WALNUT CREEK, CA -- (Marketwired) -- May 06, 2014 -- ARC Document Solutions, Inc. (NYSE: ARC), the nation's leading document solutions provider for the architecture, engineering, and construction (AEC) industry, today reported its financial results for the first quarter ended March 31, 2014.
Quarterly Business Highlights:
- Quarterly revenue has continued to grow year-over-year since the third quarter of 2013, though increase was muted due to effects of severe weather
- Adjusted earnings per share of $0.03 vs. $0.01 in Q1 2013
- Gross margin of 33.8%; year-over-year increase of 140 basis points
- Q1 Adjusted EBITDA margin of 15.7%; year-over-year decrease of 20 basis points largely due to lower than anticipated sales
- YTD cash flow from operations of $7.7 million vs. $11.9 million for the same period last year; comparison influenced by receipt of a tax refund in 2013
- Maintains 2014 diluted annual adjusted earnings per share outlook in the range $0.19 to $0.23 and outlook for 2014 annual cash provided by operating activities in the range of $51-$56 million
- Introducing annual adjusted EBITDA guidance of $69-$73 million
Financial Highlights:
Three Months Ended
March 31,
--------------------
(All dollar amounts in millions, except EPS) 2014 2013
--------------------
Net Revenue $ 100.4 $ 100.0
Gross Margin 33.8% 32.4%
Net Income attributable to ARC $ 1.4 $ 0.4
Adjusted Net Income attributable to ARC $ 1.5 $ 0.6
Earnings per share $ 0.03 $ 0.01
Adjusted earnings per share $ 0.03 $ 0.01
Adjusted EBITDA $ 15.7 $ 15.9
Cash provided by operating activities $ 7.7 $ 11.9
Capital Expenditures $ 3.6 $ 5.6
Debt & Capital Leases (including current) $ 216.4 $ 219.4
Management Commentary
"We generated good results in the first quarter, thanks largely to the strength of our margin structure and the diversification of our business lines," said K. Suri Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "We were also pleased to see activity rise substantially in March after experiencing the dampening effects of severe weather during January and February. Despite a year-over-year sales increase of less than one percent during the quarter, our gross margin grew by 140 basis points. This kind of leverage demonstrates the sustainable strength of our new business model. Combined with the improving economic environment, better news in employment, and incremental gains throughout the construction industry, our first quarter results give me confidence in our increasing value throughout 2014."
John Toth, ARC's CFO, said, "We experienced weather-related sales losses between $1 million and $1.5 million in the early part of the quarter, but we were able to take it largely in stride, essentially matching our revenue performance in the first quarter of 2013 but improving our gross margin. Cash from operations was healthy despite the lower than expected sales and the changes in levels of working capital we typically experience in the first quarter. In spite of these headwinds, we were able to generate enough cash to comfortably double the principal payment required under our new Term Loan, reducing our principal from $200 million to $195 million. We plan to continue to aggressively reduce our long term debt and thereby our invested capital in the future."
2014 First Quarter Supplemental Information:
Net sales were $100.4 million, a 0.3% increase compared to the first quarter of 2013.
Days sales outstanding in Q1 2014 were 53, compared to 55 days in Q1 2013.
AEC customers comprised approximately 77% of our total net sales, while non-AEC customers made up approximately 23% of our total net sales.
Total number of Onsite Services contracts at the end of the first quarter was approximately 7,900, a gain of nearly 200 contracts from the beginning of the year.
Sales from Services and Product Lines as a Percentage of Net Sales
Three Months Ended
March 31,
--------------------
Services and Product Line 2014 2013
---------------------------------------------------------------------------
Traditional Reprographics 28.2% 29.5%
Onsite Services 31.3% 29.0%
Color Services 21.1% 20.9%
Digital Services 8.0% 8.4%
Equipment and Supplies Sales 11.4% 12.2%
Outlook:
ARC Document Solutions anticipates annual adjusted earnings per share in 2014 to be in the range of $0.19 to $0.23 on a fully diluted basis. Annual cash flow from operations is expected to be in the range of $51 million to $56 million. Annual adjusted EBITDA is projected to be in the range of $69 million to $73 million.
Teleconference and Webcast:
ARC Document Solutions will host a conference call and audio webcast today at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time) to discuss results for the Company's first quarter of 2014. To access the live audio call, dial 888-430-8694. International callers may join the conference by dialing 719-325-2470. The conference ID number is 7020350. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at www.e-arc.com.
A replay of the call will be available for five days after the call's conclusion. To access the replay, dial 888-203-1112. International callers may access the replay by dialing 719-457-0820. The conference ID number is 7020350. The webcast will also be made available at www.e-arc.com for approximately 90 days following the call's conclusion.
About ARC Document Solutions (NYSE: ARC)
ARC Document Solutions is a leading document solutions company serving businesses of all types, with an emphasis on the non-residential segment of the architecture, engineering and construction industries. The Company helps more than 90,000 customers reduce costs and increase efficiency in the use of their documents, improve document access and control, and offers a wide variety of ways to print, produce, and store documents. ARC provides its solutions onsite in more than 7,900 of its customers' offices, offsite in service centers around the world, and digitally in the form of proprietary software and web applications. For more information please visit www.e-arc.com.
Forward-Looking Statements
This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company. Words such as "continuing growth," "confidence" "sustainable," and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the construction, managed print services, document management or reprographics industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the caption entitled "Risk Factors" in Item 1A in ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
ARC Document Solutions, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
March 31, December 31,
-------------------------
Current assets: 2014 2013
-------------------------
Cash and cash equivalents $ 23,993 $ 27,362
Accounts receivable, net of allowances for
accounts receivable of $2,512 and $2,517 59,493 56,328
Inventories, net 16,066 14,047
Deferred income taxes 353 356
Prepaid expenses 4,590 4,324
Other current assets 4,155 4,013
-------------------------
Total current assets 108,650 106,430
Property and equipment, net of accumulated
depreciation of $209,649 and $206,636 56,574 56,181
Goodwill 212,608 212,608
Other intangible assets, net 26,316 27,856
Deferred financing fees, net 3,083 3,242
Deferred income taxes 1,222 1,186
Other assets 2,323 2,419
-------------------------
Total assets $ 410,776 $ 409,922
=========================
Current liabilities:
Accounts payable $ 22,652 $ 23,363
Accrued payroll and payroll-related expenses 11,059 11,497
Accrued expenses 23,230 21,365
Current portion of long-term debt and capital
leases 19,188 21,500
-------------------------
Total current liabilities 76,129 77,725
Long-term debt and capital leases 197,197 198,228
Deferred income taxes 32,339 31,667
Other long-term liabilities 3,186 3,163
-------------------------
Total liabilities 308,851 310,783
-------------------------
Commitments and contingencies
Stockholders' equity:
ARC Document Solutions, Inc. stockholders' equity:
Preferred stock, $0.001 par value, 25,000 shares
authorized; 0 shares issued and outstanding - -
Common stock, $0.001 par value, 150,000 shares
authorized; 46,684 and 46,365 shares issued and
46,639 and 46,320 shares outstanding 46 46
Additional paid-in capital 107,599 105,806
Retained earnings (13,232) (14,628)
Accumulated other comprehensive income 396 634
-------------------------
94,809 91,858
Less cost of common stock in treasury, 45 shares 168 168
-------------------------
Total ARC Document Solutions, Inc.
stockholders' equity 94,641 91,690
Noncontrolling interest 7,284 7,449
-------------------------
Total equity 101,925 99,139
-------------------------
Total liabilities and equity $ 410,776 $ 409,922
=========================
ARC Document Solutions, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited) Three Months Ended
March 31,
----------------------
2014 2013
----------------------
Service sales $ 88,931 $ 87,800
Equipment and supplies sales 11,442 12,236
----------------------
Total net sales 100,373 100,036
Cost of sales 66,439 67,657
----------------------
Gross profit 33,934 32,379
Selling, general and administrative expenses 26,106 23,773
Amortization of intangible assets 1,498 1,747
Restructuring expense 483 472
----------------------
Income from operations 5,847 6,387
Other income (26) (26)
Interest expense, net 3,913 6,041
----------------------
Income before income tax provision (benefit) 1,960 372
Income tax provision (benefit) 664 (311)
----------------------
Net income 1,296 683
Loss (income) attributable to noncontrolling interest 100 (268)
----------------------
Net income attributable to ARC Document Solutions,
Inc. shareholders $ 1,396 $ 415
======================
Earnings per share attributable to ARC Document
Solutions, Inc. shareholders:
Basic $ 0.03 $ 0.01
======================
Diluted $ 0.03 $ 0.01
======================
Weighted average common shares outstanding:
Basic 45,990 45,762
Diluted 46,782 45,791
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBIT,
EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2014 2013
--------------------
Cash flows provided by operating activities (1) $ 7,714 $ 11,881
Changes in operating assets and liabilities, net of
effect of business acquisitions 4,229 (1,756)
Non-cash expenses, including depreciation,
amortization and restructuring (10,647) (9,442)
Income tax provision (benefit) 664 (311)
Interest expense, net 3,913 6,041
Income attributable to the noncontrolling interest 100 (268)
--------------------
EBIT 5,973 6,145
Depreciation and amortization 8,493 8,702
--------------------
EBITDA 14,466 14,847
Restructuring expense 483 472
Stock-based compensation 781 592
--------------------
Adjusted EBITDA $ 15,730 $ 15,911
====================
(1) Cash flows provided by operating activities for the three months ended
March 31,2013 includes an income tax refund of $3.8 million received in 2013
related to our 2009 consolidated federal income tax return.
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited adjusted net
income attributable to ARC
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
--------------------
2014 2013
--------------------
Net income attributable to ARC Document Solutions, Inc. $ 1,396 $ 415
Restructuring expense 483 472
Income tax benefit related to above items (188) (179)
Deferred tax valuation allowance and other discrete
tax items (157) (154)
--------------------
Unaudited adjusted net income attributable to ARC
Document Solutions, Inc. $ 1,534 $ 554
====================
Actual:
Earnings per share attributable to ARC Document
Solutions, Inc. shareholders:
Basic $ 0.03 $ 0.01
====================
Diluted $ 0.03 $ 0.01
====================
Weighted average common shares outstanding:
Basic 45,990 45,762
Diluted 46,782 45,791
Adjusted:
Earnings per share attributable to ARC Document
Solutions, Inc. shareholders:
Basic $ 0.03 $ 0.01
====================
Diluted $ 0.03 $ 0.01
====================
Weighted average common shares outstanding:
Basic 45,990 45,762
Diluted 46,782 45,791
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc.
shareholders to EBIT, EBITDA and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2014 2013
--------------------
Net income attributable to ARC Document Solutions, Inc.
shareholders $ 1,396 $ 415
Interest expense, net 3,913 6,041
Income tax provision (benefit) 664 (311)
--------------------
EBIT 5,973 6,145
Depreciation and amortization 8,493 8,702
--------------------
EBITDA 14,466 14,847
Restructuring expense 483 472
Stock-based compensation 781 592
--------------------
Adjusted EBITDA $ 15,730 $ 15,911
====================
ARC Document Solutions, Inc.
Net Sales by Product Line
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2014 2013
--------------------
Service Sales
Traditional reprographics $ 28,325 $ 29,558
Color 21,165 20,905
Digital 8,059 8,361
--------------------
Subtotal 57,549 58,824
Onsite services(1) 31,382 28,976
--------------------
Total services sales 88,931 87,800
Equipment and supplies sales 11,442 12,236
--------------------
Total net sales $ 100,373 $ 100,036
====================
(1) Represents work done at our customer sites, which includes Facilities
Management ("FM") and Managed Print Services ("MPS").
Non-GAAP Financial Measures.
EBIT, EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.
EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. EBIT margin is a non-GAAP measure calculated by dividing EBIT by net sales. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.
We present EBIT, EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.
We use EBIT and EBITDA to measure and compare the performance of our operating segments. Our operating segments' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating segments. As a result, we believe EBIT is the best measure of operating segment profitability and the most useful metric by which to measure and compare the performance of our operating segments. We also use EBIT to measure performance for determining operating segment-level compensation and we use EBITDA to measure performance for determining consolidated-level compensation. In addition, we use EBIT and EBITDA to evaluate potential acquisitions and potential capital expenditures.
EBIT, EBITDA and related ratios have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:
- They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;
- They do not reflect changes in, or cash requirements for, our working capital needs;
- They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
- Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, EBIT, EBITDA, and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and related ratios only as supplements. For more information, see our interim Condensed Consolidated Financial Statements and related notes on our 2014 first quarter report on Form 10-Q. Additionally, please refer to our 2013 Annual Report on Form 10-K.
Our presentation of adjusted net income and adjusted EBITDA over certain periods is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.
Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three months ended March 31, 2014 and 2013 to reflect the exclusion of restructuring expense and changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three months ended March 31, 2014 and 2013. We believe these charges were the result of the current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.
We presented adjusted EBITDA in three months ended March 31, 2014 and 2013 to exclude stock-based compensation expense and restructuring expense. The adjustment of EBITDA for non-cash adjustments is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.
ARC Document Solutions
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited) Three Months Ended
March 31,
--------------------
2014 2013
--------------------
Cash flows from operating activities
Net income $ 1,296 $ 683
Adjustments to reconcile net income to net cash
provided by operating activities:
Allowance for accounts receivable 147 145
Depreciation 6,995 6,955
Amortization of intangible assets 1,498 1,747
Amortization of deferred financing costs 183 283
Amortization of bond discount 225 165
Stock-based compensation 781 592
Deferred income taxes 1,893 (409)
Deferred tax valuation allowance (1,289) 20
Restructuring expense, non-cash portion 384 58
Other non-cash items, net (170) (114)
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable (3,435) (9,183)
Inventory (2,014) 46
Prepaid expenses and other assets 222 3,709
Accounts payable and accrued expenses 998 7,184
--------------------
Net cash provided by operating activities 7,714 11,881
--------------------
Cash flows from investing activities
Capital expenditures (3,565) (5,612)
Other 164 357
--------------------
Net cash used in investing activities (3,401) (5,255)
--------------------
Cash flows from financing activities
Proceeds from stock option exercises 441 -
Proceeds from issuance of common stock under Employee
Stock Purchase Plan 21 -
Payments on long-term debt agreements and capital
leases (7,963) (3,332)
Net borrowings (repayments) under revolving credit
facilities 402 (1,139)
Payment of deferred financing costs (457) -
Net cash used in financing activities (7,556) (4,471)
--------------------
Effect of foreign currency translation on cash balances (126) 43
--------------------
Net change in cash and cash equivalents (3,369) 2,198
Cash and cash equivalents at beginning of period 27,362 28,021
--------------------
Cash and cash equivalents at end of period $ 23,993 $ 30,219
====================
Supplemental disclosure of cash flow information
Noncash financing activities
Capital lease obligations incurred $ 4,088 $ 1,254
Stock options exercised - unsettled $ 550 $ -
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