ARC Continues to Exceed Expectations in the Third Quarter with Year-Over-Year Increases in EBITDA, EPS and Cash Flow from Operations

SAN RAMON, CA / ACCESSWIRE / November 4, 2020 / ARC Document Solutions, Inc. (NYSE:ARC), a leading document solutions provider to professionals in the design, marketing, commercial real estate, construction and related fields, today reported its financial results for the third quarter ended September 30, 2020.

Financial Highlights:

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

(All dollar amounts in millions, except EPS)

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Net sales

 
$
72.4
 
 
$
94.1
 
 
$
225.1
 
 
$
290.1
 

Gross margin

 
 
33.4
%
 
 
32.3
%
 
 
32.1
%
 
 
32.7
%

Net income attributable to ARC

 
$
2.8
 
 
$
1.1
 
 
$
4.9
 
 
$
2.2
 

Adjusted net income attributable to ARC

 
$
2.9
 
 
$
1.6
 
 
$
5.3
 
 
$
5.4
 

Earnings per share – Diluted

 
$
0.07
 
 
$
0.02
 
 
$
0.11
 
 
$
0.05
 

Adjusted earnings per share – Diluted

 
$
0.07
 
 
$
0.04
 
 
$
0.12
 
 
$
0.12
 

Cash provided by operating activities

 
$
12.8
 
 
$
10.8
 
 
$
39.0
 
 
$
29.8
 

EBITDA

 
$
12.1
 
 
$
11.1
 
 
$
33.3
 
 
$
35.6
 

Adjusted EBITDA

 
$
12.5
 
 
$
12.1
 
 
$
34.6
 
 
$
37.7
 

Capital Expenditures

 
$
2.5
 
 
$
2.4
 
 
$
5.1
 
 
$
8.4
 

Management Commentary:

"The continuing strength of our quarterly performance clearly speaks to the validity of our long-term plans," said Suri Suriyakumar, Chairman, President and CEO of ARC. "As the economic and cultural landscape continues to evolve in the face of the pandemic, we are adapting to the opportunities it presents for both new business and for refining our cost structure."

"As we noted last month, returning shareholder value remains a key corporate objective, and ensuring consistent performance to support it has been an important part of our efforts since March," Mr. Suriyakumar continued. "We are confident in our ability to continue our dividend and share repurchase programs in the future, and anticipate a re-commencement of both programs before the end of the year."

"As a result of our performance over the past two quarters, the strength and staying power of ARC under its new configuration is clear," said Jorge Avalos, Chief Financial Officer of ARC. "Sales of $72.4 million were very strong in the face of the continuing pandemic, and our EBITDA for the quarter actually grew year-over-year despite lower sales. Earnings per share more than doubled sequentially. Cash flow from operations grew considerably at $12.8 million for the quarter and $39 million year to date. Combined with a strong capital structure that includes a year-to-date cash balance increase of more than $20 million, we believe our ability to support our shareholders and to weather the continuing uncertainties in the coming winter months is assured."

2020 Third Quarter Supplemental Information:

Net sales were $72.4 million, a 23.1% decrease compared to the third quarter of 2019.

Cash & cash equivalents on the consolidated balance sheet in the third quarter 2020 were $50.3 million.

Days sales outstanding were 51 in Q3 2020 and 55 in Q3 2019.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 70% of total net sales, while customers outside of construction made up approximately 30% of total net sales.

The number of MPS locations have remained relatively flat year over year at approximately 10,800 as of September 30, 2020.

Net Revenue

In millions

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

Total net revenue

 
$
72.4
 
 
$
64.3
 
 
$
88.4
 
 
$
382.4
 
 
$
92.3
 
 
$
94.1
 

For the third quarter 2020, net revenue declined 23.1%, or $21.7 million, compared to the third quarter of 2019, largely due to reduced sales resulting from the COVID-19 pandemic. Our Chinese Equipment and Supplies division accounted for $3.5 million of the revenue drop in the third quarter 2020.

Revenue by Business Lines

In millions

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

CDIM

 
$
47.1
 
 
$
41.1
 
 
$
49.2
 
 
$
205.5
 
 
$
49.8
 
 
$
50.5
 

MPS

 
$
17.6
 
 
$
16.2
 
 
$
27.3
 
 
$
123.3
 
 
$
30.2
 
 
$
30.6
 

AIM

 
$
2.9
 
 
$
2.7
 
 
$
3.6
 
 
$
14.1
 
 
$
3.7
 
 
$
3.5
 

Equipment and supplies

 
$
4.7
 
 
$
4.4
 
 
$
8.4
 
 
$
39.5
 
 
$
8.6
 
 
$
9.5
 

For the third quarter 2020, construction document and information management (CDIM) sales declined 6.7% compared to prior year, primarily due to the effects of the COVID-19 pandemic. Declines in CDIM sales were driven by a lack of demand for traditional printing services, particularly in the construction space, offset partially by non-traditional printing services such as color imaging for health and safety signage, as well as retail, promotional and marketing projects.

For the third quarter 2020, managed print services (MPS) sales declined 42.3% compared to prior year. MPS sales declined due to decreases in office print volumes at existing customer accounts as employees followed shelter-at-home orders beginning late in March.

For the third quarter 2020, archiving and information management (AIM) sales decreased 17.2% compared to prior year. Sales decreases in AIM were driven by factors similar to our MPS line as office work declined in the face of shelter-at-home orders in response to the COVID-19 pandemic.

For the third quarter 2020, equipment and supplies sales declined 50.3% compared to prior year. Declines were driven primarily by constrained capital spending in China due to the early and prolonged effects of the pandemic and their effect on our Chinese joint venture.

Gross Profit

In millions unless otherwise indicated

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

Gross profit

 
$
24.2
 
 
$
20.4
 
 
$
27.6
 
 
$
125.2
 
 
$
30.2
 
 
$
30.4
 

Gross margin

 
 
33.4
%
 
 
31.8
%
 
 
31.2
%
 
 
32.7
%
 
 
32.8
%
 
 
32.3
%

The year-over-year gross profit decline in the third quarter of 2020 was due to lower sales volume. Gross profit margin increased by 110 basis points year-over-year despite $21.7 million in overall sales declines. It was aided by the drop in low margin Equipment and Supplies sales in China and cost saving activities in connection with the restructuring plan we initiated in the third quarter of 2019, as well as cost savings initiated in response to the current COVID-19 pandemic. With the sequential increase in sales during the third quarter of 2020, coupled with our reduced cost structure, this resulted in the 110 basis points increase in gross margins in the third quarter of 2020 as compared to the same period in the prior year.

Selling, General and Administrative Expenses

In millions

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

Selling, general and administrative expenses

 
$
19.2
 
 
$
17.3
 
 
$
24.3
 
 
$
107.3
 
 
$
26.4
 
 
$
26.0
 

Selling, general and administrative (SG&A) expenses in the third quarter 2020 declined by 26.3% year-over-year. The decrease was due to cost saving activities in connection with the restructuring plan we initiated in the third quarter of 2019, as well as cost savings initiated in response to the current pandemic.

Net Income and Earnings Per Share

In millions unless otherwise indicated

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

Net income attributable to ARC – GAAP

 
$
2.8
 
 
$
1.5
 
 
$
0.7
 
 
$
3.0
 
 
$
0.8
 
 
$
1.1
 

Adjusted net income attributable to ARC

 
$
2.9
 
 
$
1.2
 
 
$
1.2
 
 
$
6.8
 
 
$
1.4
 
 
$
1.6
 

Earnings per share attributable to ARC

Diluted EPS – GAAP

 
$
0.07
 
 
$
0.03
 
 
$
0.02
 
 
$
0.07
 
 
$
0.02
 
 
$
0.02
 

Adjusted diluted EPS

 
$
0.07
 
 
$
0.03
 
 
$
0.03
 
 
$
0.15
 
 
$
0.03
 
 
$
0.04
 

Year-over-year increases in GAAP net income and adjusted net income attributable to ARC was driven by the increase in gross margin and the reduction in selling, general and administrative expenses noted above.

Cash Provided by Operating Activities

In millions

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

Cash provided by operating activities

 
$
12.8
 
 
$
23.5
 
 
$
2.8
 
 
$
52.8
 
 
$
23.0
 
 
$
10.8
 

Cash provided by operating activities in the third quarter of 2020 increased by 18.1% year-over-year due to an increase in EBITDA, improved management of operating assets and liabilities, and aggressive cash management initiatives instituted in response to the COVID-19 pandemic.

EBITDA

In millions

 
 
3Q 2020
 
 
 
2Q 2020
 
 
 
1Q 2020
 
 
FYE 2019
 
 
 
4Q 2019
 
 
 
3Q 2019
 

EBITDA

 
$
12.1
 
 
$
10.3
 
 
$
10.9
 
 
$
45.9
 
 
$
10.3
 
 
$
11.1
 

Adjusted EBITDA

 
$
12.5
 
 
$
10.7
 
 
$
11.4
 
 
$
49.4
 
 
$
11.7
 
 
$
12.1
 

Increases in EBITDA and adjusted EBITDA in the third quarter of 2020 were driven by significant declines in selling, general and administrative expenses as noted above.

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

Sales from Services and Product Lines as a Percentage of Net Sales

 
2020
 
 
2019
 
 
2020
 
 
2019
 

CDIM

 
 
65.1
%
 
 
53.7
%
 
 
61.0
%
 
 
53.6
%

MPS

 
 
24.4
%
 
 
32.5
%
 
 
27.2
%
 
 
32.1
%

AIM

 
 
4.0
%
 
 
3.7
%
 
 
4.1
%
 
 
3.6
%

Equipment and supplies sales

 
 
6.5
%
 
 
10.1
%
 
 
7.7
%
 
 
10.7
%

Outlook

Due to the economic uncertainty driven by the COVID-19 pandemic, ARC has withdrawn its forecast for 2020 until such time as more reliable indicators become available.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Wednesday, November 4, 2020, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2020 third quarter. To access the live audio call, dial (833) 968-2212. International callers may join the conference by dialing (778) 560-2897. The conference code is 6392324 and will be required to dial in to the call. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at http://ir.e-arc.com. A replay of the webcast will be available on the website following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)

ARC provides a wide variety of document distribution and graphic production services to facilitate communication for professionals in the design, marketing, commercial real estate, construction and related fields. Follow ARC at 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, including forward-looking statements related to the impact of the COVID-19 pandemic on the Company's operations. Words and phrases such as "we are adapting to the opportunities", "we are confident in our ability", "we believe our ability to support our shareholders and to weather the continuing uncertainties in the coming winter months is assured", "anticipate", and "assured", 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, 2019, 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 & Investor Relations

925-949-5114

ARC Document Solutions, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)

 
September 30,
 
 
December 31,
 

Current assets:

 
2020
 
 
2019
 

Cash and cash equivalents

 
$ 
50,342
 
 
$ 
29,425
 

Accounts receivable, net of allowances for accounts receivable of $2,305 and $2,099

 
 
41,322
 
 
 
51,432
 

Inventory

 
 
10,502
 
 
 
13,936
 

Prepaid expenses

 
 
4,663
 
 
 
4,783
 

Other current assets

 
 
4,051
 
 
 
6,807
 

Total current assets

 
 
110,880
 
 
 
106,383
 

Property and equipment, net of accumulated depreciation of $223,197 and $210,849

 
 
62,971
 
 
 
70,334
 

Right-of-use assets from operating leases

 
 
37,743
 
 
 
41,238
 

Goodwill

 
 
121,051
 
 
 
121,051
 

Other intangible assets, net

 
 
641
 
 
 
1,996
 

Deferred income taxes

 
 
17,287
 
 
 
19,755
 

Other assets

 
 
2,127
 
 
 
2,400
 

Total assets

 
$ 
352,700
 
 
$ 
363,157
 

Current liabilities:

Accounts payable

 
$ 
19,317
 
 
$ 
23,231
 

Accrued payroll and payroll-related expenses

 
 
10,798
 
 
 
14,569
 

Accrued expenses

 
 
17,167
 
 
 
20,440
 

Current operating lease liabilities

 
 
11,779
 
 
 
11,060
 

Current portion of finance leases

 
 
18,748
 
 
 
17,075
 

Total current liabilities

 
 
77,809
 
 
 
86,375
 

Long-term operating lease liabilities

 
 
34,082
 
 
 
37,260
 

Long-term debt and finance leases

 
 
87,374
 
 
 
89,082
 

Other long-term liabilities

 
 
500
 
 
 
400
 

Total liabilities

 
 
199,765
 
 
 
213,117
 

Commitments and contingencies

Shareholders' equity:

ARC Document Solutions, Inc. shareholders' 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; 49,911 and 49,189 shares issued and 43,863 and 45,228 shares outstanding

 
 
50
 
 
 
49
 

Additional paid-in capital

 
 
127,505
 
 
 
126,117
 

Retained earnings

 
 
36,477
 
 
 
31,969
 

Accumulated other comprehensive loss

 
 
(3,611)
 
 
 
(3,357
)

 
 
160,421
 
 
 
154,778
 

Less cost of common stock in treasury, 6,048 and 3,960 shares

 
 
13,842
 
 
 
11,410
 

Total ARC Document Solutions, Inc. shareholders' equity

 
 
146,579
 
 
 
143,368
 

Noncontrolling interest

 
 
6,356
 
 
 
6,672
 

Total equity

 
 
152,935
 
 
 
150,040
 

Total liabilities and equity

 
$ 
352,700
 
 
$ 
363,157
 

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,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Net sales

 
$ 
72,379
 
 
$ 
94,104
 
 
$ 
225,123
 
 
$ 
290,099
 

Cost of sales

 
 
48,186
 
 
 
63,702
 
 
 
152,888
 
 
 
195,174
 

Gross profit

 
 
24,193
 
 
 
30,402
 
 
 
72,235
 
 
 
94,925
 

Selling, general and administrative expenses

 
 
19,186
 
 
 
26,025
 
 
 
60,816
 
 
 
80,881
 

Amortization of intangible assets

 
 
285
 
 
 
718
 
 
 
1,353
 
 
 
2,480
 

Restructuring expense

 
 
–
 
 
 
311
 
 
 
–
 
 
 
311
 

Income from operations

 
 
4,722
 
 
 
3,348
 
 
 
10,066
 
 
 
11,253
 

Other income, net

 
 
(11)
 
 
 
(17
)
 
 
(44)
 
 
 
(53
)

Interest expense, net

 
 
871
 
 
 
1,264
 
 
 
3,111
 
 
 
4,066
 

Income before income tax provision

 
 
3,862
 
 
 
2,101
 
 
 
6,999
 
 
 
7,240
 

Income tax provision

 
 
1,234
 
 
 
1,042
 
 
 
2,489
 
 
 
5,222
 

Net income

 
 
2,628
 
 
 
1,059
 
 
 
4,510
 
 
 
2,018
 

Loss attributable to the noncontrolling interest

 
 
163
 
 
 
16
 
 
 
425
 
 
 
173
 

Net income attributable to ARC Document Solutions, Inc. shareholders

 
$ 
2,791
 
 
$ 
1,075
 
 
$ 
4,935
 
 
$ 
2,191
 

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

 
$ 
0.07
 
 
$ 
0.02
 
 
$ 
0.11
 
 
$ 
0.05
 

Diluted

 
$ 
0.07
 
 
$ 
0.02
 
 
$ 
0.11
 
 
$ 
0.05
 

Weighted average common shares outstanding:

Basic

 
 
42,747
 
 
 
44,978
 
 
 
43,017
 
 
 
45,107
 

Diluted

 
 
42,918
 
 
 
44,992
 
 
 
43,160
 
 
 
45,213
 

ARC Document Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Cash flows from operating activities

Net income

 
$ 
2,628
 
 
$ 
1,059
 
 
$ 
4,510
 
 
$ 
2,018
 

Adjustments to reconcile net income to net cash provided by operating activities:

Allowance for accounts receivable

 
 
189
 
 
 
76
 
 
 
706
 
 
 
430
 

Depreciation

 
 
6,938
 
 
 
7,030
 
 
 
21,402
 
 
 
21,600
 

Amortization of intangible assets

 
 
285
 
 
 
718
 
 
 
1,353
 
 
 
2,480
 

Amortization of deferred financing costs

 
 
16
 
 
 
52
 
 
 
48
 
 
 
162
 

Stock-based compensation

 
 
413
 
 
 
622
 
 
 
1,333
 
 
 
1,854
 

Deferred income taxes

 
 
1,175
 
 
 
782
 
 
 
2,419
 
 
 
4,684
 

Deferred tax valuation allowance

 
 
50
 
 
 
89
 
 
 
22
 
 
 
115
 

Restructuring expense, non-cash portion

 
 
–
 
 
 
46
 
 
 
–
 
 
 
46
 

Other non-cash items, net

 
 
258
 
 
 
(120
)
 
 
226
 
 
 
(209
)

Changes in operating assets and liabilities:

Accounts receivable, net

 
 
1,144
 
 
 
1,836
 
 
 
9,310
 
 
 
(258
)

Inventory

 
 
1,527
 
 
 
1,011
 
 
 
3,469
 
 
 
1,242
 

Prepaid expenses and other assets

 
 
3,754
 
 
 
3,113
 
 
 
10,765
 
 
 
7,094
 

Accounts payable and accrued expenses

 
 
(5,617)
 
 
 
(5,507
)
 
 
(16,548)
 
 
 
(11,464
)

Net cash provided by operating activities

 
 
12,760
 
 
 
10,807
 
 
 
39,015
 
 
 
29,794
 

Cash flows from investing activities

Capital expenditures

 
 
(2,472)
 
 
 
(2,401
)
 
 
(5,053)
 
 
 
(8,406
)

Other

 
 
170
 
 
 
41
 
 
 
250
 
 
 
342
 

Net cash used in investing activities

 
 
(2,302)
 
 
 
(2,360
)
 
 
(4,803)
 
 
 
(8,064
)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

 
 
15
 
 
 
28
 
 
 
55
 
 
 
109
 

Share repurchases

 
 
–
 
 
 
(319
)
 
 
(2,432)
 
 
 
(1,186
)

Contingent consideration on prior acquisitions

 
 
–
 
 
 
–
 
 
 
–
 
 
 
(3
)

Payments on finance leases and long-term debt agreements

 
 
(3,936)
 
 
 
(6,105
)
 
 
(10,236)
 
 
 
(17,551
)

Borrowings under revolving credit facilities

 
 
5,000
 
 
 
6,500
 
 
 
45,000
 
 
 
19,750
 

Payments under revolving credit facilities

 
 
(20,000)
 
 
 
(10,000
)
 
 
(45,000)
 
 
 
(31,000
)

Dividends paid

 
 
–
 
 
 
–
 
 
 
(870)
 
 
 
–
 

Net cash used in financing activities

 
 
(18,921)
 
 
 
(9,896
)
 
 
(13,483)
 
 
 
(29,881
)

Effect of foreign currency translation on cash balances

 
 
374
 
 
 
511
 
 
 
188
 
 
 
(479
)

Net change in cash and cash equivalents

 
 
(8,089)
 
 
 
(938
)
 
 
20,917
 
 
 
(8,630
)

Cash and cash equivalents at beginning of period

 
 
58,431
 
 
 
21,741
 
 
 
29,425
 
 
 
29,433
 

Cash and cash equivalents at end of period

 
$ 
50,342
 
 
$ 
20,803
 
 
$ 
50,342
 
 
$ 
20,803
 

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

 
$ 
1,546
 
 
$ 
4,193
 
 
$ 
9,624
 
 
$ 
13,010
 

Operating lease obligations incurred

 
$ 
938
 
 
$ 
898
 
 
$ 
4,582
 
 
$ 
3,257
 

ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

CDIM

 
$ 
47,107
 
 
$ 
50,502
 
 
$ 
137,337
 
 
$ 
155,701
 

MPS

 
 
17,648
 
 
 
30,607
 
 
 
61,189
 
 
 
93,092
 

AIM

 
 
2,910
 
 
 
3,516
 
 
 
9,163
 
 
 
10,380
 

Equipment and supplies sales

 
 
4,714
 
 
 
9,479
 
 
 
17,434
 
 
 
30,926
 

Net sales

 
$ 
72,379
 
 
$ 
94,104
 
 
$ 
225,123
 
 
$ 
290,099
 

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBITDA and Adjusted
EBITDA
(In thousands)(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Cash flows provided by operating activities

 
$ 
12,760
 
 
$ 
10,807
 
 
$ 
39,015
 
 
$ 
29,794
 

Changes in operating assets and liabilities

 
 
(808)
 
 
 
(453
)
 
 
(6,996)
 
 
 
3,386
 

Non-cash expenses, including depreciation and amortization

 
 
(9,324)
 
 
 
(9,295
)
 
 
(27,509)
 
 
 
(31,162
)

Income tax provision

 
 
1,234
 
 
 
1,042
 
 
 
2,489
 
 
 
5,222
 

Interest expense, net

 
 
871
 
 
 
1,264
 
 
 
3,111
 
 
 
4,066
 

Loss attributable to the noncontrolling interest

 
 
163
 
 
 
16
 
 
 
425
 
 
 
173
 

Depreciation and amortization

 
 
7,223
 
 
 
7,748
 
 
 
22,755
 
 
 
24,080
 

EBITDA

 
 
12,119
 
 
 
11,129
 
 
 
33,290
 
 
 
35,559
 

Restructuring expense

 
 
–
 
 
 
311
 
 
 
–
 
 
 
311
 

Stock-based compensation

 
 
413
 
 
 
622
 
 
 
1,333
 
 
 
1,854
 

Adjusted EBITDA

 
$ 
12,532
 
 
$ 
12,062
 
 
$ 
34,623
 
 
$ 
37,724
 

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Net income attributable to ARC Document Solutions, Inc.

 
$ 
2,791
 
 
$ 
1,075
 
 
$ 
4,935
 
 
$ 
2,191
 

Interest expense, net

 
 
871
 
 
 
1,264
 
 
 
3,111
 
 
 
4,066
 

Income tax provision

 
 
1,234
 
 
 
1,042
 
 
 
2,489
 
 
 
5,222
 

Depreciation and amortization

 
 
7,223
 
 
 
7,748
 
 
 
22,755
 
 
 
24,080
 

EBITDA

 
 
12,119
 
 
 
11,129
 
 
 
33,290
 
 
 
35,559
 

Restructuring expense

 
 
–
 
 
 
311
 
 
 
–
 
 
 
311
 

Stock-based compensation

 
 
413
 
 
 
622
 
 
 
1,333
 
 
 
1,854
 

Adjusted EBITDA

 
$ 
12,532
 
 
$ 
12,062
 
 
$ 
34,623
 
 
$ 
37,724
 

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC to unaudited adjusted net income attributable to ARC
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
 
Nine Months Ended
 

 
September 30,
 
 
September 30,
 

 
2020
 
 
2019
 
 
2020
 
 
2019
 

Net income attributable to ARC Document Solutions, Inc.

 
$ 
2,791
 
 
$ 
1,075
 
 
$ 
4,935
 
 
$ 
2,191
 

Restructuring expense

 
 
–
 
 
 
311
 
 
 
–
 
 
 
311
 

Income tax benefit related to above items

 
 
–
 
 
 
(81
)
 
 
–
 
 
 
(81
)

Deferred tax valuation allowance and other discrete tax items

 
 
99
 
 
 
321
 
 
 
358
 
 
 
2,939
 

Adjusted net income attributable to ARC Document Solutions, Inc.

 
$ 
2,890
 
 
$ 
1,626
 
 
$ 
5,293
 
 
$ 
5,360
 

Actual:

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

 
$ 
0.07
 
 
$ 
0.02
 
 
$ 
0.11
 
 
$ 
0.05
 

Diluted

 
$ 
0.07
 
 
$ 
0.02
 
 
$ 
0.11
 
 
$ 
0.05
 

Weighted average common shares outstanding:

Basic

 
 
42,747
 
 
 
44,978
 
 
 
43,017
 
 
 
45,107
 

Diluted

 
 
42,918
 
 
 
44,992
 
 
 
43,160
 
 
 
45,213
 

Adjusted:

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:

Basic

 
$ 
0.07
 
 
$ 
0.04
 
 
$ 
0.12
 
 
$ 
0.12
 

Diluted

 
$ 
0.07
 
 
$ 
0.04
 
 
$ 
0.12
 
 
$ 
0.12
 

Weighted average common shares outstanding:

Basic

 
 
42,747
 
 
 
44,978
 
 
 
43,017
 
 
 
45,107
 

Diluted

 
 
42,918
 
 
 
44,992
 
 
 
43,160
 
 
 
45,213
 

See Non-GAAP Financial Measures discussion below.

Non-GAAP Financial Measures

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.

EBITDA represents net income before interest, taxes, depreciation and amortization.

We have presented 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 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. We use EBITDA to compare the performance of our operating segments and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA to evaluate potential acquisitions and potential capital expenditures.

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, 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 EBITDA and related ratios only as supplements.

Our presentation of adjusted net income and adjusted EBITDA 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, 2020 and 2019 to exclude restructuring expense and to reflect the exclusion of 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, 2020 and 2019.

We have presented adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019 to exclude stock-based compensation expense and restructuring expense. The adjustment of EBITDA 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.

SOURCE: ARC Document Solutions

ReleaseID: 614401