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ARC Reports Second Quarter Year-Over-Year Increases in Sales, Gross Margin, EPS and EBITDA

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SAN RAMON, CA / ACCESSWIRE / August 3, 2021 / 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 second quarter ended June 30, 2021.

Financial Highlights:


Three Months Ended

Six Months Ended


June 30,

June 30,

(All dollar amounts in millions, except EPS)

2021

2020

2021

2020

Net sales

$

68.8

$

64.3

$

130.5

$

152.7

Gross margin

33.1

%

31.8

%

31.9

%

31.5

%

Net income attributable to ARC

$

2.6

$

1.5

$

3.4

$

2.1

Adjusted net income attributable to ARC

$

2.6

$

1.2

$

3.6

$

2.4

Earnings per share - Diluted

$

0.06

$

0.03

$

0.08

$

0.05

Adjusted earnings per share - Diluted

$

0.06

$

0.03

$

0.08

$

0.06

Cash provided by operating activities

$

11.5

$

23.5

$

16.9

$

26.3

EBITDA

$

10.7

$

10.3

$

19.1

$

21.2

Adjusted EBITDA

$

11.1

$

10.7

$

19.9

$

22.1

Capital Expenditures

$

1.0

$

1.5

$

1.6

$

2.6

Debt & finance leases (including current)

$

83.6

$

122.8

Management Commentary:
"We are pleased with our second quarter growth in sales and the improvements in gross margin, EPS and adjusted EBITDA that came with it," said Suri Suriyakumar, Chairman, President and CEO of ARC. "The diversity of our products and services continue to drive expansion into digital color production and the economic re-opening is bringing new vitality to our existing customers in the AEC market. Every major category of sales grew during the second quarter."

"Our sales teams capitalized on new opportunities often driven by targeted marketing campaigns. We are watching closely how various industry verticals are responding to changing business conditions, and we are adapting quickly to build momentum for the second half of the year," said Mr. Suriyakumar.

"We have established a sustainable and efficient cost structure that leverages every new dollar of sales," said Jorge Avalos, Chief Financial Officer of ARC. "This is best demonstrated by our strong performance in the absence of temporary measures we made last year due to the pandemic's uncertainties. In particular, we were gratified to eliminate the temporary wage reductions we put in place in 2020 for the majority of our staff. We also managed inventory closely to avoid potential supply chain disruptions, and dealing with inflation was essentially a non-issue for the company as cost increases in our materials are built into the pricing of our services."

"Cash flows from operations were healthy for the period, as they reflect the usual cyclical build we see in the first half of the year," said Mr. Avalos. "We are encouraged by the progress we made in the second quarter and look forward to continuing it in the last two quarters of the year."

2021 Second Quarter Supplemental Information:
Net sales were $68.8 million, a 7.0% increase compared to the second quarter of 2020.

Cash & cash equivalents on the consolidated balance sheet in the second quarter 2021 were $52.4 million.

Days sales outstanding were 50 in Q2 2021 as compared to 59 in Q2 2020.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 67% of total net sales, while customers outside of construction made up approximately 33% of total net sales.

The number of managed print services (MPS) locations dropped by approximately 165 locations year over year to approximately 10,780 as of June 30, 2021.

Net Revenue

In millions

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

Total net revenue

$

68.8

$

61.7

$

289.5

$

64.3

$

72.4

$

64.3

For the second quarter 2021, net sales increased 7.0%, compared to the same period in 2020 primarily due to increasing year-over-year economic activity as the negative effects of the recent pandemic subsided. Sales in the second quarter also benefited from targeted marketing of services to address the changing graphic printing and scanning needs of customers.

Revenue by Business Lines

In millions

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

CDIM

$

43.1

$

37.4

$

175.5

$

38.2

$

47.1

$

41.1

MPS

$

18.0

$

17.3

$

79.3

$

18.1

$

17.6

$

16.2

AIM

$

3.3

$

3.0

$

12.3

$

3.1

$

2.9

$

2.7

Equipment and supplies

$

4.4

$

3.9

$

22.3

$

4.9

$

4.7

$

4.4

For the second quarter 2021, construction document and information management (CDIM) sales increased 4.9% compared to prior year. As noted in previous quarters, the negative impact of the pandemic on CDIM has not been as pronounced as in other parts of our business due to the expansion of products and services beyond the construction vertical. During the second quarter, sales of these expanded services, primarily color graphics, have been driven by secular demands of businesses re-opening as opposed to sales of COVID-related products and services. Sales of construction and design-related services also grew during the period, coinciding with a resumption in building activity in most North American markets.

For the second quarter 2021, MPS sales increased 10.9% year-over-year. MPS sales increased as work from home directives ended for some of our customers, which in turn, lead to increased demand for our services performed on site.

For the second quarter 2021, archiving and information management (AIM) sales increased 23.9% year-over-year. Sales increases in AIM were driven by reasons similar to MPS, primarily attributable to the return of workers in offices and creating greater demand for scanning services.

For the second quarter 2021, equipment and supplies sales increased 1.3% year-over-year. The increase is a reflection of the more favorable economic conditions in 2021 when compared to the second quarter of 2020. Equipment and supply sales from our Chinese joint venture declined due to continued constraints on capital spending in that country, but were offset by improvements in U.S. sales as the economy began to recover.

Gross Profit

In millions unless otherwise indicated

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

Gross profit

$

22.8

$

18.8

$

92.9

$

20.7

$

24.2

$

20.4

Gross margin

33.1%

30.4%

32.1%

32.1%

33.4%

31.8%

Gross profit increased 11.5% primarily due to the 7% growth in second quarter net sales coupled with the leverage gained from the permanent changes we made to our cost structure in 2020. Gross margin increased 130 basis points year-over-year.

Selling, General and Administrative Expenses

In millions

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

Selling,general and administrative expenses

$

18.5

$

17.0

$

79.0

$

18.2

$

19.2

$

17.3

Selling, general and administrative (SG&A) expenses in the second quarter 2021 increased by 7.3% year-over-year driven by increased commissions and bonus payments related to improved sales and profitability for the period. Also notable during the second quarter was the normalization of payrolls as the Company eliminated temporary wage reductions for most employees put in place at the beginning of the pandemic.

Net Income and Earnings Per Share

In millions unless otherwise indicated

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

Net income attributable to ARC - GAAP

$

2.6

$

0.8

$

6.2

$

1.3

$

2.8

$

1.5

Adjusted net income attributable to ARC

$

2.6

$

0.9

$

6.3

$

1.0

$

2.9

$

1.2


Earnings per share attributable to ARC

Diluted EPS - GAAP

$

0.06

$

0.02

$

0.14

$

0.03

$

0.07

$

0.03

Adjusted diluted EPS

$

0.06

$

0.02

$

0.15

$

0.02

$

0.07

$

0.03

The year-over-year increase in GAAP net income attributable to ARC for the second quarter of 2021 was driven by higher sales, improved gross profit, and significantly lower net interest expense as a result of debt pay downs and a decrease in LIBOR.

Cash Provided by Operating Activities

In millions

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

Cash provided by operating activities

$

11.5

$

5.4

$

54.5

$

15.5

$

12.8

$

23.5

The year-over-year decrease in cash flows from operations during the second quarter of 2021 reflect normalized levels of cash generation and collectibles for the period, compared to the same period in 2020 when aggressive measures were implemented to manage working capital and preserve cash in response to the COVID-19 pandemic.

EBITDA

In millions

2Q 2021

1Q 2021

FYE 2020

4Q 2020

3Q 2020

2Q 2020

EBITDA

$

10.7

$

8.4

$

43.2

$

9.9

$

12.1

$

10.3

Adjusted EBITDA

$

11.1

$

8.8

$

44.8

$

10.2

$

12.5

$

10.7

Increases in EBITDA and adjusted EBITDA in the second quarter of 2021 were driven primarily by the increase in sales.

Three Months Ended

Six Months Ended

June 30,

June 30,

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

2021

2020

2021

2020

CDIM

62.6

%

63.9

%

61.7

%

59.1

%

MPS

26.2

%

25.2

%

27.1

%

28.5

%

AIM

4.8

%

4.1

%

4.8

%

4.1

%

Equipment and supplies sales

6.4

%

6.8

%

6.4

%

8.3

%

Outlook
Due to the economic uncertainty driven by the COVID-19 pandemic, ARC has not issued a full forecast for 2021, but has stated its confidence in generating at least $10 million in adjusted EBITDA per quarter for the balance of the year. Management will consider issuing a more complete forecast in the future if more reliable indicators become available.

Teleconference and Webcast
ARC Document Solutions will hold a conference call with investors and analysts on Tuesday, August 3, 2021, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2021 second 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 1237156 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 "continue to drive expansion", "we are adapting quickly to build momentum for the second half of the year", "encouraged by the progress we made in the second quarter and look forward to continuing it in the last two quarters of 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 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 section titled "Part I - Item 1A. Risk Factors " of ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, 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)


June 30,

December 31,

Current assets:

2021

2020

Cash and cash equivalents

$

52,372

$

54,950

Accounts receivable, net of allowances for accounts receivable of $2,246 and $2,357

38,222

36,279

Inventory

9,287

9,474

Prepaid expenses

4,669

4,065

Other current assets

3,287

3,979

Total current assets

107,837

108,747

Property and equipment, net of accumulated depreciation of $226,453 and $219,834

48,961

57,830

Right-of-use assets from operating leases

33,993

37,859

Goodwill

121,051

121,051

Other intangible assets, net

392

515

Deferred income taxes

15,749

17,261

Other assets

2,267

2,175

Total assets

$

330,250

$

345,438

Current liabilities:

Accounts payable

$

20,057

$

18,661

Accrued payroll and payroll-related expenses

12,160

10,088

Accrued expenses

16,288

17,783

Current operating lease liabilities

11,039

12,158

Current portion of finance leases

15,514

17,557

Total current liabilities

75,058

76,247

Long-term operating lease liabilities

29,694

33,561

Long-term debt and finance leases

68,132

79,679

Other long-term liabilities

1,571

1,615

Total liabilities

174,455

191,102

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;50,403 and 49,422 shares issued and 43,298 and 42,792 shares outstanding

50

49

Additional paid-in capital

128,524

127,755

Retained earnings

38,982

37,308

Accumulated other comprehensive loss

(2,535

)

(2,787

)


165,021

162,325

Less cost of common stock in treasury, 7,105 and 6,630 shares

15,682

14,657

Total ARC Document Solutions, Inc. shareholders' equity

149,339

147,668

Noncontrolling interest

6,456

6,668

Total equity

155,795

154,336

Total liabilities and equity

$

330,250

$

345,438

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

Three Months Ended

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

Net sales

$

68,799

$

64,319

$

130,529

$

152,744

Cost of sales

46,007

43,874

88,950

104,702

Gross profit

22,792

20,445

41,579

48,042

Selling, general and administrative expenses

18,549

17,292

35,544

41,630

Amortization of intangible assets

56

471

131

1,068

Income from operations

4,187

2,682

5,904

5,344

Other income, net

(12

)

(17

)

(23

)

(33

)

Interest expense, net

576

1,131

1,196

2,240

Income before income tax provision

3,623

1,568

4,731

3,137

Income tax provision

1,155

148

1,651

1,255

Net income

2,468

1,420

3,080

1,882

Loss attributable to the noncontrolling interest

106

41

283

262

Net income attributable to ARC Document Solutions, Inc. shareholders

$

2,574

$

1,461

$

3,363

$

2,144

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

Basic

$

0.06

$

0.03

$

0.08

$

0.05

Diluted

$

0.06

$

0.03

$

0.08

$

0.05

Weighted average common shares outstanding:

Basic

42,304

42,672

42,284

43,154

Diluted

42,597

42,767

42,613

43,277

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

Three Months Ended

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

Cash flows from operating activities




Net income

$

2,468

$

1,420

$

3,080

$

1,882

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

Allowance for accounts receivable

42

251

6

517

Depreciation

6,319

7,057

12,768

14,464

Amortization of intangible assets

56

471

131

1,068

Amortization of deferred financing costs

16

16

32

32

Stock-based compensation

404

416

743

920

Deferred income taxes

1,042

493

1,434

1,244

Deferred tax valuation allowance

43

(318

)

103

(28

)

Other non-cash items, net

(41

)

(14

)

(79

)

(32

)

Changes in operating assets and liabilities:

Accounts receivable, net

(1,355

)

10,161

(1,859

)

8,166

Inventory

504

915

214

1,942

Prepaid expenses and other assets

1,973

3,607

5,323

7,011

Accounts payable and accrued expenses

43

(994

)

(5,007

)

(10,931

)

Net cash provided by operating activities

11,514

23,481

16,889

26,255

Cash flows from investing activities

Capital expenditures

(986

)

(1,460

)

(1,554

)

(2,581

)

Other

89

7

220

80

Net cash used in investing activities

(897

)

(1,453

)

(1,334

)

(2,501

)

Cash flows from financing activities

Proceeds from issuance of common stock under Employee Stock Purchase Plan

12

20

26

40

Share repurchases

(869

)

-

(1,025

)

(2,432

)

Payments on finance leases

(4,748

)

(1,698

)

(9,565

)

(6,300

)

Borrowings under revolving credit facilities

23,750

-

38,750

40,000

Payments under revolving credit facilities

(25,000

)

-

(45,000

)

(25,000

)

Payment of deferred financing costs

(281

)

-

(281

)

-

Dividends paid

(847

)

(427

)

(1,269

)

(870

)

Net cash (used in) provided by financing activities

(7,983

)

(2,105

)

(18,364

)

5,438

Effect of foreign currency translation on cash balances

278

298

231

(186

)

Net change in cash and cash equivalents

2,912

20,221

(2,578

)

29,006

Cash and cash equivalents at beginning of period

49,460

38,210

54,950

29,425

Cash and cash equivalents at end of period

$

52,372

$

58,431

$

52,372

$

58,431

Supplemental disclosure of cash flow information

Noncash investing and financing activities

Finance lease obligations incurred

$

1,220

$

2,725

$

2,094

$

8,078

Operating lease obligations incurred

$

780

$

146

$

1,198

$

3,644

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


Three Months Ended

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

CDIM

$

43,089

$

41,070

$

80,523

$

90,230

MPS

18,005

16,233

35,340

43,541

AIM

3,286

2,653

6,310

6,253

Equipment and supplies sales

4,419

4,363

8,356

12,720

Net sales

$

68,799

$

64,319

$

130,529

$

152,744

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

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

Cash flows provided by operating activities

$

11,514

$

23,481

$

16,889

$

26,255

Changes in operating assets and liabilities

(1,165

)

(13,689

)

1,329

(6,188

)

Non-cash expenses, including depreciation and amortization

(7,881

)

(8,372

)

(15,138

)

(18,185

)

Income tax provision

1,155

148

1,651

1,255

Interest expense, net

576

1,131

1,196

2,240

Loss attributable to the noncontrolling interest

106

41

283

262

Depreciation and amortization

6,375

7,528

12,899

15,532

EBITDA

10,680

10,268

19,109

21,171

Stock-based compensation

404

416

743

920

Adjusted EBITDA

$

11,084

$

10,684

$

19,852

$

22,091

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

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

Net income attributable to ARC Document Solutions, Inc.

$

2,574

$

1,461

$

3,363

$

2,144

Interest expense, net

576

1,131

1,196

2,240

Income tax provision

1,155

148

1,651

1,255

Depreciation and amortization

6,375

7,528

12,899

15,532

EBITDA

10,680

10,268

19,109

21,171

Stock-based compensation

404

416

743

920

Adjusted EBITDA

$

11,084

$

10,684

$

19,852

$

22,091

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 unaudited adjusted net income attributable to ARC Document Solutions, Inc.
(In thousands, except per share data)
(Unaudited)


Three Months Ended

Six Months Ended


June 30,

June 30,


2021

2020

2021

2020

Net income attributable to ARC Document Solutions, Inc.

$

2,574

$

1,461

$

3,363

$

2,144

Deferred tax valuation allowance and other discrete tax items

68

(240

)

199

259

Adjusted net income attributable to ARC Document Solutions, Inc.

$

2,642

$

1,221

$

3,562

$

2,403


Actual:

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

Basic

$

0.06

$

0.03

$

0.08

$

0.05

Diluted

$

0.06

$

0.03

$

0.08

$

0.05

Weighted average common shares outstanding:

Basic

42,304

42,672

42,284

43,154

Diluted

42,597

42,767

42,613

43,277


Adjusted:

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

Basic

$

0.06

$

0.03

$

0.08

$

0.06

Diluted

$

0.06

$

0.03

$

0.08

$

0.06

Weighted average common shares outstanding:

Basic

42,304

42,672

42,284

43,154

Diluted

42,597

42,767

42,613

43,277

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 six months ended June 30, 2021 and 2020 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 six months ended June 30, 2021 and 2020.

We have presented adjusted EBITDA for the three and six months ended June 30, 2021 and 2020 to exclude stock-based compensation 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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