SOURCE: ARC Document Solutions, Inc.

ARC Document Solutions, Inc.

August 06, 2013 16:05 ET

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  

Contact Information

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