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Exhibit 99.1

ARC Document Solutions Reports Results for First Quarter 2014

WALNUT CREEK, CA — (May 6, 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 for 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.

Contact Information:

David Stickney

VP Corporate Communications

925-949-5114


ARC Document Solutions, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

(Unaudited)

 

     March 31,     December 31,  
     2014     2013  

Current assets:

    

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      $ —