ARC Document Solutions Reports Results for First Quarter 2013

ARC Document Solutions Reports Results for First Quarter 2013 
WALNUT CREEK, CA -- (Marketwired) -- 05/07/13 --  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 ca
pabilities 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 perform
ance 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:
David Stickney
VP Corporate Communications
925-949-5114