ARC Document Solutions Reports Results for Second Quarter 2013WALNUT CREEK, CA -- (Marketwired - August 06, 2013) - 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 Six Months Ended
June 30, 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 Six Months Ended
June 30, 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 Six Months Ended
June 30, 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 Six Months Ended
June 30, 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
