UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 4, 2020
(Date of earliest event reported)
 
ARC Document Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction
of incorporation)
001-32407
(Commission File Number)
20-1700361
(IRS Employer
Identification Number)
 
12657 Alcosta Blvd, Suite 200, San Ramon, CA
(Address of principal executive offices)
 
94583
(Zip Code)
(925) 949-5100
(Registrant's telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
ARC
The New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 






Item 2.02. Results of Operations and Financial Condition

On August 4, 2020, ARC Document Solutions, Inc. (the “Company”) issued a press release reporting its financial results for the second quarter of the fiscal year ending December 31, 2020. A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

The information contained in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


Item 9.01. Financial Statements and Exhibits

(d) Exhibits
           
    99.1       Press Release of ARC Document Solutions, Inc. dated August 4, 2020





SIGNATURE
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 4, 2020
ARC DOCUMENT SOLUTIONS, INC.
By:  /s/ Jorge Avalos                    
     Jorge Avalos
     Chief Financial Officer





Exhibit Index
Exhibit No.

 
Description

 
 
  




Exhibit


ARC Exceeds Expectations for EBITDA and Cash in Second Quarter

SAN RAMON, CA – (August 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 second quarter ended June 30, 2020.
Financial Highlights:
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(All dollar amounts in millions, except EPS)
2020
2019
 
2020
2019
Net Sales
$
64.3

$
98.9

 
$
152.7

$
196.0

Gross Margin
31.8
%
34.2
%
 
31.5
%
32.9
%
Net income attributable to ARC
$
1.5

$
0.5

 
$
2.1

$
1.1

Adjusted net income attributable to ARC
$
1.2

$
3.1

 
$
2.4

$
3.7

Earnings per share - Diluted
$
0.03

$
0.01

 
$
0.05

$
0.02

Adjusted earnings per share - Diluted
$
0.03

$
0.07

 
$
0.06

$
0.08

Cash provided by operating activities
$
23.5

$
16.3

 
$
26.3

$
19.0

EBITDA
$
10.3

$
13.8

 
$
21.2

$
24.4

Adjusted EBITDA
$
10.7

$
14.4

 
$
22.1

$
25.7

Capital Expenditures
$
1.5

$
2.8

 
$
2.6

$
6.0


Management Commentary:
“I am pleased to announce that we were able to exceed our previously announced expectation in terms of EBITDA and cash in the second quarter,” said Suri Suriyakumar, Chairman, President and CEO of ARC. “We believe our results for the period are indicative of what we can sustain going forward thanks to transformative actions we’ve taken over the past several months.”

“The pandemic has profoundly changed how our customers print and distribute documents and information, and permanently impaired some of our previous business lines,” Mr. Suriyakumar said. “As a result, we have re-engineered every aspect of the company to support a new and vibrant set of business services that will lead us into the future, and eliminated costs and infrastructure that supported business that is less relevant in today’s environment.”

“Considering that we have been actively engaged in a business transformation due to growing secular changes, events of the recent past accelerated and clarified our ideas,” Mr. Suriyakumar continued. “Not only have we made extraordinary reductions in costs and significant changes in our operations, but we have also produced an operating strategy for a smaller but more vibrant company with the potential for growth as the market adapts to a post-COVID world.”

“Our quick and decisive actions early in the quarter secured our cash position, reduced working capital, ensured continuing collections, and significantly reduced our cost structure,” said Jorge Avalos, Chief Financial Officer of ARC. “Less than 60 days into the second quarter, we had successfully negotiated a deferment of approximately $3 million of equipment capital lease payments and deferred facility rent payments with many of our landlords. By the last month of the quarter we had addressed the fundamentals and increased our cash balance by more than $20 million. With the strengthening of our liquidity and balance sheet, we are well positioned to actively manage the company for a new environment going forward.”


2020 Second Quarter Supplemental Information:
Net sales were $64.3 million, a 34.9% decrease compared to the second quarter of 2019.
Cash & cash equivalents on the consolidated balance sheet in the second quarter 2020 were $58.4 million.
Days sales outstanding were 59 in Q2 2020 and 54 in Q2 2019.

Architectural, engineering, construction and building owner/operators (AEC/O) customers comprised approximately 72% of total net sales, while customers outside of construction made up approximately 28% of total net sales.





Total number of MPS locations at the end of the second quarter grew to approximately 10,945, a net gain of approximately 270 locations over Q2 2019.

Adjusted EBITDA excludes stock-based compensation expense.

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. The Company drew $15 million in March 2020 from the new revolving credit facility to hold in reserve during the COVID-19 pandemic.

Net Revenue
In millions
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
Total Net Revenue
$
64.3

$
88.4

$
382.4

$
92.3

$
94.1

$
98.9

For the second quarter 2020, net revenue declined 34.9%, or $34.6 million, compared to the second quarter of 2019, largely due to reduced sales resulting from the COVID-19 pandemic. Our Chinese Equipment and Supplies division accounted for $3.1 million of the revenue drop in the second quarter 2020.
Revenue by Business Lines
In millions
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
CDIM
$
41.1

$
49.2

$
205.5

$
49.8

$
50.5

$
54.4

MPS
$
16.2

$
27.3

$
123.3

$
30.2

$
30.6

$
31.6

AIM
$
2.7

$
3.6

$
14.1

$
3.7

$
3.5

$
3.6

Equipment and supplies
$
4.4

$
8.4

$
39.5

$
8.6

$
9.5

$
9.3

For the second quarter 2020, construction document and information management (CDIM) sales declined 24.5% 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 second quarter 2020, managed print services (MPS) sales declined 48.6% 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 second quarter 2020, archiving and information management (AIM) sales decreased 26.3% 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 second quarter 2020, equipment and supplies sales declined 53.1% 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
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
Gross Profit
$
20.4

$
27.6

$
125.2

$
30.2

$
30.4

$
33.8

   Gross Margin
31.8
%
31.2
%
32.7
%
32.8
%
32.3
%
34.2
%
The gross profit decline in the second quarter of 2020 was due to lower sales volume. Gross profit margin decreased slightly by 2.4% despite $34.6 million in overall sales declines, due to aggressive cost management in response to the pandemic.





Selling, General and Administrative Expenses
In millions
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
Selling, general and administrative expenses
$
17.3

$
24.3

$
107.3

$
26.4

$
26.0

$
27.2

Selling, general and administrative (SG&A) expenses in the second quarter 2020 declined 36.5% 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
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
Net Income Attributable to ARC – GAAP
$
1.5

$
0.7

$
3.0

$
0.8

$
1.1

$
0.5

Adjusted Net Income Attributable to ARC
$
1.2

$
1.2

$
6.8

$
1.4

$
1.6

$
3.1

 
 
 
 
 
 
 
Earnings per share Attributable to ARC
 
 
 
 
 
 
   Diluted EPS – GAAP
$
0.03

$
0.02

$
0.07

$
0.02

$
0.02

$
0.01

   Adjusted Diluted EPS
$
0.03

$
0.03

$
0.15

$
0.03

$
0.04

$
0.07

Year-over-year increases in GAAP net income were due to one-time tax benefits. The decrease in adjusted net income attributable to ARC was due to the decrease in gross profit, partially offset by the decline in Selling, General and Administrative expenses.
Cash Provided by Operating Activities
In millions
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
Cash provided by operating activities
$
23.5

$
2.8

$
52.8

$
23.0

$
10.8

$
16.3

Cash provided by operating activities in the second quarter of 2020 increased 43.9% year-over-year due to cash management initiatives instituted in response to the COVID-19 pandemic.
EBITDA
In millions
2Q 2020
1Q 2020
FYE 2019
4Q 2019
3Q 2019
2Q 2019
EBITDA
$
10.3

$
10.9

$
45.9

$
10.3

$
11.1

$
13.8

Adjusted EBITDA
$
10.7

$
11.4

$
49.4

$
11.7

$
12.1

$
14.4

Decreases in EBITDA and adjusted EBITDA in the second quarter of 2020 were driven by lower sales volume as previously mentioned and offset by significant declines in Selling, General and Administrative expenses as noted above.

 
Three Months Ended
Six Months Ended
 
June 30,
June 30,
Sales from Services and Product Lines as a Percentage of Net Sales
2020
2019
2020
2019
CDIM
63.9
%
55.1
%
59.1
%
53.7
%
MPS
25.2
%
31.9
%
28.5
%
31.9
%
AIM
4.1
%
3.6
%
4.1
%
3.5
%
Equipment and supplies sales
6.8
%
9.4
%
8.3
%
10.9
%






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 Tuesday, August 4, 2020, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results for the Company's 2020 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 4563937 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 “indicative of what we can sustain”, “going forward”, “transformative”, “new and vibrant”, “lead us into the future”, “potential for growth,” 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)
 
 
 
June 30,
December 31,
Current assets:
2020
2019
Cash and cash equivalents
$
58,431

$
29,425

Accounts receivable, net of allowances for accounts receivable of $2,257 and $2,099
42,375

51,432

Inventory
11,931

13,936

Prepaid expenses
5,097

4,783

Other current assets
4,761

6,807

Total current assets
122,595

106,383

Property and equipment, net of accumulated depreciation of $220,025 and $210,849
65,588

70,334

Right-of-use assets from operating leases
39,496

41,238

Goodwill
121,051

121,051

Other intangible assets, net
902

1,996

Deferred income taxes
18,487

19,755

Other assets
2,284

2,400

Total assets
$
370,403

$
363,157

Current liabilities:
 
 
Accounts payable
$
22,909

$
23,231

Accrued payroll and payroll-related expenses
9,782

14,569

Accrued expenses
17,118

20,440

Current operating lease liabilities
11,775

11,060

Current portion of finance leases
16,885

17,075

Total current liabilities
78,469

86,375

Long-term operating lease liabilities
36,150

37,260

Long-term debt and finance leases
105,906

89,082

Other long-term liabilities
443

400

Total liabilities
220,968

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; 49,891 and 49,189 shares issued and 43,843 and 45,228 shares outstanding
50

49

Additional paid-in capital
127,077

126,117

Retained earnings
33,686

31,969

Accumulated other comprehensive loss
(3,848
)
(3,357
)
 
156,965

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
143,123

143,368

Noncontrolling interest
6,312

6,672

Total equity
149,435

150,040

Total liabilities and equity
$
370,403

$
363,157





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,
 
2020
2019
2020
2019
Net sales
$
64,319

$
98,873

$
152,744

$
195,995

Cost of sales
43,874

65,025

104,702

131,472

Gross profit
20,445

33,848

48,042

64,523

Selling, general and administrative expenses
17,292

27,219

41,630

54,856

Amortization of intangible assets
471

867

1,068

1,762

Income from operations
2,682

5,762

5,344

7,905

Other income, net
(17
)
(18
)
(33
)
(36
)
Interest expense, net
1,131

1,372

2,240

2,802

Income before income tax provision
1,568

4,408

3,137

5,139

Income tax provision
148

3,896

1,255

4,180

Net income
1,420

512

1,882

959

Loss attributable to the noncontrolling interest
41

12

262

157

Net income attributable to ARC Document Solutions, Inc. shareholders
$
1,461

$
524

$
2,144

$
1,116

Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
0.03

$
0.01

$
0.05

$
0.02

Diluted
$
0.03

$
0.01

$
0.05

$
0.02

Weighted average common shares outstanding:
 
 
 
 
Basic
42,672

45,225

43,154

45,172

Diluted
42,767

45,298

43,277

45,328























ARC Document Solutions, Inc.
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
(In thousands)
 
 
 
 
(Unaudited)
Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2020
2019
2020
2019
Cash flows from operating activities
 
 
 
 
Net income
$
1,420

$
512

$
1,882

$
959

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Allowance for accounts receivable
251

122

517

354

Depreciation
7,057

7,147

14,464

14,570

Amortization of intangible assets
471

867

1,068

1,762

Amortization of deferred financing costs
16

55

32

110

Stock-based compensation
416

624

920

1,232

Deferred income taxes
493

3,727

1,244

3,902

Deferred tax valuation allowance
(318
)
34

(28
)
26

Other non-cash items, net
(14
)
(29
)
(32
)
(89
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
10,161

443

8,166

(2,094
)
Inventory
915

(128
)
1,942

231

Prepaid expenses and other assets
3,607

2,183

7,011

3,981

Accounts payable and accrued expenses
(994
)
765

(10,931
)
(5,957
)
Net cash provided by operating activities
23,481

16,322

26,255

18,987

Cash flows from investing activities
 
 
 
 
Capital expenditures
(1,460
)
(2,809
)
(2,581
)
(6,005
)
Other
7

135

80

301

Net cash used in investing activities
(1,453
)
(2,674
)
(2,501
)
(5,704
)
Cash flows from financing activities
 
 
 
 
Proceeds from issuance of common stock under Employee Stock Purchase Plan
20

31

40

81

Share repurchases
—

(801
)
(2,432
)
(867
)
Contingent consideration on prior acquisitions
—

—

—

(3
)
Payments on finance leases and long-term debt agreements
(1,698
)
(5,696
)
(6,300
)
(11,446
)
Borrowings under revolving credit facilities
—

5,000

40,000

13,250

Payments under revolving credit facilities
—

(8,875
)
(25,000
)
(21,000
)
Dividends paid
(427
)
—

(870
)
—

Net cash (used in) provided by financing activities
(2,105
)
(10,341
)
5,438

(19,985
)
Effect of foreign currency translation on cash balances
298

(336
)
(186
)
(990
)
Net change in cash and cash equivalents
20,221

2,971

29,006

(7,692
)
Cash and cash equivalents at beginning of period
38,210

18,770

29,425

29,433

Cash and cash equivalents at end of period
$
58,431

$
21,741

$
58,431

$
21,741

Supplemental disclosure of cash flow information
 
 
 
 
Noncash investing and financing activities
 
 
 
 
Finance lease obligations incurred
$
2,725

$
5,153

$
8,078

$
8,817

Operating lease obligations incurred
$
146

$
1,291

$
3,644

$
2,359













ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)
 
 
 
 
 
 Three Months Ended
Six Months Ended
 
June 30,
June 30,
 
2020
2019
2020
2019
CDIM
$
41,070

$
54,394

$
90,230

$
105,199

MPS
16,233

31,578

43,541

62,485

AIM
2,653

3,601

6,253

6,863

Equipment and supplies sales
4,363

9,300

12,720

21,448

Net sales
$
64,319

$
98,873

$
152,744

$
195,995


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,
 
2020
2019
2020
2019
Cash flows provided by operating activities
$
23,481

$
16,322

$
26,255

$
18,987

Changes in operating assets and liabilities
(13,689
)
(3,263
)
(6,188
)
3,839

Non-cash expenses, including depreciation and amortization
(8,372
)
(12,547
)
(18,185
)
(21,867
)
Income tax provision
148

3,896

1,255

4,180

Interest expense, net
1,131

1,372

2,240

2,802

Loss attributable to the noncontrolling interest
41

12

262

157

Depreciation and amortization
7,528

8,014

15,532

16,332

EBITDA
10,268

13,806

21,171

24,430

Stock-based compensation
416

624

920

1,232

Adjusted EBITDA
$
10,684

$
14,430

$
22,091

$
25,662


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
Six Months Ended
 
June 30,
June 30,
 
2020
2019
2020
2019
Net income attributable to ARC Document Solutions, Inc.
$
1,461

$
524

$
2,144

$
1,116

Interest expense, net
1,131

1,372

2,240

2,802

Income tax provision
148

3,896

1,255

4,180

Depreciation and amortization
7,528

8,014

15,532

16,332

EBITDA
10,268

13,806

21,171

24,430

Stock-based compensation
416

624

920

1,232

Adjusted EBITDA
$
10,684

$
14,430

$
22,091

$
25,662

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
Six Months Ended
 
June 30,
June 30,
 
2020
2019
2020
2019
Net income attributable to ARC Document Solutions, Inc.
$
1,461

$
524

$
2,144

$
1,116

Deferred tax valuation allowance and other discrete tax items
(240
)
2,592

259

2,618

Adjusted net income attributable to ARC Document Solutions, Inc.
$
1,221

$
3,116

$
2,403

$
3,734

 
 
 
 
 
Actual:
 
 
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
0.03

$
0.01

$
0.05

$
0.02

Diluted
$
0.03

$
0.01

$
0.05

$
0.02

Weighted average common shares outstanding:
 
 
 
 
Basic
42,672

45,225

43,154

45,172

Diluted
42,767

45,298

43,277

45,328

 
 
 
 
 
Adjusted:
 
 
 
 
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
 
 
 
 
Basic
$
0.03

$
0.07

$
0.06

$
0.08

Diluted
$
0.03

$
0.07

$
0.06

$
0.08

Weighted average common shares outstanding:
 
 
 
 
Basic
42,672

45,225

43,154

45,172

Diluted
42,767

45,298

43,277

45,328

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, 2020 and 2019 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, 2020 and 2019.
We have presented adjusted EBITDA for the three and six months ended June 30, 2020 and 2019 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.