ARC Document Solutions Reports Results for Third Quarter 2013
WALNUT CREEK, CA -- (November 6, 2013) - 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 third quarter ended September 30, 2013.
Business Highlights:
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| • | Quarterly revenue grew year-over-year for first time in five years |
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| • | Q3 adjusted earnings per share of $0.02 vs. $(0.04) in Q3 2012 |
| |
| • | Gross margin in Q3 of 32.5%; year-over-year increase of 310 basis points |
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| • | Q3 Adjusted EBITDA margin of 16.3%; year-over-year increase of 320 basis points |
| |
| • | YTD cash flow from operations of $40.0 million vs. $30.9 million for the same period last year |
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| • | Maintains 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 provided by operating activities to be in the range of $38-$45 million |
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| | | | | | | | | | | | |
| Financial Highlights: | | | | |
| | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| (All dollar amounts in millions, except EPS) | 2013 | 2012 | 2013 | 2012 |
| Net Revenue | $ | 101.3 |
| $ | 99.4 |
| $ | 305.9 |
| $ | 309.2 |
|
| Gross Margin | 32.5 | % | 29.4 | % | 33.0 | % | 30.7 | % |
Net (loss) Income attributable
to ARC | $ | (0.5 | ) | $ | (20.1 | ) | $ | 0.7 |
| $ | (26.1 | ) |
Adjusted Net Income (loss)
attributable to ARC | $ | 0.8 |
| $ | (1.7 | ) | $ | 3.0 |
| $ | (0.9 | ) |
| Earnings (loss) per share | $ | (0.01 | ) | $ | (0.44 | ) | $ | 0.01 |
| $ | (0.57 | ) |
| Adjusted earnings (loss) per share | $ | 0.02 |
| $ | (0.04 | ) | $ | 0.07 |
| $ | (0.02 | ) |
| Cash provided by operating activities | $ | 20.0 |
| $ | 14.0 |
| $ | 40.0 |
| $ | 30.9 |
|
| Capital Expenditures | $ | 4.8 |
| $ | 4.9 |
| $ | 14.9 |
| $ | 14.2 |
|
| Debt & Capital Leases (including current) | | | $ | 213.4 |
| $ | 224.2 |
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Management Commentary
“We’re very happy to have achieved year-over-year organic growth in the third quarter,” said K. “Suri” Suriyakumar, Chairman, President and CEO of ARC Document Solutions, Inc. “After five long years of an unprecedented downturn in the industry, it’s exciting to see our sales trend in a positive direction again.”
“While the non-residential segment of our business has yet to recover, our impressive performance is attributable to the excellent execution of the management team,” Mr. Suriyakumar continued. “On a year-over-year basis we have significantly improved our gross margins, and by positioning ourselves as a document solutions provider, we have dramatically expanded our addressable market. Sales of onsite services are now the largest segment of our business, surpassing our traditional reprographics line for the second quarter in a row, we’ve continued to receive recognition for our innovation in managed print services, and our color services sales have improved year-over-year. We intend to build on these strong performance trends in 2014 as our markets pick up steam.”
“We are continuing to make progress expanding our margins, increasing our cashflow, and changing our capital structure - the very things we promised to do in the fourth quarter of 2012,” said John Toth, ARC Document Solution’s Chief Financial Officer. “Adjusted EBITDA margin for the quarter improved by 320 basis points from a year ago, our cash position improved 21% year-over-year even after $11 million of cash outlays for bond repurchases and restructuring payments during the period, and we generated an increase of 51% in free cash flow over the same period last year.”
Mr. Toth continued, “Thanks to the seven million dollar re-purchase of our bonds early in the third quarter and stronger margin performance, we’ve also made significant progress on our debt-to-EBITDA ratio which is now 3.3 as compared to 3.6 in the second quarter. We’re in an excellent position to end the year with strength and momentum to carry us forward in 2014.”
2013 Third Quarter Supplemental Information:
Net sales were $101.3 million, a 2% increase compared to the third quarter of 2012.
Days sales outstanding in Q3 2013 were 52, which were consistent with 52 days in Q3 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 7,500, a gain of nearly 200 contracts in Q3 2013.
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| | | | |
Sales from Services and Product Lines as a Percentage of Net Sales | | |
| | Three Months Ended |
| | September 30, |
| Services and Product Line | 2013 | 2012 |
| Traditional Reprographics | 28.5 | % | 31.0 | % |
| Onsite Services | 30.6 | % | 27.3 | % |
| Color Services | 20.4 | % | 19.4 | % |
| Digital Services | 8.2 | % | 8.6 | % |
| Equipment and Supplies Sales | 12.3 | % | 13.7 | % |
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 maintained 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 its annual cash flow provided by 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 third quarter of 2013. To access the live audio call, dial 1-877-638-9067. International callers may join the conference by dialing 647-438-1131. The conference ID number is 5660213. 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 seven days after the call's conclusion. To access the replay, dial 1-888-203-1112. International callers may access the replay by dialing 719-457-0820. The conference ID number is 5660213. 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 7,000 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.
Contact Information:
David Stickney
VP Corporate Communications
925-949-5114
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| | | | | | |
| ARC Document Solutions, Inc. | | |
| Consolidated Balance Sheets | | |
| (Dollars in thousands, except per share data) | | |
| (Unaudited) | | |
| | September 30, | December 31, |
| Current assets: | 2013 | 2012 |
| Cash and cash equivalents | $ | 37,054 |
| $ | 28,021 |
|
| Accounts receivable, net of allowances for accounts receivable of $2,672 and $2,634 | 58,643 |
| 51,855 |
|
| Inventories, net | 13,750 |
| 14,251 |
|
| Deferred income taxes | 468 |
| — |
|
| Prepaid expenses | 4,711 |
| 3,277 |
|
| Other current assets | 3,418 |
| 6,819 |
|
| Total current assets | 118,044 |
| 104,223 |
|
| Property and equipment, net of accumulated depreciation of $204,231 and $197,830 | 56,367 |
| 56,471 |
|
| Goodwill | 212,608 |
| 212,608 |
|
| Other intangible assets, net | 29,436 |
| 34,498 |
|
| Deferred financing fees, net | 3,291 |
| 4,219 |
|
| Deferred income taxes | 1,269 |
| 1,246 |
|
| Other assets | 2,591 |
| 2,574 |
|
| Total assets | $ | 423,606 |
| $ | 415,839 |
|
| Current liabilities: | | |
| Accounts payable | $ | 21,889 |
| $ | 21,215 |
|
| Accrued payroll and payroll-related expenses | 12,834 |
| 6,774 |
|
| Accrued expenses | 27,623 |
| 22,321 |
|
| Current portion of long-term debt and capital leases | 11,505 |
| 13,263 |
|
| Total current liabilities | 73,851 |
| 63,573 |
|
| Long-term debt and capital leases | 201,880 |
| 209,262 |
|
| Deferred income taxes | 30,938 |
| 28,936 |
|
| Other long-term liabilities | 3,122 |
| 3,231 |
|
| Total liabilities | 309,791 |
| 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 | 104,572 |
| 102,510 |
|
| Retained earnings | 1,382 |
| 695 |
|
| Accumulated other comprehensive income | 736 |
| 689 |
|
| | 106,736 |
| 103,940 |
|
| Less cost of common stock in treasury, 40 and 12 shares | 134 |
| 44 |
|
| Total ARC Document Solutions, Inc. stockholders’ equity | 106,602 |
| 103,896 |
|
| Noncontrolling interest | 7,213 |
| 6,941 |
|
| Total equity | 113,815 |
| 110,837 |
|
| Total liabilities and equity | $ | 423,606 |
| $ | 415,839 |
|
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| | | | | | | | | | | | |
| ARC Document Solutions, Inc. | | | | |
| Consolidated Statements of Operations | | | | |
| (Dollars in thousands, except per share data) | | | | |
| (Unaudited) | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Service sales | $ | 88,830 |
| $ | 85,836 |
| $ | 268,258 |
| $ | 267,291 |
|
| Equipment and supplies sales | 12,422 |
| 13,590 |
| 37,652 |
| 41,936 |
|
| Total net sales | 101,252 |
| 99,426 |
| 305,910 |
| 309,227 |
|
| Cost of sales | 68,372 |
| 70,178 |
| 205,040 |
| 214,348 |
|
| Gross profit | 32,880 |
| 29,248 |
| 100,870 |
| 94,879 |
|
| Selling, general and administrative expenses | 24,019 |
| 23,916 |
| 72,683 |
| 71,346 |
|
| Amortization of intangible assets | 1,610 |
| 1,846 |
| 5,056 |
| 9,244 |
|
| Goodwill impairment | — |
| 16,707 |
| — |
| 16,707 |
|
| Restructuring expense | 657 |
| — |
| 1,765 |
| — |
|
| Income (loss) from operations | 6,594 |
| (13,221 | ) | 21,366 |
| (2,418 | ) |
| Other income | (25 | ) | (25 | ) | (86 | ) | (79 | ) |
| Loss on extinguishment of debt | 262 |
| — |
| 262 |
| — |
|
| Interest expense, net | 5,895 |
| 6,982 |
| 18,012 |
| 21,675 |
|
| Income (loss) before income tax provision (benefit) | 462 |
| (20,178 | ) | 3,178 |
| (24,014 | ) |
| Income tax provision (benefit) | 790 |
| (84 | ) | 1,946 |
| 1,845 |
|
| Net (loss) income | (328 | ) | (20,094 | ) | 1,232 |
| (25,859 | ) |
| Income attributable to noncontrolling interest | (122 | ) | (18 | ) | (545 | ) | (213 | ) |
| Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (450 | ) | $ | (20,112 | ) | $ | 687 |
| $ | (26,072 | ) |
| (Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | |
| Basic | $ | (0.01 | ) | $ | (0.44 | ) | $ | 0.01 |
| $ | (0.57 | ) |
| Diluted | $ | (0.01 | ) | $ | (0.44 | ) | $ | 0.01 |
| $ | (0.57 | ) |
| Weighted average common shares outstanding: | | | | |
| Basic | 45,976 |
| 45,716 |
| 45,880 |
| 45,641 |
|
| Diluted | 45,976 |
| 45,716 |
| 45,947 |
| 45,641 |
|
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| | | | | | | | | | | | |
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 | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Cash flows provided by operating activities (1) | $ | 20,019 |
| $ | 14,029 |
| $ | 40,010 |
| $ | 30,879 |
|
| Changes in operating assets and liabilities, net of effect of business acquisitions | (9,575 | ) | (6,893 | ) | (7,017 | ) | (2,110 | ) |
| Non-cash expenses, including depreciation, amortization and restructuring | (10,772 | ) | (27,230 | ) | (31,761 | ) | (54,628 | ) |
| Income tax provision (benefit) | 790 |
| (84 | ) | 1,946 |
| 1,845 |
|
| Interest expense, net | 5,895 |
| 6,982 |
| 18,012 |
| 21,675 |
|
| Income attributable to the noncontrolling interest | (122 | ) | (18 | ) | (545 | ) | (213 | ) |
| EBIT | 6,235 |
| (13,214 | ) | 20,645 |
| (2,552 | ) |
| Depreciation and amortization | 8,669 |
| 8,989 |
| 26,090 |
| 30,510 |
|
| EBITDA | 14,904 |
| (4,225 | ) | 46,735 |
| 27,958 |
|
| Loss on extinguishment of debt | 262 |
| — |
| 262 |
| — |
|
| Goodwill impairment | — |
| 16,707 |
| — |
| 16,707 |
|
| Restructuring expense | 657 |
| — |
| 1,765 |
| — |
|
| Stock-based compensation | 728 |
| 554 |
| 2,049 |
| 1,457 |
|
| Adjusted EBITDA | $ | 16,551 |
| $ | 13,036 |
| $ | 50,811 |
| $ | 46,122 |
|
(1) For the three and nine months ended September 30, 2013 cash flows provided by operating activities includes $0.7 million and $3.3 million, respectively, in cash payments related to restructuring.
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ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net (loss) income attributable to ARC to unaudited adjusted net income (loss) attributable to ARC
(Dollars in thousands, except per share data)
(Unaudited) |
| | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (450 | ) | $ | (20,112 | ) | $ | 687 |
| $ | (26,072 | ) |
| Loss on extinguishment of debt | 262 |
| — |
| 262 |
| — |
|
| Goodwill impairment | — |
| 16,707 |
| — |
| 16,707 |
|
| Restructuring expense | 657 |
| — |
| 1,765 |
| — |
|
| Change in trade name impact to amortization | — |
| — |
| — |
| 3,158 |
|
| Interest rate swap related costs | — |
| 776 |
| — |
| 3,047 |
|
| Income tax benefit related to above items | (359 | ) | (4,230 | ) | (790 | ) | (6,279 | ) |
| Deferred tax valuation allowance and other discrete tax items | 685 |
| 5,142 |
| 1,073 |
| 8,575 |
|
| Unaudited adjusted net income (loss) attributable to ARC Document Solutions, Inc. | $ | 795 |
| $ | (1,717 | ) | $ | 2,997 |
| $ | (864 | ) |
| | | | | |
| Actual: | | | | |
| (Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | |
| Basic | $ | (0.01 | ) | $ | (0.44 | ) | $ | 0.01 |
| $ | (0.57 | ) |
| Diluted | $ | (0.01 | ) | $ | (0.44 | ) | $ | 0.01 |
| $ | (0.57 | ) |
| Weighted average common shares outstanding: | | | | |
| Basic | 45,976 |
| 45,716 |
| 45,880 |
| 45,641 |
|
| Diluted | 45,976 |
| 45,716 |
| 45,947 |
| 45,641 |
|
| | | | | |
| Adjusted: | | | | |
| Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders: | | | | |
| Basic | $ | 0.02 |
| $ | (0.04 | ) | $ | 0.07 |
| $ | (0.02 | ) |
| Diluted | $ | 0.02 |
| $ | (0.04 | ) | $ | 0.07 |
| $ | (0.02 | ) |
| Weighted average common shares outstanding: | | | | |
| Basic | 45,976 |
| 45,716 |
| 45,880 |
| 45,641 |
|
| Diluted | 46,487 |
| 45,716 |
| 45,947 |
| 45,641 |
|
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ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net (loss) income attributable to ARC Document Solutions, Inc. shareholders to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited) |
| | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Net (loss) income attributable to ARC Document Solutions, Inc. shareholders | $ | (450 | ) | $ | (20,112 | ) | $ | 687 |
| $ | (26,072 | ) |
| Interest expense, net | 5,895 |
| 6,982 |
| 18,012 |
| 21,675 |
|
| Income tax provision (benefit) | 790 |
| (84 | ) | 1,946 |
| 1,845 |
|
| EBIT | 6,235 |
| (13,214 | ) | 20,645 |
| (2,552 | ) |
| Depreciation and amortization | 8,669 |
| 8,989 |
| 26,090 |
| 30,510 |
|
| EBITDA | 14,904 |
| (4,225 | ) | 46,735 |
| 27,958 |
|
| Loss on extinguishment of debt | 262 |
| — |
| 262 |
| — |
|
| Goodwill impairment | — |
| 16,707 |
| — |
| 16,707 |
|
| Restructuring expense | 657 |
| — |
| 1,765 |
| — |
|
| Stock-based compensation | 728 |
| 554 |
| 2,049 |
| 1,457 |
|
| Adjusted EBITDA | $ | 16,551 |
| $ | 13,036 |
| $ | 50,811 |
| $ | 46,122 |
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ARC Document Solutions, Inc.
Net Sales by Product Line
(Dollars in thousands)
(Unaudited) | | | | |
| | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Service Sales | | | | |
| Traditional reprographics | $ | 28,907 |
| $ | 30,820 |
| $ | 88,981 |
| $ | 98,427 |
|
| Color | 20,638 |
| 19,335 |
| 63,389 |
| 59,839 |
|
| Digital | 8,295 |
| 8,565 |
| 25,346 |
| 27,763 |
|
| Subtotal(1) | 57,840 |
| 58,720 |
| 177,716 |
| 186,029 |
|
| Onsite services(2) | 30,990 |
| 27,116 |
| 90,542 |
| 81,262 |
|
| Total services sales | 88,830 |
| 85,836 |
| 268,258 |
| 267,291 |
|
| Equipment and supplies sales | 12,422 |
| 13,590 |
| 37,652 |
| 41,936 |
|
| Total net sales | $ | 101,252 |
| $ | 99,426 |
| $ | 305,910 |
| $ | 309,227 |
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(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:
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| • | 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 |
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| • | 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 third 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 (loss) attributable to ARC and adjusted earnings (loss) per share attributable to ARC shareholders for the three and nine months ended September 30, 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 nine months ended September 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 nine months ended September 30, 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.
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ARC Document Solutions
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited) | Three Months Ended | Nine Months Ended |
| | September 30, | September 30, |
| | 2013 | 2012 | 2013 | 2012 |
| Cash flows from operating activities | | | | |
| Net (loss) income | $ | (328 | ) | $ | (20,094 | ) | $ | 1,232 |
| $ | (25,859 | ) |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | |
| Allowance for accounts receivable | 105 |
| 128 |
| 551 |
| 532 |
|
| Depreciation | 7,059 |
| 7,143 |
| 21,034 |
| 21,266 |
|
| Amortization of intangible assets | 1,610 |
| 1,846 |
| 5,056 |
| 9,244 |
|
| Amortization of deferred financing costs | 270 |
| 276 |
| 831 |
| 812 |
|
| Amortization of bond discount | 168 |
| 156 |
| 500 |
| 453 |
|
| Goodwill impairment | — |
| 16,707 |
| — |
| 16,707 |
|
| Stock-based compensation | 728 |
| 554 |
| 2,049 |
| 1,457 |
|
| Deferred income taxes | 182 |
| (3,797 | ) | 918 |
| (4,301 | ) |
| Deferred tax valuation allowance | 386 |
| 3,854 |
| 560 |
| 6,766 |
|
| Restructuring expense, non-cash portion | 70 |
| — |
| 363 |
| — |
|
| Amortization of derivative, net of tax effect | — |
| 486 |
| — |
| 1,908 |
|
| Other non-cash items, net | 194 |
| (123 | ) | (101 | ) | (216 | ) |
| Changes in operating assets and liabilities, net of effect of business acquisitions: | | | | |
| Accounts receivable | 4,491 |
| 2,796 |
| (7,358 | ) | (3,331 | ) |
| Inventory | 441 |
| (1,081 | ) | 721 |
| (2,666 | ) |
| Prepaid expenses and other assets | (1,102 | ) | (795 | ) | 1,988 |
| (1,201 | ) |
| Accounts payable and accrued expenses | 5,745 |
| 5,973 |
| 11,666 |
| 9,308 |
|
| Net cash provided by operating activities | 20,019 |
| 14,029 |
| 40,010 |
| 30,879 |
|
| Cash flows from investing activities | | | | |
| Capital expenditures | (4,814 | ) | (4,932 | ) | (14,856 | ) | (14,194 | ) |
| Other | 83 |
| 317 |
| 622 |
| 133 |
|
| Net cash used in investing activities | (4,731 | ) | (4,615 | ) | (14,234 | ) | (14,061 | ) |
| Cash flows from financing activities | | | | |
| Proceeds from stock option exercises | — |
| — |
| — |
| 79 |
|
| Proceeds from issuance of common stock under Employee Stock Purchase Plan | 4 |
| — |
| 13 |
| 28 |
|
| Share repurchases, including shares surrendered for tax withholding | — |
| — |
| (90 | ) | — |
|
| Proceeds from borrowings on long-term debt agreements | — |
| — |
| 402 |
| — |
|
| Payments of debt extinguishment costs | (66 | ) | — |
| (66 | ) | — |
|
| Early extinguishment of long-term debt | (7,000 | ) | — |
| (7,000 | ) | — |
|
| Payments on long-term debt agreements and capital leases | (2,988 | ) | (3,575 | ) | (9,395 | ) | (12,041 | ) |
| Net (repayments) borrowings under revolving credit facilities | (228 | ) | 1,424 |
| (438 | ) | 1,041 |
|
| Payment of deferred financing costs | — |
| — |
| — |
| (839 | ) |
| Dividends paid to noncontrolling interest | (485 | ) | — |
| (485 | ) | — |
|
| Net cash used in financing activities | (10,763 | ) | (2,151 | ) | (17,059 | ) | (11,732 | ) |
| Effect of foreign currency translation on cash balances | 152 |
| (47 | ) | 316 |
| 11 |
|
| Net change in cash and cash equivalents | 4,677 |
| 7,216 |
| 9,033 |
| 5,097 |
|
| Cash and cash equivalents at beginning of period | 32,377 |
| 23,318 |
| 28,021 |
| 25,437 |
|
| Cash and cash equivalents at end of period | $ | 37,054 |
| $ | 30,534 |
| $ | 37,054 |
| $ | 30,534 |
|
| Supplemental disclosure of cash flow information | | | | |
| Noncash financing activities | | | | |
| Capital lease obligations incurred | $ | 2,491 |
| $ | 1,781 |
| $ | 6,737 |
| $ | 8,511 |
|
