ARC DOCUMENT SOLUTIONS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) – Marketscreener.com
The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
ARC Document Solutions Inc. is a digital printing company. We provide digital printing and document-related services to customers in a growing variety of industries. Our primary services and product offering are:
Each of these services frequently include additional logistics services in the form of distributing and delivering finished documents, installing display graphics, or the digital storage of graphic files.
We have categorized our service and product offerings to report distinct sales recognized from:
Equipment and Supplies Sales: We sell equipment and supplies to a small segment of our customer base. We also provide ancillary services such as equipment service and maintenance, often as a way to generate recurring revenue in addition to a one-time sale. In addition, we offer certified used equipment available for sale or for use in our MPS offering.
The methods for financial reporting and revenue recognition in our renamed service lines remain unchanged. Likewise, “Managed Print Services” or “MPS” and “Equipment Sales and Supplies” are also reported identically from previous years.
COVID-19 Pandemic
1.Column does not foot due to rounding. 2.See “Non-GAAP Financial Measures” following “Results of Operations” for definitions, reconciliations and more information related to our Non-GAAP disclosures.
Months Ended September 30,
(1)Column does not foot due to rounding. (2)See “Non-GAAP Financial Measures” following “Results of Operations” for definitions, reconciliations and more information related to our Non-GAAP disclosures.
Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021
The number of MPS locations has remained relatively flat year-over-year at approximately 10,800 as of September 30, 2022 and 2021.
Selling, General and Administrative Expenses
Amortization of Intangibles
Interest Expense, Net
Income Taxes
We have a $2.4 million valuation allowance against certain deferred tax assets as of September 30, 2022.
Net loss attributable to noncontrolling interest represents 35% of the income/loss of UDS and its subsidiaries, which together comprise our Chinese joint venture operations.
Net Income Attributable to ARC
EBITDA
Impact of Inflation
Non-GAAP Financial Measures
EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.
•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.
The following is a reconciliation of net income attributable to ARC Document Solutions, Inc. to EBITDA and adjusted EBITDA:
The following is a reconciliation of net income margin attributable to ARC Document Solutions, Inc. to EBITDA margin and adjusted EBITDA margin:
The following is a reconciliation of net income attributable to ARC Document Solutions, Inc. to adjusted net income and adjusted earnings per share attributable to ARC Document Solutions, Inc.:
Net income attributable to ARC Document Solutions, Inc.
Deferred tax valuation allowance and other discrete tax items
Actual:
Liquidity and Capital Resources
Our principal sources of cash have been cash flows from operations and borrowings under our debt and lease agreements. Our recent historical uses of cash have been for ongoing operations, payment of principal and interest on outstanding debt obligations, capital expenditures and stock repurchases.
35% or $3.9 million went to our JV partner, thus resulting in a $3.9 million decrease in our consolidated cash and noncontrolling interest balance sheet account.
Cash flows from operations are primarily driven by sales and net profit generated from these sales, excluding non-cash charges.
We use DSO to measure and compare the cash management performance of our operating divisions.
Investing Activities
Financing Activities
Debt Obligations
Credit Agreement
administrative agent.
Finance Leases
As of September 30, 2022, we had $26.3 million of finance lease obligations outstanding, with a weighted average interest rate of 4.8% and maturities between 2022 and 2028. Refer to Note 7, Leasing, as previously disclosed on our Annual Form 10-K for the fiscal year ended for December 31, 2021, for the schedule on maturities of finance lease liabilities, as there have been no material changes to report as of September 30, 2022.
Contractual Obligations and Other Commitments
Critical Accounting Policies and Significant Judgements and Estimates
Based upon a separate sensitivity analysis, a 50-basis point increase to the weighted average cost of capital would result in no further impairment of goodwill.
Income Taxes
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.
Income taxes have not been provided on certain undistributed earnings of foreign subsidiaries because such earnings are considered to be permanently reinvested.
Recent Accounting Pronouncements
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