SAN RAMON, CA / ACCESSWIRE / November 2, 2023 / ARC Document Solutions, Inc. (NYSE:ARC), a leading provider of digital printing and document-related services, today reported its financial results for the third quarter ended September 30, 2023.
Financial Highlights: | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
(All dollar amounts in millions, except EPS) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Net sales | $ | 71.1 | $ | 73.1 | $ | 212.3 | $ | 217.2 | ||||||||
Gross margin | 34.0 | % | 33.9 | % | 34.0 | % | 33.5 | % | ||||||||
Net income attributable to ARC | $ | 3.2 | $ | 3.7 | $ | 9.1 | $ | 9.0 | ||||||||
Adjusted net income attributable to ARC | $ | 3.2 | $ | 3.7 | $ | 9.4 | $ | 9.4 | ||||||||
Earnings per share - Diluted | $ | 0.07 | $ | 0.09 | $ | 0.21 | $ | 0.21 | ||||||||
Adjusted earnings per share - Diluted | $ | 0.07 | $ | 0.09 | $ | 0.22 | $ | 0.22 | ||||||||
Cash provided by operating activities | $ | 8.7 | $ | 14.9 | $ | 22.9 | $ | 26.4 | ||||||||
EBITDA | $ | 9.4 | $ | 10.8 | $ | 28.2 | $ | 30.3 | ||||||||
Adjusted EBITDA | $ | 10.0 | $ | 11.2 | $ | 29.8 | $ | 31.6 | ||||||||
Capital expenditures | $ | 3.2 | $ | 1.6 | $ | 7.7 | $ | 4.3 | ||||||||
Debt & finance leases (including current) | $ | 62.2 | $ | 68.8 | ||||||||||||
Management Commentary:
"Our strategic services posted healthy sales growth as new customers continued to invest in visual communications and demand for scanning came from every industry we serve," said Suri Suriyakumar, CEO of ARC Document Solutions. "Despite the difficult macro conditions that have led to lower sales, our margins, earnings, and cash flows remained resilient."
"We continued to secure significant digital color projects across a wide variety of markets," said Dilo Wijesuriya, President and COO. "Document scanning also grew from high demand and benefited from expanded capabilities and increased capacity we put in place early in the quarter. While we expect sales outside of our strategic services to remain soft, our win-loss ratio for new business is improving, and our marketing efforts are yielding higher-quality leads, all of which bodes well for the quarters ahead."
"On one less day of sales for the period, quarterly sales fell three percent and EPS felt the impact. That said, our overall gross margin increased by ten basis points," said Jorge Avalos, CFO. "Year-to-date cash flows remain robust and fully support our annual twenty-cent dividend and ongoing share repurchases. While we expect sales to fluctuate for the remainder of the year, we're confident in generating growth opportunities, sustaining cash flow, and consistently providing shareholder value in the foreseeable future."
2023 Third Quarter Supplemental Information:
Net sales were $71.1 million, a 2.8% decrease compared to the third quarter of 2022.
Cash & cash equivalents on the consolidated balance sheet in the third quarter 2023 were $50.6 million.
ARC's next quarterly cash dividend of $0.05 will be paid on November 30, 2023, with a record date of October 31, 2023.
Days sales outstanding were 51 in Q3 2023 and in Q3 2022.
The number of MPS locations have declined slightly year over year to approximately 10,500 as of September 30, 2023, representing a net decrease of approximately 300 locations compared to September 30, 2022.
Net Revenue
In millions | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Total net revenue | $ | 71.1 | $ | 72.4 | $ | 68.9 | $ | 286.0 | $ | 68.8 | $ | 73.1 | |||||||
In the third quarter 2023, net sales decreased 2.8%, compared to the same period in 2022. The decrease in net sales in 2023 is primarily driven by the decrease in our Digital Printing and Equipment & Supplies sales, partially offset by the year-over-year increase in sales from Scanning and Digital Imaging services.
Revenue by Business Lines
In millions | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Digital Printing | $ | 43.5 | $ | 44.2 | $ | 41.4 | $ | 174.8 | $ | 42.0 | $ | 44.7 | |||||||
MPS | $ | 18.6 | $ | 19.0 | $ | 19.0 | $ | 75.8 | $ | 18.5 | $ | 19.4 | |||||||
Scanning and Digital Imaging | $ | 5.0 | $ | 5.3 | $ | 4.6 | $ | 17.4 | $ | 4.1 | $ | 4.8 | |||||||
Equipment and supplies | $ | 3.9 | $ | 3.9 | $ | 3.9 | $ | 18.1 | $ | 4.3 | $ | 4.3 | |||||||
In the third quarter 2023, Digital Printing sales decreased 2.5% compared to prior year. Year-over-year sales increased in digital color graphic printing from new and existing customers, and we experienced continuing demand for digital color graphic printing across most of our customer base. This growth was offset by the decrease in digital plan printing sales which we attribute to less activity and lower spending on new construction projects due to increased costs of capital.
In the third quarter 2023, MPS sales decreased 4.3% year-over-year. Fewer employees returning to the workplace after the pandemic has muted print volumes in offices. We expect MPS sales to fluctuate for the balance of the year.
In the third quarter 2023, Scanning and Digital Imaging sales increased 4.4% year-over-year. The increase in sales was primarily attributable to growing demand for paper-to-digital document conversions used in day-to-day business operations, and the creation of digital archives to replace long-term warehoused paper document storage.
In the third quarter 2023, Equipment and Supplies sales decreased 8.0% year-over-year. Equipment and Supplies sales continue to decline in the U.S. as well as in our China operations. We attribute the decrease in sales to the high cost of capital which reduced our customers' willingness to invest in equipment expenditures.
Gross Profit
In millions unless otherwise indicated | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Gross profit | $ | 24.1 | $ | 25.2 | $ | 22.9 | $ | 96.0 | $ | 23.2 | $ | 24.8 | |||||||
Gross margin | 34.0 | % | 34.8 | % | 33.3 | % | 33.6 | % | 33.6 | % | 33.9 | % | |||||||
Despite a $2.1 million decrease in sales in the third quarter of 2023 compared to the same period in 2022, gross profit only declined by $0.7 million. Third quarter 2023 gross margin increased by 10 basis points over the same period in 2022 driven by the efficiency in our cost structure and the reduction in depreciation expense.
Selling, General and Administrative Expenses
In millions | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Selling, general and administrative expenses | $ | 19.3 | $ | 19.0 | $ | 19.5 | $ | 77.5 | $ | 19.2 | $ | 19.1 | |||||||
Selling, general and administrative (SG&A) expenses in the third quarter 2023 were relatively flat in absolute dollars year-over-year.
Net Income and Earnings Per Share
| In millions unless otherwise indicated | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Net income attributable to ARC - GAAP | $ | 3.2 | $ | 4.0 | $ | 1.9 | $ | 11.1 | $ | 2.1 | $ | 3.7 | |||||||
Adjusted net income attributable to ARC | $ | 3.2 | $ | 4.1 | $ | 2.2 | $ | 12.0 | $ | 2.6 | $ | 3.7 | |||||||
Earnings per share attributable to ARC | |||||||||||||||||||
Diluted EPS - GAAP | $ | 0.07 | $ | 0.09 | $ | 0.04 | $ | 0.26 | $ | 0.05 | $ | 0.09 | |||||||
Adjusted diluted EPS | $ | 0.07 | $ | 0.09 | $ | 0.05 | $ | 0.28 | $ | 0.06 | $ | 0.09 |
Year-over-year, net income attributable to ARC and earnings per share decreased during the third quarter of 2023. The decrease was driven primarily by lower sales which resulted in lower gross profit.
Cash Provided by Operating Activities
In millions | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
Cash provided by operating activities | $ | 8.7 | $ | 10.3 | $ | 3.8 | $ | 37.2 | $ | 10.8 | $ | 14.9 | |||||||
The quarterly comparison of operating cash flows of $8.7 million in 2023 and $14.9 in 2022 includes significant differences in the timing of collections and payables. Cash flows from operations accelerated dramatically in the third quarter of 2022 vs. our historical cadence of steady growth throughout the year.
EBITDA
In millions | 3Q 2023 | 2Q 2023 | 1Q 2023 | FYE 2022 | 4Q 2022 | 3Q 2022 | |||||||||||||
EBITDA | $ | 9.4 | $ | 10.6 | $ | 8.2 | $ | 39.1 | $ | 8.9 | $ | 10.8 | |||||||
Adjusted EBITDA | $ | 10.0 | $ | 11.1 | $ | 8.7 | $ | 40.9 | $ | 9.3 | $ | 11.2 | |||||||
EBITDA and adjusted EBITDA decreased in the third quarter of 2023 due to lower sales during the third quarter of 2023, compared to the same period in 2022.
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
Sales from Services and Product Lines as a Percentage of Net Sales | 2023 | 2022 | 2023 | 2022 | |||||||||||
Digital Printing | 61.2 | % | 61.1 | % | 60.8 | % | 61.1 | % | |||||||
MPS | 26.2 | % | 26.5 | % | 26.6 | % | 26.4 | % | |||||||
Scanning and Digital Imaging | 7.0 | % | 6.5 | % | 7.0 | % | 6.1 | % | |||||||
Equipment and supplies sales | 5.6 | % | 5.9 | % | 5.6 | % | 6.4 | % | |||||||
Teleconference and Webcast
ARC Document Solutions will hold a conference call with investors and analysts on Thursday, November 2, 2023, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results of the Company's third quarter of 2023. To access the live conference call outlining ARC's 2023 third quarter results, dial (888) 350-3870. International callers may join the conference by dialing (646) 960-0308. The conference code is 6872020 and will be required to dial into the call. A live webcast will also be made available at: https://events.q4inc.com/attendee/829541167/guest or on the Company's investor relations 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 partners with top brands around the world to tell their stories through visually compelling graphics. We use advanced digital printing technology, sustainable materials, and innovative techniques to bring their vision to life. ARC also provides other digital printing and scanning services to a wide variety of industries all over North America and in select markets around the world. 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, and on the Company's operations. Words and phrases such as, "while we expect," "bodes well," "we're confident in generating growth opportunities," "foreseeable future," 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, digital printing 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, 2022, 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: | 2023 | 2022 | ||||||
Cash and cash equivalents | $ | 50,586 | $ | 52,561 | ||||
Accounts receivable, net of allowances for accounts receivable of $1,884 and $1,947 | 40,401 | 38,748 | ||||||
Inventory | 8,666 | 8,610 | ||||||
Prepaid expenses | 4,587 | 4,018 | ||||||
Other current assets | 3,705 | 3,540 | ||||||
Total current assets | 107,945 | 107,477 | ||||||
Property and equipment, net of accumulated depreciation of $232,377 and $231,913 | 39,106 | 40,214 | ||||||
Right-of-use assets from operating leases | 27,933 | 28,163 | ||||||
Goodwill | 121,051 | 121,051 | ||||||
Other intangible assets, net | 167 | 208 | ||||||
Deferred income taxes | 4,192 | 7,993 | ||||||
Other assets | 2,078 | 2,209 | ||||||
Total assets | $ | 302,472 | $ | 307,315 | ||||
Current liabilities: | ||||||||
Accounts payable | $ | 22,313 | $ | 22,972 | ||||
Accrued payroll and payroll-related expenses | 10,350 | 11,235 | ||||||
Accrued expenses | 16,566 | 16,882 | ||||||
Current operating lease liabilities | 9,362 | 9,924 | ||||||
Current portion of finance leases | 9,346 | 11,558 | ||||||
Total current liabilities | 67,937 | 72,571 | ||||||
Long-term operating lease liabilities | 23,126 | 23,339 | ||||||
Long-term debt and finance leases | 52,880 | 54,916 | ||||||
Other long-term liabilities | 160 | 199 | ||||||
Total liabilities | 144,103 | 151,025 | ||||||
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; 52,472 and 51,400 shares issued and 42,962 and 43,101 shares outstanding | 52 | 51 | ||||||
Additional paid-in capital | 135,801 | 132,952 | ||||||
Retained earnings | 47,132 | 44,416 | ||||||
Accumulated other comprehensive loss | (4,481) | (4,187) | ||||||
| 178,504 | 173,232 | |||||||
Less cost of common stock in treasury, 9,510 and 8,299 shares | 21,726 | 18,877 | ||||||
Total ARC Document Solutions, Inc. stockholders' equity | 156,778 | 154,355 | ||||||
Noncontrolling interest | 1,591 | 1,935 | ||||||
Total equity | 158,369 | 156,290 | ||||||
Total liabilities and equity | $ | 302,472 | $ | 307,315 | ||||
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 71,057 | $ | 73,136 | $ | 212,325 | $ | 217,188 | ||||||||
Cost of sales | 46,908 | 48,315 | 140,075 | 144,380 | ||||||||||||
Gross profit | 24,149 | 24,821 | 72,250 | 72,808 | ||||||||||||
Selling, general and administrative expenses | 19,269 | 19,082 | 57,764 | 58,376 | ||||||||||||
Amortization of intangible assets | 10 | 17 | 31 | 87 | ||||||||||||
Income from operations | 4,870 | 5,722 | 14,455 | 14,345 | ||||||||||||
Other income, net | (16) | (15) | (42) | (49) | ||||||||||||
Interest expense, net | 397 | 454 | 1,300 | 1,330 | ||||||||||||
Income before income tax provision | 4,489 | 5,283 | 13,197 | 13,064 | ||||||||||||
Income tax provision | 1,368 | 1,577 | 4,262 | 4,376 | ||||||||||||
Net income | 3,121 | 3,706 | 8,935 | 8,688 | ||||||||||||
Loss attributable to the noncontrolling interest | 44 | 31 | 188 | 283 | ||||||||||||
Net income attributable to ARC Document Solutions, Inc. stockholders | $ | 3,165 | $ | 3,737 | $ | 9,123 | $ | 8,971 | ||||||||
Earnings per share attributable to ARC Document Solutions, Inc. stockholders | ||||||||||||||||
Basic | $ | 0.07 | $ | 0.09 | $ | 0.21 | $ | 0.21 | ||||||||
Diluted | $ | 0.07 | $ | 0.09 | $ | 0.21 | $ | 0.21 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 42,554 | 42,283 | 42,634 | 42,209 | ||||||||||||
Diluted | 43,516 | 42,956 | 43,624 | 43,414 | ||||||||||||
| ARC Document Solutions, Inc | ||||||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||||||
(In thousands) | ||||||||||||||||
(Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income | $ | 3,121 | $ | 3,706 | $ | 8,935 | $ | 8,688 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Allowance for credit losses | 56 | 74 | 285 | 275 | ||||||||||||
Depreciation | 4,488 | 4,965 | 13,503 | 15,512 | ||||||||||||
Amortization of intangible assets | 10 | 17 | 31 | 87 | ||||||||||||
Amortization of deferred financing costs | 18 | 16 | 50 | 46 | ||||||||||||
Stock-based compensation | 599 | 441 | 1,622 | 1,331 | ||||||||||||
Deferred income taxes | 1,101 | 1,609 | 3,646 | 4,187 | ||||||||||||
Deferred tax valuation allowance | 111 | 14 | 160 | 30 | ||||||||||||
Other non-cash items, net | (190) | (29) | (347) | (135) | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (2,190) | 2,727 | (1,968) | (2,880) | ||||||||||||
Inventory | 188 | 260 | (135) | (896) | ||||||||||||
Prepaid expenses and other assets | 1,947 | 1,677 | 6,489 | 6,874 | ||||||||||||
Accounts payable and accrued expenses | (555) | (608) | (9,414) | (6,721) | ||||||||||||
Net cash provided by operating activities | 8,704 | 14,869 | 22,857 | 26,398 | ||||||||||||
Cash flows from investing activities | ||||||||||||||||
Capital expenditures | (3,232) | (1,618) | (7,728) | (4,284) | ||||||||||||
Other | 76 | 68 | 267 | 210 | ||||||||||||
Net cash used in investing activities | (3,156) | (1,550) | (7,461) | (4,074) | ||||||||||||
Cash flows from financing activities | ||||||||||||||||
Proceeds from stock option exercises | 49 | 41 | 1,130 | 352 | ||||||||||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan | 38 | 24 | 98 | 62 | ||||||||||||
Share repurchases | (1,041) | - | (2,849) | (1,330) | ||||||||||||
Distribution to noncontrolling interest | - | - | - | (3,908) | ||||||||||||
Payments on finance leases | (2,969) | (3,761) | (9,163) | (11,588) | ||||||||||||
Borrowings under revolving credit facilities | 40,000 | 38,000 | 122,000 | 114,000 | ||||||||||||
Payments under revolving credit facilities | (40,000) | (39,250) | (122,000) | (117,750) | ||||||||||||
Payment of deferred financing costs | - | - | (23) | - | ||||||||||||
Dividends paid | (2,132) | (2,114) | (6,399) | (6,332) | ||||||||||||
Net cash used in financing activities | (6,055) | (7,060) | (17,206) | (26,494) | ||||||||||||
Effect of foreign currency translation on cash balances | 27 | (206) | (165) | (1,111) | ||||||||||||
Net change in cash and cash equivalents | (480) | 6,053 | (1,975) | (5,281) | ||||||||||||
Cash and cash equivalents at beginning of period | 51,066 | 44,595 | 52,561 | 55,929 | ||||||||||||
Cash and cash equivalents at end of period | $ | 50,586 | $ | 50,648 | $ | 50,586 | $ | 50,648 | ||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||
Noncash investing and financing activities | ||||||||||||||||
Finance lease obligations incurred | $ | 2,663 | $ | 2,025 | $ | 5,145 | $ | 6,388 | ||||||||
Operating lease obligations incurred | $ | 2,695 | $ | 2,355 | $ | 7,070 | $ | 7,154 | ||||||||
ARC Document Solutions, Inc. Net Sales by Product Line (In thousands) (Unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Service sales | ||||||||||||||||
Digital Printing | $ | 43,537 | $ | 44,654 | $ | 129,134 | $ | 132,766 | ||||||||
MPS | 18,582 | 19,415 | 56,556 | 57,317 | ||||||||||||
Scanning and Digital Imaging | 4,991 | 4,779 | 14,845 | 13,268 | ||||||||||||
Total service sales | 67,110 | 68,848 | 200,535 | 203,351 | ||||||||||||
Equipment and Supplies Sales | 3,947 | 4,288 | 11,790 | 13,837 | ||||||||||||
Total net sales | $ | 71,057 | $ | 73,136 | $ | 212,325 | $ | 217,188 | ||||||||
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Cash flows provided by operating activities | $ | 8,704 | $ | 14,869 | $ | 22,857 | $ | 26,398 | ||||||||
Changes in operating assets and liabilities | 610 | (4,056) | 5,028 | 3,623 | ||||||||||||
Non-cash expenses, including depreciation and amortization | (6,193) | (7,107) | (18,950) | (21,333) | ||||||||||||
Income tax provision | 1,368 | 1,577 | 4,262 | 4,376 | ||||||||||||
Interest expense, net | 397 | 454 | 1,300 | 1,330 | ||||||||||||
Loss attributable to the noncontrolling interest | 44 | 31 | 188 | 283 | ||||||||||||
Depreciation and amortization | 4,498 | 4,982 | 13,534 | 15,599 | ||||||||||||
EBITDA | 9,428 | 10,750 | 28,219 | 30,276 | ||||||||||||
Stock-based compensation | 599 | 441 | 1,622 | 1,331 | ||||||||||||
Adjusted EBITDA | $ | 10,027 | $ | 11,191 | $ | 29,841 | $ | 31,607 | ||||||||
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income attributable to ARC Document Solutions, Inc. | $ | 3,165 | $ | 3,737 | $ | 9,123 | $ | 8,971 | ||||||||
Interest expense, net | 397 | 454 | 1,300 | 1,330 | ||||||||||||
Income tax provision | 1,368 | 1,577 | 4,262 | 4,376 | ||||||||||||
Depreciation and amortization | 4,498 | 4,982 | 13,534 | 15,599 | ||||||||||||
EBITDA | 9,428 | 10,750 | 28,219 | 30,276 | ||||||||||||
Stock-based compensation | 599 | 441 | 1,622 | 1,331 | ||||||||||||
Adjusted EBITDA | $ | 10,027 | $ | 11,191 | $ | 29,841 | $ | 31,607 | ||||||||
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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income attributable to ARC Document Solutions, Inc. | $ | 3,165 | $ | 3,737 | $ | 9,123 | $ | 8,971 | ||||||||
Deferred tax valuation allowance and other discrete tax items | 30 | (28) | 297 | 410 | ||||||||||||
Adjusted net income attributable to ARC Document Solutions, Inc. | $ | 3,195 | $ | 3,709 | $ | 9,420 | $ | 9,381 | ||||||||
Actual: | ||||||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. stockholders: | ||||||||||||||||
Basic | $ | 0.07 | $ | 0.09 | $ | 0.21 | $ | 0.21 | ||||||||
Diluted | $ | 0.07 | $ | 0.09 | $ | 0.21 | $ | 0.21 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 42,554 | 42,283 | 42,634 | 42,209 | ||||||||||||
Diluted | 43,516 | 42,956 | 43,624 | 43,414 | ||||||||||||
Adjusted: | ||||||||||||||||
Earnings per share attributable to ARC Document Solutions, Inc. stockholders: | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.09 | $ | 0.22 | $ | 0.22 | ||||||||
Diluted | $ | 0.07 | $ | 0.09 | $ | 0.22 | $ | 0.22 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 42,554 | 42,283 | 42,634 | 42,209 | ||||||||||||
Diluted | 43,516 | 42,956 | 43,624 | 43,414 | ||||||||||||
See Non-GAAP Financial Measures discussion below.
Non-GAAP Financial Measures
EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, adjusted net income and adjusted earnings per share presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, net income margin, diluted earnings per share 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. We have presented these measures 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.
EBITDA represents net income before interest, taxes, depreciation and amortization. We calculate EBITDA margin by dividing EBITDA by net sales.
We use EBITDA and EBITDA margin to measure and compare the performance of our operating divisions. Our operating divisions' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating divisions. We use EBITDA and EBITDA margin to compare the performance of our operating divisions and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA and EBITDA margin to evaluate potential acquisitions and potential capital expenditures.
EBITDA and EBITDA margin 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 EBITDA margin 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 stockholders for the three and nine months ended September 30, 2023 to reflect the exclusion of changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. We believe this presentation helps facilitate our investors understanding of our results of operations and allows them to make meaningful comparisons of our operating results for the three and nine months ended September 30, 2023 against the corresponding periods in 2022. We believe these changes were the result of items which are not indicative of our actual operating performance.
We have presented Adjusted EBITDA for the three and nine months ended September 30, 2023 to exclude stock-based compensation expense. We calculated Adjusted EBITDA margin by dividing Adjusted EBITDA by net sales. The adjustment to exclude stock-based compensation expense from 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 and ability to access our credit facility.
SOURCE: ARC Document Solutions