WALNUT CREEK, CA -- (Marketwired) -- Feb 25, 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 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 $ --
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