ARC Reports 2020 Fourth Quarter and Full Year Results Including Annual Increase in Cash Flows
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ARC Reports 2020 Fourth Quarter and Full Year Results Including Annual Increase in Cash Flows

Tuesday, February 23, 2021 4:05 PM
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Topic:
Earnings

SAN RAMON, CA / ACCESSWIRE / February 23, 2021 / ARC Document Solutions, Inc. (NYSE:ARC), a leading provider of document distribution and graphic production services to professionals in the design, marketing, commercial real estate, construction and related fields, today reported its financial results for the fourth quarter and full year ended December 31, 2020.

Financial Highlights:
           
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
(All dollar amounts in millions, except EPS)
  2020     2019     2020     2019  
Net Sales
  $ 64.3     $ 92.3     $ 289.5     $ 382.4  
Gross Margin
    32.1 %     32.8 %     32.1 %     32.7 %
Net income attributable to ARC
  $ 1.3     $ 0.8     $ 6.2     $ 3.0  
Adjusted net income attributable to ARC
  $ 1.0     $ 1.4     $ 6.3     $ 6.8  
Earnings per share - Diluted
  $ 0.03     $ 0.02     $ 0.14     $ 0.07  
Adjusted earnings per share - Diluted
  $ 0.02     $ 0.03     $ 0.15     $ 0.15  
Cash provided by operating activities
  $ 15.5     $ 23.0     $ 54.5     $ 52.8  
EBITDA
  $ 9.9     $ 10.3     $ 43.2     $ 45.9  
Adjusted EBITDA
  $ 10.2     $ 11.7     $ 44.8     $ 49.4  
Capital Expenditures
  $ 1.4     $ 4.5     $ 6.4     $ 12.9  
Debt & Capital Leases (including current)
                  $ 97.2     $ 106.2  

Management Commentary

"In 2020, our long-standing belief that ARC can be a dynamic, healthy and profitable company at any level of sales was put to the test," said Suri Suriyakumar, Chairman, President and CEO of ARC Document Solutions. "We not only passed the test, but surpassed our own expectations for what was possible."

"We matched our 2019 annual adjusted earnings per share, increased annual cash flow from operations, held more cash on the balance sheet than in any year prior to the recession, and averaged well over $10 million per quarter in adjusted EBITDA in spite of a revenue decline of $93 million. Our performance validated the extraordinary actions taken by management to protect the company, our employees, and the communities in which we work, and it also allowed us to resume our focus on returning value to our shareholders," said Mr. Suriyakumar. "While we are well aware of the disruptions still being caused by the pandemic, we are confident that the increasing availability of vaccines and the easing of economic restrictions will help us leverage our performance later in the year."

"Decisive moves within the first few weeks of the crisis accelerated operational changes and drove new sales initiatives while we reduced expenses in 2020," said Jorge Avalos, ARC's Chief Financial Officer. "As cash continued to build on the balance sheet and our capital structure remained strong, we were able to resume our dividend program in the fourth quarter, continue to reduce our debt, and repurchase shares. We do not expect to alter our capital allocation strategy in the near future, though we do expect lower sales in the first quarter as recent weather events are substantially increasing the disruptions caused by the pandemic."

2020 Fourth Quarter and Full Year Supplemental Information:

ARC has provided supplemental information to its earnings announcement in these pages to supply shareholders and analysts with additional information in advance of our quarterly conference call. As previously scheduled, the conference call will begin today, February 23, 2021 at 2:00 pm PST (5:00 pm EST) and will include brief comments followed by a question and answer period. Supplemental information will not be read on the call.

Fourth Quarter Overview

The fourth quarter of 2020 saw sales softening more than usual during the holiday months with the loss of working days exacerbated by lower activity due to economic closures and work-from-home measures in response to the pandemic. CDIM sales were pressured by sales declines in traditional printing, but were partially offset by resilience in color imaging sales for retail, education, promotional and marketing projects. MPS sales were down substantially due to continued office closures and work-from-home measures, a factor that also had a negative impact on AIM sales. The effect of the pandemic in China and the U.S. also constrained capital spending on Equipment & Supplies. Cost and operational controls that were put in place at the end of the first quarter continued to support strong performance in gross margin, earnings and cash generation.

Net Revenue

In millions
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
Total Net Revenue
  $ 289.5     $ 64.3     $ 72.4     $ 64.3     $ 88.4     $ 382.4     $ 92.3  

In the fourth quarter 2020, net revenue declined 30.3%, or $28.0 million, compared to the fourth quarter of 2019 due to the effects of the continuing COVID-19 pandemic, as well as the historical softness in the period due to fewer working days in the holiday months. Net revenue for full-year 2020 declined 24.3%, or $92.9 million, year-over-year compared to the full year of 2019, also due to the pandemic.

Revenue by Business Lines

In millions
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
CDIM
  $ 175.5     $ 38.2     $ 47.1     $ 41.1     $ 49.2     $ 205.5     $ 49.8  
MPS
  $ 79.3     $ 18.1     $ 17.6     $ 16.2     $ 27.3     $ 123.3     $ 30.2  
AIM
  $ 12.3     $ 3.1     $ 2.9     $ 2.7     $ 3.6     $ 14.1     $ 3.7  
Equipment and supplies
  $ 22.3     $ 4.9     $ 4.7     $ 4.4     $ 8.4     $ 39.5     $ 8.6  

For the fourth quarter 2020, construction document and information management (CDIM) sales declined 23.3% compared to prior year, and for the full-year 2020 declined 14.6% year-over-year. The impact of the pandemic on CDIM was not as pronounced as other parts of our business due to the expansion of products and services beyond the construction vertical and our historical print segments that resulted from the reconfiguration of our sales and marketing functions in late-2019, as well as demand for COVID-19-related and other color signage.

For the fourth quarter 2020, managed print services (MPS) sales declined 40.1% compared to prior year, and sales for the full-year 2020 declined 35.7% year-over-year as compared to the full year of 2019. MPS sales declined due to the pandemic, particularly by the lack of workers in offices where our services are provided.

For the fourth quarter 2020, archiving and information management (AIM) sales decreased 16.2% compared to prior year, and sales for the full-year 2020 decreased 12.7% year-over-year as compared to the full year of 2019. Sales decreases in AIM were driven by reasons similar to MPS, particular the lack of workers in offices.

For the fourth quarter 2020, equipment and supplies sales declined 43.0% compared to prior year, and sales for the full-year 2020 declined 43.5% year-over-year as compared to the full year of 2019. Declines were driven primarily by constrained capital spending in China and the U.S. caused by the pandemic.

Gross Profit

In millions unless otherwise indicated
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
Gross Profit
  $ 92.9     $ 20.7     $ 24.2     $ 20.4     $ 27.6     $ 125.2     $ 30.2  
Gross Margin
    32.1 %     32.1 %     33.4 %     31.8 %     31.2 %     32.7 %     32.8 %

Despite the 24.3% drop in net sales due to the COVID-19 pandemic, gross margins during 2020 remained stable due to the Company's decisive moves in reducing costs within the first few weeks of the pandemic.

Selling, General and Administrative Expenses

In millions
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
Selling, general and administrative expenses
  $ 79.0     $ 18.2     $ 19.2     $ 17.3     $ 24.3     $ 107.3     $ 26.4  

Selling, general and administrative (SG&A) expenses in the fourth quarter declined 31.1% year-over-year, and for the full year 2020 declined 26.3% compared to the full year of 2019. The decreases were driven by lower sales and marketing costs related to our Q3 2019 restructuring exercise and our operational responses to the pandemic.

Net Income and Earnings Per Share

In millions unless otherwise indicated
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
Net Income Attributable to ARC - GAAP
  $ 6.2     $ 1.3     $ 2.8     $ 1.5     $ 0.7     $ 3.0     $ 0.8  
Adjusted Net Income Attributable to ARC
  $ 6.3     $ 1.0     $ 2.9     $ 1.2     $ 1.2     $ 6.8     $ 1.4  
 
                                                       
Earnings per share Attributable to ARC
                                                       
Diluted EPS - GAAP
  $ 0.14     $ 0.03     $ 0.07     $ 0.03     $ 0.02     $ 0.07     $ 0.02  
Adjusted Diluted EPS
  $ 0.15     $ 0.02     $ 0.07     $ 0.03     $ 0.03     $ 0.15     $ 0.03  

Increases in GAAP net income and adjusted net income attributable to ARC and GAAP and adjusted EPS in 2020 were driven by a decrease in income taxes, lower costs and expenses as a result of our Q3 2019 restructuring, as well as further cost controls put in place in response to the pandemic.

Cash Provided by Operating Activities

In millions
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
Cash provided by operating activities
  $ 54.5     $ 15.5     $ 12.8     $ 23.5     $ 2.8     $ 52.8     $ 23.0  

Cash provided by operating activities in the fourth quarter 2020 decreased 32.6% year over year, and for the full-year 2020 increased 3.2% year-over-year as compared to the full year of 2019. The decline of cash flows from operations in the fourth quarter was driven by timing differences in sales and collection of those sales. The increase in cash flows from operations in 2020 was primarily a result of the sustained profitability in 2020, despite the COVID-19 pandemic, and active management of operating assets and liabilities.

EBITDA

In millions
  FYE 2020       4Q 2020       3Q 2020       2Q 2020       1Q 2020     FYE 2019       4Q 2019  
EBITDA
  $ 43.2     $ 9.9     $ 12.1     $ 10.3     $ 10.9     $ 45.9     $ 10.3  
Adjusted EBITDA
  $ 44.8     $ 10.2     $ 12.5     $ 10.7     $ 11.4     $ 49.4     $ 11.7  

Decreases in EBITDA and Adjusted EBITDA in the fourth quarter and full year were driven by lower sales, partially offset by significant declines in SG&A expenses as noted above.

Additional Information:

  • Cash & cash equivalents on the balance sheet at the end of 2020 were $55 million.
  • The Company purchased 0.6 million of its own shares in the open market in the fourth quarter for $0.8 million, and in total, purchased 2.6 million of its own shares during the full-year 2020 for $3.2 million.
  • ARC's second quarterly cash dividend of two cents for 2021 was announced on February 16, 2021 with a record date of April 30, 2021, and a payment date of May 31, 2021.
  • Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 69% of our total net sales, while customers outside of construction made up approximately 31% of our total net sales.
  • Total number of MPS locations at the end of the fourth quarter was approximately 10,750.

Sales from Services and Product Lines as a Percentage of Net Sales
                       
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
Services and Product Line
  2020     2019     2020     2019  
CDIM
    59.4 %     54.0 %     60.6 %     53.7 %
MPS
    28.2 %     32.7 %     27.4 %     32.2 %
AIM
    4.8 %     4.0 %     4.3 %     3.7 %
Equipment and supplies sales
    7.6 %     9.3 %     7.7 %     10.4 %

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, February 23, 2021, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2020 fourth quarter and fiscal year. To access the live audio call, dial (833) 968-2212. International callers may join the conference by dialing +1 778-560-2897. The conference code is 6694548 and will be required to dial in to the call. A live webcast will also be made available on the investor relations page of ARC Document Solution's website at http://ir.e-arc.com. A replay of the webcast will be available on the website following the call's conclusion.

About ARC Document Solutions (NYSE: ARC)

ARC provides a wide variety of document distribution and graphic production services to facilitate communication for professionals in the design, marketing, commercial real estate, construction and related fields. Follow ARC at www.e-arc.com.

Forward-Looking Statements

This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company. Words and phrases such as "expect", "do not expect to alter ", "leverage our performance later in the year", and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the markets we serve, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the effects of the COVID-19 pandemic on the economy and our business, and additional factors described in the caption entitled "Risk Factors" in Item 1A in ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Contact Information:

David Stickney
VP Corporate Communications & Investor Relations
925-949-5114

ARC Document Solutions, Inc.
           
Consolidated Balance Sheets
           
(In thousands, except per share data)
           
(Unaudited)
           
 
  December 31,     December 31,  
Current assets:
  2020     2019  
Cash and cash equivalents
  $ 54,950     $ 29,425  
Accounts receivable, net of allowances for accounts receivable of $2,357 and $2,099
    36,279       51,432  
Inventories, net
    9,474       13,936  
Prepaid expenses
    4,065       4,783  
Other current assets
    3,979       6,807  
Total current assets
    108,747       106,383  
Property and equipment, net of accumulated depreciation of $219,834 and $210,849
    57,830       70,334  
Right-of-use assets from operating leases
    37,859       41,238  
Goodwill
    121,051       121,051  
Other intangible assets, net
    515       1,996  
Deferred income taxes
    17,261       19,755  
Other assets
    2,175       2,400  
Total assets
  $ 345,438     $ 363,157  
Current liabilities:
               
Accounts payable
  $ 18,661     $ 23,231  
Accrued payroll and payroll-related expenses
    10,088       14,569  
Accrued expenses
    17,783       20,440  
Current operating lease liabilities
    12,158       11,060  
Current portion of long-term debt and finance leases
    17,557       17,075  
Total current liabilities
    76,247       86,375  
Long-term operating lease liabilities
    33,561       37,260  
Long-term debt and finance leases
    79,679       89,082  
Other long-term liabilities
    1,615       400  
Total liabilities
    191,102       213,117  
Commitments and contingencies
               
Stockholders' equity:
               
ARC Document Solutions, Inc. stockholders' equity:
               
Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding
    -       -  
Common stock, $0.001 par value, 150,000 shares authorized; 49,422 and 49,189 shares issued and 42,792 and 45,228 shares outstanding
    49       49  
Additional paid-in capital
    127,755       126,117  
Retained earnings
    37,308       31,969  
Accumulated other comprehensive loss
    (2,787)       (3,357 )
 
    162,325       154,778  
Less cost of common stock in treasury, 6,630 and 3,960 shares
    14,657       11,410  
Total ARC Document Solutions, Inc. stockholders' equity
    147,668       143,368  
Noncontrolling interest
    6,668       6,672  
Total equity
    154,336       150,040  
Total liabilities and equity
  $ 345,438     $ 363,157  
                 

ARC Document Solutions, Inc. 
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

                         
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Service sales
  $ 59,470     $ 83,740     $ 267,159     $ 342,912  
Equipment and supplies sales
    4,874       8,576       22,308       39,503  
Total net sales
    64,344       92,316       289,467       382,415  
Cost of sales
    43,670       62,072       196,558       257,246  
Gross profit
    20,674       30,244       92,909       125,169  
Selling, general and administrative expenses
    18,200       26,379       79,016       107,260  
Amortization of intangible assets
    147       661       1,500       3,141  
Restructuring expense
    -       349       -       660  
Income from operations
    2,327       2,855       12,393       14,108  
Other income, net
    (13)       (18 )     (57)       (71 )
Loss on extinguishment and modification of debt
    -       389       -       389  
Interest expense, net
    797       1,160       3,908       5,226  
Income before income tax provision
    1,543       1,324       8,542       8,564  
Income tax provision
    260       502       2,749       5,724  
Net income
    1,283       822       5,793       2,840  
(Income) loss attributable to noncontrolling interest
    (30)       2       395       175  
Net income attributable to ARC Document Solutions, Inc. shareholders
  $ 1,253     $ 824     $ 6,188     $ 3,015  
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
                               
Basic
  $ 0.03     $ 0.02     $ 0.14     $ 0.07  
Diluted
  $ 0.03     $ 0.02     $ 0.14     $ 0.07  
Weighted average common shares outstanding:
                               
Basic
    42,648       44,670       42,925       44,997  
Diluted
    42,771       44,725       43,021       45,083  
                                 

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

 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Cash flows from operating activities
                       
Net income
  $ 1,283     $ 822     $ 5,793     $ 2,840  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Allowance for accounts receivable
    226       160       932       590  
Depreciation
    7,458       7,163       28,860       28,763  
Amortization of intangible assets
    147       661       1,500       3,141  
Amortization of deferred financing costs
    17       46       65       208  
Stock-based compensation
    238       605       1,571       2,459  
Deferred income taxes
    278       473       2,697       5,157  
Deferred tax valuation allowance
    (192)       (64 )     (170)       51  
Restructuring expense, non-cash portion
    -       102       -       148  
Loss on extinguishment and modification of debt
    -       389       -       389  
Other non-cash items, net
    (225)       (235 )     1       (444 )
Changes in operating assets and liabilities:
                               
Accounts receivable
    5,104       6,377       14,414       6,119  
Inventory
    1,097       1,549       4,566       2,791  
Prepaid expenses and other assets
    3,962       4,734       14,727       11,828  
Accounts payable and accrued expenses
    (3,930)       205       (20,478)       (11,259 )
Net cash provided by operating activities
    15,463       22,987       54,478       52,781  
Cash flows from investing activities
                               
Capital expenditures
    (1,387)       (4,479 )     (6,440)       (12,885 )
Other
    262       299       512       641  
Net cash used in investing activities
    (1,125)       (4,180 )     (5,928)       (12,244 )
Cash flows from financing activities
                               
Proceeds from issuance of common stock under Employee Stock Purchase Plan
    12       24       67       133  
Share repurchases
    (815)       (874 )     (3,247)       (2,060 )
Contingent consideration on prior acquisitions
    -       -       -       (3 )
Payments on long-term debt agreements and capital leases
    (4,699)       (54,106 )     (14,935)       (71,657 )
Borrowings under revolving credit facilities
    15,000       51,500       60,000       71,250  
Payments under revolving credit facilities
    (20,000)       (7,000 )     (65,000)       (38,000 )
Payment of deferred financing costs
    -       (96 )     -       (96 )
Dividends paid
    -       -       (870)       -  
Net cash used in financing activities
    (10,502)       (10,552 )     (23,985)       (40,433 )
Effect of foreign currency translation on cash balances
    772       367       960       (112 )
Net change in cash and cash equivalents
    4,608       8,622       25,525       (8 )
Cash and cash equivalents at beginning of period
    50,342       20,803       29,425       29,433  
Cash and cash equivalents at end of period
  $ 54,950     $ 29,425     $ 54,950     $ 29,425  
Supplemental disclosure of cash flow information:
                               
Noncash financing activities:
                               
Finance lease obligations incurred
  $ 568     $ 4,047     $ 10,192     $ 17,057  
Operating lease obligations incurred
  $ 2,948     $ 3,471     $ 7,530     $ 6,728  
                                 
ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
                       
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Service Sales
                       
CDIM
  38,195     49,835     175,532     205,536  
MPS
    18,133       30,187       79,321       123,279  
AIM
    3,142       3,718       12,306       14,097  
Total services sales
    59,470       83,740       267,159       342,912  
Equipment and supplies sales
    4,874       8,576       22,308       39,503  
Total net sales
  64,344     92,316     289,467     382,415  
                                 
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
 
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Cash flows provided by operating activities
  15,463     22,987     54,478     52,781  
Changes in operating assets and liabilities
    (6,233)       (12,865 )     (13,229)       (9,479 )
Non-cash expenses
    (342)       (1,476 )     (5,096)       (8,558 )
Income tax provision
    260       502       2,749       5,724  
Interest expense, net
    797       1,160       3,908       5,226  
(Income) loss attributable to noncontrolling interest
    (30)       2       395       175  
EBITDA
    9,915       10,310       43,205       45,869  
Loss on extinguishment and modification of debt
    -       389       -       389  
Restructuring expense
    -       349       -       660  
Stock-based compensation
    238       605       1,571       2,459  
Adjusted EBITDA
  10,153     11,653     44,776     49,377  

See Non-GAAP Financial Measures discussion below.

 
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. shareholders to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)
 
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Net income attributable to ARC Document Solutions, Inc. shareholders
  1,253     824     6,188     3,015  
Interest expense, net
    797       1,160       3,908       5,226  
Income tax provision
    260       502       2,749       5,724  
Depreciation and amortization
    7,605       7,824       30,360       31,904  
EBITDA
    9,915       10,310       43,205       45,869  
Loss on extinguishment and modification of debt
    -       389       -       389  
Restructuring expense
    -       349       -       660  
Stock-based compensation
    238       605       1,571       2,459  
Adjusted EBITDA
  10,153     11,653     44,776     49,377  

See Non-GAAP Financial Measures discussion below.

 
ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. shareholders to unaudited adjusted net income attributable to ARC Document Solutions, Inc.
(In thousands, except per share data)
(Unaudited)
 
 
  Three Months Ended     Twelve Months Ended  
 
  December 31,     December 31,  
 
  2020     2019     2020     2019  
Net income attributable to ARC Document Solutions, Inc. shareholders
  1,253     824     6,188     3,015  
Loss on extinguishment and modification of debt
    -       389       -       389  
Restructuring expense
    -       349       -       660  
Income tax benefit related to above items
            (192 )     -       (273 )
Deferred tax valuation allowance and other discrete tax items
    (240)       67       118       3,006  
Unaudited adjusted net income attributable to ARC Document Solutions, Inc.
  1,013     1,437     6,306     6,797  
 
                               
                                 
Actual:
                               
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
                               
Basic
  0.03     0.02     0.14     0.07  
Diluted
  0.03     0.02     0.14     0.07  
Weighted average common shares outstanding:
                               
Basic
    42,648       44,670       42,925       44,997  
Diluted
    42,771       44,725       43,021       45,083  
 
                               
                                 
Adjusted:
                               
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
                               
Basic
  0.02     0.03     0.15     0.15  
Diluted
  0.02     0.03     0.15     0.15  
Weighted average common shares outstanding:
                               
Basic
    42,648       44,670       42,925       44,997  
Diluted
    42,771       44,725       43,021       45,083  

See Non-GAAP Financial Measures discussion below.

Non-GAAP Financial Measures

EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.

EBITDA represents net income before interest, taxes, depreciation and amortization. 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. Our operating segments' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating segments. We use EBITDA to compare the performance of our operating segments and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBITDA and related ratios have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

  • They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;
  • They do not reflect changes in, or cash requirements for, our working capital needs;
  • They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
  • Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and related ratios only as supplements.

Our presentation of adjusted net income and adjusted EBITDA is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and twelve months ended December 31, 2020 and 2019 to reflect the exclusion of loss on extinguishment and modification of debt, 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 twelve months ended December 31, 2020 and 2019.

We have presented adjusted EBITDA for the three and twelve months ended December 31, 2020 and 2019 to exclude loss on extinguishment and modification of debt, restructuring expense, and stock-based compensation expense. The adjustment of EBITDA for these items is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.

SOURCE: ARC Document Solutions

ARC Document Solutions
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