ARC Document Solutions Reports Results for Fourth Quarter and Full Year 2013

February 25, 2014

WALNUT CREEK, CA -- (Marketwired) -- 02/25/14 -- 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 fourth quarter and full year ended December 31, 2013.

Business Highlights:

  • Annual revenue grew year-over-year for first time in five years
  • Annual adjusted earnings per share was $0.09 vs. ($0.04) in 2012
  • Annual gross margin was 33.0% vs. 30.4% in 2012
  • Annual adjusted EBITDA margin of 16.8% vs. 14.9% in 2012
  • Full year cash flow from operations of $46.8 million vs. $37.6 million in 2012
  • 2014 fully-diluted annual adjusted earnings per share outlook projected to be in the range $0.19 to $0.23; outlook for 2014 annual cash provided by operating activities projected to be in the range of $51-$56 million













Financial Highlights:











Three Months Ended

Twelve Months Ended

December 31,

December 31,
(All dollar amounts in millions, except EPS) 2013

2012

2013

2012
Net Revenue $ 101.3

$ 96.9

$ 407.2

$ 406.1
Gross Margin
33.0 %

29.6 %

33.0 %

30.4 %
Net loss attributable to ARC $ (16.0 )
$ (5.9 )
$ (15.3 )
$ (32.0 )
Adjusted Net Income (loss) attributable to ARC $ 1.1

$ (0.8 )
$ 4.1

$ (1.7 )
Earnings (loss) per share $ (0.35 )
$ (0.13 )
$ (0.33 )
$ (0.70 )
Adjusted earnings (loss) per share $ 0.02

$ (0.02 )
$ 0.09

$ (0.04 )
Cash provided by operating activities $ 6.8

$ 6.7

$ 46.8

$ 37.6
Capital Expenditures $ (3.3 )
$ (6.2 )
$ (18.2 )
$ (20.3 )
Debt & Capital Leases (including current)







$ 219.7

$ 222.5
















Management Commentary

"Our performance in 2013 was gratifying and exceeded our initial expectations, especially in our sales, cash generation, and margin performance," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "As we noted in January, the third and fourth quarters produced year-over-year sales increases, and for the first time in the company's public history, fourth quarter revenue matched third quarter revenue. Fourth quarter gross margin also improved sequentially over third quarter gross margin. These are all indications of the fundamental changes in the business drivers of our company. As a result of the effects of the restructuring we began in 2012, we also saw gross margin expand dramatically year-over-year, and we delivered a strong uptick in our adjusted EBITDA. We've achieved real momentum with organic margin improvement programs as well, and I expect that we will continue to reap the benefit of our efforts throughout the coming year."

John Toth, ARC's CFO, said, "While our business has adapted to embrace new customer workflows, new business lines, and new technologies, one thing that hasn't changed is our ability to produce cash. Not only did we exceed our forecast for cash flow from operations, but we ended the year with a cash balance equal to 2012 despite the cash outlays associated with our restructuring, open market bond repurchases, and our refinancing at the end of the year. We are well positioned to deleverage the company and I think our performance in 2013 provides an excellent springboard for more success in 2014."

2013 Fourth Quarter Supplemental Information:

Net sales were $101 million, a 5% increase compared to the fourth quarter of 2012.

Days sales outstanding in Q4 2013 were 50 compared to 48 days in Q4 2012.

AEC customers comprised approximately 76% of our total net sales, while non-AEC customers made up 24% of our total net sales.

Total number of Onsite Services contracts was approximately 7,700, a gain of approximately 700 contracts over Q4 2012.








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









Three Months Ended

Twelve Months Ended


December 31,

December 31,
Services and Product Line
2013

2012

2013

2012
Onsite Services
30.6 %
28.4 %
29.9 %
26.8 %
Traditional Reprographics
27.3 %
29.3 %
28.7 %
31.2 %
Color Services
20.0 %
19.9 %
20.5 %
19.5 %
Equipment and Supplies Sales
14.0 %
14.4 %
12.7 %
13.8 %
Digital
8.1 %
8.1 %
8.2 %
8.8 %













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 anticipates annual adjusted earnings per share in 2014 to be in the range of $0.19 to $0.23 on a fully diluted basis, and annual cash flow from operations to be in the range of $51 million to $56 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 2013 fourth quarter and full year. To access the live audio call, dial 800-390-5202. International callers may join the conference by dialing 719-325-2470. The conference ID number is 7088960. 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 7088960. 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 7,700 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)












December 31,

December 31,
Current assets:
2013

2012

Cash and cash equivalents
$ 27,362

$ 28,021

Accounts receivable, net of allowances for accounts receivable of $2,517 and $2,634

56,328


51,855

Inventories, net

14,047


14,251

Deferred income taxes

356


--

Prepaid expenses

4,324


3,277

Other current assets

4,013


6,819



Total current assets

106,430


104,223
Property and equipment, net of accumulated depreciation of $206,636 and $197,830

56,181


56,471
Goodwill

212,608


212,608
Other intangible assets, net

27,856


34,498
Deferred financing fees, net

3,242


4,219
Deferred income taxes

1,186


1,246
Other assets

2,419


2,574



Total assets
$ 409,922

$ 415,839
Current liabilities:







Accounts payable
$ 23,363

$ 21,215

Accrued payroll and payroll-related expenses

11,497


6,774

Accrued expenses

21,365


22,321

Current portion of long-term debt and capital leases

21,500


13,263



Total current liabilities

77,725


63,573
Long-term debt and capital leases

198,228


209,262
Deferred income taxes

31,667


28,936
Other long-term liabilities

3,163


3,231



Total liabilities

310,783


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; 46,365 and 46,274 shares issued and 46,320 and 46,262 shares outstanding

46


46

Additional paid-in capital

105,806


102,510

Retained (deficit) earnings

(14,628 )

695

Accumulated other comprehensive income

634


689



91,858


103,940


Less cost of common stock in treasury, 45 and 12 shares

168


44



Total ARC Document Solutions, Inc. stockholders' equity

91,690


103,896
Noncontrolling interest

7,449


6,941



Total equity

99,139


110,837



Total liabilities and equity
$ 409,922

$ 415,839







































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







Three Months Ended

Twelve Months Ended


December 31,

December 31,


2013

2012

2013

2012
Service sales
$ 87,100

$ 82,969

$ 355,358

$ 350,260
Equipment and supplies sales

14,185


13,922


51,837


55,858

Total net sales

101,285


96,891


407,195


406,118
Cost of sales

67,818


68,251


272,858


282,599

Gross profit

33,467


28,640


134,337


123,519
Selling, general and administrative expenses

24,117


21,727


96,800


93,073
Amortization of intangible assets

1,556


1,791


6,612


11,035
Goodwill impairment

--


--


--


16,707
Restructuring expense

779


3,320


2,544


3,320

Income (loss) from operations

7,015


1,802


28,381


(616 )
Other income

(20 )

(21 )

(106 )

(100 )
Loss on extinguishment of debt

16,077


--


16,339


--
Interest expense, net

5,725


6,490


23,737


28,165

Loss before income tax provision

(14,767 )

(4,667 )

(11,589 )

(28,681 )
Income tax provision

1,040


939


2,986


2,784

Net loss

(15,807 )

(5,606 )

(14,575 )

(31,465 )
Income attributable to noncontrolling interest

(203 )

(290 )

(748 )

(503 )

Net loss attributable to ARC Document Solutions, Inc. shareholders
$ (16,010 )
$ (5,896 )
$ (15,323 )
$ (31,968 )
Loss per share attributable to ARC Document Solutions, Inc. shareholders:
















Basic
$ (0.35 )
$ (0.13 )
$ (0.33 )
$ (0.70 )

Diluted
$ (0.35 )
$ (0.13 )
$ (0.33 )
$ (0.70 )
Weighted average common shares outstanding:
















Basic

45,928


45,749


45,856


45,668

Diluted

45,928


45,749


45,856


45,668






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

Twelve Months Ended


December 31,

December 31,


2013

2012

2013

2012
Cash flows provided by operating activities (1)
$ 6,788

$ 6,673

$ 46,798

$ 37,552

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

4,629


1,647


(2,388 )

(463 )

Non-cash expenses, including depreciation, amortization and restructuring

(27,224 )

(13,926 )

(58,985 )

(68,554 )

Income tax provision

1,040


939


2,986


2,784

Interest expense, net

5,725


6,490


23,737


28,165

Income attributable to noncontrolling interest

(203 )

(290 )

(748 )

(503 )
EBIT

(9,245 )

1,533


11,400


(1,019 )

Depreciation and amortization

8,655


9,012


34,745


39,522
EBITDA

(590 )

10,545


46,145


38,503

Loss on extinguishment of debt

16,077


--


16,339


--

Goodwill impairment

--


--


--


16,707

Restructuring expense

779


3,320


2,544


3,320

Stock-based compensation

1,158


542


3,207


1,999
Adjusted EBITDA
$ 17,424

$ 14,407

$ 68,235

$ 60,529

(1) For the three and twelve months ended months ended December 31, 2013 cash flows provided by operating activities includes $1.0 million and $4.3 million, respectively, in cash payments related to restructuring.




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









Three Months Ended

Twelve Months Ended


December 31,

December 31,


2013

2012

2013

2012
Net loss attributable to ARC Document Solutions, Inc.
$ (16,010 )
$ (5,896 )
$ (15,323 )
$ (31,968 )

Loss on extinguishment of debt

16,077


--


16,339


--

Goodwill impairment

--


--


--


16,707

Restructuring expense

779


3,320


2,544


3,320

Change in trade name impact to amortization

--


--


--


3,158

Interest rate swap related costs

--


393


--


3,440

Income tax benefit related to above items

(6,877 )

(1,397 )

(7,667 )

(7,676 )

Deferred tax valuation allowance and other discrete tax items

7,172


2,736


8,245


11,311
Unaudited adjusted net income (loss) attributable to ARC Document Solutions, Inc.
$ 1,141

$ (844 )
$ 4,138

$ (1,708 )

















Actual:















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
















Basic
$ (0.35 )
$ (0.13 )
$ (0.33 )
$ (0.70 )

Diluted
$ (0.35 )
$ (0.13 )
$ (0.33 )
$ (0.70 )
Weighted average common shares outstanding:
















Basic

45,927


45,749


45,856


45,668

Diluted

45,927


45,749


45,856


45,668

















Adjusted:















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
















Basic
$ 0.02

$ (0.02 )
$ 0.09

$ (0.04 )

Diluted
$ 0.02

$ (0.02 )
$ 0.09

$ (0.04 )
Weighted average common shares outstanding:
















Basic

45,927


45,749


45,856


45,668

Diluted

46,682


45,749


46,157


45,668







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










Three Months Ended

Twelve Months Ended


December 31,

December 31,


2013

2012

2013

2012
Net loss attributable to ARC Document Solutions, Inc.
$ (16,010 )
$ (5,896 )
$ (15,323 )
$ (31,968 )

Interest expense, net

5,725


6,490


23,737


28,165

Income tax provision

1,040


939


2,986


2,784
EBIT

(9,245 )

1,533


11,400


(1,019 )

Depreciation and amortization

8,655


9,012


34,745


39,522
EBITDA

(590 )

10,545


46,145


38,503

Loss on extinguishment of debt

16,077


--


16,339


--

Goodwill impairment

--


--


--


16,707

Restructuring expense

779


3,320


2,544


3,320

Stock-based compensation

1,158


542


3,207


1,999
Adjusted EBITDA
$ 17,424

$ 14,407

$ 68,235

$ 60,529



























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







Three Months Ended
Twelve Months Ended


December 31,
December 31,


2013
2012
2013
2012
Service Sales











Traditional reprographics
$ 27,693
$ 28,357
$ 116,673
$ 126,785
Color

20,212

19,241

83,601

79,080
Digital

8,187

7,816

33,534

35,578

Subtotal

56,092

55,414

233,808

241,443
Onsite services(1)

31,008

27,555

121,550

108,817

Total services sales

87,100

82,969

355,358

350,260
Equipment and supplies sales

14,185

13,922

51,837

55,858

Total net sales
$ 101,285
$ 96,891
$ 407,195
$ 406,118













(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.

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. For more information, see our 2012 Annual Report on Form 10-K.

Specifically, we have presented adjusted net income (loss) attributable to ARC and adjusted earnings (loss) per share attributable to ARC for the three and twelve months ended December 31, 2013 and 2012 to reflect the exclusion of amortization impact related specifically to the change in useful lives of trade names, loss on extinguishment of debt, goodwill impairment, 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 twelve months ended December 31, 2013 and 2012. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We presented adjusted EBITDA in three and twelve months ended December 31, 2013 and 2012 to exclude stock-based compensation expense, restructuring expense, goodwill impairment and loss on extinguishment of debt. 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

Twelve Months Ended


December 31,

December 31,


2013

2012

2013

2012
Cash flows from operating activities















Net loss
$ (15,807 )
$ (5,606 )
$ (14,575 )
$ (31,465 )
Adjustments to reconcile net loss to net cash provided by operating activities:
















Allowance for accounts receivable

85


(76 )

636


456

Depreciation

7,099


7,221


28,133


28,487

Amortization of intangible assets

1,556


1,791


6,612


11,035

Amortization of deferred financing costs

267


276


1,098


1,088

Amortization of bond discount

171


158


671


611

Goodwill impairment

--


--


--


16,707

Stock-based compensation

1,158


542


3,207


1,999

Deferred income taxes

(5,827 )

(2,132 )

(4,909 )

(6,433 )

Deferred tax valuation allowance

6,717


2,984


7,277


9,750

Restructuring expense, non-cash portion

(119 )

2,379


244


2,379

Amortization of derivative, net of tax effect

--


246


--


2,154

Loss on early extinguishment of debt

16,077


--


16,339


--

Other non-cash items, net

40


537


(323 )

321

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

















Accounts receivable

2,225


5,864


(5,133 )

2,533


Inventory

(345 )

(339 )

376


(3,005 )


Prepaid expenses and other assets

(22 )

2,233


1,966


1,032


Accounts payable and accrued expenses

(6,487 )

(9,405 )

5,179


(97 )
Net cash provided by operating activities

6,788


6,673


46,798


37,552
Cash flows from investing activities















Capital expenditures

(3,335 )

(6,154 )

(18,191 )

(20,348 )
Other

119


190


741


323
Net cash used in investing activities

(3,216 )

(5,964 )

(17,450 )

(20,025 )
Cash flows from financing activities















Proceeds from stock option exercises

59


--


59


79
Proceeds from issuance of common stock under Employee Stock Purchase Plan

17


--


30


28
Share repurchases, including shares surrendered for tax withholding

(34 )

--


(124 )

--
Proceeds from borrowings on long-term debt agreements

196,000


--


196,402


--
Payments of debt extinguishment costs

(11,264 )





(11,330 )

--
Early extinguishment of long-term debt

(193,000 )





(200,000 )

--
Payments on long-term debt agreements and capital leases

(2,984 )

(3,560 )

(12,379 )

(15,601 )
Net (repayments) borrowings under revolving credit facilities

201


225


(237 )

1,266
Payment of deferred financing costs

(2,220 )

--


(2,220 )

(839 )
Dividends paid to noncontrolling interest

--






(485 )

--
Net cash used in financing activities

(13,225 )

(3,335 )

(30,284 )

(15,067 )
Effect of foreign currency translation on cash balances

(39 )

113


277


124
Net change in cash and cash equivalents

(9,692 )

(2,513 )

(659 )

2,584
Cash and cash equivalents at beginning of period

37,054


30,534


28,021


25,437
Cash and cash equivalents at end of period
$ 27,362

$ 28,021

$ 27,362

$ 28,021
Supplemental disclosure of cash flow information:















Noncash financing activities:
















Capital lease obligations incurred
$ 3,662

$ 1,536

$ 10,399

$ 10,047

Liabilities in connection with deferred financing costs
$ 433

$ --

$ 433

$ --


















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

Source: ARC Document Solutions, Inc.