but we were able to take it largely in stride, essentially matching our revenue performance in the first quarter of 2013 but improving our gross margin. Cash from operations was healthy despite the lower than expected sales and the changes in levels of working capital we typically experience in the first quarter. In spite of these headwinds, we were able to generate enough cash to comfortably double the principal payment required under our new Term Loan, reducing our principal from $200 million to $195 million. We plan to continue to aggressively reduce our long term debt and thereby our invested capital in the future." 

2014 First Quarter Supplemental Information:

Net sales were $100.4 million, a 0.3% increase compared to the first quarter of 2013.

Days sales outstanding in Q1 2014 were 53, compared to 55 days in Q1 2013.

AEC customers comprised approximately 77% of our total net sales, while non-AEC customers made up approximately 23% of our total net sales.

Total number of Onsite Services contracts at the end of the first quarter was approximately 7,900, a gain of nearly 200 contracts from the beginning of the year.

 
Sales from Services and Product Lines as a Percentage of Net Sales      
 
    Three Months Ended  
    March 31,  
Services and Product Line   2014     2013  
Traditional Reprographics   28.2 %   29.5 %
Onsite Services   31.3 %   29.0 %
Color Services   21.1 %   20.9 %
Digital Services   8.0 %   8.4 %
Equipment and Supplies Sales   11.4 %   12.2 %
             

Outlook:

ARC Document Solutions anticipates annual adjusted earnings per share in 2014 to be in the range of $0.19 to $0.23 on a fully diluted basis. Annual cash flow from operations is expected to be in the range of $51 million to $56 million. Annual adjusted EBITDA is projected to be in the range of $69 million to $73 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 2014. To access the live audio call, dial 888-430-8694. International callers may join the conference by dialing 719-325-2470. The conference ID number is 7020350. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at www.e-arc.com.

A replay of the call will be available for five days after the call's conclusion. To access the replay, dial 888-203-1112. International callers may access the replay by dialing 719-457-0820. The conference ID number is 7020350. The webcast will also be made available at 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 7,900 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," "confidence" "sustainable," 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, 2013, 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.

         
ARC Document Solutions, Inc.        
Consolidated Balance Sheets        
(Dollars in thousands, except per share data)        
(Unaudited)        
    March 31,   December 31,
Current assets:   2014   2013
  Cash and cash equivalents   $ 23,993     $ 27,362  
  Accounts receivable, net of allowances for accounts receivable of $2,512 and $2,517     59,493       56,328  
  Inventories, net     16,066       14,047  
  Deferred income taxes     353       356  
  Prepaid expenses     4,590       4,324  
  Other current assets     4,155       4,013  
    Total current assets     108,650       106,430  
Property and equipment, net of accumulated depreciation of $209,649 and $206,636     56,574       56,181  
Goodwill     212,608       212,608  
Other intangible assets, net     26,316       27,856  
Deferred financing fees, net     3,083       3,242  
Deferred income taxes     1,222       1,186  
Other assets     2,323       2,419  
    Total assets   $ 410,776     $ 409,922  
Current liabilities:                
  Accounts payable   $ 22,652     $ 23,363  
  Accrued payroll and payroll-related expenses     11,059       11,497  
  Accrued expenses     23,230       21,365  
  Current portion of long-term debt and capital leases     19,188       21,500  
    Total current liabilities     76,129       77,725  
Long-term debt and capital leases     197,197       198,228  
Deferred income taxes     32,339       31,667  
Other long-term liabilities     3,186       3,163  
    Total liabilities     308,851       310,783  
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; 46,684 and 46,365 shares issued and 46,639 and 46,320 shares outstanding     46       46  
  Additional paid-in capital     107,599       105,806  
  Retained earnings     (13,232 )     (14,628 )
  Accumulated other comprehensive income     396       634  
      94,809       91,858  
  Less cost of common stock in treasury, 45 shares     168       168  
    Total ARC Document Solutions, Inc. stockholders' equity     94,641       91,690  
Noncontrolling interest     7,284       7,449  
    Total equity     101,925       99,139  
    Total liabilities and equity   $ 410,776     $ 409,922  
                     
                     
ARC Document Solutions, Inc.        
Consolidated Statements of Operations        
(Dollars in thousands, except per share data)        
(Unaudited)   Three Months Ended
    March 31,
    2014   2013
Service sales   $ 88,931     $ 87,800  
Equipment and supplies sales     11,442       12,236  
  Total net sales     100,373       100,036  
Cost of sales     66,439       67,657  
  Gross profit     33,934       32,379  
Selling, general and administrative expenses     26,106       23,773  
Amortization of intangible assets     1,498       1,747  
Restructuring expense     483       472  
  Income from operations     5,847       6,387  
Other income     (26 )     (26 )
Interest expense, net     3,913       6,041  
  Income before income tax provision (benefit)     1,960       372  
Income tax provision (benefit)     664       (311 )
  Net income     1,296       683  
Loss (income) attributable to noncontrolling interest     100       (268 )
  Net income attributable to ARC Document Solutions, Inc. shareholders   $ 1,396     $ 415  
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:                
  Basic   $ 0.03     $ 0.01  
  Diluted   $ 0.03     $ 0.01  
Weighted average common shares outstanding:                
  Basic     45,990       45,762  
  Diluted     46,782       45,791  
                   
                   
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
    Three Months Ended
    March 31,
    2014   2013
Cash flows provided by operating activities (1)   $ 7,714     $ 11,881  
  Changes in operating assets and liabilities, net of effect of business acquisitions     4,229       (1,756 )
  Non-cash expenses, including depreciation, amortization and restructuring     (10,647 )     (9,442 )
  Income tax provision (benefit)     664       (311 )
  Interest expense, net     3,913       6,041  
  Income attributable to the noncontrolling interest     100       (268 )
EBIT     5,973       6,145  
  Depreciation and amortization     8,493       8,702  
EBITDA     14,466       14,847  
  Restructuring expense     483       472  
  Stock-based compensation     781       592  
Adjusted EBITDA   $ 15,730     $ 15,911  
                 
(1) Cash flows provided by operating activities for the three months ended March 31,2013 includes an income tax refund of $3.8 million received in 2013 related to our 2009 consolidated federal income tax return.
 
 
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited adjusted net income attributable to ARC
(Dollars in thousands, except per share data)
(Unaudited)
    Three Months Ended
    March 31,
    2014   2013
Net income attributable to ARC Document Solutions, Inc.   $ 1,396     $ 415  
  Restructuring expense     483       472  
  Income tax benefit related to above items     (188 )     (179 )
  Deferred tax valuation allowance and other discrete tax items     (157 )     (154 )
Unaudited adjusted net income attributable to ARC Document Solutions, Inc.   $ 1,534     $ 554  
                 
Actual:                
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:                
  Basic   $ 0.03     $ 0.01  
  Diluted   $ 0.03     $ 0.01  
Weighted average common shares outstanding:                
  Basic     45,990       45,762  
  Diluted     46,782       45,791  
                 
Adjusted:                
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:                
  Basic   $ 0.03     $ 0.01  
  Diluted   $ 0.03     $ 0.01  
Weighted average common shares outstanding:                
  Basic     45,990       45,762  
  Diluted     46,782       45,791  
                   
                   
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. shareholders to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
    Three Months Ended
    March 31,
    2014   2013
Net income attributable to ARC Document Solutions, Inc. shareholders   $ 1,396   $ 415  
  Interest expense, net     3,913     6,041  
  Income tax provision (benefit)     664     (311 )
EBIT     5,973     6,145  
  Depreciation and amortization     8,493     8,702  
EBITDA     14,466     14,847  
  Restructuring expense     483     472  
  Stock-based compensation     781     592  
Adjusted EBITDA   $ 15,730   $ 15,911  
               
               
ARC Document Solutions, Inc.
Net Sales by Product Line
(Dollars in thousands)
(Unaudited)
       
    Three Months Ended
    March 31,
    2014   2013
Service Sales        
Traditional reprographics   $ 28,325   $ 29,558
Color     21,165     20,905
Digital     8,059     8,361
  Subtotal     57,549     58,824
Onsite services(1)     31,382     28,976
  Total services sales     88,931     87,800
Equipment and supplies sales     11,442     12,236
  Total net sales   $ 100,373   $ 100,036
               
(1) 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 interim Condensed Consolidated Financial Statements and related notes on our 2014 first quarter report on Form 10-Q. Additionally, please refer to our 2013 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, 2014 and 2013 to reflect the exclusion of restructuring expense 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, 2014 and 2013. 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, 2014 and 2013 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
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
  Three Months Ended
    March 31,
    2014   2013
Cash flows from operating activities                
Net income   $ 1,296     $ 683  
Adjustments to reconcile net income to net cash provided by operating activities:                
  Allowance for accounts receivable     147       145  
  Depreciation     6,995       6,955  
  Amortization of intangible assets     1,498       1,747  
  Amortization of deferred financing costs     183       283  
  Amortization of bond discount     225       165  
  Stock-based compensation     781       592  
  Deferred income taxes     1,893       (409 )
  Deferred tax valuation allowance     (1,289 )     20  
  Restructuring expense, non-cash portion     384       58  
  Other non-cash items, net     (170 )     (114 )
  Changes in operating assets and liabilities, net of effect of business acquisitions:                
    Accounts receivable     (3,435 )     (9,183 )
    Inventory     (2,014 )     46  
    Prepaid expenses and other assets     222       3,709  
    Accounts payable and accrued expenses     998       7,184  
Net cash provided by operating activities     7,714       11,881  
Cash flows from investing activities                
Capital expenditures     (3,565 )     (5,612 )
Other     164       357  
Net cash used in investing activities     (3,401 )     (5,255 )
Cash flows from financing activities                
Proceeds from stock option exercises     441       -  
Proceeds from issuance of common stock under Employee Stock Purchase Plan     21       -  
Payments on long-term debt agreements and capital leases     (7,963 )     (3,332 )
Net borrowings (repayments) under revolving credit facilities     402       (1,139 )
Payment of deferred financing costs     (457 )     -  
Net cash used in financing activities     (7,556 )     (4,471 )
Effect of foreign currency translation on cash balances     (126 )     43  
Net change in cash and cash equivalents     (3,369 )     2,198  
Cash and cash equivalents at beginning of period     27,362       28,021  
Cash and cash equivalents at end of period   $ 23,993     $ 30,219  
Supplemental disclosure of cash flow information                
Noncash financing activities                
  Capital lease obligations incurred   $ 4,088     $ 1,254  
  Stock options exercised - unsettled   $ 550     $ -  
                   

Contact Information

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