ARC

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☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Delaware			20-1700361
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

12657 Alcosta Blvd, Suite 200			San Ramon			California			94583
(Address of principal executive offices)									(Zip Code)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Large accelerated filer			☐			Accelerated filer			☒
Non-accelerated filer			☐			Smaller reporting company			☒
						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. ☐

PART I—FINANCIAL INFORMATION			6
Item 1. Condensed Consolidated Financial Statements			6
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (Unaudited)			6
Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (Unaudited)			7
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (Unaudited)			8
Condensed Consolidated Statements of Equity for the three months ended March 31, 2022 and 2021 (Unaudited)			9
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)			10
Notes to Condensed Consolidated Financial Statements (Unaudited)			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			33
Item 4. Controls and Procedures			33
PART II—OTHER INFORMATION			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 6. Exhibits			36
Signatures			37

In this Quarterly Report on Form 10-Q, “ARC Document Solutions,” “ARC,” “the Company,” “we,” “us,” and “our” refer to ARC Document Solutions, Inc., a Delaware corporation, and its consolidated subsidiaries, unless the context otherwise dictates.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this report are statements that could be deemed forward-looking statements, including without limitation statements with respect to expectations regarding the impact of the COVID-19 pandemic on our financial results and the effectiveness of the Company's responses to the pandemic, future cash flows, and capital requirements, and the Company's anticipated effective tax rate, and statements of assumptions underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “project,” “target,” “likely,” “will,” “would,” “could,” and other similar language, whether in the negative or affirmative. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions as described under the section titled "Part I - Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as indicative of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations are listed below:

•The COVID-19 pandemic has and may continue to adversely affect our business, results of operations and financial condition.

•A significant portion of our revenue across all of our product and services is generated from customers in the architectural, engineering, construction and building owner/operator industry. Any decline in that industry could adversely affect our future revenue and profitability.

•Because a significant portion of our overall costs are fixed, our earnings are highly sensitive to changes in revenue.

•We derive a significant percentage of net sales from within the State of California and our business could be disproportionately harmed by an economic downturn or natural disaster affecting California.

•Our growth strategy depends, in part, on our ability to successfully market and execute several different, but related, service offerings. Failure to do so could impede our future growth and adversely affect our competitive position.

•We are dependent upon our vendors to continue to supply us equipment, parts, supplies, and services at comparable terms and price levels as the business grows.

•Our failure to protect our customers’ confidential information against security breaches could damage our reputation, harm our business and adversely affect our results of operation.

•Our failure to adequately protect the proprietary aspects of our technology solutions may cause us to lose market share.

•Our failure to comply with laws related to privacy and data security could adversely affect our financial condition.

•Our information technology and telecommunications systems are susceptible to damage, breach or interruption.

•Added risks are associated with our international operations.

•Our business could suffer if we fail to attract, retain, and successfully integrate skilled personnel.

•The market prices of our common stock is volatile, and is impacted by factors other than our financial performance, which could cause the value of an investment in our stock to decline.

•Changes in tax laws and interpretations could adversely affect our business.

•Our debt instruments impose certain restrictions on our ability to operate which in turn could negatively affect our ability to respond to business and market conditions and therefore could have an adverse effect on our business and results of operations.

•If the interest rates on our borrowings increase, our access to capital and net income could be adversely affected.

•We may be exposed to employment-related claims and costs and periodic litigation that could adversely affect our business and results of operations.

Except where otherwise indicated, the statements made in this Quarterly Report on Form 10-Q are made as of the date we filed this report with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically disclaim any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult further disclosures we make in future filings of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments thereto, as well as our proxy statements.

We own or have rights to a number of trademarks, service marks, and trade names that we use in conjunction with the operation of our business, including the name and design mark “ARC Document Solutions,” “ABACUS,” “METAPRINT,” “PlanWell,” “PlanWell PDS,” “Riot Creative Imaging,” “SKYSITE,” and various design marks associated therewith. In addition, we own or have rights to various trademarks, service marks, and trade names that we use regionally in conjunction with our operations. This report also includes trademarks, service marks and trade names of other companies.

Item 1. Condensed Consolidated Financial Statements

			March 31,						December 31,
(In thousands, except per share data)			2022						2021
Assets
Current assets:
Cash and cash equivalents			$	50,374					$	55,929
Accounts receivable, net of allowances for accounts receivable of $2,181 and $2,104			40,703						39,441
Inventory			9,704						8,842
Prepaid expenses			3,800						4,125
Other current assets			3,647						4,207
Total current assets			108,228						112,544
Property and equipment, net of accumulated depreciation of $233,170 and $229,803			42,711						45,153
Right-of-use assets from operating leases			28,019						29,360
Goodwill			121,051						121,051
Other intangible assets, net			291						325
Deferred income taxes			12,551						13,293
Other assets			2,437						2,273
Total assets			$	315,288					$	323,999
Liabilities and Equity
Current liabilities:
Accounts payable			$	21,991					$	22,753
Accrued payroll and payroll-related expenses			9,654						11,857
Accrued expenses			16,032						16,752
Current operating lease liability			10,073						10,284
Current portion of finance leases			12,860						13,816
Total current liabilities			70,610						75,462
Long-term operating lease liabilities			23,420						24,952
Long-term debt and finance leases			61,827						64,426
Other long-term liabilities			179						167
Total liabilities			156,036						165,007
Commitments and contingencies (Note 6)
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; 50,830 and 50,584 shares issued and 43,270 and 43,108 shares outstanding			51						50
Additional paid-in capital			130,639						129,881
Retained earnings			41,624						41,768
Accumulated other comprehensive loss			(2,491)						(2,501)
			169,823						169,198
Less cost of common stock in treasury, 7,560 and 7,476 shares			17,052						16,771
Total ARC Document Solutions, Inc. shareholders’ equity			152,771						152,427
Noncontrolling interest			6,481						6,565
Total equity			159,252						158,992
Total liabilities and equity			$	315,288					$	323,999

									Three Months Ended  March 31,
(In thousands, except per share data)															2022						2021
Net sales															$	69,488					$	61,730
Cost of sales															47,039						42,943
Gross profit															22,449						18,787
Selling, general and administrative expenses															19,355						16,995
Amortization of intangible assets															35						75
Income from operations															3,059						1,717
Other income, net															(25)						(11)
Interest expense, net															430						620
Income before income tax provision															2,654						1,108
Income tax provision															798						496
Net income															1,856						612
Loss attributable to the noncontrolling interest															116						177
Net income attributable to ARC Document Solutions, Inc. shareholders															$	1,972					$	789
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic															$	0.05					$	0.02
Diluted															$	0.05					$	0.02
Weighted average common shares outstanding:
Basic															42,064						42,264
Diluted															43,739						42,634

									Three Months Ended  March 31,
(In thousands)															2022						2021
Net income															$	1,856					$	612
Other comprehensive income, net of tax
Foreign currency translation adjustments, net of tax															42						79
Other comprehensive income, net of tax															42						79
Comprehensive income															1,898						691
Comprehensive loss attributable to noncontrolling interest, net of tax															(84)						(177)
Comprehensive income attributable to ARC Document Solutions, Inc. shareholders															$	1,982					$	868

			ARC Document Solutions, Inc. Shareholders
			Common Stock																								Accumulated
(In thousands, except per share data)			Shares						Par Value						Additional Paid-in Capital						Retained Earnings						Other Comprehensive Income/(Loss)						Common Stock in Treasury						Noncontrolling Interest						Total
Balance at December 31, 2020			49,422						$	49					$	127,755					$	37,308					$	(2,787)					$	(14,657)					$	6,668					$	154,336
Stock-based compensation															339																														339
Issuance of common stock under Employee Stock Purchase Plan			11												14																														14
Treasury shares																																	(156)												(156)
Cash dividends - common stock ($0.02 per share)																					(847)																								(847)
Comprehensive income (loss)																					789						79												(177)						691
Balance at March 31, 2021			49,433						$	49					$	128,108					$	37,250					$	(2,708)					$	(14,813)					$	6,491					$	154,377
			ARC Document Solutions, Inc. Shareholders
			Common Stock																								Accumulated
(In thousands, except per share data)			Shares						Par Value						Additional Paid-in Capital						Retained Earnings						Other Comprehensive Income/(Loss)						Common Stock in Treasury						Noncontrolling Interest						Total
Balance at December 31, 2021			50,584						$	50					$	129,881					$	41,768					$	(2,501)					$	(16,771)					$	6,565					$	158,992
Stock-based compensation			105												451																														451
Stock options exercised			135						1						287																														288
Issuance of common stock under Employee Stock Purchase Plan			6												20																														20
Treasury shares																																	(281)												(281)
Cash dividends - common stock ($0.05 per share)																					(2,116)																								(2,116)
Comprehensive income (loss)																					1,972						10												(84)						1,898
Balance at March 31, 2022			50,830						$	51					$	130,639					$	41,624					$	(2,491)					$	(17,052)					$	6,481					$	159,252

									Three Months Ended  March 31,
(In thousands)															2022						2021
Cash flows from operating activities
Net income															$	1,856					$	612
Adjustments to reconcile net income to net cash provided by operating activities:
Allowance for accounts receivable															72						(36)
Depreciation															5,394						6,449
Amortization of intangible assets															35						75
Amortization of deferred financing costs															15						16
Stock-based compensation															451						339
Deferred income taxes															735						392
Deferred tax valuation allowance															8						60
Other non-cash items, net															(50)						(38)
Changes in operating assets and liabilities:
Accounts receivable															(1,390)						(504)
Inventory															(867)						(290)
Prepaid expenses and other assets															3,213						3,350
Accounts payable and accrued expenses															(6,541)						(5,050)
Net cash provided by operating activities															2,931						5,375
Cash flows from investing activities
Capital expenditures															(1,242)						(568)
Other															88						131
Net cash used in investing activities															(1,154)						(437)
Cash flows from financing activities
Proceeds from stock option exercises															288						—
Proceeds from issuance of common stock under Employee Stock Purchase Plan															20						14
Share repurchases															(281)						(156)
Payments on finance leases															(4,033)						(4,817)
Borrowings under revolving credit facilities															38,000						15,000
Payments under revolving credit facilities															(39,250)						(20,000)
Dividends paid															(2,108)						(422)
Net cash used in financing activities															(7,364)						(10,381)
Effect of foreign currency translation on cash balances															32						(47)
Net change in cash and cash equivalents															(5,555)						(5,490)
Cash and cash equivalents at beginning of period															55,929						54,950
Cash and cash equivalents at end of period															$	50,374					$	49,460
Supplemental disclosure of cash flow information
Noncash investing and financing activities
Finance lease obligations incurred															$	1,689					$	874
Operating lease obligations incurred															$	1,147					$	418

												Three Months Ended  March 31,
																		2022						2021
Service Sales
Digital Printing																		$	41,947					$	37,434
MPS(1)																		18,654						17,334
Scanning and Digital Imaging																		4,169						3,025
Total services sales																		$	64,770					$	57,793
Equipment and Supplies Sales																		4,718						3,937
Total net sales																		$	69,488					$	61,730

(1) MPS includes $17.2 million of rental income and $1.5 million of service income for the three months ended March 31, 2022. MPS includes $15.8 million of rental income and $1.5 million of service income for the three months ended March 31, 2021.

MPS consists of placement, management, and optimization of print and imaging equipment in customers' offices, job sites, and other facilities. MPS relieves the Company’s customers of the burden of purchasing print equipment and related supplies and maintaining print devices and print networks, and it shifts their costs to a “per-use” basis. MPS is supported by the Company's hosted proprietary technology, Abacus®, which allows customers to capture, control, manage, print, and account for their documents. Under its MPS contracts, the Company is paid a fixed rate per unit for each print produced (per-use), often referred to as a “click charge”. MPS sales are driven by the ongoing print needs of the Company’s customers at their facilities. Upon the issuance of Accounting Standards Codification ("ASC") 842, Leases, the Company concluded that certain of its MPS arrangements, which had previously been accounted for as service revenue under ASC 606, Revenue from Contracts with Customers, are accounted for as operating leases under ASC 842.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Loss (Topic 326) (“ASU 2016-13”), which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU 2016-13 must be adopted on a modified-retrospective approach. This update was effective for fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. In October 2019, the FASB approved an extension for all non-SEC filers, including small reporting companies, to extend the effective date to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Therefore, the effective date for this update will be January 1, 2023. The Company is currently evaluating the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.

The provisions of ASC 280, Segment Reporting, require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies operating segments based on the various business activities that earn revenue and incur expense and whose operating results are reviewed by the Company's Chief Executive Officer, who is the Company's chief operating decision maker. Because its operating segments have similar products and services, classes of customers, production processes, distribution methods and economic characteristics, the Company operates as a single reportable segment.

The Company accounts for earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share is computed by dividing net income attributable to ARC by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per common share is computed similarly to basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if shares subject to outstanding options and acquisition rights had been issued and if the additional shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive. For the three months ended March 31, 2022, 2.8 million shares of common stock were excluded from the calculation of diluted net income attributable to ARC per common share, because they were anti-dilutive. For the three months ended March 31, 2021, 5.1 million shares of common stock were excluded from the calculation of diluted net loss attributable to ARC per common share, because they were anti-dilutive. The Company's common share equivalents consist of stock options issued under the Company's stock plan.

												Three Months Ended  March 31,
																		2022						2021
Weighted average common shares outstanding during the period—basic																		42,064						42,264
Effect of dilutive stock awards																		1,675						370
Weighted average common shares outstanding during the period—diluted																		43,739						42,634

Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill. In 2017, the Company elected to early-adopt ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.

The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the regional level, which is the operating segment level.

			March 31, 2022																		December 31, 2021
			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Amortizable other intangible assets
Customer relationships			$	99,470					$	99,421					$	49					$	99,446					$	99,371					$	75
Trade names and trademarks			20,347						20,105						242						20,344						20,094						250
			$	119,817					$	119,526					$	291					$	119,790					$	119,465					$	325

2022 (excluding the three months ended March 31, 2022)			$	69
2023			45
2024			43
2025			39
2026			38
Thereafter			57
			$	291

In accordance with ASC 740-10, Income Taxes, the Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

•Future reversals of existing taxable temporary differences;

•Future taxable income exclusive of reversing temporary differences and carryforwards;

•Taxable income in prior carryback years; and

•Tax-planning strategies.

•Nature, frequency, and severity of recent losses;

•Duration of statutory carryforward periods;

•Historical experience with tax attributes expiring unused; and

•Near- and medium-term financial outlook.

						March 31, 2022						December 31, 2021
Revolving Loans; 1.8% and 1.7% interest rate at March 31, 2022 and December 31, 2021						$	45,000					$	46,250
Various finance leases; weighted average interest rate of 4.7% at March 31, 2022 and December 31, 2021; principal and interest payable monthly through November 2027						29,687						31,992
						74,687						78,242
Less current portion						(12,860)						(13,816)
						$	61,827					$	64,426

Operating Leases. The Company leases machinery, equipment, and office and operational facilities under non-cancelable operating lease agreements used in the ordinary course of business. Certain lease agreements for the Company's facilities generally contain renewal options and provide for annual increases in rent based on the local Consumer Price Index. Refer to Note 7, Leasing, on the Company's Annual Report on Form 10-K for the year ended December 31, 2021 a schedule of the Company's future minimum operating lease payments.

Legal Proceedings. The Company is involved, and will continue to be involved, in legal proceedings arising out of the conduct of the Company's business, including commercial and employment-related lawsuits. Some of these lawsuits purport or may be determined to be class actions and seek substantial damages, and some may remain unresolved for several years. The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company's evaluation of whether a loss is reasonably probable is based on the Company's assessment and consultation with legal counsel regarding the ultimate outcome of the matter. As of March 31, 2022, the Company has accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company does not currently believe that the ultimate resolution of any of these matters will have a material adverse effect on its results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company's results of operations, financial condition, or cash flows.

Environmental Matters. The Company has accrued liabilities for environmental assessment and remediation matters relating to operations at certain locations conducted in the past by predecessor companies that do not relate to ARC's current operations. The Company has accrued these liabilities because it is probable that a loss or cost will be incurred and the amount of loss or cost can be reasonably estimated. These estimates could change as a result of changes in planned remedial actions, remediation technologies, site conditions, the estimated time to complete remediation, environmental laws and regulations, and other factors. Because of the uncertainties associated with environmental assessment and remediation activities, the Company's future expenses relating to these matters could be higher than the liabilities it has accrued. Based upon current information, the Company believes that the impact of the resolution of these matters would not be, individually or in the aggregate, material to its financial position, results of operations or cash flows.

In accordance with ASC 820, Fair Value Measurement, the Company has categorized its assets and liabilities that are measured at fair value into a three-level fair value hierarchy. If the inputs used to measure fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. The three levels of the hierarchy are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:

Cash equivalents: Cash equivalents are time deposits with maturity of three months or less when purchased, which are highly liquid and readily convertible to cash. Cash equivalents reported in the Company’s interim Condensed Consolidated Balance Sheet were $13.8 million as of March 31, 2022 and December 31, 2021 and are carried at cost and approximate fair value due to the relatively short period to maturity of these instruments.

Short and long-term debt: The carrying amount of the Company’s finance leases reported in the interim Condensed Consolidated Balance Sheets approximates fair value based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements. The carrying amount reported in the Company’s interim Condensed Consolidated Balance Sheet as of March 31, 2022 for borrowings under its 2021 Credit Agreement is $45.0 million. The Company has determined, utilizing observable market quotes, that the fair value of borrowings under its 2021 Credit Agreement is $45.0 million as of March 31, 2022.

•digital printing of general and specialized business documents such as those found in marketing and advertising, engineering and construction and other industries, as well as producing highly-customized display graphics of all types and sizes;

We have categorized our service and product offerings to report distinct sales recognized from:

Digital Printing: We print documents of any size in color and black and white on a variety of materials including plain paper, vinyl, fabric, metal, wood and other three-dimensional substrates. While we can and do print high-page count work such as manuals or catalogs, the documents we typically produce are usually characterized by their high-quality production, low-volume and quick turnaround, and are produced using highly-sophisticated digital printing equipment.

Managed Print Services: We acquire and manage digital printing equipment and place it in our customers' facilities for their use, based on a service level agreement. We lease or own the equipment ourselves, while our customers pay for what they use. Per-use minimum charges are often part of our service agreements. We operate more than 10,500 managed print services, or MPS locations, ranging in size from one or two pieces of equipment in a single office, to hundreds of pieces equipment in offices around the world. We also provide proprietary software to our customers to control their print expenses and connect their remote employees with their offices and ARC print centers nationwide. This software is developed and integrated by ARC.

Scanning and Digital Imaging: We scan hard-copy small format or large format documents in color or black and white, typically providing them to our customers as searchable PDF files. We also use our patented optical character recognition technology to make documents searchable, and we host them on proprietary applications for use as part of our ARC Facilities solutions. The types of documents that we scan include office files, construction plans and other small or large documents. We also process, distribute and print-on-demand images we capture for our customers. Our large, centralized Scanning and Digital Imaging centers are compliant with the Health Insurability Portability and Accountability Act of 1996, or HIPAA, so we can convert documents that include protected health information. Our unique software creates efficient search tags on scanned data for easy search and retrieval. We offer Cloud-based document management software and other digital hosting services to our customers or make files available for our customers to host themselves.

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 COVID-19 pandemic continued to have adverse effects on our financial performance during 2021, but barring further negative developments of the virus and its impact on personal and economic well-being, we expect that the worst of those effects are behind us. We expect a hybrid office to remain the norm in 2022, but for print volumes to increase marginally as employers bring their employees back into the office at higher rates than we saw in 2021. We believe work-from-home practices benefit our scanning business as employees need access to documents, regardless of where they are working, and document scanning is the first step in making them accessible in the cloud.

Throughout the first quarter of 2022, we believe uncertainty surrounding the potential disruption to our business related to the COVID-19 pandemic has begun to dissipate, as well as the pandemic’s overall impact on the U.S. economy, on our clients’ ongoing business operations, and on our results of operations and financial condition. However, we remain cautious in our prediction of future events and their potential effects on our business results. Our management team is actively monitoring the continuing impacts of the COVID-19 pandemic and may take further voluntary or required actions to alter our business operations to protect employees and customers. The following discussions are subject to the future effects of the COVID-19 pandemic on our ongoing business operations.

															Three Months Ended  March 31,												Increase (decrease)
(In millions, except percentages)																											2022(2)						2021(2)						$						%
Digital Printing																											$	41.9					$	37.4					$	4.5					12.1		%
MPS																											18.7						17.3						1.3						7.6		%
Scanning and Digital Imaging																											4.2						3.0						1.1						37.8		%
Equipment and supplies sales																											4.7						3.9						0.8						19.8		%
Total net sales																											$	69.5					$	61.7					$	7.8					12.6		%
Gross profit																											$	22.4					$	18.8					$	3.7					19.5		%
Selling, general and administrative expenses																											$	19.4					$	17.0					$	2.4					13.9		%
Amortization of intangible assets																											$	—					$	0.1					$	—					(53.3)		%
Interest expense, net																											$	0.4					$	0.6					$	(0.2)					(30.6)		%
Income tax provision																											$	0.8					$	0.5					$	0.3					60.9		%
Net income attributable to ARC																											$	2.0					$	0.8					$	1.2					149.9		%
Non-GAAP (1)
Adjusted net income attributable to ARC (1)																											$	2.0					$	0.9					$	1.1					115.0		%
EBITDA (1)																											$	8.6					$	8.4					$	0.2					2.4		%
Adjusted EBITDA (1)																											$	9.1					$	8.8					$	0.3					3.6		%

(1)See "Non-GAAP Financial Measures" following "Results of Operations" for definitions, reconciliations and more information related to our Non-GAAP disclosures.

(2)Column does not foot due to rounding.

												As Percentage of Net Sales
												Three Months Ended March 31,
																		2022(1)						2021(1)
Net sales																		100.0		%				100.0		%
Cost of sales																		67.7						69.6
Gross profit																		32.3						30.4
Selling, general and administrative expenses																		27.9						27.5
Amortization of intangible assets																		0.1						0.1
Income from operations																		4.4						2.8
Interest expense, net																		0.6						1.0
Income before income tax provision																		3.8						1.8
Income tax provision																		1.1						0.8
Net income																		2.7						1.0
Loss attributable to the noncontrolling interest																		0.2						0.3
Net income attributable to ARC																		2.8		%				1.3		%
Non-GAAP (2)
EBITDA (2)																		12.4		%				13.7		%
Adjusted EBITDA (2)																		13.1		%				14.2		%

Digital Printing. Year-over-year sales of Digital Printing services increased $4.5 million, or 12.1%, for the three months ended March 31, 2022. The increase is due to increased volume from digital plan printing from our construction-oriented customers, as well as an increase in digital color graphic printing. Digital Printing services represented 60% of total net sales for the three months ended March 31, 2022, compared to 61% for the three months ended March 31, 2021. The impact of the pandemic on Digital Printing was not as pronounced as other parts of our business due to the expansion of our products and services beyond the construction industry.

MPS. Year-over-year sales of MPS services for the three months ended March 31, 2022 increased $1.3 million, or 7.6%. The increase in MPS sales reflect a moderation of work-from-home directives that drove more employees into offices during the period, and continuing activity on construction job sites. MPS sales represented approximately 27% of total net sales for the three months ended March 31, 2022, compared to 28% for the three months ended March 31, 2021.

Scanning and Digital Imaging. Year-over-year sales of Scanning and Digital Imaging services increased $1.1 million, or 37.8%, for the three months ended March 31, 2022. The increase in sales of our Scanning and Digital Imaging services was primarily attributable to increased demand for paper-to-digital document conversions in re-opened offices. We continue to drive an expansion of our addressable market for Scanning and Digital Imaging services with increased marketing activity, as well as targeting building owners and facility managers that require on-demand access to their legacy documents to operate their assets efficiently. We believe that, with the expansion of the markets and industries we serve and the desire of our existing customers to have digital access to documents, our Scanning and Digital Imaging services will continue to grow in the future.

Equipment and Supplies Sales. Year-over-year sales of Equipment and Supplies increased $0.8 million, or 19.8%, for the three months ended March 31, 2022. The increase is driven by demand from offices and job sites as they re-opened to employees, especially in the U.S.

•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.

									Three Months Ended  March 31,
(In thousands)															2022						2021
Cash flows provided by operating activities															$	2,931					$	5,375
Changes in operating assets and liabilities															5,585						2,494
Non-cash expenses, including depreciation and amortization															(6,660)						(7,257)
Income tax provision															798						496
Interest expense, net															430						620
Loss attributable to the noncontrolling interest															116						177
Depreciation and amortization															5,429						6,524
EBITDA															$	8,629					$	8,429

									Three Months Ended  March 31,
(In thousands)															2022						2021
Net income attributable to ARC Document Solutions, Inc.															$	1,972					$	789
Interest expense, net															430						620
Income tax provision															798						496
Depreciation and amortization															5,429						6,524
EBITDA															8,629						8,429
Stock-based compensation															451						339
Adjusted EBITDA															$	9,080					$	8,768

									Three Months Ended  March 31,
															2022(1)						2021
Net income margin attributable to ARC Document Solutions, Inc.															2.8		%				1.3		%
Interest expense, net															0.6						1.0
Income tax provision															1.1						0.8
Depreciation and amortization															7.8						10.6
EBITDA margin															12.4						13.7
Stock-based compensation															0.6						0.5
Adjusted EBITDA margin															13.1		%				14.2		%

												Three Months Ended  March 31,
(In thousands, except per share amounts)																		2022						2021
Net income attributable to ARC Document Solutions, Inc.																		$	1,972					$	789
Deferred tax valuation allowance and other discrete tax items																		6						131
Adjusted net income attributable to ARC Document Solutions, Inc.																		$	1,978					$	920
Actual:
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic																		$	0.05					$	0.02
Diluted																		$	0.05					$	0.02
Weighted average common shares outstanding:
Basic																		42,064						42,264
Diluted																		43,739						42,634
Adjusted:
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:
Basic																		$	0.05					$	0.02
Diluted																		$	0.05					$	0.02
Weighted average common shares outstanding:
Basic																		42,064						42,264
Diluted																		43,739						42,634

												Three Months Ended  March 31,
(In thousands)																		2022						2021
Net cash provided by operating activities																		$	2,931					$	5,375
Net cash used in investing activities																		$	(1,154)					$	(437)
Net cash used in financing activities																		$	(7,364)					$	(10,381)

(In thousands)			March 31, 2022						December 31, 2021
Cash and cash equivalents			$	50,374					$	55,929
Working capital			$	37,618					$	37,082
Borrowings from revolving credit facility			$	45,000					$	46,250
Other debt obligations			29,687						31,992
Total debt obligations			$	74,687					$	78,242

As of March 31, 2022, we had $29.7 million of finance lease obligations outstanding, with a weighted average interest rate of 4.7% and maturities between 2022 and 2027. 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 March 31, 2022.

Operating Leases. We have entered into various non-cancelable operating leases primarily related to facilities, equipment and vehicles used in the ordinary course of business. 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 operating lease liabilities as there were no material changes as of March 31, 2022.

Legal Proceedings. We are involved, and will continue to be involved, in legal proceedings arising out of the conduct of our business, including commercial and employment-related lawsuits. Some of these lawsuits purport or may be determined to be class actions and seek substantial damages, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We evaluate whether a loss is reasonably probable based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter. As of March 31, 2022 we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not currently believe that the ultimate resolution of any of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.

Environmental Matters. We have accrued liabilities for environmental assessment and remediation matters relating to operations at certain locations conducted in the past by predecessor companies that do not relate to our current operations. We have accrued these liabilities because it is probable that a loss or cost will be incurred and the amount of loss or cost can be reasonably estimated. These estimates could change as a result of changes in planned remedial actions, remediation technologies, site conditions, the estimated time to complete remediation, environmental laws and regulations, and other factors. Because of the uncertainties associated with environmental assessment and remediation activities, our future expenses relating to these matters could be higher than the liabilities we have accrued. Based upon current information, we believe that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows.

We determine the fair value of our reporting units using an income approach. Under the income approach, we determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others. The level of judgment and estimation is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic.  We have evaluated numerous factors disrupting our business and made significant assumptions which include the severity and duration of our business disruption, the timing and degree of economic recovery and ultimately, the combined effect of these assumptions on our future operating results and cash flows.

(Dollars in thousands)			Number of Reporting Units						Representing Goodwill of
No goodwill balance			6						$	—
Fair value of reporting units exceeds their carrying values by more than 50%			2						121,051
			8						$	121,051

Given the uncertainty regarding the ultimate financial impact of the COVID-19 pandemic and the proceeding economic recovery, and the changing document and printing needs of our customers and the uncertainties regarding the effect on our business, there can be no assurance that the estimates and assumptions made for purposes of our goodwill impairment testing in 2021 will prove to be accurate predictions of the future. If our assumptions, including forecasted EBITDA of certain reporting units, are not achieved, or our assumptions change regarding disruptions caused by the pandemic, and the impact on the recovery from COVID-19 change, then we may be required to record goodwill impairment charges in future periods, whether in connection with our next annual impairment testing in the third quarter of 2022, or on an interim basis, if any such change constitutes a triggering event (as defined under ASC 350, Intangibles - Goodwill and Other) outside of the quarter when we

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

Item 1. Legal Proceedings

We are involved, and will continue to be involved, in legal proceedings arising out of the conduct of our business, including commercial and employment-related lawsuits. Some of these lawsuits purport or may be determined to be class actions and seek substantial damages, and some may remain unresolved for several years. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Our evaluation of whether a loss is reasonably probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter. As of March 31, 2022, we have accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not currently believe that the ultimate resolution of any of these matters will have a material adverse effect on our results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our results of operations, financial condition, or cash flows.

Item 1A. Risk Factors

Information concerning certain risks and uncertainties are set forth in "Part I - Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 24, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(In thousands, except for price per share)						(a) Total Number of Shares Purchased (1)						(b) Average Price Paid per Share ($)						(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						(d) Approximate Dollar Value of Shares That May Yet Be Purchased Under The Plans or Programs (1)
Period
January 1, 2022 - January 31, 2022						—												—						$	7,958
February 1, 2022 - February 28, 2022						—												—						$	7,958
March 1, 2022 - March 31, 2022						45						$	3.46					45						$	7,802
Total repurchases during the first quarter of 2022						45												45

Item 6. Exhibits

Exhibit Number						Description
3.1						Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.2 to the Registrant’s Form 10-K filed on March 13, 2013 and incorporated herein by reference)
3.2						Second Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1 to Registrant’s Form 8-K filed on October 6, 2009 and incorporated herein by reference)
31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS						XBRL Instance Document *
101.SCH						XBRL Taxonomy Extension Schema *
101.CAL						XBRL Taxonomy Extension Calculation Linkbase *
101.DEF						XBRL Taxonomy Extension Definition Linkbase *
101.LAB						XBRL Taxonomy Extension Label Linkbase *
101.PRE						XBRL Taxonomy Extension Presentation Linkbase *
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

*			Filed herewith

ARC DOCUMENT SOLUTIONS, INC.
/s/ KUMARAKULASINGAM SURIYAKUMAR
Kumarakulasingam Suriyakumar
Chairman, President and Chief Executive Officer
/s/ JORGE AVALOS
Jorge Avalos
Chief Financial Officer