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 – (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.
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| 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
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| 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.
