ARC Document Solutions Reports Results for First Quarter 2014

ARC Document Solutions Reports Results for First Quarter 2014 
WALNUT CREEK, CA -- (Marketwired) -- 05/06/14 --  ARC Document
Solutions, Inc. (NYSE: ARC), the nation's leading document solutions
provider for the architecture, engineering, and construction (AEC)
industry, today reported its financial results for the first quarter
ended March 31, 2014. 
Quarterly Business Highlights: 


 
--  Quarterly revenue has continued to grow year-over-year since the third
    quarter of 2013, though increase was muted due to effects of severe
    weather
--  Adjusted earnings per share of $0.03 vs. $0.01 in Q1 2013
--  Gross margin of 33.8%; year-over-year increase of 140 basis points
--  Q1 Adjusted EBITDA margin of 15.7%; year-over-year decrease of 20
    basis points largely due to lower than anticipated sales
--  YTD cash flow from operations of $7.7 million vs. $11.9 million for
    the same period last year; comparison influenced by receipt of a tax
    refund in 2013
--  Maintains 2014 diluted annual adjusted earnings per share outlook in
    the range $0.19 to $0.23 and outlook for 2014 annual cash provided by
    operating activities in the range of $51-$56 million
--  Introducing annual adjusted EBITDA guidance of $69-$73 million

 
                                                                            
Financial Highlights:                                                       
                                                         Three Months Ended 
                                                             March 31,      
                                                        --------------------
(All dollar amounts in millions, except EPS)              2014       2013   
                                                        --------------------
Net Revenue                                             $  100.4   $  100.0 
Gross Margin                                                33.8%      32.4%
Net Income attributable to ARC                          $    1.4   $    0.4 
Adjusted Net Income attributable to ARC                 $    1.5   $    0.6 
Earnings per share                                      $   0.03   $   0.01 
Adjusted earnings per share                             $   0.03   $   0.01 
Adjusted EBITDA                                         $   15.7   $   15.9 
Cash provided by operating activities                   $    7.7   $   11.9 
Capital Expenditures                                    $    3.6   $    5.6 
Debt & Capital Leases (including current)               $  216.4   $  219.4 

 
Management Commentary 
"We generated good results in the first quarter, thanks largely to
the strength of our margin structure and the diversification of our
business lines," said K. Suri Suriyakumar, Chairman, President and
CEO of ARC Document Solutions. "We were also pleased to see activity
rise substantially in March after experiencing the dampening effects
of severe weather during January and February. Despite a
year-over-year sales increase of less than one percent during the
quarter, our gross margin grew by  140 basis points. This kind of
leverage demonstrates the sustainable strength of our new business
model. Combined with the improving economic environment, better news
in employment, and incremental gains throughout the construction
industry, our first quarter results give me confidence in our
increasing value throughout 2014." 
John Toth, ARC's CFO, said, "We experienced weather-related sales
losses between $1 million and $1.5 million in the early part of the
quarter, but we were able to take it largely in stride, essentially
matching our revenue performance in the first quarter of 2013 but
improving our gross margin. Cash from operations was healthy despite
the lower than expected sales and the changes in levels of working
capital we typically experience in the first quarter. In spite of
these headwinds, we were able to generate enough cash to comfortably
double the principal payment required under our new Term Loan,
reducing our principal from $200 million to $195 million. We plan to
continue to aggressively reduce our long term debt and thereby our
invested capital in the future."  
2014 First Quarter Supplemental Information: 
Net sales were $100.4 million, a 0.3% increase compared to the first
quarter of 2013.  
Days sales outstanding in Q1 2014 were 53, compared to 55 days in Q1
2013.  
AEC customers comprised approximately 77% of our total net sales,
while non-AEC customers made up approximately 23% of our total net
sales. 
Total number of Onsite Services contracts at the end of the first
quarter was approximately 7,900, a gain of nearly 200 contracts from
the beginning of the year. 


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

 
Outlook: 
ARC Document Solutions anticipates annual adjusted earnings per share
in 2014 to be in the range of $0.19 to $0.23 on a fully diluted
basis. Annual cash flow from operations is expected to be in the
range of $51 million to $56 million. Annual adjusted EBITDA is
projected to be in the range of $69 million to $73 million. 
Teleconference and Webcast: 
ARC Document Solutions will host a conference call and audio webcast
today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time) to discuss
results for the Company's first quarter of 2014. To access the live
audio call, dial 888-430-8694. International callers may join the
conference by dialing 719-325-2470. The conference ID number is
7020350. A live webcast will also be made available on the investor
relations page of ARC Document Solution's website at www.e-arc.com. 
A replay of the call will be available for five days after the call's
conclusion. To access the replay, dial 888-203-1112. International
callers may access the replay by dialing 719-457-0820. The conference
ID number is 7020350. The webcast will also be made available at
www.e-arc.com for approximately 90 days following the call's
conclusion. 
About ARC Document Solutions (NYSE: ARC) 
ARC Document Solutions is a leading document solutions company
serving businesses of all types, with an emphasis on the
non-residential segment of the architecture, engineering and
construction industries. The Company helps more than 90,000 customers
reduce costs and increase efficiency in the use of their documents,
improve document access and control, and offers a wide variety of
ways to print, produce, and store documents. ARC provides its
solutions onsite in more than 7,900 of its customers' offices,
offsite in service centers around the world, and digitally in the
form of proprietary software and web applications. For more
information please visit www.e-arc.com. 
Forward-Looking Statements 
This press release contains forward-looking statements that are based
on current opinions, estimates and assumptions of management
regarding future events and the future financial performance of the
Company. Words such as "continuing growth," "confidence"
"sustainable," and similar expressions identify forward-looking
statements and all statements other than statements of historical
fact, including, but not limited to, any projections regarding
earnings, revenues and financial performance of the Company, could be
deemed forward-looking statements. We caution you that such
statements are only predictions and are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those contained in the forward-looking statements. In addition
to matters affecting the construction, managed print services,
document management or reprographics industries, or the economy
generally, factors that could cause actual results to differ from
expectations stated in forward-looking statements include, among
others, the factors described in the caption entitled "Risk Factors"
in Item 1A in ARC Document Solution's Annual Report on Form 10-K for
the fiscal year ended December 31, 2013, Quarterly Reports on Form
10-Q, and other periodic filings and prospectuses. The Company
undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise, except as required by law. 


 
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Balance Sheets                                                 
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                                     March 31,  December 31,
                                                   -------------------------
Current assets:                                        2014         2013    
                                                   -------------------------
  Cash and cash equivalents                        $    23,993  $    27,362 
  Accounts receivable, net of allowances for                                
   accounts receivable of $2,512 and $2,517             59,493       56,328 
  Inventories, net                                      16,066       14,047 
  Deferred income taxes                                    353          356 
  Prepaid expenses                                       4,590        4,324 
  Other current assets                                   4,155        4,013 
                                                   -------------------------
    Total current assets                               108,650      106,430 
Property and equipment, net of accumulated                                  
 depreciation of $209,649 and $206,636                  56,574       56,181 
Goodwill                                               212,608      212,608 
Other intangible assets, net                            26,316       27,856 
Deferred financing fees, net                             3,083        3,242 
Deferred income taxes                                    1,222        1,186 
Other assets                                             2,323        2,419 
                                                   -------------------------
    Total assets                                   $   410,776  $   409,922 
                                                   =========================
Current liabilities:                                                        
  Accounts payable                                 $    22,652  $    23,363 
  Accrued payroll and payroll-related expenses          11,059       11,497 
  Accrued expenses                                      23,230       21,365 
  Current portion of long-term debt and capital                             
   leases                                               19,188       21,500 
                                                   -------------------------
    Total current liabilities                           76,129       77,725 
Long-term debt and capital leases                      197,197      198,228 
Deferred income taxes                                   32,339       31,667 
Other long-term liabilities                              3,186        3,163 
                                                   -------------------------
    Total liabilities                                  308,851      310,783 
                                                   -------------------------
Commitments and contingencies                                               
Stockholders' equity:                                                       
ARC Document Solutions, Inc. stockholders' equity:                          
  Preferred stock, $0.001 par value, 25,000 shares                          
   authorized; 0 shares issued and outstanding               -            - 
  Common stock, $0.001 par value, 150,000 shares                            
   authorized; 46,684 and 46,365 shares issued and                          
   46,639 and 46,320 shares outstanding                     46           46 
  Additional paid-in capital                           107,599      105,806 
  Retained earnings                                    (13,232)     (14,628)
  Accumulated other comprehensive income                   396          634 
                                                   -------------------------
                                                        94,809       91,858 
  Less cost of common stock in treasury, 45 shares         168          168 
                                                   -------------------------
    Total ARC Document Solutions, Inc.                                      
     stockholders' equity                               94,641       91,690 
Noncontrolling interest                                  7,284        7,449 
                                                   -------------------------
    Total equity                                       101,925       99,139 
                                                   -------------------------
    Total liabilities and equity                   $   410,776  $   409,922 
                                                   =========================
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Statements of Operations                                       
(Dollars in thousands, except per share data)                               
(Unaudited)                                             Three Months Ended  
                                                             March 31,      
                                                      ----------------------
                                                         2014        2013   
                                                      ----------------------
Service sales                                         $  88,931   $  87,800 
Equipment and supplies sales                             11,442      12,236 
                                                      ----------------------
  Total net sales                                       100,373     100,036 
Cost of sales                                            66,439      67,657 
                                                      ----------------------
  Gross profit                                           33,934      32,379 
Selling, general and administrative expenses             26,106      23,773 
Amortization of intangible assets                         1,498       1,747 
Restructuring expense                                       483         472 
                                                      ----------------------
  Income from operations                                  5,847       6,387 
Other income                                                (26)        (26)
Interest expense, net                                     3,913       6,041 
                                                      ----------------------
  Income before income tax provision (benefit)            1,960         372 
Income tax provision (benefit)                              664        (311)
                                                      ----------------------
  Net income                                              1,296         683 
Loss (income) attributable to noncontrolling interest       100        (268)
                                                      ----------------------
  Net income attributable to ARC Document Solutions,                        
   Inc. shareholders                                  $   1,396   $     415 
                                                      ======================
Earnings per share attributable to ARC Document                             
 Solutions, Inc. shareholders:                                              
  Basic                                               $    0.03   $    0.01 
                                                      ======================
  Diluted                                             $    0.03   $    0.01 
                                                      ======================
Weighted average common shares outstanding:                                 
  Basic                                                  45,990      45,762 
  Diluted                                                46,782      45,791 
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of cash flows provided by operating activities to EBIT,      
 EBITDA and Adjusted EBITDA                                                 
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                         Three Months Ended 
                                                              March 31,     
                                                        --------------------
                                                           2014       2013  
                                                        --------------------
Cash flows provided by operating activities (1)         $  7,714   $ 11,881 
  Changes in operating assets and liabilities, net of                       
   effect of business acquisitions                         4,229     (1,756)
  Non-cash expenses, including depreciation,                                
   amortization and restructuring                        (10,647)    (9,442)
  Income tax provision (benefit)                             664       (311)
  Interest expense, net                                    3,913      6,041 
  Income attributable to the noncontrolling interest         100       (268)
                                                        --------------------
EBIT                                                       5,973      6,145 
  Depreciation and amortization                            8,493      8,702 
                                                        --------------------
EBITDA                                                    14,466     14,847 
  Restructuring expense                                      483        472 
  Stock-based compensation                                   781        592 
                                                        --------------------
Adjusted EBITDA                                         $ 15,730   $ 15,911 
                                                        ====================
                                                                            
(1) Cash flows provided by operating activities for the three months ended  
March 31,2013 includes an income tax refund of $3.8 million received in 2013
related to our 2009 consolidated federal income tax return.                 
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net income attributable to ARC to unaudited adjusted net  
 income attributable to ARC                                                 
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                                         Three Months Ended 
                                                              March 31,     
                                                        --------------------
                                                           2014       2013  
                                                        --------------------
Net income attributable to ARC Document Solutions, Inc. $  1,396   $    415 
  Restructuring expense                                      483        472 
  Income tax benefit related to above items                 (188)      (179)
  Deferred tax valuation allowance and other discrete                       
   tax items                                                (157)      (154)
                                                        --------------------
Unaudited adjusted net income attributable to ARC                           
 Document Solutions, Inc.                               $  1,534   $    554 
                                                        ====================
                                                                            
Actual:                                                                     
Earnings per share attributable to ARC Document                             
 Solutions, Inc. shareholders:                                              
  Basic                                                 $   0.03   $   0.01 
                                                        ====================
  Diluted                                               $   0.03   $   0.01 
                                                        ====================
Weighted average common shares outstanding:                                 
  Basic                                                   45,990     45,762 
  Diluted                                                 46,782     45,791 
                                                                            
Adjusted:                                                                   
Earnings per share attributable to ARC Document                             
 Solutions, Inc. shareholders:                                              
  Basic                                                 $   0.03   $   0.01 
                                                        ====================
  Diluted                                               $   0.03   $   0.01 
                                                        ====================
Weighted average common shares outstanding:                                 
  Basic                                                   45,990     45,762 
  Diluted                                                 46,782     45,791 
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net income attributable to ARC Document Solutions, Inc.   
 shareholders to EBIT, EBITDA and Adjusted EBITDA                           
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                         Three Months Ended 
                                                              March 31,     
                                                        --------------------
                                                           2014      2013   
                                                        --------------------
Net income attributable to ARC Document Solutions, Inc.                     
 shareholders                                           $   1,396 $     415 
  Interest expense, net                                     3,913     6,041 
  Income tax provision (benefit)                              664      (311)
                                                        --------------------
EBIT                                                        5,973     6,145 
  Depreciation and amortization                             8,493     8,702 
                                                        --------------------
EBITDA                                                     14,466    14,847 
  Restructuring expense                                       483       472 
  Stock-based compensation                                    781       592 
                                                        --------------------
Adjusted EBITDA                                         $  15,730 $  15,911 
                                                        ====================
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Net Sales by Product Line                                                   
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                                         Three Months Ended 
                                                              March 31,     
                                                        --------------------
                                                           2014       2013  
                                                        --------------------
Service Sales                                                               
Traditional reprographics                               $  28,325  $  29,558
Color                                                      21,165     20,905
Digital                                                     8,059      8,361
                                                        --------------------
  Subtotal                                                 57,549     58,824
Onsite services(1)                                         31,382     28,976
                                                        --------------------
  Total services sales                                     88,931     87,800
Equipment and supplies sales                               11,442     12,236
                                                        --------------------
  Total net sales                                       $ 100,373  $ 100,036
                                                        ====================
                                                                            
(1) Represents work done at our customer sites, which includes Facilities   
Management ("FM") and Managed Print Services ("MPS").                       

 
Non-GAAP Financial Measures. 
EBIT, EBITDA and related ratios presented in this report are
supplemental measures of our performance that are not required by or
presented in accordance with accounting principles generally accepted
in the United States of America ("GAAP"). These measures are not
measurements of our financial performance under GAAP and should not
be considered as alternatives to net income, income from operations,
or any other performance measures derived in accordance with GAAP or
as an alternative to cash flows from operating, investing or
financing activities as a measure of our liquidity. 
EBIT represents net income before interest and taxes. EBITDA
represents net income before interest, taxes, depreciation and
amortization. EBIT margin is a non-GAAP measure calculated by
dividing EBIT by net sales. EBITDA margin is a non-GAAP measure
calculated by dividing EBITDA by net sales. 
We present EBIT, EBITDA and related ratios because we consider them
important supplemental measures of our performance and liquidity. We
believe investors may also find these measures meaningful, given how
our management makes use of them. The following is a discussion of
our use of these measures. 
We use EBIT and EBITDA to measure and compare the performance of our
operating segments. Our operating segments' financial performance
includes all of the operating activities except debt and taxation
which are managed at the corporate level for U.S. operating segments.
As a result, we believe EBIT is the best measure of operating segment
profitability and the most useful metric by which to measure and
compare the performance of our operating segments. We also use EBIT
to measure performance for determining operating segment-level
compensation and we use EBITDA to measure performance for determining
consolidated-level compensation. In addition, we use EBIT and EBITDA
to evaluate potential acquisitions and potential capital
expenditures. 
EBIT, EBITDA and related ratios have limitations as analytical tools,
and should not be considered in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are as follows: 


 
--  They do not reflect our cash expenditures, or future requirements for
    capital expenditures and contractual commitments;
--  They do not reflect changes in, or cash requirements for, our working
    capital needs;
--  They do not reflect the significant interest expense, or the cash
    requirements necessary, to service interest or principal payments on
    our debt;
--  Although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be replaced
    in the future, and EBITDA does not reflect any cash requirements for
    such replacements; and
--  Other companies, including companies in our industry, may calculate
    these measures differently than we do, limiting their usefulness as
    comparative measures.

  
Because of these limitations, EBIT, EBITDA, and related ratios should
not be considered as measures of discretionary cash available to us
to invest in business growth or to reduce our indebtedness. We
compensate for these limitations by relying primarily on our GAAP
results and using EBIT, EBITDA and related ratios only as
supplements. For more information, see our interim Condensed
Consolidated Financial Statements and related notes on our 2014 first
quarter report on Form 10-Q. Additionally, please refer to our 2013
Annual Report on Form 10-K. 
Our presentation of adjusted net income and adjusted EBITDA over
certain periods is an attempt to provide meaningful comparisons to
our historical performance for our existing and future investors. The
unprecedented changes in our end markets over the past several years
have required us to take measures that are unique in our history and
specific to individual circumstances. Comparisons inclusive of these
actions make normal financial and other performance patterns
difficult to discern under a strict GAAP presentation. Each non-GAAP
presentation, however, is explained in detail in the reconciliation
tables above. 
Specifically, we have presented adjusted net income attributable to
ARC and adjusted earnings per share attributable to ARC shareholders
for the three months ended March 31, 2014 and 2013 to reflect the
exclusion of restructuring expense and changes in the valuation
allowances related to certain deferred tax assets and other discrete
tax items. This presentation facilitates a meaningful comparison of
our operating results for the three months ended March 31, 2014 and
2013. We believe these charges were the result of the current
macroeconomic environment, our capital restructuring, or other items
which are not indicative of our actual operating performance. 
We presented adjusted EBITDA in three months ended March 31, 2014 and
2013 to exclude stock-based compensation expense and restructuring
expense. The adjustment of EBITDA for non-cash adjustments is
consistent with the definition of adjusted EBITDA in our credit
agreement; therefore, we believe this information is useful to
investors in assessing our financial performance. 


 
                                                                            
ARC Document Solutions                                                      
Consolidated Statements of Cash Flows                                       
(Dollars in thousands)                                                      
(Unaudited)                                              Three Months Ended 
                                                              March 31,     
                                                        --------------------
                                                           2014       2013  
                                                        --------------------
Cash flows from operating activities                                        
Net income                                              $  1,296   $    683 
Adjustments to reconcile net income to net cash                             
 provided by operating activities:                                          
  Allowance for accounts receivable                          147        145 
  Depreciation                                             6,995      6,955 
  Amortization of intangible assets                        1,498      1,747 
  Amortization of deferred financing costs                   183        283 
  Amortization of bond discount                              225        165 
  Stock-based compensation                                   781        592 
  Deferred income taxes                                    1,893       (409)
  Deferred tax valuation allowance                        (1,289)        20 
  Restructuring expense, non-cash portion                    384         58 
  Other non-cash items, net                                 (170)      (114)
  Changes in operating assets and liabilities, net of                       
   effect of business acquisitions:                                         
    Accounts receivable                                   (3,435)    (9,183)
    Inventory                                             (2,014)        46 
    Prepaid expenses and other assets                        222      3,709 
    Accounts payable and accrued expenses                    998      7,184 
                                                        --------------------
Net cash provided by operating activities                  7,714     11,881 
                                                        --------------------
Cash flows from investing activities                                        
Capital expenditures                                      (3,565)    (5,612)
Other                                                        164        357 
                                                        --------------------
Net cash used in investing activities                     (3,401)    (5,255)
                                                        --------------------
Cash flows from financing activities                                        
Proceeds from stock option exercises                         441          - 
Proceeds from issuance of common stock under Employee                       
 Stock Purchase Plan                                          21          - 
Payments on long-term debt agreements and capital                           
 leases                                                   (7,963)    (3,332)
Net borrowings (repayments) under revolving credit                          
 facilities                                                  402     (1,139)
Payment of deferred financing costs                         (457)         - 
Net cash used in financing activities                     (7,556)    (4,471)
                                                        --------------------
Effect of foreign currency translation on cash balances     (126)        43 
                                                        --------------------
Net change in cash and cash equivalents                   (3,369)     2,198 
Cash and cash equivalents at beginning of period          27,362     28,021 
                                                        --------------------
Cash and cash equivalents at end of period              $ 23,993   $ 30,219 
                                                        ====================
Supplemental disclosure of cash flow information                            
Noncash financing activities                                                
  Capital lease obligations incurred                    $  4,088   $  1,254 
  Stock options exercised - unsettled                   $    550   $      - 

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