ARC Document Solutions Reports Results for Second Quarter 2013

August 06, 2013

WALNUT CREEK, CA -- (Marketwired) -- 08/06/13 -- 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 second quarter ended June 30, 2013.

Business Highlights:

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



Financial Highlights:




Three Months Ended

Six Months Ended


June 30

June 30
(All dollar figures in millions, except EPS)
2013

2012

2013

2012
Net Revenue
$ 104.6

$ 106.2

$ 204.7

$ 209.8
Gross Margin

34.0 %

31.8 %

33.2 %

31.3 %
Net Income (Loss) attributable to ARC
$ 0.7

$ (1.1 )
$ 1.1

$ (6.0 )
Adjusted Net Income (Loss) attributable to ARC
$ 1.6

$ 0.8

$ 2.2

$ 0.9
EPS
$ 0.02

$ (0.02 )
$ 0.02

$ (0.13 )
Adjusted EPS
$ 0.04

$ 0.02

$ 0.05

$ 0.02

















Cash from Operations
$ 8.1

$ 4.5

$ 20.0

$ 16.9
Capital Expenditures
$ 4.4

$ 5.5

$ 10.0

$ 9.3

















Debt & Capital Leases (including current)








$ 220.8

$ 224.4

















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

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

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

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

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

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

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

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


Sales from Services and Product Lines as a Percentage of Net Sales


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





Sales Reporting Format
In February 2013, ARC Document Solutions announced that in its statement of operations the Company would begin reporting net sales under "Service sales" and "Equipment and supplies sales" to better identify and report its individual services and product lines. The two new categories replace the three categories previously used to report net sales of "Reprographics services," "Facilities management," and "Equipment and supplies sales."

"Service sales" includes traditional reprographics services, onsite services, color printing services, and digital services. "Equipment and supplies sales" is self-explanatory. Net sales for the individual services and product lines that comprise each category are reported and reconciled in the Company's "Net Sales by Services and Product Line" table included herein. For historical comparisons, please consult the Company's 2012 annual report on Form 10-K.

Outlook:
ARC Document Solutions revised its annual adjusted earnings per share forecast for 2013 to be in the range of $0.06 to $0.09 on a fully-diluted basis, and maintains its annual cash flow from operations to be in the range of $38 million to $45 million.

Teleconference and Webcast:
ARC Document Solutions will host a conference call and audio webcast today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time) to discuss results for the Company's second quarter of 2013. The conference call can be accessed by dialing (888) 265-9177. The conference ID number is 15526230.

A live Webcast will also be made available on the investor relations page of ARC's website at www.e-arc.com. A replay will be available approximately one hour after the call for seven days following the call's conclusion. To access the replay, dial (855) 859-2056. The conference ID number to access the replay is 15526230. A Web archive will be made available at http://www.e-arc.com for approximately 90 days following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions is a leading document solutions company serving businesses of all types, with an emphasis on the non-residential segment of the architecture, engineering and construction industries. The Company helps more than 90,000 customers reduce costs and increase efficiency in the use of their documents, improve document access and control, and offers a wide variety of ways to print, produce, and store documents. ARC provides its solutions onsite in more than 7,000 of its customers' offices, offsite in service centers around the world, and digitally in the form of proprietary software and web applications. For more information please visit www.e-arc.com.

Forward-Looking Statements
This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company. Words such as "expected," "consider" "intended," and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the construction, managed print services, document management or reprographics industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the caption entitled "Risk Factors" in Item 1A in ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.



ARC Document Solutions, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)







June 30,
December 31,


2013
2012
Assets





Current assets:





Cash and cash equivalents
$ 32,377
$ 28,021
Accounts receivable, net of allowances for accounts receivable of $2,736





and $2,634

63,111

51,855
Inventories, net

13,717

14,251
Deferred income taxes

386

--
Prepaid expenses

3,993

3,277
Other current assets

3,318

6,819
Total current assets

116,902

104,223







Property and equipment, net of accumulated depreciation of $201,643 and $197,830

56,552

56,471
Goodwill

212,608

212,608
Other intangible assets, net

31,021

34,498
Deferred financing costs, net

3,658

4,219
Deferred income taxes

1,350

1,246
Other assets

2,275

2,574
Total assets
$ 424,366
$ 415,839







Liabilities and Equity





Current liabilities:





Accounts payable
$ 24,824
$ 21,215
Accrued payroll and payroll-related expenses

9,834

6,774
Accrued expenses

21,958

22,321
Current portion of long-term debt and capital leases

12,061

13,263
Total current liabilities

68,677

63,573







Long-term debt and capital leases

208,722

209,262
Deferred income taxes

30,319

28,936
Other long-term liabilities

3,137

3,231
Total liabilities

310,855

305,002







Commitments and contingencies












Stockholders' equity:





ARC Document Solutions, Inc. stockholders' equity:





Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding

--

--
Common stock, $0.001 par value, 150,000 shares authorized; 46,356 and 46,274 shares issued and 46,316 and 46,262 shares outstanding

46

46
Additional paid-in capital

103,840

102,510
Retained earnings

1,832

695
Accumulated other comprehensive income

411

689



106,129

103,940
Less cost of common stock in treasury, 40 and 12 shares

134

44
Total ARC Document Solutions, Inc. stockholders' equity

105,995

103,896
Noncontrolling interest

7,516

6,941
Total equity

113,511

110,837
Total liabilities and equity
$ 424,366
$ 415,839





















ARC Document Solutions, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)




Three Months Ended

Six Months Ended


June 30,

June 30,


2013

2012

2013

2012

















Service sales
$ 91,628

$ 91,783

$ 179,428

$ 181,455
Equipment and supplies sales

12,994


14,445


25,230


28,346

Total net sales

104,622


106,228


204,658


209,801
Cost of sales

69,011


72,475


136,668


144,170

Gross profit

35,611


33,753


67,990


65,631
Selling, general and administrative expenses

24,891


23,973


48,664


47,430
Amortization of intangible assets

1,699


2,805


3,446


7,398
Restructuring expense

636


-


1,108


-

Income from operations

8,385


6,975


14,772


10,803
Other income, net

(35 )

(24 )

(61 )

(54 )
Interest expense, net

6,076


7,255


12,117


14,693
Income (loss) before income tax provision

2,344


(256 )

2,716


(3,836 )
Income tax provision

1,467


619


1,156


1,929

Net income (loss)

877


(875 )

1,560


(5,765 )
Income attributable to the noncontrolling interest

(155 )

(178 )

(423 )

(195 )

Net income (loss) attributable to ARC Document Solutions, Inc. shareholders
$ 722

$ (1,053 )
$ 1,137

$ (5,960 )
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:
















Basic
$ 0.02

$ (0.02 )
$ 0.02

$ (0.13 )

Diluted
$ 0.02

$ (0.02 )
$ 0.02

$ (0.13 )

















Weighted average common shares outstanding:
















Basic

45,901


45,667


45,832


45,604

Diluted

46,058


45,667


45,884


45,604



















































ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)




Three Months Ended June 30,

Six Months Ended June 30,


2013

2012

2013

2012


































Cash flows provided by operating activities (1)
$ 8,110

$ 4,455

$ 19,991

$ 16,850

Changes in operating assets and liabilities, net of business acquisitions

4,314


6,928


2,558


4,783

Non-cash expenses, including depreciation amortization and restructuring

(11,547 )

(12,258 )

(20,989 )

(27,398 )

Income tax provision

1,467


619


1,156


1,929

Interest expense

6,076


7,255


12,117


14,693

Net income attributable to the noncontrolling interest

(155 )

(178 )

(423 )

(195 )
EBIT

8,265


6,821


14,410


10,662

Depreciation and amortization

8,719


9,866


17,421


21,521
EBITDA

16,984


16,687


31,831


32,183

Restructuring expense

636


-


1,108


-

Stock-based compensation

729


459


1,321


903
Adjusted EBITDA
$ 18,349

$ 17,146

$ 34,260

$ 33,086

















(1) For the three and six months ended June 30, 2013 cash flows provided by operating activities includes $1.0 million and $2.6 million, respectively, in cash payments related to restructuring.







ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income (loss) attributable to ARC to unaudited adjusted net income attributable to ARC
(Dollars in thousands, except per share data)
(Unaudited)




Three Months Ended June 30,

Six Months Ended June 30,


2013

2012

2013

2012


























Net income (loss) attributable to ARC
$ 722

$ (1,053 )
$ 1,137

$ (5,960 )

Change in trade name impact to amortization

-


790


-


3,158

Restructuring expense

636


-


1,108


-

Interest rate swap related costs

-


1,015


-


2,271

Income tax benefit, related to above items

(252 )

(694 )

(431 )

(2,049 )

Deferred tax valuation allowance and other discrete tax items

542


788


388


3,433
Unaudited adjusted net income attributable to ARC
$ 1,648

$ 846

$ 2,202

$ 853

















Actual:















Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:









Basic
$ 0.02

$ (0.02 )
$ 0.02

$ (0.13 )

Diluted
$ 0.02

$ (0.02 )
$ 0.02

$ (0.13 )

















Weighted average common shares outstanding:
















Basic

45,901


45,667


45,832


45,604

Diluted

46,058


45,667


45,884


45,604

















Adjusted:















Earnings per share attributable to ARC Document Solutions, Inc. shareholders:









Basic
$ 0.04

$ 0.02

$ 0.05

$ 0.02

Diluted
$ 0.04

$ 0.02

$ 0.05

$ 0.02

















Weighted average common shares outstanding:
















Basic

45,901


45,667


45,832


45,604

Diluted

46,058


45,726


45,884


45,618



















































ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income (loss) attributable to ARC Document Solutions to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)




Three Months Ended June 30,

Six Months Ended June 30,


2013
2012

2013
2012















Net income (loss) attributable to ARC Document Solutions
$ 722
$ (1,053 )
$ 1,137
$ (5,960 )
Interest expense, net

6,076

7,255


12,117

14,693

Income tax provision

1,467

619


1,156

1,929
EBIT

8,265

6,821


14,410

10,662

Depreciation and amortization

8,719

9,866


17,421

21,521
EBITDA

16,984

16,687


31,831

32,183

Restructuring expense

636

-


1,108

-

Stock-based compensation

729

459


1,321

903
Adjusted EBITDA
$ 18,349
$ 17,146

$ 34,260
$ 33,086













































ARC Document Solutions, Inc.
Net Sales by Product Line
(Dollars in thousands)
(Unaudited)



Three Months Ended June 30,
Six Months Ended June 30,


2013
2012
2013
2012


























Service sales












Traditional reprographics
$ 30,516
$ 34,284
$ 60,074
$ 67,607

Color

21,846

20,501

42,751

40,504

Digital

8,690

9,508

17,051

19,198


Subtotal (1)

61,052

64,293

119,876

127,309

Onsite services (2)

30,576

27,490

59,552

54,146


Total service sales

91,628

91,783

179,428

181,455













Equipment and supplies sales

12,994

14,445

25,230

28,346
Total net sales
$ 104,622
$ 106,228
$ 204,658
$ 209,801













(1) For comparison purposes this subtotal agrees with reprographics services historically reported prior to the 2012 Annual Report on Form 10-K.

(2) Represents work done at our customer sites which Includes Facilities Management ("FM") and Managed Print Services ("MPS").

Non-GAAP Financial Measures.
EBIT, EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.

EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. EBIT margin is a non-GAAP measure calculated by dividing EBIT by net sales. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

We present EBIT, EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.

We use EBIT and EBITDA to measure and compare the performance of our operating segments. Our operating segments' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating segments. As a result, we believe EBIT is the best measure of operating segment profitability and the most useful metric by which to measure and compare the performance of our operating segments. We also use EBIT to measure performance for determining operating segment-level compensation and we use EBITDA to measure performance for determining consolidated-level compensation. In addition, we use EBIT and EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBIT, EBITDA and related ratios have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

  • They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;

  • They do not reflect changes in, or cash requirements for, our working capital needs;

  • They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;

  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

  • Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBIT, EBITDA, and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and related ratios only as supplements. For more information, see our interim Condensed Consolidated Financial Statements and related notes on our 2013 second quarter report on Form 10-Q. Additionally, please refer to our 2012 Annual Report on Form 10-K.

Our presentation of adjusted net income and adjusted EBITDA over certain periods is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and six months ended June 30, 2013 and 2012 to reflect the exclusion of amortization impact related specifically to the change in useful lives of trade names, restructuring expense, interest rate swap related costs, and changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three and six months ended June 30, 2013 and 2012. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We presented adjusted EBITDA in three and six months ended June 30, 2013 and 2012 to exclude stock-based compensation expense and restructuring expense. The adjustment of EBITDA for non-cash adjustments is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.

ARC Document Solutions
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)




Three Months Ended

Six Months Ended


June 30,

June 30,


2013

2012

2013

2012
Cash flows from operating activities















Net income (loss)
$ 877

$ (875 )
$ 1,560

$ (5,765 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
















Allowance for accounts receivable

301


164


446


404

Depreciation

7,020


7,061


13,975


14,123

Amortization of intangible assets

1,699


2,805


3,446


7,398

Amortization of deferred financing costs

278


281


561


536

Amortization of bond discount

167


150


332


297

Stock-based compensation

729


459


1,321


903

Deferred income taxes

1,145


(179 )

736


(504 )

Deferred tax valuation allowance

154


944


174


2,912

Restructuring expense, non-cash portion

235


-


293


-

Amortization of derivative, net of tax effect

-


636


-


1,422

Other noncash items, net

(181 )

(63 )

(295 )

(93 )

Changes in operating assets and liabilities, net of effect of business acquisitions:

















Accounts receivable

(2,666 )

(493 )

(11,849 )

(6,127 )


Inventory

234


(1,064 )

280


(1,585 )


Prepaid expenses and other assets

(619 )

(140 )

3,090


(406 )


Accounts payable and accrued expenses

(1,263 )

(5,231 )

5,921


3,335
Net cash provided by operating activities

8,110


4,455


19,991


16,850
Cash flows from investing activities

































Capital expenditures

(4,430 )

(5,457 )

(10,042 )

(9,262 )

Other

182


(375 )

539


(184 )
Net cash used in investing activities

(4,248 )

(5,832 )

(9,503 )

(9,446 )
Cash flows from financing activities

































Proceeds from stock option exercises

-


79


-


79

Proceeds from issuance of common stock under Employee Stock Purchase Plan

9


7


9


28

Share repurchases, including shares surrendered for tax withholding

(90 )

-


(90 )

-

Proceeds from borrowings on long-term debt agreements

402


-


402


-

Payments on long-term debt agreements and capital leases

(3,075 )

(4,078 )

(6,407 )

(8,466 )

Net borrowings (repayments) under revolving credit facilities

929


(935 )

(210 )

(383 )

Payment of deferred financing costs

-


(127 )

-


(839 )
Net cash used in financing activities

(1,825 )

(5,054 )

(6,296 )

(9,581 )
Effect of foreign currency translation on cash balances

121


(65 )

164


58
Net change in cash and cash equivalents

2,158


(6,496 )

4,356


(2,119 )
Cash and cash equivalents at beginning of period

30,219


29,814


28,021


25,437
Cash and cash equivalents at end of period
$ 32,377

$ 23,318

$ 32,377

$ 23,318

















Supplemental disclosure of cash flow information















Noncash investing and financing activities















Noncash transactions include the following:
















Capital lease obligations incurred
$ 2,992

$ 2,884

$ 4,246

$ 6,730

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

Source: ARC Document Solutions, Inc.