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

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

Financial Highlights:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(All dollar amounts in millions, except EPS)

2020

2019

2020

2019

Net sales

$

72.4

$

94.1

$

225.1

$

290.1

Gross margin

33.4

%

32.3

%

32.1

%

32.7

%

Net income attributable to ARC

$

2.8

$

1.1

$

4.9

$

2.2

Adjusted net income attributable to ARC

$

2.9

$

1.6

$

5.3

$

5.4

Earnings per share - Diluted

$

0.07

$

0.02

$

0.11

$

0.05

Adjusted earnings per share - Diluted

$

0.07

$

0.04

$

0.12

$

0.12

Cash provided by operating activities

$

12.8

$

10.8

$

39.0

$

29.8

EBITDA

$

12.1

$

11.1

$

33.3

$

35.6

Adjusted EBITDA

$

12.5

$

12.1

$

34.6

$

37.7

Capital Expenditures

$

2.5

$

2.4

$

5.1

$

8.4

Management Commentary:

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

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

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

2020 Third Quarter Supplemental Information:

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

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

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

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

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

Net Revenue

In millions

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

Total net revenue

$

72.4

$

64.3

$

88.4

$

382.4

$

92.3

$

94.1

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

Revenue by Business Lines

In millions

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

CDIM

$

47.1

$

41.1

$

49.2

$

205.5

$

49.8

$

50.5

MPS

$

17.6

$

16.2

$

27.3

$

123.3

$

30.2

$

30.6

AIM

$

2.9

$

2.7

$

3.6

$

14.1

$

3.7

$

3.5

Equipment and supplies

$

4.7

$

4.4

$

8.4

$

39.5

$

8.6

$

9.5

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

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

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

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

Gross Profit

In millions unless otherwise indicated

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

Gross profit

$

24.2

$

20.4

$

27.6

$

125.2

$

30.2

$

30.4

Gross margin

33.4

%

31.8

%

31.2

%

32.7

%

32.8

%

32.3

%

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

Selling, General and Administrative Expenses

In millions

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

Selling, general and administrative expenses

$

19.2

$

17.3

$

24.3

$

107.3

$

26.4

$

26.0

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

Net Income and Earnings Per Share

In millions unless otherwise indicated

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

Net income attributable to ARC - GAAP

$

2.8

$

1.5

$

0.7

$

3.0

$

0.8

$

1.1

Adjusted net income attributable to ARC

$

2.9

$

1.2

$

1.2

$

6.8

$

1.4

$

1.6

Earnings per share attributable to ARC

Diluted EPS - GAAP

$

0.07

$

0.03

$

0.02

$

0.07

$

0.02

$

0.02

Adjusted diluted EPS

$

0.07

$

0.03

$

0.03

$

0.15

$

0.03

$

0.04

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

Cash Provided by Operating Activities

In millions

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

Cash provided by operating activities

$

12.8

$

23.5

$

2.8

$

52.8

$

23.0

$

10.8

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

EBITDA

In millions

3Q 2020

2Q 2020

1Q 2020

FYE 2019

4Q 2019

3Q 2019

EBITDA

$

12.1

$

10.3

$

10.9

$

45.9

$

10.3

$

11.1

Adjusted EBITDA

$

12.5

$

10.7

$

11.4

$

49.4

$

11.7

$

12.1

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

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

2020

2019

2020

2019

CDIM

65.1

%

53.7

%

61.0

%

53.6

%

MPS

24.4

%

32.5

%

27.2

%

32.1

%

AIM

4.0

%

3.7

%

4.1

%

3.6

%

Equipment and supplies sales

6.5

%

10.1

%

7.7

%

10.7

%

Outlook

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

Teleconference and Webcast

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

About ARC Document Solutions (NYSE: ARC)

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

Forward-Looking Statements

This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company, including forward-looking statements related to the impact of the COVID-19 pandemic on the Company's operations. Words and phrases such as "we are adapting to the opportunities", "we are confident in our ability", "we believe our ability to support our shareholders and to weather the continuing uncertainties in the coming winter months is assured", "anticipate", and "assured", and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the construction, managed print services, document management or reprographics industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the caption entitled "Risk Factors" in Item 1A in ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Contact Information:

David Stickney

VP Corporate Communications & Investor Relations

925-949-5114

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

September 30,

December 31,

Current assets:

2020

2019

Cash and cash equivalents

$

50,342

$

29,425

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

41,322

51,432

Inventory

10,502

13,936

Prepaid expenses

4,663

4,783

Other current assets

4,051

6,807

Total current assets

110,880

106,383

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

62,971

70,334

Right-of-use assets from operating leases

37,743

41,238

Goodwill

121,051

121,051

Other intangible assets, net

641

1,996

Deferred income taxes

17,287

19,755

Other assets

2,127

2,400

Total assets

$

352,700

$

363,157

Current liabilities:

Accounts payable

$

19,317

$

23,231

Accrued payroll and payroll-related expenses

10,798

14,569

Accrued expenses

17,167

20,440

Current operating lease liabilities

11,779

11,060

Current portion of finance leases

18,748

17,075

Total current liabilities

77,809

86,375

Long-term operating lease liabilities

34,082

37,260

Long-term debt and finance leases

87,374

89,082

Other long-term liabilities

500

400

Total liabilities

199,765

213,117

Commitments and contingencies

Shareholders' equity:

ARC Document Solutions, Inc. shareholders' equity:

Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding

-

-

Common stock, $0.001 par value, 150,000 shares authorized; 49,911 and 49,189 shares issued and 43,863 and 45,228 shares outstanding

50

49

Additional paid-in capital

127,505

126,117

Retained earnings

36,477

31,969

Accumulated other comprehensive loss

(3,611)

(3,357

)

160,421

154,778

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

13,842

11,410

Total ARC Document Solutions, Inc. shareholders' equity

146,579

143,368

Noncontrolling interest

6,356

6,672

Total equity

152,935

150,040

Total liabilities and equity

$

352,700

$

363,157

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net sales

$

72,379

$

94,104

$

225,123

$

290,099

Cost of sales

48,186

63,702

152,888

195,174

Gross profit

24,193

30,402

72,235

94,925

Selling, general and administrative expenses

19,186

26,025

60,816

80,881

Amortization of intangible assets

285

718

1,353

2,480

Restructuring expense

-

311

-

311

Income from operations

4,722

3,348

10,066

11,253

Other income, net

(11)

(17

)

(44)

(53

)

Interest expense, net

871

1,264

3,111

4,066

Income before income tax provision

3,862

2,101

6,999

7,240

Income tax provision

1,234

1,042

2,489

5,222

Net income

2,628

1,059

4,510

2,018

Loss attributable to the noncontrolling interest

163

16

425

173

Net income attributable to ARC Document Solutions, Inc. shareholders

$

2,791

$

1,075

$

4,935

$

2,191

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

Basic

$

0.07

$

0.02

$

0.11

$

0.05

Diluted

$

0.07

$

0.02

$

0.11

$

0.05

Weighted average common shares outstanding:

Basic

42,747

44,978

43,017

45,107

Diluted

42,918

44,992

43,160

45,213

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Cash flows from operating activities

Net income

$

2,628

$

1,059

$

4,510

$

2,018

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

Allowance for accounts receivable

189

76

706

430

Depreciation

6,938

7,030

21,402

21,600

Amortization of intangible assets

285

718

1,353

2,480

Amortization of deferred financing costs

16

52

48

162

Stock-based compensation

413

622

1,333

1,854

Deferred income taxes

1,175

782

2,419

4,684

Deferred tax valuation allowance

50

89

22

115

Restructuring expense, non-cash portion

-

46

-

46

Other non-cash items, net

258

(120

)

226

(209

)

Changes in operating assets and liabilities:

Accounts receivable, net

1,144

1,836

9,310

(258

)

Inventory

1,527

1,011

3,469

1,242

Prepaid expenses and other assets

3,754

3,113

10,765

7,094

Accounts payable and accrued expenses

(5,617)

(5,507

)

(16,548)

(11,464

)

Net cash provided by operating activities

12,760

10,807

39,015

29,794

Cash flows from investing activities

Capital expenditures

(2,472)

(2,401

)

(5,053)

(8,406

)

Other

170

41

250

342

Net cash used in investing activities

(2,302)

(2,360

)

(4,803)

(8,064

)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

15

28

55

109

Share repurchases

-

(319

)

(2,432)

(1,186

)

Contingent consideration on prior acquisitions

-

-

-

(3

)

Payments on finance leases and long-term debt agreements

(3,936)

(6,105

)

(10,236)

(17,551

)

Borrowings under revolving credit facilities

5,000

6,500

45,000

19,750

Payments under revolving credit facilities

(20,000)

(10,000

)

(45,000)

(31,000

)

Dividends paid

-

-

(870)

-

Net cash used in financing activities

(18,921)

(9,896

)

(13,483)

(29,881

)

Effect of foreign currency translation on cash balances

374

511

188

(479

)

Net change in cash and cash equivalents

(8,089)

(938

)

20,917

(8,630

)

Cash and cash equivalents at beginning of period

58,431

21,741

29,425

29,433

Cash and cash equivalents at end of period

$

50,342

$

20,803

$

50,342

$

20,803

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

$

1,546

$

4,193

$

9,624

$

13,010

Operating lease obligations incurred

$

938

$

898

$

4,582

$

3,257

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

CDIM

$

47,107

$

50,502

$

137,337

$

155,701

MPS

17,648

30,607

61,189

93,092

AIM

2,910

3,516

9,163

10,380

Equipment and supplies sales

4,714

9,479

17,434

30,926

Net sales

$

72,379

$

94,104

$

225,123

$

290,099

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Cash flows provided by operating activities

$

12,760

$

10,807

$

39,015

$

29,794

Changes in operating assets and liabilities

(808)

(453

)

(6,996)

3,386

Non-cash expenses, including depreciation and amortization

(9,324)

(9,295

)

(27,509)

(31,162

)

Income tax provision

1,234

1,042

2,489

5,222

Interest expense, net

871

1,264

3,111

4,066

Loss attributable to the noncontrolling interest

163

16

425

173

Depreciation and amortization

7,223

7,748

22,755

24,080

EBITDA

12,119

11,129

33,290

35,559

Restructuring expense

-

311

-

311

Stock-based compensation

413

622

1,333

1,854

Adjusted EBITDA

$

12,532

$

12,062

$

34,623

$

37,724

See Non-GAAP Financial Measures discussion below.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income attributable to ARC Document Solutions, Inc.

$

2,791

$

1,075

$

4,935

$

2,191

Interest expense, net

871

1,264

3,111

4,066

Income tax provision

1,234

1,042

2,489

5,222

Depreciation and amortization

7,223

7,748

22,755

24,080

EBITDA

12,119

11,129

33,290

35,559

Restructuring expense

-

311

-

311

Stock-based compensation

413

622

1,333

1,854

Adjusted EBITDA

$

12,532

$

12,062

$

34,623

$

37,724

See Non-GAAP Financial Measures discussion below.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income attributable to ARC Document Solutions, Inc.

$

2,791

$

1,075

$

4,935

$

2,191

Restructuring expense

-

311

-

311

Income tax benefit related to above items

-

(81

)

-

(81

)

Deferred tax valuation allowance and other discrete tax items

99

321

358

2,939

Adjusted net income attributable to ARC Document Solutions, Inc.

$

2,890

$

1,626

$

5,293

$

5,360

Actual:

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

Basic

$

0.07

$

0.02

$

0.11

$

0.05

Diluted

$

0.07

$

0.02

$

0.11

$

0.05

Weighted average common shares outstanding:

Basic

42,747

44,978

43,017

45,107

Diluted

42,918

44,992

43,160

45,213

Adjusted:

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

Basic

$

0.07

$

0.04

$

0.12

$

0.12

Diluted

$

0.07

$

0.04

$

0.12

$

0.12

Weighted average common shares outstanding:

Basic

42,747

44,978

43,017

45,107

Diluted

42,918

44,992

43,160

45,213

See Non-GAAP Financial Measures discussion below.

Non-GAAP Financial Measures

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

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

We have presented EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.

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

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

  • They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;

  • They do not reflect changes in, or cash requirements for, our working capital needs;

  • They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;

  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

  • Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

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

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

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and nine months ended September 30, 2020 and 2019 to exclude restructuring expense and to reflect the exclusion of changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three and nine months ended September 30, 2020 and 2019.

We have presented adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019 to exclude stock-based compensation expense and restructuring expense. The adjustment of EBITDA is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.

SOURCE: ARC Document Solutions



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