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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