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ARC Reports 2019 Fourth Quarter and Full Year Results - Exceeds Annual Forecast for Cash Provided by Operating Activities, Meets Annual Forecast for EPS and Adjusted EBITDA

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SAN RAMON, CA / ACCESSWIRE / February 25, 2020 / ARC Document Solutions, Inc. (ARC), a leading document solutions provider to design, engineering, construction, and facilities management professionals, today reported its financial results for the fourth quarter and full year ended December 31, 2019.

Financial Highlights:

Three Months Ended

Twelve Months Ended

December 31,

December 31,

(All dollar amounts in millions, except EPS)

2019

2018

2019

2018

Net Sales

$

92.3

$

98.4

$

382.4

$

400.8

Gross Margin

32.8

%

32.7

%

32.7

%

32.6

%

Net income attributable to ARC

$

0.8

$

1.6

$

3.0

$

8.9

Adjusted net income attributable to ARC

$

1.4

$

1.6

$

6.8

$

8.5

Earnings per share - Diluted

$

0.02

$

0.04

$

0.07

$

0.20

Adjusted earnings per share - Diluted

$

0.03

$

0.03

$

0.15

$

0.19

Cash provided by operating activities

$

23.0

$

24.9

$

52.8

$

55.0

EBITDA

$

10.3

$

12.1

$

45.9

$

51.0

Adjusted EBITDA

$

11.7

$

12.7

$

49.4

$

53.4

Capital Expenditures

$

4.5

$

4.5

$

12.9

$

14.9

Debt & Capital Leases (including current), net of unamortized deferred financing fees

$

106.2

$

127.2

Management Commentary

"While 2019 challenged us to reconfigure our product and service portfolios to adapt to a transforming market, our cash flows from operations remained a steady source of strength and stability," said Suri Suriyakumar, Chairman and CEO of ARC Document Solutions. "While sales declined moderately here in the U.S., our Chinese equipment and supplies division accounted for more than a third of the decline in overall sales for the year."

"Despite the drop in sales, we met our adjusted EBITDA and EPS forecast, and exceeded our target for cash flow from operations," said Mr. Suriyakumar. "We kept our gross margins well above 30 percent, reduced annualized costs by $10 million in the second half of the year, and opened up new markets in color, archiving and MPS."

"Our previous capital allocation strategy - which for several years has been to aggressively reduce our debt - allowed us to convert 100% of our long-term bank debt to a revolving facility in the fourth quarter," said Jorge Avalos, Chief Financial Officer. "This, in turn, supported the creation of our new dividend program and continued share repurchases in the open market. Ending the year with lower levels of debt, a better cost structure, solid margins, and a resilient capital structure creates a clear path for progress in 2020."

2019 Fourth Quarter and Full Year Supplemental Information:

ARC has provided supplemental information to its earnings announcement 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 25, 2020 at 2:00 pm PST (5:00 pm EST) and will include only brief comments followed by a question and answer period. Supplemental information will not be read on the call.

Overview

The fourth quarter capped a year of significant change for ARC in 2019. Demand for traditional architectural, engineering and construction (AEC) printing business continued to decline throughout the year, offset by non-AEC business in color and MPS. Equipment and Supplies sales rose early in the year, but fell dramatically in the last two quarters, driven primarily by significant declines in our Chinese business. This low-margin, non-strategic business accounted for half of the decline in our overall sales for the fourth quarter and more than a third of our overall sales decline for the year. The initial results of our third quarter restructuring had a positive impact on margins in the fourth quarter and helped drive a dramatic improvement on cash flow from operations.

Net Revenue

In millions

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

Total Net Revenue

$382.4

$92.3

$94.1

$98.9

$97.1

$400.8

$98.4

For the fourth quarter 2019, net revenue declined 6.2%, or $6.1 million, compared to the fourth quarter of 2018. Net revenue for full-year 2019 declined 4.6%, or $18.4 million, year-over-year compared to the full year of 2018. Our Chinese Equipment and Supplies division accounted for $3.3 million of the revenue drop in the fourth quarter and $7 million of the revenue drop for the full year.

Revenue by Business Lines

In millions

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

CDIM

$205.5

$49.8

$50.5

$54.4

$50.8

$211.4

$51.1

MPS

$123.3

$30.2

$30.6

$31.6

$30.9

$128.8

$31.6

AIM

$14.1

$3.7

$3.5

$3.6

$3.3

$13.1

$3.4

Equipment and supplies

$39.5

$8.6

$9.5

$9.3

$12.1

$47.5

$12.3

For the fourth quarter 2019, construction document and information management (CDIM) sales declined 2.5% compared to prior year, and for the full-year 2019 declined 2.8% year-over-year. 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 retail, promotional and marketing projects.

For the fourth quarter 2019, managed print services (MPS) sales declined 4.5% compared to prior year, and sales for the full-year 2019 declined 4.3% year-over-year as compared to the full year of 2018. MPS sales declined due to decreases in print volumes at existing customer accounts, offset by growth in new accounts.

For the fourth quarter 2019, archiving and information management (AIM) sales increased 8.5% compared to prior year and sales for the full-year 2019 increased 7.3% year-over-year as compared to the full year of 2018. Sales increases in AIM were driven by increased demand for archival and scanning services, as well as growth in our facilities management offering.

For the fourth quarter 2019, equipment and supplies sales declined 30.1% compared to prior year, and sales for the full-year 2019 declined 16.8% year-over-year as compared to the full year of 2018. Declines were driven primarily by constrained capital spending in China and its effect on our Chinese joint venture.

Gross Profit

In millions unless otherwise indicated

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

Gross Profit

$125.2

$30.2

$30.4

$33.8

$30.7

$130.9

$32.2

Gross Margin

32.7%

32.8%

32.3%

34.2%

31.6%

32.6%

32.7%

Gross profit in the fourth quarter 2019 declined 6.0% year over year, and gross profit for the full-year 2019 declined 4.3% year-over-year as compared to the full year of 2018. Declines in gross profit dollars were driven by lower sales volume, but gross profit margin remained stable despite $18 million in overall annual sales declines.

Selling, General and Administrative Expenses

In millions

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

Selling, general and administrative expenses

$107.3

$26.4

$26.0

$27.2

$27.6

$109.1

$27.3

Selling, general and administrative (SG&A) expenses in the fourth quarter declined 3.5% year-over-year, and for the full year 2019 declined 1.7% compared to the full year of 2018. The decreases were driven by lower sales and marketing costs related to our third quarter restructuring exercise.

Net Income and Earnings Per Share

In millions unless otherwise indicated

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

Net Income Attributable to ARC - GAAP

$3.0

$0.8

$1.1

$0.5

$0.6

$8.9

$1.6

Adjusted Net Income Attributable to ARC

$6.8

$1.4

$1.6

$3.1

$0.6

$8.5

$1.6

Earnings per share Attributable to ARC

Diluted EPS - GAAP

$0.07

$0.02

$0.02

$0.01

$0.01

$0.20

$0.04

Adjusted Diluted EPS

$0.15

$0.03

$0.04

$0.07

$0.01

$0.19

$0.03

Decreases in GAAP net income and adjusted net income attributable to ARC and GAAP and adjusted EPS in 2019 were driven by lower sales and related profits, partially offset by the previously disclosed third quarter restructuring plan.

Cash Provided by Operating Activities

In millions

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

Cash provided by operating activities

$52.8

$23.0

$10.8

$16.3

$2.7

$55.0

$24.9

Cash provided by operating activities in the fourth quarter 2019 decreased 7.7% year over year, and for the full-year 2019 decreased 4.0% year-over-year as compared to the full year of 2018.

Results from 2018 included a $2.7 million cash in-flow from operating activities and a corresponding $2.7 million out-flow from investing activities for landlord-tenant improvement allowances as required by GAAP. Excluding this, cash provided from operating activities would have increased, despite the decrease in net income, due to working capital improvements.

EBITDA

In millions

FYE 2019

4Q 2019

3Q 2019

2Q 2019

1Q 2019

FYE 2018

4Q 2018

EBITDA

$45.9

$10.3

$11.1

$13.8

$10.6

$51.0

$12.1

Adjusted EBITDA

$49.4

$11.7

$12.1

$14.4

$11.2

$53.4

$12.7

Decreases in EBITDA and adjusted EBITDA during 2019 were driven by lower net income, partially offset by our previously disclosed third quarter restructuring exercise.

Additional Information:

  • Cash & cash equivalents on the balance sheet at the end of 2019 were $29.4 million.

  • On December 17, 2019 the Company entered into an amendment to its Credit Agreement, initially dated as of November 20, 2014. The Amendment increases the maximum aggregate principal amount of revolving loans ("Revolving Loans") under the Credit Agreement from $65 million to $80 million. Proceeds of a portion of the Revolving Loans available to be drawn under the Credit Agreement were used to fully repay the $49.5 million term loan that was outstanding under the Credit Agreement at the time of the amendment. Senior debt facility payments in 2019 were $20 million.

  • The Company purchased 0.7 million of its own shares in the open market in the fourth quarter for $0.9 million, and in total, purchased 1.3 million of its own shares during the full-year 2019 for $1.9 million.

  • ARC's second quarterly cash dividend of one cent was announced on February 14, 2019 with a record date of April 30, 2020, and a payment date of May 29, 2020.

  • Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 76% of our total net sales, while customers outside of construction made up approximately 24% of our total net sales.

  • Total number of MPS locations at the end of the fourth quarter has grown to approximately 10,900, a net gain of approximately 400 locations over Q4 2018.

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

2019

2018

2019

2018

CDIM

54.0

%

51.9

%

53.7

%

52.7

%

MPS

32.7

%

32.1

%

32.2

%

32.1

%

AIM

4.0

%

3.5

%

3.7

%

3.3

%

Equipment and supplies sales

9.3

%

12.5

%

10.4

%

11.9

%

Outlook

Management introduced its annual outlook for 2020, anticipating fully-diluted annual adjusted earnings per share to be in the range of $0.13 to $0.18; annual cash provided by operating activities is projected to be in the range of $43 million to $48 million; and annual adjusted EBITDA is forecast to be in the range of $45 million to $50 million. ARC's 2020 forecast includes a 27th payroll period for the year caused by annual timing differences in payroll, including leap years. This "catch up" payroll period affects ARC every 11 years.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, February 25, 2020, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2019 fourth quarter and fiscal year. To access the live audio call, dial (877) 823-7014. International callers may join the conference by dialing (647) 689-4066. The conference code is 2081499. 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 (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 "forecast", "outlook", "clear path for progress", "projected", 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, 2018, 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:

2019

2018

Cash and cash equivalents

$

29,425

$

29,433

Accounts receivable, net of allowances for accounts receivable of $2,099 and $2,016

51,432

58,035

Inventories, net

13,936

16,768

Prepaid expenses

4,783

4,937

Other current assets

6,807

6,202

Total current assets

106,383

115,375

Property and equipment, net of accumulated depreciation of $210,849 and $199,480

70,334

70,668

Right-of-use assets from operating leases

41,238

-

Goodwill

121,051

121,051

Other intangible assets, net

1,996

5,126

Deferred income taxes

19,755

24,946

Other assets

2,400

2,550

Total assets

$

363,157

$

339,716

Current liabilities:

Accounts payable

$

23,231

$

24,218

Accrued payroll and payroll-related expenses

14,569

17,029

Accrued expenses

20,440

17,571

Current operating lease liabilities

11,060

-

Current portion of long-term debt and capital leases

17,075

22,132

Total current liabilities

86,375

80,950

Long-term operating lease liabilities

37,260

-

Long-term debt and capital leases

89,082

105,060

Other long-term liabilities

400

6,404

Total liabilities

213,117

192,414

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; 49,189 and 48,492 shares issued and 45,228 and 45,818 shares outstanding

49

48

Additional paid-in capital

126,117

123,525

Retained earnings

31,969

29,397

Accumulated other comprehensive loss

(3,357

)

(3,351

)

154,778

149,619

Less cost of common stock in treasury, 3,960 and 2,674 shares

11,410

9,350

Total ARC Document Solutions, Inc. stockholders' equity

143,368

140,269

Noncontrolling interest

6,672

7,033

Total equity

150,040

147,302

Total liabilities and equity

$

363,157

$

339,716

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,

2019

2018

2019

2018

Service sales

$

83,740

$

86,140

$

342,912

$

353,300

Equipment and supplies sales

8,576

12,273

39,503

47,484

Total net sales

92,316

98,413

382,415

400,784

Cost of sales

62,072

66,255

257,246

269,934

Gross profit

30,244

32,158

125,169

130,850

Selling, general and administrative expenses

26,379

27,342

107,260

109,122

Amortization of intangible assets

661

926

3,141

3,868

Restructuring expense

349

-

660

-

Income from operations

2,855

3,890

14,108

17,860

Other income, net

(18

)

(18

)

(71

)

(81

)

Loss on extinguishment and modification of debt

389

-

389

-

Interest expense, net

1,160

1,444

5,226

5,880

Income before income tax provision

1,324

2,464

8,564

12,061

Income tax provision

502

808

5,724

3,334

Net income

822

1,656

2,840

8,727

Loss (income) attributable to noncontrolling interest

2

(44

)

175

146

Net income attributable to ARC Document Solutions, Inc. shareholders

$

824

$

1,612

$

3,015

$

8,873

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

Basic

$

0.02

$

0.04

$

0.07

$

0.20

Diluted

$

0.02

$

0.04

$

0.07

$

0.20

Weighted average common shares outstanding:

Basic

44,670

45,009

44,997

44,918

Diluted

44,725

45,218

45,083

45,050

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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2019

2018

2019

2018

Cash flows from operating activities

Net income

$

822

$

1,656

$

2,840

$

8,727

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

Allowance for accounts receivable

160

446

590

1,083

Depreciation

7,163

7,311

28,763

29,019

Amortization of intangible assets

661

926

3,141

3,868

Amortization of deferred financing costs

46

57

208

232

Stock-based compensation

605

621

2,459

2,445

Deferred income taxes

473

953

5,157

3,128

Deferred tax valuation allowance

(64

)

(211

)

51

(140

)

Restructuring expense, non-cash portion

102

-

148

-

Loss on extinguishment and modification of debt

389

-

389

-

Other non-cash items, net

(235

)

(113

)

(444

)

(314

)

Changes in operating assets and liabilities:

Accounts receivable

6,377

3,827

6,119

(2,767

)

Inventory

1,549

1,446

2,791

2,737

Prepaid expenses and other assets

4,734

512

11,828

(1,814

)

Accounts payable and accrued expenses

205

7,471

(11,259

)

8,760

Net cash provided by operating activities

22,987

24,902

52,781

54,964

Cash flows from investing activities

Capital expenditures

(4,479

)

(4,467

)

(12,885

)

(14,930

)

Other

299

139

641

695

Net cash used in investing activities

(4,180

)

(4,328

)

(12,244

)

(14,235

)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

24

27

133

127

Share repurchases

(874

)

-

(2,060

)

(60

)

Contingent consideration on prior acquisitions

-

(60

)

(3

)

(236

)

Payments on long-term debt agreements and capital leases

(54,106

)

(5,831

)

(71,657

)

(23,031

)

Borrowings under revolving credit facilities

51,500

7,625

71,250

16,875

Payments under revolving credit facilities

(7,000

)

(11,500

)

(38,000

)

(32,375

)

Payment of deferred financing costs

(96

)

-

(96

)

-

Net cash used in financing activities

(10,552

)

(9,739

)

(40,433

)

(38,700

)

Effect of foreign currency translation on cash balances

367

194

(112

)

(655

)

Net change in cash and cash equivalents

8,622

11,029

(8

)

1,374

Cash and cash equivalents at beginning of period

20,803

18,404

29,433

28,059

Cash and cash equivalents at end of period

$

29,425

$

29,433

$

29,425

$

29,433

Supplemental disclosure of cash flow information:

Noncash financing activities:

Finance lease obligations incurred

$

4,047

$

4,971

$

17,057

$

21,531

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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2019

2018

2019

2018

Service Sales

CDIM

$

49,835

$

51,119

$

205,536

$

211,389

MPS

30,187

31,594

123,279

128,775

AIM

3,718

3,427

14,097

13,136

Total services sales

83,740

86,140

342,912

353,300

Equipment and supplies sales

8,576

12,273

39,503

47,484

Total net sales

$

92,316

$

98,413

$

382,415

$

400,784

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,

2019

2018

2019

2018

Cash flows provided by operating activities

$

22,987

$

24,902

$

52,781

$

54,964

Changes in operating assets and liabilities

(12,865

)

(13,256

)

(9,479

)

(6,916

)

Non-cash expenses

(1,476

)

(1,753

)

(8,558

)

(6,434

)

Income tax provision

502

808

5,724

3,334

Interest expense, net

1,160

1,444

5,226

5,880

Loss (income) attributable to noncontrolling interest

2

(44

)

175

146

EBITDA

10,310

12,101

45,869

50,974

Loss on extinguishment and modification of debt

389

-

389

-

Restructuring expense

349

-

660

-

Stock-based compensation

605

621

2,459

2,445

Adjusted EBITDA

$

11,653

$

12,722

$

49,377

$

53,419

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,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc. shareholders

$

824

$

1,612

$

3,015

$

8,873

Interest expense, net

1,160

1,444

5,226

5,880

Income tax provision

502

808

5,724

3,334

Depreciation and amortization

7,824

8,237

31,904

32,887

EBITDA

10,310

12,101

45,869

50,974

Loss on extinguishment and modification of debt

389

-

389

-

Restructuring expense

349

-

660

-

Stock-based compensation

605

621

2,459

2,445

Adjusted EBITDA

$

11,653

$

12,722

$

49,377

$

53,419

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

Twelve Months Ended

December 31,

December 31,

2019

2018

2019

2018

Net income attributable to ARC Document Solutions, Inc. shareholders

$

824

$

1,612

$

3,015

$

8,873

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

67

(51

)

3,006

(341

)

Unaudited adjusted net income attributable to ARC Document Solutions, Inc.

$

1,437

$

1,561

$

6,797

$

8,532

Actual:

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

Basic

$

0.02

$

0.04

$

0.07

$

0.20

Diluted

$

0.02

$

0.04

$

0.07

$

0.20

Weighted average common shares outstanding:

Basic

44,670

45,009

44,997

44,918

Diluted

44,725

45,218

45,083

45,050

Adjusted:

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

Basic

$

0.03

$

0.03

$

0.15

$

0.19

Diluted

$

0.03

$

0.03

$

0.15

$

0.19

Weighted average common shares outstanding:

Basic

44,670

45,009

44,997

44,918

Diluted

44,725

45,218

45,083

45,050


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, 2019 and 2018 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, 2019 and 2018.

We have presented adjusted EBITDA for the three and twelve months ended December 31, 2019 and 2018 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



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