ARC Document Solutions Reports Results for Second Quarter 2013

WALNUT CREEK, CA--(Marketwired - Aug 6, 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 second quarter ended June 30, 2013.

Business Highlights:

• Q2 adjusted earnings per share of $0.04 vs. $0.02 in Q2 2012
• Gross margin for the second quarter was 34.0%, a year-over-year increase of 220 basis points
• Cash from operations was $20.0 million for the six months ended June 30, 2013, vs. $16.9 million for the same period last year
• Repurchased $7.0 million of ARC bonds in July; results in full-year annual interest savings of more than $700,000
• Revises 2013 fully-diluted annual adjusted earnings per share forecast to be in the range $0.06 to $0.09 and maintains projected 2013 annual cash from operating activities to be in the range of $38-$45 million
  
  

Financial Highlights:
		Three Months Ended								Six Months Ended
		June 30								June 30
(All dollar figures in millions, except EPS)		2013				2012				2013				2012
Net Revenue		$	104.6			$	106.2			$	204.7			$	209.8
Gross Margin			34.0	%			31.8	%			33.2	%			31.3	%
Net Income (Loss) attributable to ARC		$	0.7			$	(1.1	)		$	1.1			$	(6.0	)
Adjusted Net Income (Loss) attributable to ARC		$	1.6			$	0.8			$	2.2			$	0.9
EPS		$	0.02			$	(0.02	)		$	0.02			$	(0.13	)
Adjusted EPS		$	0.04			$	0.02			$	0.05			$	0.02
Cash from Operations		$	8.1			$	4.5			$	20.0			$	16.9
Capital Expenditures		$	4.4			$	5.5			$	10.0			$	9.3
Debt & Capital Leases (including current)										$	220.8			$	224.4

Management Commentary:
"The company continues to gain strength and momentum as a technology-enabled document solutions provider," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "While nonresidential construction is still recovering, the addressable market for ARC continues to grow with new offerings fuelled by our investments in technology. This is clearly demonstrated by our growth in managed print services, which is powered by our proprietary Abacus software."

"In addition, as the markets improve and our revenues stabilize, our performance is clearly having the desired effect on our margins, and strong cash generation has opened up opportunities to de-lever and lower our annual interest costs," Mr. Suriyakumar said. "While we will continue to drive margin expansion through the rest of the year, we remain committed to developing new technology solutions, which will allow us to solidify our position as a leader in the document solutions space." 

"With just a one percent year-over-year decline in North American daily sales during the quarter, and continuing strength in our MPS and color sales, we've made significant progress in reversing the revenue trends that have characterized our performance since the early days of the recession," said John Toth, ARC Document Solution's Chief Financial Officer. "Between our margin expansion and these early steps in our deleveraging program, we are building a strong foundation from which to build in the years ahead."

2013 Second Quarter Supplemental Information:
Net sales were $104.6 million, a 1.5% decrease compared to the second quarter of 2012.

Daily sales for North America decreased 1.0% year-over year with 64 days in the period, compared to 64 days in 2Q 2012.

There were 54 days sales outstanding in Q2 2013 compared to 51 days in Q2 2012.

AEC customers comprised approximately 75% of our total net sales, while non-AEC customers made up 25% of our total net sales.

Total number of Onsite Services contracts was approximately 7,300, a gain of more than 175 contracts in Q2 2013.

Sales from Services and Product Lines as a Percentage of Net Sales
		Three Months Ended June 30
Services and Product Line		2013		2012
Traditional Reprographics		29.2%		32.3%
Onsite Services		29.2%		25.9%
Color Services		20.9%		19.3%
Digital Services		8.3%		9.0%
Equipment and Supplies Sales		12.4%		13.6%

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 services and product 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 services and product lines that comprise each category are reported and reconciled in the Company's "Net Sales by Services and Product Line" table included herein. For historical comparisons, please consult the Company's 2012 annual report on Form 10-K.

Outlook:
ARC Document Solutions revised its annual adjusted earnings per share forecast for 2013 to be in the range of $0.06 to $0.09 on a fully-diluted basis, and maintains its 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 second quarter of 2013. The conference call can be accessed by dialing (888) 265-9177. The conference ID number is 15526230.

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 15526230. 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 "expected," "consider" "intended," 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, 2012, 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)
		June 30,			December 31,
		2013			2012
Assets
Current assets:
Cash and cash equivalents		$	32,377		$	28,021
Accounts receivable, net of allowances for accounts receivable of $2,736
and $2,634			63,111			51,855
Inventories, net			13,717			14,251
Deferred income taxes			386			--
Prepaid expenses			3,993			3,277
Other current assets			3,318			6,819
Total current assets			116,902			104,223
Property and equipment, net of accumulated depreciation of $201,643 and $197,830			56,552			56,471
Goodwill			212,608			212,608
Other intangible assets, net			31,021			34,498
Deferred financing costs, net			3,658			4,219
Deferred income taxes			1,350			1,246
Other assets			2,275			2,574
Total assets		$	424,366		$	415,839
Liabilities and Equity
Current liabilities:
Accounts payable		$	24,824		$	21,215
Accrued payroll and payroll-related expenses			9,834			6,774
Accrued expenses			21,958			22,321
Current portion of long-term debt and capital leases			12,061			13,263
Total current liabilities			68,677			63,573
Long-term debt and capital leases			208,722			209,262
Deferred income taxes			30,319			28,936
Other long-term liabilities			3,137			3,231
Total liabilities			310,855			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; 46,356 and 46,274 shares issued and 46,316 and 46,262 shares outstanding			46			46
Additional paid-in capital			103,840			102,510
Retained earnings			1,832			695
Accumulated other comprehensive income			411			689
			106,129			103,940
Less cost of common stock in treasury, 40 and 12 shares			134			44
Total ARC Document Solutions, Inc. stockholders' equity			105,995			103,896
Noncontrolling interest			7,516			6,941
Total equity			113,511			110,837
Total liabilities and equity		$	424,366		$	415,839

ARC Document Solutions, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
			Three Months Ended								Six Months Ended
			June 30,								June 30,
			2013				2012				2013				2012
Service sales			$	91,628			$	91,783			$	179,428			$	181,455
Equipment and supplies sales				12,994				14,445				25,230				28,346
	Total net sales			104,622				106,228				204,658				209,801
Cost of sales				69,011				72,475				136,668				144,170
	Gross profit			35,611				33,753				67,990				65,631
Selling, general and administrative expenses				24,891				23,973				48,664				47,430
Amortization of intangible assets				1,699				2,805				3,446				7,398
Restructuring expense				636				-				1,108				-
	Income from operations			8,385				6,975				14,772				10,803
Other income, net				(35	)			(24	)			(61	)			(54	)
Interest expense, net				6,076				7,255				12,117				14,693
Income (loss) before income tax provision				2,344				(256	)			2,716				(3,836	)
Income tax provision				1,467				619				1,156				1,929
	Net income (loss)			877				(875	)			1,560				(5,765	)
Income attributable to the noncontrolling interest				(155	)			(178	)			(423	)			(195	)
	Net income (loss) attributable to ARC Document Solutions, Inc. shareholders		$	722			$	(1,053	)		$	1,137			$	(5,960	)
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:
	Basic		$	0.02			$	(0.02	)		$	0.02			$	(0.13	)
	Diluted		$	0.02			$	(0.02	)		$	0.02			$	(0.13	)
Weighted average common shares outstanding:
	Basic			45,901				45,667				45,832				45,604
	Diluted			46,058				45,667				45,884				45,604

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 June 30,								Six Months Ended June 30,
			2013				2012				2013				2012
Cash flows provided by operating activities (1)			$	8,110			$	4,455			$	19,991			$	16,850
	Changes in operating assets and liabilities, net of business acquisitions			4,314				6,928				2,558				4,783
	Non-cash expenses, including depreciation amortization and restructuring			(11,547	)			(12,258	)			(20,989	)			(27,398	)
	Income tax provision			1,467				619				1,156				1,929
	Interest expense			6,076				7,255				12,117				14,693
	Net income attributable to the noncontrolling interest			(155	)			(178	)			(423	)			(195	)
EBIT				8,265				6,821				14,410				10,662
	Depreciation and amortization			8,719				9,866				17,421				21,521
EBITDA				16,984				16,687				31,831				32,183
	Restructuring expense			636				-				1,108				-
	Stock-based compensation			729				459				1,321				903
Adjusted EBITDA			$	18,349			$	17,146			$	34,260			$	33,086

(1) For the three and six months ended June 30, 2013 cash flows provided by operating activities includes $1.0 million and $2.6 million, respectively, 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
(Dollars in thousands, except per share data)
(Unaudited)
			Three Months Ended June 30,								Six Months Ended June 30,
			2013				2012				2013				2012
Net income (loss) attributable to ARC			$	722			$	(1,053	)		$	1,137			$	(5,960	)
	Change in trade name impact to amortization			-				790				-				3,158
	Restructuring expense			636				-				1,108				-
	Interest rate swap related costs			-				1,015				-				2,271
	Income tax benefit, related to above items			(252	)			(694	)			(431	)			(2,049	)
	Deferred tax valuation allowance and other discrete tax items			542				788				388				3,433
Unaudited adjusted net income attributable to ARC			$	1,648			$	846			$	2,202			$	853
Actual:
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:
	Basic		$	0.02			$	(0.02	)		$	0.02			$	(0.13	)
	Diluted		$	0.02			$	(0.02	)		$	0.02			$	(0.13	)
Weighted average common shares outstanding:
	Basic			45,901				45,667				45,832				45,604
	Diluted			46,058				45,667				45,884				45,604
Adjusted:
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
	Basic		$	0.04			$	0.02			$	0.05			$	0.02
	Diluted		$	0.04			$	0.02			$	0.05			$	0.02
Weighted average common shares outstanding:
	Basic			45,901				45,667				45,832				45,604
	Diluted			46,058				45,726				45,884				45,618

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income (loss) attributable to ARC Document Solutions to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
			Three Months Ended June 30,							Six Months Ended June 30,
			2013			2012				2013			2012
Net income (loss) attributable to ARC Document Solutions			$	722		$	(1,053	)		$	1,137		$	(5,960	)
Interest expense, net				6,076			7,255				12,117			14,693
	Income tax provision			1,467			619				1,156			1,929
EBIT				8,265			6,821				14,410			10,662
	Depreciation and amortization			8,719			9,866				17,421			21,521
EBITDA				16,984			16,687				31,831			32,183
	Restructuring expense			636			-				1,108			-
	Stock-based compensation			729			459				1,321			903
Adjusted EBITDA			$	18,349		$	17,146			$	34,260		$	33,086

ARC Document Solutions, Inc.
Net Sales by Product Line
(Dollars in thousands)
(Unaudited)
				Three Months Ended June 30,						Six Months Ended June 30,
				2013			2012			2013			2012
Service sales
	Traditional reprographics			$	30,516		$	34,284		$	60,074		$	67,607
	Color				21,846			20,501			42,751			40,504
	Digital				8,690			9,508			17,051			19,198
		Subtotal (1)			61,052			64,293			119,876			127,309
	Onsite services (2)				30,576			27,490			59,552			54,146
		Total service sales			91,628			91,783			179,428			181,455
Equipment and supplies sales					12,994			14,445			25,230			28,346
Total net sales				$	104,622		$	106,228		$	204,658		$	209,801

(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 interim Condensed Consolidated Financial Statements and related notes on our 2013 second quarter report on Form 10-Q. Additionally, please refer to 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 and six months ended June 30, 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 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 and six months ended June 30, 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 and six months ended June 30, 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
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
				Three Months Ended								Six Months Ended
				June 30,								June 30,
				2013				2012				2013				2012
Cash flows from operating activities
Net income (loss)				$	877			$	(875	)		$	1,560			$	(5,765	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Allowance for accounts receivable				301				164				446				404
	Depreciation				7,020				7,061				13,975				14,123
	Amortization of intangible assets				1,699				2,805				3,446				7,398
	Amortization of deferred financing costs				278				281				561				536
	Amortization of bond discount				167				150				332				297
	Stock-based compensation				729				459				1,321				903
	Deferred income taxes				1,145				(179	)			736				(504	)
	Deferred tax valuation allowance				154				944				174				2,912
	Restructuring expense, non-cash portion				235				-				293				-
	Amortization of derivative, net of tax effect				-				636				-				1,422
	Other noncash items, net				(181	)			(63	)			(295	)			(93	)
	Changes in operating assets and liabilities, net of effect of business acquisitions:
		Accounts receivable			(2,666	)			(493	)			(11,849	)			(6,127	)
		Inventory			234				(1,064	)			280				(1,585	)
		Prepaid expenses and other assets			(619	)			(140	)			3,090				(406	)
		Accounts payable and accrued expenses			(1,263	)			(5,231	)			5,921				3,335
Net cash provided by operating activities					8,110				4,455				19,991				16,850
Cash flows from investing activities
	Capital expenditures				(4,430	)			(5,457	)			(10,042	)			(9,262	)
	Other				182				(375	)			539				(184	)
Net cash used in investing activities					(4,248	)			(5,832	)			(9,503	)			(9,446	)
Cash flows from financing activities
	Proceeds from stock option exercises				-				79				-				79
	Proceeds from issuance of common stock under Employee Stock Purchase Plan				9				7				9				28
	Share repurchases, including shares surrendered for tax withholding				(90	)			-				(90	)			-
	Proceeds from borrowings on long-term debt agreements				402				-				402				-
	Payments on long-term debt agreements and capital leases				(3,075	)			(4,078	)			(6,407	)			(8,466	)
	Net borrowings (repayments) under revolving credit facilities				929				(935	)			(210	)			(383	)
	Payment of deferred financing costs				-				(127	)			-				(839	)
Net cash used in financing activities					(1,825	)			(5,054	)			(6,296	)			(9,581	)
Effect of foreign currency translation on cash balances					121				(65	)			164				58
Net change in cash and cash equivalents					2,158				(6,496	)			4,356				(2,119	)
Cash and cash equivalents at beginning of period					30,219				29,814				28,021				25,437
Cash and cash equivalents at end of period				$	32,377			$	23,318			$	32,377			$	23,318
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Noncash transactions include the following:
	Capital lease obligations incurred			$	2,992			$	2,884			$	4,246			$	6,730