5. Long-Term Debt
Subject to certain exceptions, including, in certain circumstances, reinvestment rights, the loans extended under the amended Term A Credit Agreement are subject to customary mandatory prepayment provisions with respect to: the net proceeds from certain asset sales; the net proceeds from certain issuances or incurrences of debt (other than debt permitted to be incurred under the terms
6. Commitments and Contingencies
7. Stock-Based Compensation
8. Derivatives and Hedging Transactions
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2016Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.2022.
Business Summary
ARC Document Solutions Inc. (“ARC Document Solutions,” “ARC,” “we,” “us,” or “our”) is a leadingdigital printing company. We provide digital printing and document-related services to customers in a growing variety of industries. Our primary services and product offering are:
•digital printing of general and specialized business documents such as those found in marketing and advertising, engineering and construction and other industries, as well as producing highly-customized display graphics of all types and sizes;
•acquiring, placing and managing ARC-certified office printing equipment with proprietary device tracking and print management software at our customers’ offices and job sites;
•scanning documents, indexing them and adding digital search features for use in digital document solutions provider to design, engineering, construction,management, document archives and facilities management, professionals, while alsoas well as providing document solutions to businesses of all types.other digital imaging services; and,
Our customers need us to manage the scale, complexity•reselling digital printing equipment and workflow of their documents. We help them reduce their costs and increase their efficiency by improving their access and control over documents, and we offer a wide variety of ways to access, distribute, collaborate on, and store documents.supplies.
Each of our service offerings is enabled through a suitethese services frequently include additional logistics services in the form of supporting proprietary technologydistributing and a wide varietydelivering finished documents, installing display graphics, or the digital storage of value-added services. graphic files.
We have categorized our service and product offerings to report distinct sales recognized from:
Digital Printing: We print documents of any size in color and black and white on a variety of materials including plain paper, vinyl, fabric, metal, wood and other three-dimensional substrates. While we can and do print high-page count work such as manuals or catalogs, the documents we typically produce are usually characterized by their high-quality production, low-volume and quick turnaround, and are produced using highly-sophisticated digital printing equipment.
Construction DocumentManaged Print Services: We acquire and Information Management (CDIM), which consistsmanage digital printing equipment and place it in our customers' facilities for their use, based on a service level agreement. We lease or own the equipment ourselves, while our customers pay for what they use. Per-use minimum charges are often part of our service agreements. We operate more than 10,500 managed print services, or MPS locations, ranging in size from one or two pieces of equipment in a single office, to hundreds of pieces equipment in offices around the world. We also provide proprietary software servicesto our customers to control their print expenses and professionalconnect their remote employees with their offices and ARC print centers nationwide. This software is developed and integrated by ARC.
Scanning and Digital Imaging: We scan hard-copy small format or large format documents in color or black and white, typically providing them to our customers as searchable PDF files. We also use our patented optical character recognition technology to make documents searchable, and we host them on proprietary applications for use as part of our ARC Facilities solutions. The types of documents that we scan include office files, construction plans and other small or large documents. We also process, distribute and print-on-demand images we capture for our customers. Our large, centralized Scanning and Digital Imaging centers are compliant with the Health Insurability Portability and Accountability Act of 1996, or HIPAA, so we can convert documents that include protected health information. Our unique software creates efficient search tags on scanned data for easy search and retrieval. We offer Cloud-based document management software and other digital hosting services to manageour customers or make files available for our customers to host themselves.
Equipment and distribute documentsSupplies Sales: We sell equipment and information primarily relatedsupplies to construction projects. CDIM sales include softwarea small segment of our customer base. We also provide ancillary services such as SKYSITE®equipment service and maintenance, often as a way to generate recurring revenue in addition to a one-time sale. In addition, we offer certified used equipment available for sale or for use in our MPS offering.
In previous years, our services were characterized by the primary industries/markets in which they were meant to be sold, e.g., the construction industry or the document archiving and storage market. Having expanded the variety of the markets and industries we serve over the past several years, we now believe it is more useful to report our cloud-based project communication application,services by production method. Specifically, we previously described Digital Printing as well as providing“construction document and information management services thatmanagement” or “CDIM,” and Scanning and Digital Imaging as “archiving and information management” or “AIM.”
The methods for financial reporting and revenue recognition in our renamed service lines remain unchanged. Likewise, “Managed Print Services” or “MPS” and “Equipment Sales and Supplies” are often technology-enabled. also reported identically from previous years.
The bulkmajority of our current revenue from CDIM comes from large-formatproducts and small-format printing services we provide in both black and white and in color. Sales from traditional printing have been in steady decline since the last recession due in large measure to the adoption of technology, but we believe there is market share still to be captured.
Software services are a smaller partavailable from each of overall CDIM sales whichour service centers. Our primary operational objective is to optimize our business performance by driving as much customer work through our service center network as is practical, leveraging our production infrastructure, workforce, and production-grade equipment. All our production centers are digitally connected and we anticipateoperate standard software and systems to continue to grow with the adoptionsupport seamless movement of technology. The sale of services addresses a variety of customer needs including the provision of project communication tools, project information management, building information modeling,customers digital document distribution services, printing services, and others.
Managed Print Services (MPS), consists of placement, management, and optimization of print and imaging equipment in our customers' offices, job sites, and other facilities. MPS relieves our customers of the burden of owning and managing print devicesdata and print networks, and shifts their costs to a “per-use” basis. MPS is supported byanywhere within the ARC system.
In addition, we can provide many of our proprietary technology, Abacus™, which allows our customers to capture, control, manage, print, and account for their documents. MPS Services revenue is derived from two sources: 1) an engagement with the customer to place primarily large-format equipment, that we own or lease, at a construction site orservices in our customers’ offices,offices. Our geographic presence is concentrated in the U.S., with additional service centers in Canada, the United Arab Emirates (UAE), China, India, and 2) an arrangement by which our customers outsource their printing function to us, including all office printing, copying, and reprographics printing. In both cases this is recurring, contracted revenue with most contracts ranging from 3 to 5 years and we are paid a single cost per unit of material used, often referred tothe United Kingdom. Our origin as a “click charge.” MPS sales are driven bycompany was in California, and the ongoing print needsinitial expansion of our customers at their facilities.
Archiving and Information Management (AIM), combines software and professional services to facilitate the capture, management, access and retrieval of documents and information that have been produced in the past. AIM includes our SKYSITE software to organize, search and retrieve documents, as well as the provision of services that include the capture and conversion of hardcopy and electronic documents, and their cloud-based storage and maintenance. AIM sales are driven by the need to leverage past intellectual property for present or future use, facilitate cost savings and efficiency improvements over current hardcopy and digital storage methods, as well as comply with regulatory and records retention requirements.
Equipment and Supplies, which consists of reselling printing, imaging, and related equipment to customers primarily to architectural, engineering and construction firms.
business was concentrated there. We focus on growing MPS, AIM and CDIM, as we believe the mix of services demanded by the architectural, engineering, construction, and building owner/operator (AEC/O) industry continues to shift toward document management at customer locations and in the cloud, and away from its historical emphasis on large-format construction drawings produced “offsite” in our service centers.
We deliver our services via the cloud, through a nationwide network of service centers, regionally-based technical specialists, locally-based sales executives, and a national/regional sales force known as Global Solutions.
Acquisition activity during the last three years has been minimal and did not materially affect our overall business.
We believe we offer a distinct portfolio of services within the AEC/O industry, though clients outsidederive approximately 32% of our core market continue to show significant interest in our offerings. Based on our analysis of our operating results, we estimate that sales tototal revenue from the AEC/O industry accounted for approximately 78% of our net sales for the nine months ended September 30, 2017, with the remaining 22% consisting of sales to businesses outside of construction.
We identify operating segments based on the various business activities that earn revenue and incur expense. Our operating results are reviewed by the Company's Chief Executive Officer, who is our Company's chief operating decision maker. Since our operating segments have similar products and services classesdelivered in California.
All of customers,our production processes, distribution methodsfacilities are connected via a Software-Defined Wide Area Network (SD-WAN). Our cloud offerings are hosted by Amazon Web Services. We employ a combination of proprietary and economic characteristics, we have a single reportable segment. See Note 1 “Descriptionindustry-leading technologies to provide redundancy, backup and security of Businessall data in our systems. All of our technology operations are designed to meet ISO 29001 standards for data security, and Basisseveral of Presentation” for further information.our service centers are HIPAA-compliant allowing us to manage document conversions and other scanning tasks involving protected health information, or PHI.
Costs and Expenses
Our cost of sales consists primarily of materials (paper, toner and other consumables), labor, and “indirect costs” whichcosts.” Indirect costs consist primarily of equipment expenses related to our MPS contractslocations (typically our customers’ offices and job sites) and our service center facilities.centers. Facilities and equipment expenses include maintenance, repairs, rents, insurance, and depreciation. Paper is the largest component of our material cost; however, the impact of paper pricing typically does not significantly affecton our operating margins due,are mitigated and in part, to our efforts to pass increased costssome cases eliminated as they are often passed on to our customers. We closely monitor material cost as a percentage of net sales to measure volume and waste.waste, and we maintain low levels of inventory. We also track labor utilization, or net sales per employee, to measure productivity and determine staffing levels.
We maintain low levelsThe effects of inventory. global supply chain disruptions have been confined primarily to price increases for production materials and the demand for greater flexibility in inventory practices, such as purchasing in greater volume to leverage better economics or to ensure production continuity by having materials on hand. As noted above, price increases are often passed on to our customers. Labor costs have increased moderately to retain valuable employees or to compete for new hires. While these increases had an effect, we believe our cost optimization program will continue to make them manageable in the future.
Historically, our capital expenditure requirements have varied duebased on our need for printing equipment in our MPS locations and service centers. Over the past two years, the pandemic has reduced the number of employees in our customers’ locations, which has, in turn, reduced the need for equipment. We believe this equipment trend is likely to become permanent and, as a result, we think the cost and availabilitypast two years are more indicative of future capital lease lines of credit. Ourneeds than historical trends.
Because our relationships with credit providers has providedallows us to obtain attractive lease rates, over the past two years, and as a result, we chose to lease rather than purchase equipment in a significant portionmost of our engagements.equipment over the past two years.
Research and development costs consist mainly of the salaries, leased building space, and computer equipment that comprisesrelated to our data storage and development centers in Fremont,San Ramon, California and Kolkata, India. Such costs are primarily recorded to cost of sales.
COVID-19 Pandemic
The COVID-19 pandemic continued to have adverse effects on our financial performance during 2021, but barring further negative developments of the virus and its impact on personal and economic well-being, we expect that the worst of those effects are behind us. We expect a hybrid office to remain the norm in 2022, but for print volumes to increase marginally as employers bring their employees back into the office at higher rates than we saw in 2021. We believe work-from-home practices benefit our scanning business as employees need access to documents, regardless of where they are working, and document scanning is the first step in making them accessible in the cloud.
Throughout the third quarter of 2022, we believe the disruption to our business related to the COVID-19 pandemic has largely dissipated and we are now working under conditions that are likely to continue for the foreseeable future. A lasting effect of the pandemic appears to be the use of hybrid work schedules for many of our office-based clients. While this could change and more people may come back to work in offices, there is no indication of a mass return to offices throughout the country and thus we believe that our managed print services business line is likely to remain muted relative to periods prior to the pandemic. This does not preclude year-over-year growth in this part of our business, but at this time we do not expect revenues to ramp up quickly to levels prior to 2020 and ultimately, may never do so. Our management team is actively monitoring the continuing impacts of the COVID-19 pandemic and may take further voluntary or required actions to alter our business operations to protect employees and customers. The following discussions are subject to the future effects of the COVID-19 pandemic on our ongoing business operations.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (decrease) | | Nine Months Ended
September 30, | | Increase (decrease) |
| (In millions, except percentages) | 2022(1) | | 2021(1) | | $ | | % | | 2022(1) | | 2021(1) | | $ | | % |
| Digital Printing | $ | 44.7 | | | $ | 44.9 | | | $ | (0.2) | | | (0.5) | % | | $ | 132.8 | | | $ | 125.4 | | | $ | 7.4 | | | 5.9 | % |
| MPS | 19.4 | | | 18.5 | | | 0.9 | | | 5.0 | % | | 57.3 | | | 53.8 | | | 3.5 | | | 6.5 | % |
| Scanning and Digital Imaging | 4.8 | | | 4.1 | | | 0.7 | | | 17.3 | % | | 13.3 | | | 10.4 | | | 2.9 | | | 27.8 | % |
| | | | | | | | | | | | | | | |
| Equipment and supplies sales | 4.3 | | | 5.0 | | | (0.7) | | | (13.8) | % | | 13.8 | | | 13.3 | | | 0.5 | | | 3.8 | % |
| Total net sales | $ | 73.1 | | | $ | 72.4 | | | $ | 0.7 | | | 1.0 | % | | $ | 217.2 | | | $ | 203.0 | | | $ | 14.2 | | | 7.0 | % |
| | | | | | | | | | | | | | | |
| Gross profit | $ | 24.8 | | | $ | 23.8 | | | $ | 1.0 | | | 4.3 | % | | $ | 72.8 | | | $ | 65.4 | | | $ | 7.4 | | | 11.4 | % |
| Selling, general and administrative expenses | $ | 19.1 | | | $ | 18.8 | | | $ | 0.3 | | | 1.3 | % | | $ | 58.4 | | | $ | 54.4 | | | $ | 4.0 | | | 7.4 | % |
| Amortization of intangible assets | $ | — | | | $ | — | | | $ | — | | | (54.1) | % | | $ | 0.1 | | | $ | 0.2 | | | $ | (0.1) | | | (48.2) | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Interest expense, net | $ | 0.5 | | | $ | 0.5 | | | $ | — | | | (8.3) | % | | $ | 1.3 | | | $ | 1.7 | | | $ | (0.4) | | | (21.3) | % |
| Income tax provision | $ | 1.6 | | | $ | 1.3 | | | $ | 0.3 | | | 21.5 | % | | $ | 4.4 | | | $ | 2.9 | | | $ | 1.4 | | | 48.4 | % |
| Net income attributable to ARC | $ | 3.7 | | | $ | 3.2 | | | $ | 0.6 | | | 17.6 | % | | $ | 9.0 | | | $ | 6.5 | | | $ | 2.4 | | | 37.2 | % |
Non-GAAP (2) | | | | | | | | | | | | | | | |
Adjusted net income attributable to ARC (2) | $ | 3.7 | | | $ | 3.2 | | | $ | 0.5 | | | 15.4 | % | | $ | 9.4 | | | $ | 6.8 | | | $ | 2.6 | | | 38.4 | % |
EBITDA (2) | $ | 10.8 | | | $ | 11.0 | | | $ | (0.3) | | | (2.3) | % | | $ | 30.3 | | | $ | 30.1 | | | $ | 0.2 | | | 0.6 | % |
Adjusted EBITDA (2) | $ | 11.2 | | | $ | 11.5 | | | $ | (0.3) | | | (2.5) | % | | $ | 31.6 | | | $ | 31.3 | | | $ | 0.3 | | | 0.9 | % |
1.Column does not foot due to rounding.
2.See "Non-GAAP Financial Measures" following "Results of Operations" for definitions, reconciliations and more information related to our Non-GAAP disclosures.
The following table provides information on the percentages of certain items of selected financial data as a percentage of net sales for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Percentage of Net Sales | | | As Percentage of Net Sales |
| Three Months Ended September 30, | | | Nine Months Ended September 30, |
| | 2022 (1) | | 2021 (1) | | | 2022 | | 2021(1) |
| Net sales | 100.0 | % | | 100.0 | % | | | 100.0 | % | | 100.0 | % |
| Cost of sales | 66.1 | | | 67.2 | | | | 66.5 | | | 67.8 | |
| Gross profit | 33.9 | | | 32.8 | | | | 33.5 | | | 32.2 | |
| Selling, general and administrative expenses | 26.1 | | | 26.0 | | | | 26.9 | | | 26.8 | |
| Amortization of intangible assets | — | | | 0.1 | | | | — | | | 0.1 | |
| | | | | | | | |
| | | | | | | | |
| Income from operations | 7.8 | | | 6.8 | | | | 6.6 | | | 5.3 | |
| | | | | | | | |
| Interest expense, net | 0.6 | | | 0.7 | | | | 0.6 | | | 0.8 | |
| Income before income tax provision | 7.2 | | | 6.1 | | | | 6.0 | | | 4.5 | |
| Income tax provision | 2.2 | | | 1.8 | | | | 2.0 | | | 1.5 | |
| Net income | 5.1 | | | 4.3 | | | | 4.0 | | | 3.1 | |
| Loss attributable to the noncontrolling interest | — | | | 0.1 | | | | 0.1 | | | 0.2 | |
| Net income attributable to ARC | 5.1 | % | | 4.4 | % | | | 4.1 | % | | 3.2 | % |
Non-GAAP (2) | | | | | | | | |
EBITDA (2) | 14.7 | % | | 15.2 | % | | | 13.9 | % | | 14.8 | % |
Adjusted EBITDA (2) | 15.3 | % | | 15.9 | % | | | 14.6 | % | | 15.4 | % |
(1)Column does not foot due to rounding.
(2)See "Non-GAAP Financial Measures" following "Results of Operations" for definitions, reconciliations and more information related to our Non-GAAP disclosures.
Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021
Net Sales
Net sales for the three and nine months ended September 30, 2022 increased 1.0% and 7.0%, respectively, compared to the same periods in 2021. The increase in net sales in 2022 is due to the expansion and diversification of our customer base and selling additional services to existing customers. We believe the current volatility in the market has not negatively impacted our sales but there can be no assurance that this will continue in the future.
Digital Printing. Year-over-year sales of Digital Printing services decreased $0.2 million, or 0.5%, for the three months ended September 30, 2022. The slight decrease in Digital Printing sales for the third quarter of 2022 is due to comparatively outsized sales related to COVID-19 signage for the same period in 2021. This was partially offset by an increase in digital color graphic printing from new and existing customers, as well as an increase in sales in digital plan printing from our construction-oriented customers. Year-over-year sales of Digital Printing services increased $7.4 million, or 5.9%, for the nine months ended September 30, 2022. The increase is due to continuing demand for digital color graphic printing across most of our customer base including digital plan printing from our construction-oriented customers. Digital Printing services represented 61% of total net sales for the three and nine months ended September 30, 2022, compared to 62% for the three and nine months ended September 30, 2021.
MPS. Year-over-year sales of MPS services for the three months ended September 30, 2022 increased $0.9 million, or 5.0%. Year-over-year sales of MPS services for the nine months ended September 30, 2021 increased $3.5 million, or 6.5%. Growth in MPS sales reflects an increase of on-site printing volume as moderation of work-from-home directives encouraged more employees to return to offices during the period, as activity on construction job sites continued, and as we implemented price increases to offset the effects of inflation in our supply chain.
MPS sales represented approximately 27% and 26% of total net sales for the three and nine months ended September 30, 2022, respectively compared to 26% and 27% for the three and nine months ended September 30, 2021, respectively.
The number of MPS locations has remained relatively flat year-over-year at approximately 10,800 as of September 30, 2022 and 2021.
Scanning and Digital Imaging. Year-over-year sales of Scanning and Digital Imaging services increased $0.7 million, or 17.3%, and $2.9 million or 27.8% for the three and nine months ended September 30, 2022, respectively. The increase in sales of our Scanning and Digital Imaging services was primarily attributable to growing demand for paper-to-digital document conversions used in day-to-day business operations, and the creation of digital archives to replace long-term warehoused paper document storage. We continue to drive an expansion of our addressable market for Scanning and Digital Imaging services with increased marketing activity, as well as targeting building owners and facility managers that require on-demand access to their legacy documents to operate their assets efficiently. We believe that, with the expansion of the markets and industries we serve and the desire of our existing customers to have digital access to documents, our Scanning and Digital Imaging services will continue to grow in the future.
Equipment and Supplies Sales. Year-over-year sales of Equipment and Supplies decreased $0.7 million, or 13.8%, for the three months ended September 30, 2022 as a result of reduced sales of $0.6 million from our Chinese joint venture as the Chinese economy continues to be challenged. Year-over-year sales of Equipment and Supplies increased $0.5 million, or 3.8%, for the nine months ended September 30, 2022. The increase is driven by high demand in the United States from offices and job sites as they re-opened to employees earlier in the year.
Gross Profit
During the three months ended September 30, 2022, gross profit increased to $24.8 million, or 33.9%, compared to $23.8 million, or 32.8% during the three months ended September 30, 2021, primarily driven by the increase in net sales of $0.7 million and a reduction in depreciation expense of $1.0 million.
During the nine months ended September 30, 2022, gross profit increased to $72.8 million, or 33.5%, compared to $65.4 million, or 32.2% during the nine months ended September 30, 2021, primarily driven by the increase in net sales of $14.2 million.
Gross margin improvement was largely driven by the new cost structure we put in place in 2020 and through our efforts to drive more work through our service centers which allows us to leverage our infrastructure (facilities & equipment), cross-trained workforce, and production-grade equipment. The improved gross margins driven by our ability to better leverage our costs, were partially offset by an increase in labor and material costs resulting from current inflationary pressures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $0.3 million, or 1.3%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Selling, general and administrative expenses increased $4.0 million or 7.4%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase is due to higher labor costs, as well as higher commissions, bonuses, and travel resulting from increased sales and profitability.
Amortization of Intangibles
Amortization of intangibles decreased to less than $0.1 million for the three and nine months ended September 30, 2022, due to the completed amortization of certain customer relationship intangibles related to historical acquisitions.
Interest Expense, Net
Net interest expense of $0.45 million and $1.3 million for the three and nine months ended September 30, 2022, respectively, decreased compared to $0.5 million and $1.7 million for the three and nine months ended September 30, 2021, respectively. The decrease is due to the continued pay down of our long-term debt. The revolving loan features a flexible payment schedule allowing us to pay down or draw on it at any time. As such, we intend to use available cash throughout the year to manage our interest expense.
Income Taxes
We recorded an income tax provision of $1.6 million and $4.4 million in relation to pretax income of $5.3 million and $13.1 million for the three and nine months ended September 30, 2022, respectively, which resulted in an effective income tax rate of 29.9% and 33.5%, respectively. Our effective income tax rate for the three and nine months ended September 30, 2022 was primarily impacted by state taxes, non-deductible compensation, certain stock-based compensation and other non-deductible expenses. Excluding the impact of certain stock-based compensation, our effective income tax rate would have been 30.4% and 30.0%, respectively, for the three and nine months ended September 30, 2022.
By comparison, we recorded an income tax provision of $1.3 million and $2.9 million in relation to pretax income of $4.4 million and $9.2 million for the three and nine months ended September 30, 2021, respectively, which resulted in an effective income tax rate of 29.3% and 32.2%, respectively. Our effective income tax rate for the three and nine months ended September 30, 2021 was primarily impacted by certain stock-based compensation, a change in valuation allowances against certain deferred tax assets and non-deductible expenses. Excluding the impact of the change in valuation allowances, certain nondeductible stock-based compensation, and other discrete tax items, our effective income tax rate would have been 29.1% and 28.5%, respectively, for the three and nine months ended September 30, 2021.
We have a $2.4 million valuation allowance against certain deferred tax assets as of September 30, 2022.
Noncontrolling Interest
Net loss attributable to noncontrolling interest represents 35% of the income/loss of UDS and its subsidiaries, which together comprise our Chinese joint venture operations.
Net Income Attributable to ARC
Net income attributable to ARC increased to $3.7 million and $9.0 million during the three and nine months ended September 30, 2022, respectively, as compared to $3.2 million and $6.5 million during the three and nine months ended September 30, 2021, respectively. The increase in net income attributable to ARC was primarily driven by the increase in net sales and the year-to-date decrease in depreciation expense of $3.2 million, partially offset by the increase in selling, general and administrative expenses described above. As hybrid work schedules reduced office printing volumes, our need for printing equipment has significantly decreased and thus reduced our depreciation expense.
EBITDA
EBITDA margin and Adjusted EBITDA margin is not a recognized measure under GAAP. When analyzing our operating performance, investors should use EBITDA margin and Adjusted EBITDA in addition to, and not as an alternative for, operating income or any other performance measure presented in accordance with GAAP. It is a measure we use to measure our performance and liquidity. We believe EBITDA margin and Adjusted EBITDA reflect an additional way of viewing aspects of
our operations that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business. We believe the measure is used by investors and is a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of EBITDA margin and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. See Non-GAAP Financial Measures below for additional discussion.
EBITDA margin decreased to 14.7% for the three months ended September 30, 2022, from 15.2% for the same period in 2021. Excluding the effect of stock-based compensation, adjusted EBITDA margin decreased to 15.3% during the three months ended September 30, 2022, as compared to 15.9% for the same period in 2021. The decrease in adjusted EBITDA margin for the three and nine months ended September 30, 2022, was due to the inflationary increase in direct material and labor costs in absolute dollars and as a percentage of sales.
EBITDA margin decreased to 13.9% for the nine months ended September 30, 2022, from 14.8% for the same period in 2021. Excluding the effect of stock-based compensation, adjusted EBITDA margin decreased to 14.6% during the nine months ended September 30, 2022, as compared to 15.4% for the same period in 2021. The decrease in adjusted EBITDA margin for the nine months ended September 30, 2022, was due to the increase in direct material and labor costs in absolute dollars and as a percentage of sales due to inflation.
Impact of Inflation
Rising costs for raw materials, such as paper and fuel charges are largely being passed on to customers via price increases during the ordinary course of business. These price increases have moderated the impact of inflation on our direct costs in 2022. As these inflationary pressures continue, however, the increased cost of labor, materials and other indirect costs require close and active management to avoid material impacts to our cost structure.
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, net income margin 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. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.
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.divisions. Our operating segments’divisions’ financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating segments.divisions. We use EBITDA to compare the performance of our operating segmentsdivisions 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 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 below.
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, 20172022 and 20162021 to reflect the exclusion of loss on extinguishment and modification of debt, goodwill impairment, 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 and nine months ended September 30, 20172022 and 2016.2021. We believe these chargeschanges were the result of our capital restructuring, or other items which are not indicative of our actual operating performance.
We have presented adjusted EBITDA for the three and nine months ended September 30, 20172022 and 20162021 to exclude loss on extinguishment and modification of debt, goodwill impairment, restructuring expense and stock-based compensation expense. The adjustment ofto exclude stock-based compensation expense to EBITDA for these items is consistent with the definition of adjusted EBITDA in our credit agreement;2021 Credit Agreement; therefore, we believe this information is useful to investors in assessing our financial performance.
The following is a reconciliation of cash flows provided by operating activities to EBITDA:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | 2017 | | 2016 | | 2017 | | 2016 | (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Cash flows provided by operating activities | $ | 11,326 |
| | $ | 12,163 |
| | $ | 36,756 |
| | $ | 34,046 |
| Cash flows provided by operating activities | $ | 14,869 | | | $ | 11,285 | | | $ | 26,398 | | | $ | 28,174 | |
| Changes in operating assets and liabilities, net of effect of business acquisitions | (959 | ) | | 1,958 |
| | 1,406 |
| | 9,976 |
| |
| Non-cash expenses, including depreciation, amortization and goodwill impairment | (25,134 | ) | | (11,219 | ) | | (47,461 | ) | | (94,300 | ) | |
| Income tax (benefit) provision | (2,174 | ) | | 2,162 |
| | 1,574 |
| | (5,884 | ) | |
| Changes in operating assets and liabilities | | Changes in operating assets and liabilities | (4,056) | | | (328) | | | 3,623 | | | 1,001 | |
| Non-cash expenses, including depreciation and amortization | | Non-cash expenses, including depreciation and amortization | (7,107) | | | (7,820) | | | (21,333) | | | (22,958) | |
| Income tax provision | | Income tax provision | 1,577 | | | 1,298 | | | 4,376 | | | 2,949 | |
| Interest expense, net | 1,530 |
| | 1,563 |
| | 4,679 |
| | 4,535 |
| Interest expense, net | 454 | | | 495 | | | 1,330 | | | 1,691 | |
| Income attributable to the noncontrolling interest | (7 | ) | | (61 | ) | | (55 | ) | | (211 | ) | |
| Loss attributable to the noncontrolling interest | | Loss attributable to the noncontrolling interest | 31 | | | 41 | | | 283 | | | 324 | |
| Depreciation and amortization | 8,430 |
| | 7,857 |
| | 25,037 |
| | 23,737 |
| Depreciation and amortization | 4,982 | | | 6,029 | | | 15,599 | | | 18,928 | |
| EBITDA | $ | (6,988 | ) | | $ | 14,423 |
| | $ | 21,936 |
| | $ | (28,101 | ) | EBITDA | $ | 10,750 | | | $ | 11,000 | | | $ | 30,276 | | | $ | 30,109 | |
|
The following is a reconciliation of net (loss) income attributable to ARC Document Solutions, Inc. to EBITDA and adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income attributable to ARC Document Solutions, Inc. | $ | 3,737 | | | $ | 3,178 | | | $ | 8,971 | | | $ | 6,541 | |
| Interest expense, net | 454 | | | 495 | | | 1,330 | | | 1,691 | |
| Income tax provision | 1,577 | | | 1,298 | | | 4,376 | | | 2,949 | |
| Depreciation and amortization | 4,982 | | | 6,029 | | | 15,599 | | | 18,928 | |
| EBITDA | 10,750 | | | 11,000 | | | 30,276 | | | 30,109 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Stock-based compensation | 441 | | | 481 | | | 1,331 | | | 1,224 | |
| Adjusted EBITDA | $ | 11,191 | | | $ | 11,481 | | | $ | 31,607 | | | $ | 31,333 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | 2017 | | 2016 | | 2017 | | 2016 |
| Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (14,774 | ) | | $ | 2,841 |
| | $ | (9,354 | ) | | $ | (50,489 | ) |
| Interest expense, net | 1,530 |
| | 1,563 |
| | 4,679 |
| | 4,535 |
|
| Income tax (benefit) provision | (2,174 | ) | | 2,162 |
| | 1,574 |
| | (5,884 | ) |
| Depreciation and amortization | 8,430 |
| | 7,857 |
| | 25,037 |
| | 23,737 |
|
| EBITDA | (6,988 | ) | | 14,423 |
| | 21,936 |
| | (28,101 | ) |
| Loss on extinguishment and modification of debt | 124 |
| | 66 |
| | 230 |
| | 156 |
|
| Goodwill impairment | 17,637 |
| | — |
| | 17,637 |
| | 73,920 |
|
| Restructuring expense | — |
| | — |
| | — |
| | 7 |
|
| Stock-based compensation | 699 |
| | 650 |
| | 2,251 |
| | 2,073 |
|
| Adjusted EBITDA | $ | 11,472 |
| | $ | 15,139 |
| | $ | 42,054 |
| | $ | 48,055 |
|
The following is a reconciliation of net (loss) income margin attributable to ARC Document Solutions, Inc. to EBITDA margin and adjusted EBITDA margin:
|
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 (1) | | 2016 | | 2017 (1)
| | 2016 (1)
|
| Net (loss) income margin attributable to ARC Document Solutions, Inc. | (15.3 | )% | | 2.8 | % | | (3.1 | )% | | (16.4 | )% |
| Interest expense, net | 1.6 |
| | 1.6 |
| | 1.6 |
| | 1.5 |
|
| Income tax (benefit) provision | (2.3 | ) | | 2.2 |
| | 0.5 |
| | (1.9 | ) |
| Depreciation and amortization | 8.7 |
| | 7.8 |
| | 8.4 |
| | 7.7 |
|
| EBITDA margin | (7.2 | ) | | 14.4 |
| | 7.4 |
| | (9.1 | ) |
| Loss on extinguishment and modification of debt | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Goodwill impairment | 18.3 |
| | — |
| | 5.9 |
| | 24.0 |
|
| Restructuring expense | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | 0.7 |
| | 0.6 |
| | 0.8 |
| | 0.7 |
|
| Adjusted EBITDA margin | 11.9 | % | | 15.1 | % | | 14.1 | % | | 15.6 | % |
| |
(1) | Column does not foot due to rounding |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net income margin attributable to ARC Document Solutions, Inc. | 5.1 | % | | 4.4 | % | | 4.1 | % | | 3.2 | % |
| Interest expense, net | 0.6 | | | 0.7 | | | 0.6 | | | 0.8 | |
| Income tax provision | 2.2 | | | 1.8 | | | 2.0 | | | 1.5 | |
| Depreciation and amortization | 6.8 | | | 8.3 | | | 7.2 | | | 9.3 | |
| EBITDA margin | 14.7 | | | 15.2 | | | 13.9 | | | 14.8 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Stock-based compensation | 0.6 | | | 0.7 | | | 0.6 | | | 0.6 | |
| Adjusted EBITDA margin | 15.3 | % | | 15.9 | % | | 14.6 | % | | 15.4 | % |
The following is a reconciliation of net (loss) income attributable to ARC Document Solutions, Inc. to adjusted net income and adjusted earnings per share attributable to ARC Document Solutions, Inc.:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | | Nine Months Ended
September 30, |
| (In thousands, except per share amounts) | 2022 | | 2021 | | | 2022 | | 2021 |
| Net income attributable to ARC Document Solutions, Inc. | $ | 3,737 | | | $ | 3,178 | | | | $ | 8,971 | | | $ | 6,541 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Deferred tax valuation allowance and other discrete tax items | (28) | | | 37 | | | | 410 | | | 236 | |
| Adjusted net income attributable to ARC Document Solutions, Inc. | $ | 3,709 | | | $ | 3,215 | | | | $ | 9,381 | | | $ | 6,777 | |
| | | | | | | | |
| Actual: | | | | | | | | |
| Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | | | | | |
| Basic | $ | 0.09 | | | $ | 0.08 | | | | $ | 0.21 | | | $ | 0.15 | |
| Diluted | $ | 0.09 | | | $ | 0.07 | | | | $ | 0.21 | | | $ | 0.15 | |
| Weighted average common shares outstanding: | | | | | | | | |
| Basic | 42,283 | | | 42,073 | | | | 42,209 | | | 42,213 | |
| Diluted | 42,956 | | | 42,724 | | | | 43,414 | | | 42,629 | |
| Adjusted: | | | | | | | | |
| Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | | | | | |
| Basic | $ | 0.09 | | | $ | 0.08 | | | | $ | 0.22 | | | $ | 0.16 | |
| Diluted | $ | 0.09 | | | $ | 0.08 | | | | $ | 0.22 | | | $ | 0.16 | |
| Weighted average common shares outstanding: | | | | | | | | |
| Basic | 42,283 | | | 42,073 | | | | 42,209 | | | 42,213 | |
| Diluted | 42,956 | | | 42,724 | | | | 43,414 | | | 42,629 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
| Net (loss) income attributable to ARC Document Solutions, Inc. | $ | (14,774 | ) | | $ | 2,841 |
| | $ | (9,354 | ) | | $ | (50,489 | ) |
| Loss on extinguishment and modification of debt | 124 |
| | 66 |
| | 230 |
| | 156 |
|
| Goodwill impairment | 17,637 |
| | — |
| | 17,637 |
| | 73,920 |
|
| Restructuring expense | — |
| | — |
| | — |
| | 7 |
|
| Income tax benefit related to above items | (3,144 | ) | | (26 | ) | | (3,186 | ) | | (13,395 | ) |
| Deferred tax valuation allowance and other discrete tax items | 515 |
| | 138 |
| | 594 |
| | 341 |
|
| Adjusted net income attributable to ARC Document Solutions, Inc. | $ | 358 |
| | $ | 3,019 |
| | $ | 5,921 |
| | $ | 10,540 |
|
| | | | | | | | |
| Actual: | | | | | | | |
| (Loss) earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | | | | |
| Basic | $ | (0.32 | ) | | $ | 0.06 |
| | $ | (0.20 | ) | | $ | (1.10 | ) |
| Diluted | $ | (0.32 | ) | | $ | 0.06 |
| | $ | (0.20 | ) | | $ | (1.10 | ) |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 45,834 |
| | 45,599 |
| | 45,756 |
| | 46,055 |
|
| Diluted | 45,834 |
| | 46,189 |
| | 45,756 |
| | 46,055 |
|
| Adjusted: | | | | | | | |
| Earnings per share attributable to ARC Document Solutions, Inc. shareholders: | | | | | | | |
| Basic | $ | 0.01 |
| | $ | 0.07 |
| | $ | 0.13 |
| | $ | 0.23 |
|
| Diluted | $ | 0.01 |
| | $ | 0.07 |
| | $ | 0.13 |
| | $ | 0.23 |
|
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 45,834 |
| | 45,599 |
| | 45,756 |
| | 46,055 |
|
| Diluted | 46,342 |
| | 46,189 |
| | 46,335 |
| | 46,655 |
|
Results of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (decrease) | | Nine Months Ended
September 30, | | Increase (decrease) |
| (In millions, except percentages) | 2017 (1) | | 2016 (1) | | $ | | % | | 2017 (1) | | 2016 (1) | | $ | | % |
| CDIM | $ | 50.1 |
| | $ | 53.2 |
| | $ | (3.1 | ) | | (5.9 | )% | | $ | 155.0 |
| | $ | 161.8 |
| | $ | (6.7 | ) | | (4.2 | )% |
| MPS | 32.2 |
| | 32.8 |
| | (0.6 | ) | | (2.0 | )% | | 97.7 |
| | 100.1 |
| | (2.4 | ) | | (2.4 | )% |
| AIM | 3.4 |
| | 3.2 |
| | 0.2 |
| | 7.3 | % | | 9.7 |
| | 10.6 |
| | (0.8 | ) | | (7.8 | )% |
| Total service sales | 85.6 |
| | 89.2 |
| | (3.6 | ) | | (4.0 | )% | | 262.5 |
| | 272.4 |
| | (9.9 | ) | | (3.6 | )% |
| Equipment and supplies sales | 10.8 |
| | 11.3 |
| | (0.4 | ) | | (3.8 | )% | | 35.0 |
| | 35.4 |
| | (0.4 | ) | | (1.0 | )% |
| Total net sales | $ | 96.5 |
| | $ | 100.4 |
| | $ | (4.0 | ) | | (4.0 | )% | | $ | 297.5 |
| | $ | 307.8 |
| | $ | (10.3 | ) | | (3.3 | )% |
| | | | | | | | | | | | | | | | |
| Gross profit | $ | 29.2 |
| | $ | 32.7 |
| | $ | (3.5 | ) | | (10.7 | )% | | $ | 94.6 |
| | $ | 102.9 |
| | $ | (8.3 | ) | | (8.1 | )% |
| Selling, general and administrative expenses | $ | 25.8 |
| | $ | 24.9 |
| | $ | 1.0 |
| | 3.8 | % | | $ | 76.5 |
| | $ | 76.8 |
| | $ | (0.2 | ) | | (0.3 | )% |
| Amortization of intangibles | $ | 1.1 |
| | $ | 1.2 |
| | $ | (0.1 | ) | | (9.2 | )% | | $ | 3.3 |
| | $ | 3.7 |
| | $ | (0.5 | ) | | (12.3 | )% |
| Goodwill impairment | $ | 17.6 |
| | $ | — |
| | $ | 17.6 |
| | — | % | | $ | 17.6 |
| | $ | 73.9 |
| | $ | (56.3 | ) | | (76.1 | )% |
| Loss on extinguishment and modification of debt | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.1 |
| | 87.9 | % | | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.1 |
| | 47.4 | % |
| Interest expense, net | $ | 1.5 |
| | $ | 1.6 |
| | $ | — |
| | (2.1 | )% | | $ | 4.7 |
| | $ | 4.5 |
| | $ | 0.1 |
| | 3.2 | % |
| Income tax (benefit) provision | $ | (2.2 | ) | | $ | 2.2 |
| | $ | (4.3 | ) | | (200.6 | )% | | $ | 1.6 |
| | $ | (5.9 | ) | | $ | 7.5 |
| | (126.8 | )% |
| Net (loss) income attributable to ARC | $ | (14.8 | ) | | $ | 2.8 |
| | $ | (17.6 | ) | | (620.0 | )% | | $ | (9.4 | ) | | $ | (50.5 | ) | | $ | 41.1 |
| | (81.5 | )% |
Non-GAAP (2) | | | | | | | | | | | | | | | |
Adjusted net income attributable to ARC (2) | $ | 0.4 |
| | $ | 3.0 |
| | $ | (2.7 | ) | | (88.1 | )% | | $ | 5.9 |
| | $ | 10.5 |
| | $ | (4.6 | ) | | (43.8 | )% |
EBITDA (2) | $ | (7.0 | ) | | $ | 14.4 |
| | $ | (21.4 | ) | | (148.5 | )% | | $ | 21.9 |
| | $ | (28.1 | ) | | $ | 50.0 |
| | (178.1 | )% |
Adjusted EBITDA (2) | $ | 11.5 |
| | $ | 15.1 |
| | $ | (3.7 | ) | | (24.2 | )% | | $ | 42.1 |
| | $ | 48.1 |
| | $ | (6.0 | ) | | (12.5 | )% |
| |
(1) | Column does not foot due to rounding |
| |
(2) | See "Non-GAAP Financial Measures" on pg. 24 for additional information. |
The following table provides information on the percentages of certain items of selected financial data as a percentage of net sales for the periods indicated:
|
| | | | | | | | | | | |
| | As Percentage of Net Sales | | As Percentage of Net Sales |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 (1) | | 2016 (1) | | 2017 (1) | | 2016 (1) |
| Net Sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 69.7 |
| | 67.4 |
| | 68.2 |
| | 66.6 |
|
| Gross profit | 30.3 |
| | 32.6 |
| | 31.8 |
| | 33.4 |
|
| Selling, general and administrative expenses | 26.8 |
| | 24.8 |
| | 25.7 |
| | 24.9 |
|
| Amortization of intangibles | 1.1 |
| | 1.2 |
| | 1.1 |
| | 1.2 |
|
| Goodwill impairment | 18.3 |
| | — |
| | 5.9 |
| | 24.0 |
|
| (Loss) income from operations | (15.9 | ) | | 6.6 |
| | (1.0 | ) | | (16.7 | ) |
| Loss on extinguishment and modification of debt | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Interest expense, net | 1.6 |
| | 1.6 |
| | 1.6 |
| | 1.5 |
|
| (Loss) income before income tax provision (benefit) | (17.6 | ) | | 5.0 |
| | (2.6 | ) | | (18.2 | ) |
| Income tax (benefit) provision | (2.3 | ) | | 2.2 |
| | 0.5 |
| | (1.9 | ) |
| Net (loss) income | (15.3 | ) | | 2.9 |
| | (3.1 | ) | | (16.3 | ) |
| Income attributable to the noncontrolling interest | — |
| | (0.1 | ) | | — |
| | (0.1 | ) |
| Net (loss) income attributable to ARC | (15.3 | )% | | 2.8 | % | | (3.1 | )% | | (16.4 | )% |
Non-GAAP (2) | | | | | | | |
EBITDA (2) | (7.2 | )% | | 14.4 | % | | 7.4 | % | | (9.1 | )% |
Adjusted EBITDA (2) | 11.9 | % | | 15.1 | % | | 14.1 | % | | 15.6 | % |
| |
(1) | Column does not foot due to rounding |
| |
(2) | See "Non-GAAP Financial Measures" on pg. 24 for additional information. |
Three and Nine Months Ended September 30, 2017 Compared to Three and Nine Months Ended September 30, 2016
Net Sales
Net sales for the three and nine months ended September 30, 2017decreased by 4.0%, and 3.3% compared to the same periods in 2016 due primarily to declines in our print-based service offerings. Overall declines in our print-based revenues were also affected by inclement weather in the Southeastern U.S. during the third quarter. We estimate that the closure of our service centers and our customers' locations driven by the hurricanes in the Southeastern U.S. contributed approximately $1.0 million to the year-over-year sales declines. Also contributing to the overall sales decline for the three and nine months ended September 30, 2017 is the fact that we had one less business day during these time periods as compared to the same periods in 2016 resulting in a decline in revenue of approximately $1.5 million.
CDIM. Year-over-year sales of CDIM services decreased $3.1 million, or 5.9%, and $6.7 million, or 4.2%, for the three and nine months ended September 30, 2017, respectively. The decrease in sales of CDIM services was primarily due to the continued but moderating reduction in demand for printed construction drawings and related services driven by the ongoing adoption of technology replacing traditional print-based service offerings, and softness in our color imaging sales for the period. Also contributing to the decline in sales of CDIM for the period was the extended closure of our service centers in the Southeastern U.S. which were impacted by hurricanes during the third quarter of 2017. CDIM services represented 52% of total net sales for the three and nine months ended September 30, 2017 compared to 53% during the same periods in 2016.
MPS. Year-over-year sales of MPS services for the three and nine months ended September 30, 2017 decreased $0.6 million, or 2.0%, and $2.4 million, or 2.4%, respectively, due to the decline in print volumes from existing customers. The decline in print volumes was driven in part by the continued optimization of our customers' in-house print environment partially offset by new customer acquisitions. Also contributing to the decline in sales of MPS for the period was the closure of certain of our customers' offices in the Southeastern U.S. which were impacted by hurricanes during the third quarter of 2017. Our MPS offering delivers value to its customers by optimizing their print infrastructure, which in turn, will lower their print volume over time. Sales reductions associated with a decline in print volume are typically offset by new customer acquisitions and expansion of MPS services within
existing customers. Revenues from MPS Services sales represented approximately 33% of total net sales for both the three and nine months ended September 30, 2017 and 2016.
The number of MPS locations has grown to approximately 10,000 as of September 30, 2017, an increase of approximately 630 locations compared to September 30, 2016. While MPS is subject to temporary performance fluctuations based on the loss or acquisition of large clients, we believe there is an opportunity for MPS sales growth in the future due to the value that we bring to our customers and the desire to reduce costs in the AEC/O industry.
We intend to continue the expansion of our MPS offering through our regional sales force and through our national accounts group "Global Solutions." Our Global Solutions sales force has established long-term contract relationships with 25 of the largest 100 AEC/O firms. MPS services are driven in large part by the number of customer employees at an office as that drives office printing and copying.
AIM. Year-over-year sales of AIM Services increased $0.2 million, or 7.3%, and declined $0.8 million, or 7.8%, for the three and nine months ended September 30, 2017, respectively. The increase during the three months ended September 30, 2017 was driven by the completion of larger projects compared to the prior year. The sales decline for the nine months ended September 30, 2017 was primarily driven by a reorganization in our sales staff which we believe caused a temporary decline in AIM sales during the first half of 2017. We are driving an expansion of our addressable market for AIM by targeting building owners and facilities managers that require on-demand legacy documents to operate their assets efficiently. We believe we have developed a valuable solution that will drive growth in the future.
Equipment and Supplies Sales. Year-over-year sales of Equipment and Supplies decreased $0.4 million, or 3.8%, and $0.4 million, or 1.0%, for the three and nine months ended September 30, 2017, respectively. Quarterly changes in Equipment and Supplies Sales are largely driven by the timing of replacements of aging equipment fleets for customers who prefer to own their equipment. Equipment and Supplies Sales derived from UNIS Document Solutions Co. Ltd (“UDS”), our Chinese business venture, increased during the period, and were $5.4 million and $17.2 million for the three and nine months ended September 30, 2017, as compared to $4.9 million and $14.5 million for the three and nine months ended September 30, 2016, respectively. These increases were offset by declines in Equipment and Supplies sales in the U.S. We do not anticipate sustained growth in Equipment and Supplies Sales as we are placing more focus on growing MPS sales and converting sales contracts to MPS agreements; however, we intend to be opportunistic about sales opportunities as they arise in North America and abroad.
Gross Profit
During the three months ended September 30, 2017, gross profit and gross margin decreased to $29.2 million, and 30.3% compared to $32.7 million and 32.6%, during the same period in 2016, on a sales decline of $4.0 million.
During the nine months ended September 30, 2017, gross profit and gross margin decreased to $94.6 million, and 31.8% compared to $102.9 million and 33.4%, during the same period in 2016, on a sales decline of $10.3 million.
The decline in our gross margins for the three and nine months ended September 30, 2017, was primarily driven by 1) the impact of lower revenue for the period reducing our ability to leverage the fixed portion of our overhead and labor costs, and 2) the increase in low-margin equipment sales in China.
Selling, General and Administrative Expenses
Selling, marketing, general and administrative expenses increased $1.0 million and decreased $0.2 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016.
General and administrative expenses decreased $0.3 million or 2.2%, and $1.6 million or 3.4% for the three and nine months ended September 30, 2017, compared to the same periods in 2016. The reduction in expenses was primarily due to cost reduction initiatives undertaken in response to the drop in revenue.
Year-over-year sales and marketing expenses increased $1.3 million and $1.4 million, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. The increase for the three and nine months ended September 30, 2017, was primarily due to investments in sales and marketing staff, training and marketing initiatives to support our new technology-enabled offerings.
Amortization of Intangibles
Amortization of intangibles of $1.1 million and $3.3 million for the three and nine months ended September 30, 2017, decreased slightly compared to the same periods in 2016, primarily due to the completed amortization of certain customer relationship intangibles related to historical acquisitions.
Goodwill Impairment
At September 30, 2017 and June 30, 2016, the Company recorded a pretax, non-cash charges to reduce the carrying value of goodwill by $17.6 million and $73.9 million, respectively. See Note 3, “Goodwill and Other Intangibles” for further information regarding the process of assessing goodwill impairment.
Loss on Extinguishment and Modification of Debt
We made additional principal payments of $14.2 million on our original $175.0 million Term Loan Credit Agreement, which was amended in the third quarter of 2017, above our required principal payments. The additional principal payments and modification resulted in a loss on the extinguishment and modification of debt of $0.1 million and $0.2 million for the three and nine months ended September 30, 2017.
Interest Expense, Net
Net interest expense totaled $1.5 million and $4.7 million for the three and nine months ended September 30, 2017, compared to $1.6 million and $4.5 million for the same periods in 2016. The slight increase for the nine months ended September 30, 2017 compared to 2016 was primarily a result of the increase in LIBOR which impacts our Term A loan interest rate, partially offset by the early extinguishment of our long-term debt as described above. This slight increase was offset for the three months ended September 30, 2017 compared to 2016 due to the amendment of our Term Loan Credit Agreement, which reduced the rate of interest payable on the loans borrowed by 0.25%.
Income Taxes
We recorded an income tax benefit of $2.2 million and an income tax provision of $1.6 million in relation to pretax losses of $16.9 million and $7.7 million for the three and nine months ended September 30, 2017, respectively, which resulted in an effective income tax rate of 12.8% and (20.4)%, for the three and nine months ended September 30, 2017, respectively.
For the three and nine months ended September 30, 2017, our effective income tax rate would have been 41.1%, excluding the impact of the goodwill impairment, an additional valuation allowance, certain stock-based compensation not deductible for income tax purposes and other discrete items. We have a $1.8 million valuation allowance against certain deferred tax assets as of September 30, 2017.
Our gross deferred tax assets remain available to us for use in future years until they fully expire, which based on forecasted continuing profitability, we estimate that it is more likely than not that future earnings will be sufficient to realize certain of our deferred tax assets. As of December 31, 2016, we had approximately $79.9 million of consolidated federal, $96.6 million of state and $2.6 million of foreign net operating loss and charitable contribution carryforwards available to offset future taxable income, respectively, available for use in 2017 and future years. The federal net operating loss carryforward began in 2011 and will begin to expire in varying amounts between 2031 and 2034. The charitable contribution carryforward began in 2009 and will begin to expire in varying amounts between 2017 and 2021. The state net operating loss carryforwards expire in varying amounts between 2017 and 2034. The foreign net operating loss carryforwards begun to expire in varying amounts beginning in 2017.
Noncontrolling Interest
Net income attributable to noncontrolling interest represents 35% of the income of UDS and its subsidiaries, which together comprise our Chinese joint-venture operations.
Net (Loss) Income Attributable to ARC
Net loss attributable to ARC was $14.8 million and $9.4 million, during the three and nine months ended September 30, 2017, as compared to net income (loss) attributable to ARC of $2.8 million and $(50.5) million in the same periods in 2016. The changes in net income attributable to ARC for three and nine months ended September 30, 2017 versus the prior year periods is primarily due to the goodwill impairment charges taken in the third quarter of 2017 and in the second quarter of 2016, as noted above.
EBITDA
EBITDA margin decreased to (7.2)% for the three months ended September 30, 2017 from 14.4% for the same period in 2016. EBITDA margin increased to 7.4% for the nine months ended September 30, 2017 from (9.1)% for the same period in 2016. Excluding the effect of the loss on extinguishment of debt, goodwill impairment, restructuring expense and stock-based compensation, adjusted EBITDA margin decreased to 11.9% and 14.1% during the three and nine months ended September 30, 2017, as compared to 15.1% and 15.6% for the same periods in 2016. The decrease in adjusted EBITDA margin was due to the declines in revenue and gross margins described above.
Impact of Inflation
We do not believe inflation has had a significant effect on our operations. Price increases for raw materials, such as paper and fuel charges, typically have been, and we expect will continue to be, passed on to customers in the ordinary course of business.
Liquidity and Capital Resources
Our principal sources of cash have been cash flows from operations and borrowings under our debt and lease agreements. Our recent historical uses of cash have been for ongoing operations, payment of principal and interest on outstanding debt obligations, capital expenditures and stock repurchases.
Total cash and cash equivalents as of September 30, 2017,2022 was $26.4$50.6 million. Of this amount, $14.8$4.3 million was held in foreign countries, with $12.7$2.5 million held in China. Repatriation of some of our cash and cash equivalents in foreign countries could be subject to delay for local country approvals and could have potential adverse tax consequences. As a result of holding cash and cash equivalents outside of the U.S., our financial flexibility may be reduced. In May of 2022, we completed an $11.2 million capital distribution from our Chinese joint venture ("JV"). As we are 65% owners, $7.3 million came to our US operations, and
35% or $3.9 million went to our JV partner, thus resulting in a $3.9 million decrease in our consolidated cash and noncontrolling interest balance sheet account.
Supplemental information pertaining to our historical sources and uses of cash is presented as follows and should be read in conjunction with our interim Condensed Consolidated Statements of Cash Flows and notes thereto included elsewhere in this report.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (In thousands) | 2017 | | 2016 | | 2017 | | 2016 |
| Net cash provided by operating activities | $ | 11,326 |
| | $ | 12,163 |
| | $ | 36,756 |
| | $ | 34,046 |
|
| Net cash used in investing activities | $ | (2,263 | ) | | $ | (2,295 | ) | | $ | (6,780 | ) | | $ | (6,738 | ) |
| Net cash used in financing activities | $ | (9,465 | ) | | $ | (10,600 | ) | | $ | (29,343 | ) | | $ | (31,335 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | Nine Months Ended
September 30, |
| (In thousands) | | | | | | 2022 | | 2021 |
| Net cash provided by operating activities | | | | | | $ | 26,398 | | | $ | 28,174 | |
| Net cash used in investing activities | | | | | | $ | (4,074) | | | $ | (3,100) | |
| Net cash used in financing activities | | | | | | $ | (26,494) | | | $ | (25,307) | |
Operating Activities
Cash flows from operations are primarily driven by sales and net profit generated from these sales, excluding non-cash charges.
The decrease in cash flows from operations during the threenine months ended September 30, 20172022, compared to the same period in 2016 was primarily due to the decline in profitability offset, in part, by the timing of payables and accounts receivable collections. The increase in cash flows from operations during the nine months ended September 30, 2017 compared to the same period in 20162021, was primarily due to the timing of payables, including the payment of a legal settlement in the second quarter of 2016, changes in inventory, and accounts receivable collections offset, in part, by the decline in profitability in 2017.and timing of payroll. Days sales outstanding, (“DSO”)or DSO, was 5551 days as of September 30, 20172022 and 50 days as of September 30, 2016.2021. We continueare closely managing cash collections which have remained consistent since the outbreak of the COVID-19 pandemic.
DSO is calculated by taking the respective years September 30th, accounts receivable balance divided by the net sales for the quarter multiplied by the number of total days in a quarter. Other companies, including companies in our focus onindustry, may calculate DSO differently than we do, limiting its usefulness as a comparative measure.
We have presented DSO because we consider it an important metric as it is a valuable indicator of the timely collectionefficiency of the business and quality of our accounts receivable.cash flows. We believe investors may also find this metric meaningful given the importance of cash flows from operations and management's ability to efficiently manage our working capital.
We use DSO to measure and compare the cash management performance of our operating divisions.
Investing Activities
Net cash used in investing activities was primarily related to capital expenditures. We incurred capital expenditures totaling $7.2$4.3 million and $7.6$3.4 million for the nine months ended September 30, 20172022 and 2016,2021, respectively. The changeyear-over-year increase in capital expenditures is driven primarily by the timing of equipmentfact that in the prior year we made fewer purchases and whether such equipment is leased or purchased with available cash. As we continue to fosterthan normal.
Because our relationships with credit providers andallow us to obtain attractive lease rates, we have increasingly chosenusually choose to lease rather than purchase equipment.equipment unless there is a compelling reason to do otherwise.
Financing Activities
Net cash of $29.3$26.5 million used in financing activities during the nine months ended September 30, 20172022, primarily relates to payments on our revolver debt agreementsagreement, finance leases, dividends, share repurchases and a capital leases. The Company amended its Term Loan Credit Agreement in the third quarter of 2017 resulting in a decrease in required quarterly principal payments on its term loan debt. In addition, the amendment increased
the maximum aggregate principal amount of revolving loans from $30.0 million to $80.0 million, and resized the outstanding principal amount of the term loan under the agreement at $60.0 million, although the total principal amount outstanding remained unchanged at $110.0 million on the date of the amendment. Priordistribution to the amendment, the Company paid down the principalnoncontrolling interest owner of its term loan debt by making required quarterly payments in advance. Principal payments made in 2017 were $14.2 million greater than the minimum principal payments required by the agreement.our Chinese joint venture for $3.9 million.
Our cash position, working capital, and debt obligations as of September 30, 20172022 and December 31, 20162021 are shown below and should be read in conjunction with our interim Condensed Consolidated Balance Sheets and related notes thereto contained elsewhere in this report.
| | | | | | | | | | | |
| (In thousands) | September 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | $ | 50,648 | | | $ | 55,929 | |
| Working capital | $ | 36,158 | | | $ | 37,082 | |
| | | |
| Borrowings from revolving credit facility | $ | 42,500 | | | $ | 46,250 | |
| Other debt obligations | 26,342 | | | 31,992 | |
| Total debt obligations | $ | 68,842 | | | $ | 78,242 | |
|
| | | | | | | |
| (In thousands) | September 30, 2017 | | December 31, 2016 |
| Cash and cash equivalents | $ | 26,363 |
| | $ | 25,239 |
|
| Working capital | $ | 43,262 |
| | $ | 44,892 |
|
| | | | |
Borrowings from term loan facility (1) (2) | $ | 104,189 |
| | $ | 120,911 |
|
| Other debt obligations | 44,996 |
| | 36,262 |
|
| Total debt obligations | $ | 149,185 |
| | $ | 157,173 |
|
(1) Net of deferred financing fees of $811 and $1,039 at September 30, 2017 and December 31, 2016, respectively.
(2) Includes $46.1 million and $1.0 million of revolving loans outstanding under Term A Loan Facility at September 30, 2017 and December 31, 2016, respectively.
The decrease of $1.6$0.9 million in working capital in 2017 was primarily duedriven by a capital cash distribution to anthe noncontrolling interest owner of our Chinese joint venture for $3.9 million, partially offset by the increase in the current portionaccounts receivable of long-term debt driven by the amendment to our credit agreement$1.7 million and a $0.7 million increase in the third quarter of 2017.inventory. To manage our working capital, we chiefly focus on our DSO and monitor the aging of our accounts receivable, as receivables are the most significant element of our working capital.
We believe that our current cash and cash equivalents balance of $26.4$50.6 million,, the availability under our revolving credit facility,2021 Credit Agreement, the availability under our equipment lease lines, and cash flows provided by operations should be adequate to cover the next twelve months and beyond of working capital needs, debt service requirements consisting of scheduled principal and interest payments, and planned capital expenditures, to the extent such items are known or are reasonably determinable based on current business and market conditions. See “Debt Obligations”“Debt Obligations” section for further information related to our revolving credit facility.2021 Credit Agreement.
We generate the majorityA significant portion of our revenue across all of our product and services is generated from sales of services and products tocustomers in the AEC/O industry. As a result, our operating results and financial condition can be significantly affected by economic factors that influence the AEC/O industry, such as non-residential and residential construction spending.including the COVID-19 pandemic. Additionally, a general economic downturn may adversely affect the ability of our customers and suppliers to obtain financing for significant operations and purchases, and to perform their obligations under their agreements with us. We believe that credit constraints in the financial markets could result in a decrease in, or cancellation of, existing business, could limit new business, and could negatively affect our ability to collect our accounts receivable on a timely basis.
While weWe have not been actively seeking growth through acquisition since 2009, and while we remain opportunistic with regard to opportunities, we don’t intend to pursue them in the executive team continues to selectively evaluate potential acquisitions.near future.
Debt Obligations
Amended Term A Loan FacilityCredit Agreement
On July 14, 2017,April 22, 2021, we amended ourentered into a Credit Agreement (the “Term A Credit Agreement”) which was originally entered into on November 20, 2014 with Wells FargoU.S. Bank National Association, as administrative agent and the lenderslender party thereto.
thereto (the "2021 Credit Agreement"). The original Term A2021 Credit Agreement provided for the extension of term loans (“Term Loans”) in an aggregate principal amount of $175.0 million, the entirety of which was disbursed on the Closing Date in order to pay outstanding obligations under our then effective Term Loan Credit Agreement. The original Credit Agreement also providedprovides for the extension of revolving loans (“Revolving Loans”) in an aggregate principal amount not to exceed $30.0 million.$70 million and replaces the Credit Agreement dated as of November 20, 2014, as amended (the "2014 Credit Agreement"). The amendment increases2021 Credit Agreement features terms similar to the maximum aggregate principal amount2014 Credit Agreement, including the ability to use excess cash of Revolving Loansup to $15 million per year for restricted payments such as share repurchases and dividends. The obligation under the agreement from $30 million2021 Credit Agreement matures on April 22, 2026.
The 2021 Credit Agreement also includes certain tests we are required to $80 millionmeet in order to pay dividends, repurchase stock and resizesmake other restricted payments. In order to make such payments which are permitted subject to certain customary conditions set forth in the outstanding principal amount of the Term Loan under the agreement at $60 million. Upon the execution of the amendment to the Term A2021 Credit Agreement, the total principal amount outstanding underof all such payments will be limited to $15 million during any twelve-month period. When calculating the agreement remained unchanged at $110.0 million. As amended, the
principalfixed charge coverage ratio, we may exclude up to $10 million of the resized Term Loan balance will amortize at an annual rate of 7.5% during the first and second years following the date of the amendment and at an annual rate of 10% during the third, fourth and fifth years following the date of the amendment, withsuch restricted payments that would otherwise constitute fixed charges in any remaining balance payable upon the maturity date. The amendment also extended the maturity date for both the Revolving Loans and the Term Loans until July 14, 2022.twelve-month period.
As of September 30, 2017,2022, our borrowing availability under the amended Term A Credit Agreementrevolving loan commitment was $32.1$25.3 million, which was the maximum borrowing limit of $80.0 million reduced byafter deducting outstanding letters of credit of $1.8$2.2 million and revolver credit facility balanceoutstanding revolving loans of $46.1$42.5 million.
Loans borrowed under the amended Term A2021 Credit Agreement bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the applicable LIBOR (which rate shall not be less than zero), plus a margin ranging from 1.25% to 2.25%1.75%, based on our Total Leverage Ratio (as defined in the amended Term A2021 Credit Agreement). Loans borrowed under the amended Term A2021 Credit Agreement that are not LIBOR rate loans bear interest at a per annum rate (which rate shall not be less than zero) equal to (i) the greatest of (A) the Federal Funds Rate plus 0.50%, (B) the one month LIBOR rate plus 1.00%, per annum, and (C) the rate of interest announced, from time to time, by Wells FargoU.S. Bank National Association as its “prime rate,” plus (ii) a margin ranging from 0.25% to 1.25%0.75%, based on the Company’sour Total Leverage Ratio. The amendment reduced the rateAs of interest payable on theSeptember 30, 2022, LIBOR loans borrowed under the amended Term A2021 Credit Agreement accrued interest at 4.3%. We pay certain recurring fees with respect to the 2021 Credit Agreement, including administration fees to the
administrative agent.
We will transition to Secured Overnight Financing Rates ("SOFR") by 0.25%.
March 31, 2023 and away from LIBOR loan rates. We believe this transition will not have a material impact on our interest expense for the year of transition.
Subject to certain exceptions, including, in certain circumstances, reinvestment rights, the loans extended under the amended Term A2021 Credit Agreement are subject to customary mandatory prepayment provisions with respect to: the net proceeds from certain asset sales; the net proceeds from certain issuances or incurrences of debt (other than debt permitted to be incurred under the terms of the amended Term A2021 Credit Agreement); the net proceeds from certain issuances of equity securities; and net proceeds of certain insurance recoveries and condemnation events of us.
events.
The amended Term A2021 Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the ability (subject to various exceptions) of uswe and our subsidiaries to:subsidiaries: incur additional indebtedness (including guarantee obligations); incur liens; sell certain property or assets; engage in mergers or other fundamental changes; consummate acquisitions; make investments; pay dividends, othermake certain distributions or repurchase our equity interestsecurities or those of us or our subsidiaries; change the nature of their business; prepay or amend certain indebtedness; engage in certain transactions with affiliates; amend ourtheir organizational documents; or enter into certain restrictive agreements. In addition, the amended Term A2021 Credit Agreement contains financial covenants which requires us towe maintain (i) at all times, a Total Leverage Ratio in an amount not to exceed 3.252.75 to 1.00; and (ii) a Fixed Charge Coverage Ratio (as defined in the amended Term A2021 Credit Agreement), as of the last day of each fiscal quarter, an amount not less than 1.15 to 1.00. We were in compliance with our covenants under the 2021 Credit Agreement as of September 30, 2017 and forecasted to remain in compliance with our covenants for the remainder of the term of the agreement.
2022.
The amended Term A2021 Credit Agreement contains customary events of default, including with respect to: nonpayment of principal, interest, fees or other amounts; failure to perform or observe covenants; material inaccuracy of a representation or warranty when made; cross-default to other material indebtedness; bankruptcy, insolvency and dissolution events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation, repudiation of guaranties or subordination terms; certain ERISA related events; or a change of control.
The obligations of our subsidiary that is the borrower under the amended Term A2021 Credit Agreement are guaranteed by us and each of our other United States domestic subsidiaries. The amended Term A2021 Credit Agreement and any interest rate protection and other hedging arrangements provided by any lender party to the Credit Facilitycredit facility or any affiliate of such a lender are secured on a first priority basis by a perfected security interest in substantially all of our and each guarantor’s assets (subject to certain exceptions).
Prior to entering into the amended Term A Credit Agreement, we had paid $68.2 million in aggregate principal on our original $175.0 million Term Loan Credit Agreement. Principal payments on the Term Loan Credit Agreement of $14.2 million in 2017 resulted in a loss on extinguishment and modification of debt of $0.1 million and $0.2 million for the three and nine months ended September 30, 2017.
CapitalFinance Leases
As of September 30, 2017,2022, we had $45.0$26.3 million of capitalfinance lease obligations outstanding, with a weighted average interest rate of 4.6%4.8% and maturities between 20172022 and 2022.
Off-Balance Sheet Arrangements
As2028. Refer to Note 7, Leasing, as previously disclosed on our Annual Form 10-K for the fiscal year ended for December 31, 2021, for the schedule on maturities of finance lease liabilities, as there have been no material changes to report as of September 30, 2017, we did not have any off-balance-sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
2022.
Contractual Obligations and Other Commitments
Operating Leases. We have entered into various non-cancelable operating leases primarily related to facilities, equipment and vehicles used in the ordinary course of business. Refer to Note 7, Leasing, as previously disclosed on our Annual Form 10-K for the fiscal year ended for December 31, 2021, for the schedule on maturities of operating lease liabilities as there were no material changes as of September 30, 2022.
Contingent Transaction Consideration.Legal Proceedings. We have entered into earnout obligationsare involved, and will continue to be involved, in connectionlegal proceedings arising out of the conduct of our business, including commercial and employment-related lawsuits. Some of these lawsuits purport or may be determined to be class actions and seek substantial damages, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We evaluate whether a loss is reasonably probable based on our assessment and consultation with business acquisitions. Iflegal counsel regarding the acquired businesses generate sales and/or operating profits in excessultimate outcome of predetermined targets, we are obligated to make additional cash payments in accordance with the terms of such earnout obligations.matter. As of September 30, 2017,2022, we recorded liabilities related to future earnout payments consummated subsequent tohave accrued for the adoptionpotential impact of ASC 805, Business Combinations, of $0.3 million. Liabilities related to future earnout paymentsloss contingencies that are carried at fair value,probable and any changes in fair value at each reporting period, are recognized in our condensed consolidated statement of operations.
Legal Proceedings. We are involved in various legal proceedings and other legal matters from time to time in the normal course of business.reasonably estimable. We do not currently believe that the outcomeultimate resolution of any of these matters will have a material adverse effect on our consolidatedresults of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Environmental Matters. We have accrued liabilities for environmental assessment and remediation matters relating to operations at certain locations conducted in the past by predecessor companies that do not relate to our current operations. We have accrued these liabilities because it is probable that a loss or cost will be incurred and the amount of loss or cost can be
reasonably estimated. These estimates could change as a result of changes in planned remedial actions, remediation technologies, site conditions, the estimated time to complete remediation, environmental laws and regulations, and other factors. Because of the uncertainties associated with environmental assessment and remediation activities, our future expenses relating to these matters could be higher than the liabilities we have accrued. Based upon current information, we believe that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows.
Critical Accounting Policies and Significant Judgements and Estimates
Critical accounting policiesOur management prepares financial statements in conformity with GAAP. When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those accounting policiesrelated to accounts receivable, inventories, deferred tax assets, goodwill and intangible assets, long-lived assets and leases. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are important tonot readily apparent from other sources. To the portrayal ofextent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.cash flows will be affected. Our 2016 Annual Report on Form 10-K for the year ended December 31, 2021, includes a description of certain critical accounting policies, including those with respect to goodwill, revenue recognition, and income taxes.taxes, which we believe are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. There have been no material changes to ourthe critical accounting policies, significant judgements and estimates described in our 2016 Annual Report on Form 10-K except for the adoption of ASU 2017-04 described below.year ended December 31, 2021.
Goodwill Impairment
In connection with acquisitions, we apply the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.
In accordance with ASC 350, Intangibles - Goodwill and Other, we assess goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired.
At September 30, 2017, our goodwill impairment analysis showed one reporting unit with goodwill attributed to it had a carrying amount which exceeded2022, the Company performed its fair value. Our underperformance relative to our forecast in the third quarter of 2017,assessment and more specifically, the underperformance against forecast of one of our reporting units which previously had goodwill impairment in 2016 drove the decline in the fair value of the reporting unit. As a result, we recorded a pretax, non-cash charge for the three and nine months ended September 30, 2017 to reduce the carrying value of goodwill by $17.6 million.
During 2016, we performed an interim goodwill impairment analysis as of June 30, 2016 in addition to our annual goodwill impairment analysis as of September 30, 2016.
At June 30, 2016, we determined that there were sufficient indicators to trigger an interim goodwill impairment analysis. The indicators included, among other factors: (1) the underperformance against plan of our reporting units, (2) a revision of our forecasted future earnings, and (3) a decline in the Company's market capitalization in 2016. The underperformance against plan of our reporting units and the resulting revision of our forecasted future earnings was driven by: (a) a larger than expected decline in our print-related sales which began during the second quarter of 2016 due to an acceleration in the adoption of new technology replacing printed documents in our industry, (b) the lack of new national customer acquisitions, which had been expected based on historical customer acquisition rates, and (c) lower than expected growth derived from our cloud-based digital document management solutions. Based on currently available information, we do not believe that the trend we have identified to replace traditional print-based document reproduction and management with digital document solutions is temporary, and we anticipate that such declines will continue to impact the Company’s net sales in the foreseeable future.
Our interim goodwill impairment analysis indicated that five of our eight reporting units, four in the United States and one in Canada, failed step one of the impairment analysis. Accordingly, we recorded a pretax, non-cash charge for the three and six months ended June 30, 2016 to reduce the carrying value of goodwill by $73.9 million.impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular
acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill. During the second quarter of 2016, in connection with an operationally focused reorganization of certain of our reporting units, one additional reporting unit was added. As such, the goodwill of the former reporting units affected was reassigned to the new reporting unit based on their relative fair values and represented less than one percent of the Company's goodwill balance at the time.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating the implied fair value of goodwill. For our annual goodwill impairment test as of September 30,In 2017, we elected to early-adopt ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating Step 2step two from the goodwill impairment test. As a result, we compared the fair value of a reporting unit with its respective carrying value, and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.
We determine the fair value of our reporting units using an income approach. Under the income approach, we determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.
Our projections are driven,The level of judgment and estimation is inherently higher in part,the current environment considering the uncertainty created by industry data gathered from third parties, including projected growth rates of the AEC/O industry by segment (i.e. residentialCOVID-19 pandemic. We have evaluated numerous factors disrupting our business and non-residential)made significant assumptions which include the severity and anticipated GDP growth rates, as well as company-specific data such as estimated compositionduration of our customer base (i.e. non-AEC/O vs. AEC/O, residential vs. non- residential), historical revenue trends,business disruption, the timing and EBITDA margin performancedegree of economic recovery and ultimately, the combined effect of these assumptions on our reporting units. Our revenue projections for each of ARC’s reporting units include the estimated respective customer composition for each reporting unit, year-to-date revenue at the time of the goodwill impairment analysis,future operating results and projected growth rates for the related customer types. Although we rely on a variety of internal and external sources in projecting revenue, our relative reliance on each source or trend changes from year to year. In 2012 and into 2013, we noted a continued divergence between our historic revenue growth rates and AEC/O non-residential construction growth rates, as well as the “dilution” of traditional reprographics as the Company’s dominant business line. Therefore, we increased our reliance upon internal sources for our short-term and long-term revenue forecasts. Once the forecasted revenue was established for each of the reporting units based on the process noted above, using the current year EBITDA margin as a base line, we forecasted future EBITDA margins. In general, our EBITDA margins are significantly affected by (1) revenue trends and (2) cost management initiatives. Revenue trends impact our EBITDA margins because a significant portion of our cost of sales are considered relatively fixed therefore an increase in forecasted revenue (particularly when combined with any cost management or productivity enhancement initiatives) would result in meaningful gross margin expansion. Similarly, a significant portion of our selling, general, and administrative expenses are considered fixed. Hence, in forecasting EBITDA margins, significant reliance was placed on the historical impact of revenue trends on EBITDA margin.
As of September 30, 2017, the estimated fair values of our reporting units were based upon their respective projected EBITDA margins, which were anticipated to vary from annual declines to increases up to 100 basis points for the periods analyzed. These cash flows were discounted using a weighted average cost of capital ranging from 10% to 12%, depending upon the size and risk profile of the reporting unit. We considered market information in assessing the reasonableness of the fair value under the income approach described above.flows.
The results of the annual goodwill impairment test, as of September 30, 2017,2022, were as follows:
|
| | | | | | |
| (Dollars in thousands) | Number of Reporting Units | | Representing Goodwill of |
| No goodwill balance | 6 |
| | $ | — |
|
| Fair value of reporting units exceeds their carrying values by more than 100% | 2 |
| | 121,051 |
|
| | 8 |
| | $ | 121,051 |
|
The goodwill balances reflected above are net of the $17.6 million goodwill impairment recognized in the third quarter of 2017. | | | | | | | | | | | |
| (Dollars in thousands) | Number of
Reporting
Units | | Representing
Goodwill of |
| No goodwill balance | 6 | | | $ | — | |
| | | |
| Fair value of reporting units exceeds their carrying values by more than 35% | 1 | | | 121,051 | |
| 7 | | | $ | 121,051 | |
Based upon a sensitivity analysis, a reduction of approximately 50 basis50-basis points of projected EBITDA in 20172022 and beyond, assuming all other assumptions remain constant, would result in no further impairment of goodwill.
Based upon a separate sensitivity analysis, a 50 basis50-basis point increase to the weighted average cost of capital would result in no
further impairment of goodwill.
Given the uncertainty regarding the ultimate financial impact of the COVID-19 pandemic and the proceeding economic recovery, and the changing document and printing needs of our customers and the uncertainties regarding the effect on our
business, there can be no assurance that the estimates and assumptions made for purposes of our goodwill impairment testing in 20172022 will prove to be accurate predictions of the future. If our assumptions, including forecasted EBITDA of certain reporting units, are not achieved, or our assumptions change regarding disruptions caused by the pandemic, and the impact on the recovery from COVID-19 change, then we may be required to record additional goodwill impairment charges in future periods, whether in connection with our next annual impairment testing in the third quarter of 2018,2023, or on an interim basis, if any such change constitutes a triggering event (as defined under ASC 350, Intangibles - Goodwill and Other) outside of the quarter when we regularly perform our annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Income Taxes
Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce our deferred tax assets to the amount that is more likely than not to be realized. Changes in tax laws or accounting standards and methods may affect recorded deferred taxes in future periods.
In accordance with ASC 740-10, Income Taxes,When establishing a valuation allowance, we evaluate the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possiblefuture sources of taxable income when assessing the realization of deferred tax assets:
Futuresuch as future reversals of existing taxable temporary differences;
Futuredifferences, future taxable income exclusive of reversing temporary differences and carryforwards;
Taxable income in prior carryback years;carryforwards and
Tax-planning tax planning strategies.
The assessment regarding whether a valuation allowance A tax planning strategy is requiredan action that: is prudent and feasible; an enterprise ordinarily might not take but would take to prevent an operating loss or should be adjusted also considers all available positive and negative evidence factors, including but not limited to:
Nature, frequency, and severity of recent losses;
Duration of statutorytax credit carryforward periods;
Historical experience with tax attributesfrom expiring unused; and
Near- and medium-term financial outlook.
It is difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses would result in recent years. We utilize a rolling three years of actual and current year anticipated results as the primary measure of cumulative income/losses in recent years, as adjusted for permanent differences. The evaluationrealization of deferred tax assets requires judgment in assessingassets. In the likely future tax consequences of eventsevent we determine that have been recognized in our financial statements or tax returns and future profitability.
Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations. At September 30, 2015 as a result of sustained profitability in the U.S. evidenced by three years of earnings and forecasted continuing profitability, we determined it wasassets, more likely than not, will not be realized in the future, earnings will be sufficientthe valuation adjustment to realizethe deferred tax assets will be charged to earnings in the U.S.period in which we make such a determination. We hadhave a $1.8$2.4 million valuation allowance against certain deferred tax assets as of September 30, 2017.2022.
Our gross deferred tax assets remain available to us for use in future years until they fully expire, which based on forecasted continuing profitability, we estimate that it is more likely than not that future earnings will be sufficient to realize certain of our deferred tax assets. In future quarters we will continue to evaluate our historical results for the preceding twelve quarters and our future projections to determine whether we will generate sufficient taxable income to utilize our deferred tax assets, and whether a partial or full valuation allowance is required.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.
Income taxes have not been provided on certain undistributed earnings of foreign subsidiaries because such earnings are considered to be permanently reinvested.
The amount of taxable income or loss we report to the various tax jurisdictions is subject to ongoing audits by federal, state and foreign tax authorities. OurWe estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We use a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured and tax position taken or expected to be taken on ourits tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We had no unrecognized tax benefits as of September 30, 2017. We report tax-related interest and penalties as a component of income tax expense.
For further information regarding the accounting policies that we believe to be critical accounting policies and that affect our more significant judgments and estimates used in preparing our interim condensed consolidated financial statements see our 2016 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 1, “Description of Business and Basis of Presentation” to our interim condensed consolidated financial statementsCondensed Consolidated Financial Statements for disclosure on recent accounting pronouncements.pronouncements not yet adopted.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this Item 3.
Our primary exposure to market risk is interest rate risk associated with our debt instruments. We use both fixed and variable rate debt as sources of financing. In 2014, we entered into a $175.0 million Term A Credit Agreement, which was later amended in 2017. Borrowings under the amended Term A Credit Agreement bear interest at a rate equal to an applicable margin plus a variable rate. As such, our amended Term A Credit Agreement exposes us to market risk for changes in interest rates. To manage our exposure to interest rate volatility associated with borrowings under our Term A Credit Agreement, we entered into interest rate cap agreements in the first quarter of 2015. We have not, and do not plan to, enter into any derivative financial instruments for trading or speculative purposes.
As of September 30, 2017, we had $150.0 million of total debt and capital lease obligations, of which approximately 30% was at a fixed rate, with the remainder at variable rates. Given our outstanding indebtedness at September 30, 2017, the effect of a 100 basis point increase in LIBOR on our interest expense would be approximately $0.9 million annually.
Although we have international operating entities, our exposure to foreign currency rate fluctuations is not significant to our financial condition or results of operations.
Item 4.Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 ("Exchange Act") are recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s ("SEC") rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2017.2022. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of September 30, 2017,2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes to internal control over financial reporting during the three months ended September 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1.Legal Proceedings
This informationWe are involved, and will continue to be involved, in legal proceedings arising out of the conduct of our business, including commercial and employment-related lawsuits. Some of these lawsuits purport or may be determined to be class actions and seek substantial damages, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is included underconsidered probable that a loss has been incurred and the caption “Legal Proceedings” in Note 6 toamount of the loss can be reasonably estimated. Our evaluation of whether a loss is reasonably probable is based on our Condensed Consolidated Financial Statements in Part 1, Item 1assessment and consultation with legal counsel regarding the ultimate outcome of this Quarterly Reportthe matter. As of September 30, 2022, we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not currently believe that the ultimate resolution of any of these matters will have a material adverse effect on Form 10-Q.our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.
Item 1A.Risk Factors
Information concerning certain risks and uncertainties appearsare set forth in Part"Part I - Item 1A “Risk Factors”1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. You should carefully consider those risks and uncertainties, which could materially affect our business, financial condition and results of operations. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2021 filed with the SEC on February 24, 2022.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
|
| | | | | | | | | | | | | | |
| (In thousands, except for price per share) | | (a) Total Number of
Shares Purchased (1) | | (b) Average Price Paid per Share ($) | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | (d) Approximate Dollar Value of Shares That May Yet Be Purchased Under The Plans or Programs (1) |
| Period | | | | | | | | |
| July 1, 2017—July 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 9,621 |
|
| August 1, 2017—August 31, 2017 | | — |
| | $ | 3.85 |
| | — |
| | $ | 9,620 |
|
| September 1, 2017—September 30, 2017 | | 2 |
| | $ | 3.48 |
| | 2 |
| | $ | 9,614 |
|
| Total | | 2 |
| |
|
| | 2 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
(1)(In thousands, except for price per share) | On February 8, 2016, we announced that the Company's Board | (a) Total Number of Directors approved a stock repurchase program that authorizes the Company to purchase up to $15.0 million
Shares Purchased (1) | | (b) Average Price Paid per Share ($) | | (c) Total Number of the Company's outstanding common stock through DecemberShares Purchased as Part of Publicly Announced Plans or Programs | | (d) Approximate Dollar Value of Shares That May Yet Be Purchased Under The Plans or Programs (1) |
| Period | | | | | | | | |
July 1, 2022 - July 31, 2017.2022 | | — | | | $ | — | | | — | | | $ | 6,968 | |
| August 1, 2022 - August 31, 2022 | | — | | | $ | — | | | — | | | $ | 6,968 | |
| September 1, 2022 - September 30, 2022 | | — | | | $ | — | | | — | | | $ | 6,968 | |
| Total repurchases | | — | | | | | — | | | |
(1) On May 1, 2019, we announced that our Board of Directors approved a stock repurchase program that authorizes us to purchase up to $15.0 million of our outstanding common stock through March 31, 2021, which authorization was subsequently extended through March 31, 2023. Under the repurchase program, purchases of shares of common stock may be made from time to time in the open market, or in privately negotiated transactions, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements, and capital availability. The stock repurchase program does not obligate us to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time without prior notice.
Item 6.Exhibits
|
| | | | | | | |
Exhibit Number | | Description |
| | |
10.1 | | |
| | |
| | |
| | |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| 101.INS | | XBRL Instance Document * |
| |
| 101.SCH | | XBRL Taxonomy Extension Schema * |
| |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase * |
| |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase * |
| |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase * |
| |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase * |
|
| |
*104 | Filed herewith | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 2, 20173, 2022
|
|
ARC DOCUMENT SOLUTIONS, INC. |
|
/s/ KUMARAKULASINGAM SURIYAKUMAR |
Kumarakulasingam Suriyakumar |
Chairman, President and Chief Executive Officer |
|
/s/ JORGE AVALOS |
Jorge Avalos |
Chief Financial Officer |
EXHIBIT INDEX
|
| | |
Exhibit
Number
| | DescriptionARC DOCUMENT SOLUTIONS, INC. |
| |
10.1 | | /s/ KUMARAKULASINGAM SURIYAKUMAR |
| | Kumarakulasingam Suriyakumar |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| |
32.2 | | |
| |
101.INS | | XBRL Instance Document * |
| |
101.SCH | | XBRL Taxonomy Extension Schema * |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase * |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase * |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase * |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase * |
|
| /s/ JORGE AVALOS |
*Jorge Avalos |
Filed herewithChief Financial Officer |