WALNUT CREEK, CA--(Marketwired - Nov 6, 2014) - ARC Document Solutions, Inc. (
Quarterly Business Highlights:
- Q3 Adjusted earnings per share of $0.06 vs. $0.02 in Q3 2013
- Q3 Gross margin of 33.9%; year-over-year increase of 140 basis points
- Q3 cash flow from operations was $15.3 million and included cash payments for trade secret litigation and quarterly interest payments on senior debt
- Revises 2014 fully-diluted annual adjusted earnings per share outlook from $0.19 to $0.23 to be in the range of $0.24 to $0.27, narrows the outlook for 2014 annual cash provided by operating activities from $51 million to $56 million to be in the range of $52 to $54 million, and revises the outlook for annual adjusted EBITDA from $69 million to $73 million to be in the range of $71 million to $74 million
| Financial Highlights: | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (All dollar amounts in millions, except EPS) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Net Revenue | $ | 106.8 | $ | 101.3 | $ | 316.2 | $ | 305.9 | ||||||||
| Gross Margin | 33.9 | % | 32.5 | % | 34.6 | % | 33.0 | % | ||||||||
| Net income (loss) attributable to ARC | $ | 3.7 | $ | (0.5 | ) | $ | 9.6 | $ | 0.7 | |||||||
| Adjusted Net Income attributable to ARC | $ | 2.9 | $ | 0.8 | $ | 9.2 | $ | 3.0 | ||||||||
| Earnings (loss) per share - Diluted | $ | 0.08 | $ | (0.01 | ) | $ | 0.20 | $ | 0.01 | |||||||
| Adjusted earnings per share - Diluted | $ | 0.06 | $ | 0.02 | $ | 0.20 | $ | 0.07 | ||||||||
| Adjusted EBITDA | $ | 18.3 | $ | 16.6 | $ | 55.2 | $ | 50.8 | ||||||||
| Cash provided by operating activities | $ | 15.3 | $ | 20.0 | $ | 37.0 | $ | 40.0 | ||||||||
| Capital Expenditures | $ | 3.4 | $ | 4.8 | $ | 10.0 | $ | 14.9 | ||||||||
| Debt & Capital Leases (including current) | $ | 205.6 | $ | 213.4 | ||||||||||||
Management Commentary
"It was an excellent quarter and our performance clearly highlighted the difference between the document solutions provider we are today, the reprographics company we were prior to the recession, and the role we'll play in the future distributing documents and information from the cloud with secure mobile access. Our customers are asking us to find new ways to meet their needs, work with them in the cloud, and create new solutions for them to interact with the massive amounts of information they generate," said K. "Suri" Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "It's a different ballgame."
"We achieved double digit growth in managed print services and color, we saw more growth in archiving and information management and our construction document hyperlinking services, and there was great interest and new placements around the country for our PlanWell SmartScreens," Mr. Suriyakumar continued. "Our robust margin expansion led to strong earnings performance, and strong cash generation provided the means to aggressively reduce our senior debt in the same fashion we established in the first two quarters of the year, improving both our capital structure and our debt ratios."
The Company also announced that it has entered into a commitment letter with Wells Fargo Bank to refinance the Company's existing line of credit and its current "Term B" loan facility with a new secured credit facility containing "tranche A" revolving loans and "Term A" loans expected to be syndicated primarily to commercial banking institutions active in the "pro rata" bank market. The closing of the new loan facility is subject to the satisfaction of various conditions, including the receipt of commitments from the proposed lenders and the negotiation of definitive documentation. The Company expects the interest rate of the new five-year Term A facility to be at or near LIBOR plus 250 basis points. The Company expects to close the new loan facility before the end of the fourth quarter.
2014 Third Quarter Supplemental Information:
Net sales were $106.8 million, a 5.5% increase compared to the third quarter of 2013.
Days sales outstanding in Q3 2014 were 54, compared to 52 days in Q3 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 third quarter was approximately 8,330, an increase of nearly 630 contracts from the beginning of the year.
Adjusted EBITDA is EBITDA net of the impact of loss on extinguishment of debt, trade secret litigation costs, stock-based compensation expense, and restructuring expense.
Sales from Services and Product Lines as a Percentage of Net Sales |
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| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| Services and Product Line | 2014 | 2013 | 2014 | 2013 | ||||||||
| Onsite Services | 32.7 | % | 30.6 | % | 31.8 | % | 29.6 | % | ||||
| Traditional Reprographics | 26.4 | % | 28.5 | % | 27.4 | % | 29.1 | % | ||||
| Color Services | 21.4 | % | 20.4 | % | 21.2 | % | 20.7 | % | ||||
| Digital Services | 7.9 | % | 8.2 | % | 8.0 | % | 8.3 | % | ||||
| Equipment and Supplies Sales | 11.6 | % | 12.3 | % | 11.6 | % | 12.3 | % | ||||
Outlook:
ARC Document Solutions has revised its outlook upward for annual adjusted earnings per share in 2014 from $0.19 to $0.23 to be in the range of $0.24 to $0.27 on a fully diluted basis. The outlook for annual cash flow from operations has been narrowed from $51 million to $56 million to be in the range of $52 million to $54 million. The outlook for annual adjusted EBITDA has been revised upward from $69 million to $73 million to be in the range of $71 million to $74 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 2014. To access the live audio call, dial 888-461-2024. International callers may join the conference by dialing 719-325-2144. The conference ID number is 1208767. A live webcast will also be made available on the investor relations page of ARC Document Solutions' 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 1208767. 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 (
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 8,000 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 "expect," "confident," "assume," "intent," 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 | ||||||||||
| (In thousands, except per share data) | ||||||||||
| (Unaudited) | ||||||||||
| September 30, | December 31, | |||||||||
| Current assets: | 2014 | 2013 | ||||||||
| Cash and cash equivalents | $ | 24,835 | $ | 27,362 | ||||||
| Accounts receivable, net of allowances for accounts receivable of $2,507 and $2,517 | 64,056 | 56,328 | ||||||||
| Inventories, net | 16,167 | 14,047 | ||||||||
| Deferred income taxes | 347 | 356 | ||||||||
| Prepaid expenses | 5,208 | 4,324 | ||||||||
| Other current assets | 3,466 | 4,013 | ||||||||
| Total current assets | 114,079 | 106,430 | ||||||||
| Property and equipment, net of accumulated depreciation of $215,606 and $206,636 | 59,515 | 56,181 | ||||||||
| Goodwill | 212,608 | 212,608 | ||||||||
| Other intangible assets, net | 24,682 | 27,856 | ||||||||
| Deferred financing fees, net | 2,575 | 3,242 | ||||||||
| Deferred income taxes | 976 | 1,186 | ||||||||
| Other assets | 2,356 | 2,419 | ||||||||
| Total assets | $ | 416,791 | $ | 409,922 | ||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 25,427 | $ | 23,363 | ||||||
| Accrued payroll and payroll-related expenses | 14,733 | 11,497 | ||||||||
| Accrued expenses | 23,369 | 21,365 | ||||||||
| Current portion of long-term debt and capital leases | 11,394 | 21,500 | ||||||||
| Total current liabilities | 74,923 | 77,725 | ||||||||
| Long-term debt and capital leases | 194,238 | 198,228 | ||||||||
| Deferred income taxes | 33,110 | 31,667 | ||||||||
| Other long-term liabilities | 3,059 | 3,163 | ||||||||
| Total liabilities | 305,330 | 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; 46,790 and 46,365 shares issued and 46,721 and 46,320 shares outstanding | 46 | 46 | ||||||||
| Additional paid-in capital | 109,690 | 105,806 | ||||||||
| Retained deficit | (5,026 | ) | (14,628 | ) | ||||||
| Accumulated other comprehensive income | 229 | 634 | ||||||||
| 104,939 | 91,858 | |||||||||
| Less cost of common stock in treasury, 69 and 45 shares | 319 | 168 | ||||||||
| Total ARC Document Solutions, Inc. stockholders' equity | 104,620 | 91,690 | ||||||||
| Noncontrolling interest | 6,841 | 7,449 | ||||||||
| Total equity | 111,461 | 99,139 | ||||||||
| Total liabilities and equity | $ | 416,791 | $ | 409,922 | ||||||
| ARC Document Solutions, Inc. | |||||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Service sales | $ | 94,426 | $ | 88,830 | $ | 279,555 | $ | 268,258 | |||||||||
| Equipment and supplies sales | 12,381 | 12,422 | 36,607 | 37,652 | |||||||||||||
| Total net sales | 106,807 | 101,252 | 316,162 | 305,910 | |||||||||||||
| Cost of sales | 70,584 | 68,372 | 206,798 | 205,040 | |||||||||||||
| Gross profit | 36,223 | 32,880 | 109,364 | 100,870 | |||||||||||||
| Selling, general and administrative expenses | 26,331 | 24,019 | 80,720 | 72,683 | |||||||||||||
| Amortization of intangible assets | 1,497 | 1,610 | 4,498 | 5,056 | |||||||||||||
| Restructuring expense | 11 | 657 | 765 | 1,765 | |||||||||||||
| Income from operations | 8,384 | 6,594 | 23,381 | 21,366 | |||||||||||||
| Other income | (22 | ) | (25 | ) | (71 | ) | (86 | ) | |||||||||
| Loss on extinguishment of debt | 347 | 262 | 347 | 262 | |||||||||||||
| Interest expense, net | 3,780 | 5,895 | 11,637 | 18,012 | |||||||||||||
| Income before income tax provision | 4,279 | 462 | 11,468 | 3,178 | |||||||||||||
| Income tax provision | 659 | 790 | 1,930 | 1,946 | |||||||||||||
| Net income (loss) | 3,620 | (328 | ) | 9,538 | 1,232 | ||||||||||||
| Loss (income) attributable to noncontrolling interest | 41 | (122 | ) | 64 | (545 | ) | |||||||||||
| Net income (loss) attributable to ARC Document Solutions, Inc. shareholders | $ | 3,661 | $ | (450 | ) | $ | 9,602 | $ | 687 | ||||||||
| Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders: | |||||||||||||||||
| Basic | $ | 0.08 | $ | (0.01 | ) | $ | 0.21 | $ | 0.01 | ||||||||
| Diluted | $ | 0.08 | $ | (0.01 | ) | $ | 0.20 | $ | 0.01 | ||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 46,338 | 45,976 | 46,195 | 45,880 | |||||||||||||
| Diluted | 47,015 | 45,976 | 46,856 | 45,947 | |||||||||||||
| ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of cash flows provided by operating activities to EBIT, EBITDA and Adjusted EBITDA (In thousands) (Unaudited) |
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| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Cash flows provided by operating activities (1) | $ | 15,311 | $ | 20,019 | $ | 37,049 | $ | 40,010 | |||||||||
| Changes in operating assets and liabilities, net of effect of business acquisitions | (1,174 | ) | (9,575 | ) | 3,985 | (7,017 | ) | ||||||||||
| Non-cash expenses, including depreciation, amortization and restructuring | (10,517 | ) | (10,772 | ) | (31,496 | ) | (31,761 | ) | |||||||||
| Income tax provision | 659 | 790 | 1,930 | 1,946 | |||||||||||||
| Interest expense, net | 3,780 | 5,895 | 11,637 | 18,012 | |||||||||||||
| Loss (income) attributable to the noncontrolling interest | 41 | (122 | ) | 64 | (545 | ) | |||||||||||
| EBIT | 8,100 | 6,235 | 23,169 | 20,645 | |||||||||||||
| Depreciation and amortization | 8,536 | 8,669 | 25,561 | 26,090 | |||||||||||||
| EBITDA | 16,636 | 14,904 | 48,730 | 46,735 | |||||||||||||
| Loss on extinguishment of debt | 347 | 262 | 347 | 262 | |||||||||||||
| Trade secret litigation costs (2) | 306 | -- | 2,787 | -- | |||||||||||||
| Restructuring expense | 11 | 657 | 765 | 1,765 | |||||||||||||
| Stock-based compensation | 956 | 728 | 2,618 | 2,049 | |||||||||||||
| Adjusted EBITDA | $ | 18,256 | $ | 16,551 | $ | 55,247 | $ | 50,811 | |||||||||
| (1) | Cash flows provided by operating activities for the three and nine months ended September 30, 2013 includes cash payments related to restructuring of $0.7 million and $3.3 million, respectively. Cash flows provided by operating activities for the nine months ended September 30, 2013 includes an income tax refund of $3.8 million received in 2013 related to our 2009 consolidated federal income tax return. Cash flows provided by operating activities for the three and nine months ended September 30, 2014 includes cash payments for trade secret litigation costs of $1.1 million and $2.6 million, respectively, and cash payments related to restructuring of $0.6 million and $1.2 million, respectively. |
| (2) | On February 1, 2013, we filed a civil complaint against a competitor and a former employee in the Superior Court of California for Orange County, which alleged, among other claims, the misappropriation of ARC trade secrets; namely, proprietary customer lists that were used to communicate with our customers in an attempt to unfairly acquire their business. In prior litigation with the competitor based on related facts, in 2007 the competitor entered into a settlement agreement and stipulated judgment, which included an injunction. We instituted this suit to stop the defendant from using similar unfair business practices against us in the Southern California market. The case proceeded to trial in May 2014, and a jury verdict was entered for the defendants. In August 2014, we filed a Notice of Appeal. Legal fees associated with the litigation totaled $0.3 million and $2.8 million for the three and nine months ended September 30, 2014, respectively. |
| ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net income (loss) attributable to ARC to unaudited adjusted net income attributable to ARC (In thousands, except per share data) (Unaudited) |
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| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Net income (loss) attributable to ARC Document Solutions, Inc. | $ | 3,661 | $ | (450 | ) | $ | 9,602 | $ | 687 | ||||||||
| Loss on extinguishment of debt | 347 | 262 | 347 | 262 | |||||||||||||
| Restructuring expense | 11 | 657 | 765 | 1,765 | |||||||||||||
| Trade secret litigation costs | 306 | -- | 2,787 | -- | |||||||||||||
| Income tax benefit related to above items | (258 | ) | (359 | ) | (1,519 | ) | (790 | ) | |||||||||
| Deferred tax valuation allowance and other discrete tax items | (1,172 | ) | 685 | (2,798 | ) | 1,073 | |||||||||||
| Unaudited adjusted net income attributable to ARC Document Solutions, Inc. | $ | 2,895 | $ | 795 | $ | 9,184 | $ | 2,997 | |||||||||
| Actual: | |||||||||||||||||
| Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders: | |||||||||||||||||
| Basic | $ | 0.08 | $ | (0.01 | ) | $ | 0.21 | $ | 0.01 | ||||||||
| Diluted | $ | 0.08 | $ | (0.01 | ) | $ | 0.20 | $ | 0.01 | ||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 46,338 | 45,976 | 46,195 | 45,880 | |||||||||||||
| Diluted | 47,015 | 45,976 | 46,856 | 45,947 | |||||||||||||
| Adjusted: | |||||||||||||||||
| Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | |||||||||||||||||
| Basic | $ | 0.06 | $ | 0.02 | $ | 0.20 | $ | 0.07 | |||||||||
| Diluted | $ | 0.06 | $ | 0.02 | $ | 0.20 | $ | 0.07 | |||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 46,338 | 45,976 | 46,195 | 45,880 | |||||||||||||
| Diluted | 47,015 | 46,487 | 46,856 | 45,947 | |||||||||||||
| ARC Document Solutions, Inc. Non-GAAP Measures Reconciliation of net income (loss) attributable to ARC Document Solutions, Inc. shareholders to EBIT, EBITDA and Adjusted EBITDA (In thousands) (Unaudited) |
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| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||
| Net income (loss) attributable to ARC Document Solutions, Inc. shareholders | $ | 3,661 | $ | (450 | ) | $ | 9,602 | $ | 687 | |||||
| Interest expense, net | 3,780 | 5,895 | 11,637 | 18,012 | ||||||||||
| Income tax provision | 659 | 790 | 1,930 | 1,946 | ||||||||||
| EBIT | 8,100 | 6,235 | 23,169 | 20,645 | ||||||||||
| Depreciation and amortization | 8,536 | 8,669 | 25,561 | 26,090 | ||||||||||
| EBITDA | 16,636 | 14,904 | 48,730 | 46,735 | ||||||||||
| Loss on extinguishment of debt | 347 | 262 | 347 | 262 | ||||||||||
| Trade secret litigation costs | 306 | -- | 2,787 | -- | ||||||||||
| Restructuring expense | 11 | 657 | 765 | 1,765 | ||||||||||
| Stock-based compensation | 956 | 728 | 2,618 | 2,049 | ||||||||||
| Adjusted EBITDA | $ | 18,256 | $ | 16,551 | $ | 55,247 | $ | 50,811 | ||||||
| ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) |
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| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Service Sales | |||||||||||||
| Onsite services(1) | $ | 34,950 | $ | 30,990 | $ | 100,442 | $ | 90,542 | |||||
| Traditional reprographics | 28,196 | 28,907 | 86,702 | 88,981 | |||||||||
| Color | 22,869 | 20,638 | 67,182 | 63,389 | |||||||||
| Digital | 8,411 | 8,295 | 25,229 | 25,346 | |||||||||
| Total services sales | 94,426 | 88,830 | 279,555 | 268,258 | |||||||||
| Equipment and supplies sales | 12,381 | 12,422 | 36,607 | 37,652 | |||||||||
| Total net sales | $ | 106,807 | $ | 101,252 | $ | 316,162 | $ | 305,910 | |||||
| (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 third 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 and nine months ended September 30, 2014 and 2013 to reflect the exclusion of loss on extinguishment of debt, restructuring expense, trade secret litigation 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, 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 the three and nine months ended September 30, 2014 and 2013 to exclude loss on extinguishment of debt, trade secret litigation costs, 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 (In thousands) (Unaudited) |
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| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||
| Net income (loss) | $ | 3,620 | $ | (328 | ) | $ | 9,538 | $ | 1,232 | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||
| Allowance for accounts receivable | 197 | 105 | 444 | 551 | ||||||||||||||
| Depreciation | 7,039 | 7,059 | 21,063 | 21,034 | ||||||||||||||
| Amortization of intangible assets | 1,497 | 1,610 | 4,498 | 5,056 | ||||||||||||||
| Amortization of deferred financing costs | 190 | 270 | 587 | 831 | ||||||||||||||
| Amortization of discount on long-term debt | 207 | 168 | 656 | 500 | ||||||||||||||
| Stock-based compensation | 956 | 728 | 2,618 | 2,049 | ||||||||||||||
| Deferred income taxes | 2,100 | 182 | 6,272 | 918 | ||||||||||||||
| Deferred tax valuation allowance | (1,615 | ) | 386 | (4,652 | ) | 560 | ||||||||||||
| Restructuring expense, non-cash portion | -- | 70 | -- | 363 | ||||||||||||||
| Loss on early extinguishment of debt | 347 | 262 | 347 | 262 | ||||||||||||||
| Other non-cash items, net | (401 | ) | (68 | ) | (337 | ) | (363 | ) | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||
| Accounts receivable | (930 | ) | 4,491 | (8,424 | ) | (7,358 | ) | |||||||||||
| Inventory | (142 | ) | 441 | (2,071 | ) | 721 | ||||||||||||
| Prepaid expenses and other assets | (946 | ) | (1,102 | ) | (309 | ) | 1,988 | |||||||||||
| Accounts payable and accrued expenses | 3,192 | 5,745 | 6,819 | 11,666 | ||||||||||||||
| Net cash provided by operating activities | 15,311 | 20,019 | 37,049 | 40,010 | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||
| Capital expenditures | (3,430 | ) | (4,814 | ) | (10,027 | ) | (14,856 | ) | ||||||||||
| Payments related to business acquisitions | -- | -- | (342 | ) | -- | |||||||||||||
| Other | 105 | 83 | 505 | 622 | ||||||||||||||
| Net cash used in investing activities | (3,325 | ) | (4,731 | ) | (9,864 | ) | (14,234 | ) | ||||||||||
| Cash flows from financing activities | ||||||||||||||||||
| Proceeds from stock option exercises | 191 | -- | 1,201 | -- | ||||||||||||||
| Proceeds from issuance of common stock under Employee Stock Purchase Plan | 17 | 4 | 65 | 13 | ||||||||||||||
| Share repurchases, including shares surrendered for tax withholding | -- | -- | (151 | ) | (90 | ) | ||||||||||||
| Proceeds from borrowings on long-term debt agreements | -- | -- | -- | 402 | ||||||||||||||
| Payments of debt extinguishment costs | -- | (66 | ) | -- | (66 | ) | ||||||||||||
| Early extinguishment of long-term debt | (5,000 | ) | (7,000 | ) | (12,500 | ) | (7,000 | ) | ||||||||||
| Payments on long-term debt agreements and capital leases | (5,497 | ) | (2,988 | ) | (16,437 | ) | (9,395 | ) | ||||||||||
| Net repayments under revolving credit facilities | (532 | ) | (228 | ) | (828 | ) | (438 | ) | ||||||||||
| Payment of deferred financing costs | -- | -- | (454 | ) | -- | |||||||||||||
| Dividends paid to noncontrolling interest | (486 | ) | (485 | ) | (486 | ) | (485 | ) | ||||||||||
| Net cash used in financing activities | (11,307 | ) | (10,763 | ) | (29,590 | ) | (17,059 | ) | ||||||||||
| Effect of foreign currency translation on cash balances | (50 | ) | 152 | (122 | ) | 316 | ||||||||||||
| Net change in cash and cash equivalents | 629 | 4,677 | (2,527 | ) | 9,033 | |||||||||||||
| Cash and cash equivalents at beginning of period | 24,206 | 32,377 | 27,362 | 28,021 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 24,835 | $ | 37,054 | $ | 24,835 | $ | 37,054 | ||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||||||||
| Noncash investing and financing activities | ||||||||||||||||||
| Capital lease obligations incurred | $ | 5,506 | $ | 2,491 | $ | 14,909 | $ | 6,737 | ||||||||||
| Contingent liabilities in connection with business acquisitions | $ | 186 | $ | -- | $ | 1,110 | $ | -- | ||||||||||
Contact Information:
Contact Information:
David Stickney
VP Corporate Communications
925-949-5114