ARC DOCUMENT SOLUTIONS, INC., 10-Q filed on 11/8/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 02, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Entity Registrant Name ARC DOCUMENT SOLUTIONS, INC.  
Entity Central Index Key 0001305168  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth false  
Entity Common Stock, Shares Outstanding   45,789,514
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 18,404 $ 28,059
Accounts receivable, net of allowances for accounts receivable of $2,366 and $2,341 62,478 57,011
Inventories, net 18,301 19,937
Prepaid expenses 6,371 4,208
Other current assets 5,209 5,266
Total current assets 110,763 114,481
Property and equipment, net of accumulated depreciation of $201,126 and $198,693 69,133 64,245
Goodwill 121,051 121,051
Other intangible assets, net 6,078 9,068
Deferred income taxes 25,738 28,029
Other assets 2,601 2,551
Total assets 335,364 339,425
Current liabilities:    
Accounts payable 22,848 24,289
Accrued payroll and payroll-related expenses 13,009 12,617
Accrued expenses 17,896 17,201
Current portion of long-term debt and capital leases 21,334 20,791
Total current liabilities 75,087 74,898
Long-term debt and capital leases 110,889 123,626
Other long-term liabilities 4,474 3,290
Total liabilities 190,450 201,814
Commitments and contingencies (Note 6)
ARC Document Solutions, Inc. stockholders’ equity:    
Preferred stock, $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, $0.001 par value, 150,000 shares authorized; 48,464 and 47,913 shares issued and 45,790 and 45,266 shares outstanding 48 48
Additional paid-in capital 122,878 120,953
Retained earnings 27,785 20,524
Accumulated other comprehensive loss (3,457) (1,998)
Total stockholders equity before adjustment of treasury stock 147,254 139,527
Less cost of common stock in treasury, 2,674 and 2,647 shares 9,350 9,290
Total ARC Document Solutions, Inc. stockholders’ equity 137,904 130,237
Noncontrolling interest 7,010 7,374
Total equity 144,914 137,611
Total liabilities and equity $ 335,364 $ 339,425
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Allowances for accounts receivable $ 2,366 $ 2,341
Accumulated depreciation on property and equipment $ 201,126 $ 198,693
Preferred stock, par value (in usd per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares) 25,000,000 25,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in usd per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 150,000,000 150,000,000
Common stock, shares issued (in shares) 48,464,000 47,913,000
Common stock, shares outstanding (in shares) 45,790,000 45,266,000
Treasury stock, (in shares) 2,674,000 2,647,000
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Total net sales $ 100,473 $ 96,458 $ 302,371 $ 297,469
Cost of sales 67,801 67,231 203,679 202,918
Gross profit 32,672 29,227 98,692 94,551
Selling, general and administrative expenses 26,973 25,843 81,780 76,540
Amortization of intangible assets 949 1,053 2,942 3,250
Goodwill impairment 0 17,637 0 17,637
Income (loss) from operations 4,750 (15,306) 13,970 (2,876)
Other expense (income), net 38 (19) (63) (60)
Loss on extinguishment and modification of debt 0 124 0 230
Interest expense, net 1,478 1,530 4,436 4,679
Income before income tax provision (benefit) 3,234 (16,941) 9,597 (7,725)
Income tax provision (benefit) 647 (2,174) 2,526 1,574
Net income (loss) 2,587 (14,767) 7,071 (9,299)
(Income) loss attributable to the noncontrolling interest (28) (7) 190 (55)
Net income (loss) attributable to ARC Document Solutions, Inc. shareholders $ 2,559 $ (14,774) $ 7,261 $ (9,354)
Earnings (loss) per share attributable to ARC Document Solutions, Inc. shareholders:        
Basic (dollars per share) $ 0.06 $ (0.32) $ 0.16 $ (0.20)
Diluted (dollars per share) $ 0.06 $ (0.32) $ 0.16 $ (0.20)
Weighted average common shares outstanding:        
Basic (shares) 44,983 45,834 44,888 45,756
Diluted (shares) 45,188 45,834 44,993 45,756
Service        
Total net sales $ 88,419 $ 85,625 $ 267,160 $ 262,459
Equipment and supplies sales        
Total net sales $ 12,054 $ 10,833 $ 35,211 $ 35,010
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 2,587 $ (14,767) $ 7,071 $ (9,299)
Other comprehensive (loss) income, net of tax        
Foreign currency translation adjustments, net of tax (320) 681 (1,633) 1,421
Fair value adjustment of derivatives, net of tax 0 55 0 141
Other comprehensive (loss) income, net of tax (320) 736 (1,633) 1,562
Comprehensive income (loss) 2,267 (14,031) 5,438 (7,737)
Comprehensive (loss) income attributable to noncontrolling interest (202) 149 (364) 369
Comprehensive income (loss) attributable to ARC Document Solutions, Inc. shareholders $ 2,469 $ (14,180) $ 5,802 $ (8,106)
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities    
Net income (loss) $ 7,071 $ (9,299)
Adjustments to reconcile net income to net cash provided by operating activities:    
Allowance for accounts receivable 637 867
Depreciation 21,708 21,787
Amortization of intangible assets 2,942 3,250
Amortization of deferred financing costs 175 246
Goodwill impairment 0 17,637
Stock-based compensation 1,824 2,251
Deferred income taxes 2,175 1,045
Deferred tax valuation allowance 71 488
Loss on extinguishment and modification of debt 0 230
Other non-cash items, net (201) (340)
Changes in operating assets and liabilities:    
Accounts receivable (6,594) 406
Inventory 1,291 (650)
Prepaid expenses and other assets (2,326) (1,129)
Accounts payable and accrued expenses 1,289 (33)
Net cash provided by operating activities 30,062 36,756
Cash flows from investing activities    
Capital expenditures (10,463) (7,246)
Other 556 466
Net cash used in investing activities (9,907) (6,780)
Cash flows from financing activities    
Proceeds from stock option exercises 0 73
Proceeds from issuance of common stock under Employee Stock Purchase Plan 100 103
Share repurchases (60) 0
Contingent consideration on prior acquisitions (176) (214)
Early extinguishment of long-term debt 0 (14,150)
Payments on long-term debt agreements and capital leases (17,200) (60,060)
Borrowings under revolving credit facilities 9,250 54,850
Payments under revolving credit facilities (20,875) (9,675)
Payment of deferred financing costs 0 (270)
Net cash used in financing activities (28,961) (29,343)
Effect of foreign currency translation on cash balances (849) 491
Net change in cash and cash equivalents (9,655) 1,124
Cash and cash equivalents at beginning of period 28,059 25,239
Cash and cash equivalents at end of period 18,404 26,363
Noncash investing and financing activities    
Capital lease obligations incurred $ 16,560 $ 20,714
v3.10.0.1
Description of Business and Basis of Presentation
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Description of Business and Basis of Presentation
Description of Business and Basis of Presentation
ARC Document Solutions, Inc. (“ARC Document Solutions,” “ARC” or the “Company”) is a leading document solutions provider to architectural, engineering, construction, and facilities management professionals, while also providing document solutions to businesses of all types. ARC offers a variety of services including: Construction Document Information Management ("CDIM"), Managed Print Services ("MPS"), and Archive and Information Management ("AIM"). In addition, ARC also sells Equipment and Supplies. The Company conducts its operations through its wholly-owned operating subsidiary, ARC Document Solutions, LLC, a Texas limited liability company, and its affiliates.
Basis of Presentation
The accompanying interim Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conformity with the requirements of the Securities and Exchange Commission (SEC). As permitted under those rules, certain footnotes or other financial information required by GAAP for complete financial statements have been condensed or omitted. In management’s opinion, the accompanying interim Condensed Consolidated Financial Statements presented reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim Condensed Consolidated Financial Statements. All material intercompany accounts and transactions have been eliminated in consolidation. The operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim Condensed Consolidated Financial Statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis and relies on historical experience and various other factors that it believes to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the interim Condensed Consolidated Financial Statements.
These interim Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2017 Form 10-K.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance requires entities to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. In addition, Topic 606 provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts.

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting. The adoption of Topic 606 did not result in an adjustment to retained earnings in the Company's consolidated balance sheet as of January 1, 2018.
 
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company applied practical expedients related to unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Net sales of the Company’s principal services and products were as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Service Sales
 
 
 
 
 
 
 
CDIM
$
52,418

 
$
50,089

 
$
160,270

 
$
155,031

MPS
32,384

 
32,153

 
97,181

 
97,697

AIM
3,617

 
3,383

 
9,709

 
9,731

Total service sales
88,419

 
85,625

 
267,160

 
262,459

Equipment and supplies sales
12,054

 
10,833

 
35,211

 
35,010

Total net sales
$
100,473

 
$
96,458

 
$
302,371

 
$
297,469


Construction Document and Information Management (CDIM) consists of professional services and software services to (i) re-produce and distribute large-format and small-format documents in either black & white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all the Company’s revenue from CDIM comes from professional services to re-produce Ordered Prints. Sales of Ordered Prints are initiated through a customer order or quote and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the re-produced Ordered Prints. Transfer of control occurs at a specific point-in-time, when the Ordered Prints are delivered to the customer’s site or handed to the customer for walk in orders. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Managed Print Services (MPS), consists of placement, management, and optimization of print and imaging equipment in the 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 shifts their costs to a “per-use” basis. MPS is supported by our hosted proprietary technology, Abacus™, which allows our customers to capture, control, manage, print, and account for their documents. MPS contracts include a term ranging from 3 to 5 years and 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. MPS sales are governed by the mutually agreed upon written agreement which outlines the Company’s terms and conditions. In providing MPS on a per-use basis, the Company is providing a series of services that have the same pattern of transfer and are measured as each customer produces a print or per-use. Accordingly, the performance obligations are satisfied over-time on an output method as each print is produced (per-use) by the customer. For each month of service, the prints produced during the period equate to the consideration that the Company expects to receive from the invoice generated for this period. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Archiving and Information Management (AIM), combines software and professional services to facilitate the capture, management, access and retrieval of documents and information that have been produced in the past. AIM includes our hosted SKYSITE ® software to organize, search and retrieve documents, as well as the provision of services that include the capture and conversion of hardcopy and electronic documents into digital files (“Scanned Documents”), and their cloud-based storage and maintenance. Sales of AIM professional services, which represent substantially all revenue for AIM, are initiated through a customer order or proposal and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the digital files. Transfer of control occurs at a specific point-in-time, when the Scanned Documents are delivered to the customer either through SKYSITE or on electronic media. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.

Equipment and Supplies sales consist of reselling printing, imaging, and related equipment (“Goods”) to customers primarily in architectural, engineering and construction firms. Sales of Equipment and Supplies are initiated through a customer order and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the Goods. Transfer of control occurs at a specific point-in-time, when the Goods are delivered to the customer’s site. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has experienced minimal customer returns or refunds and does not offer a warranty on equipment that it is reselling.


Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), Leases. The new guidance replaces the existing guidance in ASC 840, Leases. ASC 842 requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases, and is to be applied using a modified retrospective approach. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee will recognize interest expense and amortization of the ROU asset and for operating leases the lessee will recognize a straight-line total lease expense. ASC 842 is effective for the Company January 1, 2019.

In July, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities the option to use the effective date as the date of initial application on transition to the new guidance. The Company plans to elect this transition method, and as a result, the Company will not adjust comparative information for prior periods. While the Company is continuing to assess the potential impacts that ASC 842 will have on its consolidated financial statements, the Company believes that the most significant impact relates to its accounting for facility leases for its service centers and office space, which are currently classified as operating leases. The Company expects the accounting for capital leases related to its machinery and equipment will remain substantially unchanged under the new standard. Due to the substantial number of operating leases that it has, the Company believes this ASU will increase assets and liabilities by the same material amount on its consolidated balance sheet. The Company’s undiscounted minimum commitments under noncancelable operating leases as of December 31, 2017 was approximately $64.0 million. The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of operations, equity, or cash flows.
Segment Reporting
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.
Risk and Uncertainties
The Company generates the majority of its revenue from sales of services and products to customers in the architectural, engineering, construction and building owner/operator (AEC/O) industry. As a result, the Company’s operating results and financial condition can be significantly affected by economic factors that influence the AEC/O industry, such as non-residential construction spending, GDP growth, interest rates, unemployment rates, and office vacancy rates. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and would therefore negatively affect revenues and have a material adverse effect on its business, operating results and financial condition.
As part of the Company’s growth strategy, ARC intends to continue to offer and grow a variety of service offerings, some of which are relatively new to the Company. The success of the Company’s efforts will be affected by its ability to acquire new customers for the Company’s new service offerings, as well as to sell the new service offerings to existing customers. The Company’s inability to successfully market and execute these relatively new service offerings could significantly affect its business and reduce its long term revenue, resulting in an adverse effect on its results of operations and financial condition.
v3.10.0.1
Earnings per Share
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
Earnings per Share
Earnings per Share
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 common shares 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 common shares that would have been outstanding if common shares subject to outstanding options and acquisition rights had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive. For the three and nine months ended September 30, 2018, 4.0 million and 5.1 million common shares were excluded from the calculation of diluted net income attributable to ARC per common share, respectively, because they were anti-dilutive. For the three and nine months ended September 30, 2017, 5.3 million common shares 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.
Basic and diluted weighted average common shares outstanding were calculated as follows for the three and nine months ended September 30, 2018 and 2017:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average common shares outstanding during the period—basic
44,983

 
45,834

 
44,888

 
45,756

Effect of dilutive stock options
205

 

 
105

 

Weighted average common shares outstanding during the period—diluted
45,188

 
45,834

 
44,993

 
45,756

v3.10.0.1
Goodwill and Other Intangibles
9 Months Ended
Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles
Goodwill and Other Intangibles
Goodwill
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired. At September 30, 2018, the Company performed its assessment and determined that goodwill was not impaired.
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.

For its annual goodwill impairment test as of September 30, 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. As a result, the Company compared the fair value of a reporting unit with its respective carrying value, and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.

At September 30, 2017, the Company's goodwill impairment analysis showed one reporting unit with goodwill attributed to it with a carrying amount which exceeded its fair value. The underperformance of the Company relative to its forecast in the third quarter of 2017, and more specifically, the underperformance against forecast of one of the Company's reporting units which previously had goodwill impairment in 2016 drove the decline in the fair value of the reporting unit. As a result, the Company recorded a pretax, non-cash charge for the three months ended September 30, 2017 to reduce the carrying value of goodwill by $17.6 million.
The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company 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.
Given the changing document and printing needs of the Company’s customers, and the uncertainties regarding the effect on the Company’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment test in 2018 will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, the Company may be required to record additional goodwill impairment charges in future periods, whether in connection with the Company’s next annual impairment testing in the third quarter of 2019, 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 the Company regularly performs its annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
The changes in the carrying amount of goodwill from January 1, 2017 through September 30, 2018 are summarized as follows:
 
 
Gross
Goodwill
 
Accumulated
Impairment
Loss
 
Net
Carrying
Amount
 
 
 
 
 
 
January 1, 2017
$
405,558

 
$
266,870

 
$
138,688

Goodwill impairment

 
17,637

 
(17,637
)
December 31, 2017
405,558

 
284,507

 
121,051

Goodwill impairment

 

 

September 30, 2018
$
405,558

 
$
284,507

 
$
121,051


See “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the process and assumptions used in the goodwill impairment analysis.
Long-lived and Other Intangible Assets
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.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company assessed potential impairments of its long lived assets as of September 30, 2018 and concluded that there was no impairment.
Other intangible assets that have finite lives are amortized over their useful lives. Customer relationships are amortized using the accelerated method, based on customer attrition rates, over their estimated useful lives of 13 (weighted average) years.
The following table sets forth the Company’s other intangible assets resulting from business acquisitions as of September 30, 2018 and December 31, 2017 which continue to be amortized:
 
 
September 30, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable other intangible assets
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
99,332

 
$
93,598

 
$
5,734

 
$
99,486

 
$
90,805

 
$
8,681

Trade names and trademarks
20,262

 
19,918

 
344

 
20,297

 
19,910

 
387

 
$
119,594

 
$
113,516

 
$
6,078

 
$
119,783

 
$
110,715

 
$
9,068


Estimated future amortization expense of other intangible assets for the remainder of the 2018 fiscal year, each of the subsequent four fiscal years and thereafter are as follows:
 
2018 (excluding the nine months ended September 30, 2018)
$
931

2019
3,138

2020
1,529

2021
173

2022
99

Thereafter
208

 
$
6,078

v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
On a quarterly basis, the Company estimates its effective tax rate for the full fiscal year and records a quarterly income tax provision based on the anticipated annual effective rate and the recognition of any discrete items within the quarter.
The Company recorded an income tax provision of $0.6 million and $2.5 million in relation to pretax income of $3.2 million and $9.6 million for the three and nine months ended September 30, 2018, respectively, which resulted in an effective income tax rate of 20.0% and 26.3%, respectively. The Company recorded an income tax benefit of $2.2 million and an income tax provision of $1.6 million in relation to pretax losses of $16.9 million and $7.7 million for the three and nine months ended September 30, 2017, respectively, which resulted in an effective income tax rate of 12.8% and (20.4)%, respectively.
In December 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA includes a number of changes to existing U.S. tax laws that impact the Company. This includes a reduction to the federal corporate tax rate from 35 percent to 21 percent for the tax years beginning after December 31, 2017. The TCJA also provides for a one-time transition tax on certain foreign earnings as well as changes beginning in 2018 regarding the deductibility of interest expense, additional limitations on executive compensation, meals and entertainment expenses and the inclusion of certain foreign earnings in U.S. taxable income.
      
The Company recognized $11.9 million of tax expense in the fourth quarter of 2017 primarily due to the reduction in its net U.S. deferred tax assets for the 14 percentage point decrease in the U.S. federal statutory rate. The Company has completed its accounting for the tax effects of the TCJA as it relates to its 2017 tax year. Additionally, further guidance from the Internal Revenue Service ("IRS"), SEC, or the FASB could result in changes to the Company’s accounting for the tax effects of the TCJA in its 2018 tax year and future tax years.

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.

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors, including but not limited to:

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.

The Company utilizes a rolling three years of actual and current year anticipated results as the primary measure of cumulative income/losses in recent years, as adjusted for permanent differences. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's current estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company has a $2.4 million valuation allowance against certain deferred tax assets as of September 30, 2018.

Based on the Company’s current assessment, the remaining net deferred tax assets as of September 30, 2018 are considered more likely than not to be realized. The valuation allowance of $2.4 million may be increased or reduced as conditions change or if the Company is unable to implement certain available tax planning strategies. The realization of the Company’s net deferred tax assets ultimately depend on future taxable income, reversals of existing taxable temporary differences or through a loss carry back. The Company has income tax receivables of $136 thousand as of September 30, 2018 included in other current assets in its interim Condensed Consolidated Balance Sheet primarily related to income tax refunds for prior years.
v3.10.0.1
Long-Term Debt
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Long-Term Debt
Long-Term Debt
Long-term debt consists of the following:
 
 
 
September 30, 2018
 
December 31, 2017
Term Loan maturing 2022, net of deferred financing fees of $605 and $757; 3.87% and 3.12% interest rate at September 30, 2018 and December 31, 2017
 
$
53,770

 
$
56,993

Revolving Loans; 4.09% and 3.64% interest rate at September 30, 2018 and December 31, 2017
 
30,625

 
42,250

Various capital leases; weighted average interest rate of 4.6% and 5.0% at September 30, 2018 and December 31, 2017; principal and interest payable monthly through September 2023
 
47,817

 
45,157

Various other notes payable with a weighted average interest rate of 10.7% at September 30, 2018 and December 31, 2017; principal and interest payable monthly through November 2019
 
11

 
17

 
 
132,223

 
144,417

Less current portion
 
(21,334
)
 
(20,791
)
 
 
$
110,889

 
$
123,626




Credit Agreement
On July 14, 2017, the Company amended its Credit Agreement which was originally entered into on November 20, 2014 with Wells Fargo Bank, National Association, as administrative agent and the lenders party thereto.
Prior to being amended, the Credit Agreement provided for the extension of term loans (“Term Loans”) in an aggregate principal amount of $175.0 million. In addition, prior to being amended, the Credit Agreement provided for the extension of revolving loans (“Revolving Loans”) in an aggregate principal amount not to exceed $30.0 million. The amendment increased the maximum aggregate principal amount of Revolving Loans under the agreement from $30.0 million to $80.0 million and reduced the outstanding principal amount of the Term Loan under the agreement to $60.0 million. Upon the execution of the amendment to the Credit Agreement, the total principal amount outstanding under the agreement remained unchanged at $110.0 million. As a result of the amendment to the Credit Agreement, the principal of the Term Loan amortizes at an annual rate of 7.5% during the first and second years following the date of the amendment and at an annual rate of 10% during the third, fourth and fifth years following the date of the amendment, with any remaining balance payable upon the maturity date. The amendment also extended the maturity date for both the Revolving Loans and the Term Loans until July 14, 2022.
As of September 30, 2018, the Company's borrowing availability of Revolving Loans under the $80.0 million Revolving Loan commitment was $47.2 million, after deducting outstanding letters of credit of $2.2 million and outstanding Revolving Loans of $30.6 million. In November 2018, the Company reduced the $80.0 million Revolving Loan commitment by $15.0 million, which reduced the Company's borrowing availability to $32.2 million.

Loans borrowed under the Credit Agreement bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the applicable LIBOR rate, plus a margin ranging from 1.25% to 2.25%, based on the Company’s Total Leverage Ratio (as defined in the Credit Agreement). Loans borrowed under the Credit Agreement that are not LIBOR rate loans bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus 0.50%, (B) the one month LIBOR rate plus 1.00%, per annum, and (C) the rate of interest announced, from time to time, by Wells Fargo Bank, National Association as its “prime rate,” plus (ii) a margin ranging from 0.25% to 1.25%, based on the Company’s Total Leverage Ratio. The amendment reduced the rate of interest payable on the loans borrowed under the Credit Agreement by 0.25%.

The Company pays certain recurring fees with respect to the credit facility, including administration fees to the administrative agent.

Subject to certain exceptions, including in certain circumstances, reinvestment rights, the loans extended under the Credit Agreement are subject to customary mandatory prepayment provisions with respect to: the net proceeds from certain asset sales; the net proceeds from certain issuances or incurrences of debt (other than debt permitted to be incurred under the terms of the Credit Agreement); the net proceeds from certain issuances of equity securities; and net proceeds of certain insurance recoveries and condemnation events of the Company.

The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the ability (subject to various exceptions) of the Company and its subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; sell certain property or assets; engage in mergers or other fundamental changes; consummate acquisitions; make investments; pay dividends, other distributions or repurchase equity interest of the Company or its subsidiaries; change the nature of their business; prepay or amend certain indebtedness; engage in certain transactions with affiliates; amend their organizational documents; or enter into certain restrictive agreements. In addition, the amended Credit Agreement contains financial covenants which requires the Company to maintain (i) at all times, a Total Leverage Ratio in an amount not to exceed 3.25 to 1.00; and (ii) a Fixed Charge Coverage Ratio (as defined in the amended Credit Agreement), as of the last day of each fiscal quarter, an amount not less than 1.15 to 1.00.

The Credit Agreement contains customary events of default, including: nonpayment of principal, interest, fees or other amounts; failure to perform or observe covenants; material inaccuracy of a representation or warranty when made; cross-default to other material indebtedness; bankruptcy, insolvency and dissolution events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation, repudiation of guaranties or subordination terms; certain ERISA related events; or a change of control.

The obligations of the Company’s subsidiary that is the borrower under the Credit Agreement are guaranteed by the Company and each other United States domestic subsidiary of the Company. The Credit Agreement and any interest rate protection and other hedging arrangements provided by any lender party to the Credit Facility or any affiliate of such a lender are secured on a first priority basis by a perfected security interest in substantially all of the borrower’s, the Company’s and each guarantor’s assets (subject to certain exceptions).
v3.10.0.1
Commitments and Contingencies
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
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.

Legal Proceedings. We are involved in various legal proceedings and other legal matters from time to time in the normal course of business. We do not believe that the outcome of any of these matters will have a material effect on our consolidated financial position, results of operations or cash flows.
v3.10.0.1
Stock-Based Compensation
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
The Company's stock plan provides for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other forms of awards granted or denominated in the Company's common stock or units of the Company's common stock, as well as cash bonus awards to employees, directors and consultants of the Company. On April 26, 2018, the Company's shareholders approved an amendment to the Company's stock plan to increase the aggregate number of shares authorized for issuance under such plan by 3.5 million shares. The Company's stock plan, as amended, currently authorizes the Company to issue up to 7.0 million shares of common stock. As of September 30, 2018, 3.1 million shares remained available for issuance under the stock plan.
Stock options granted under the Company's stock plan generally expire no later than ten years from the date of grant. Options generally vest and become fully exercisable over a period of three to four years from date of award, except that options granted to non-employee directors may vest over a shorter time period. The exercise price of options must be equal to at least 100% of the fair market value of the Company’s common stock on the date of grant. The Company allows for cashless exercises of vested outstanding options.
During the nine months ended September 30, 2018, the Company granted options to acquire a total of 0.7 million shares of the Company's common stock to certain key employees with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. During the nine months ended September 30, 2018, the Company granted 0.3 million shares of restricted stock awards to certain key employees with a deemed issuance price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. These stock options and restricted stock awards vest annually over three years from the grant date. In addition, the Company granted approximately 28 thousand shares of restricted stock awards to each of the Company's six non-employee members of its board of directors with a deemed issuance price per share equal to the closing price of the Company's common stock on the date the restricted stock was granted. These restricted stock awards issued to the Company's non-employee directors vest on the one-year anniversary of the grant date.
Stock-based compensation expense was $0.6 million and $1.8 million for the three and nine months ended September 30, 2018, respectively, compared to stock-based compensation expense of $0.7 million and $2.3 million for the three and nine months ended September 30, 2017, respectively.
As of September 30, 2018, total unrecognized compensation cost related to unvested stock-based payments totaled $3.2 million and is expected to be recognized over a weighted-average period of approximately 1.9 years.
v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
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.
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a nonrecurring basis as of and for the nine months ended September 30, 2018 and 2017:
 
Significant Other Unobservable Inputs
 
September 30, 2018
 
September 30, 2017
 
Level 3
 
Total Losses
 
Level 3
 
Total Losses
 Nonrecurring Fair Values
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Goodwill
$
121,051

 
$

 
$
121,051

 
$
17,637


In accordance with ASC 350, goodwill was written down to its implied fair value of $121.1 million as of September 30, 2017, resulting in impairment charges of $17.6 million during the three and nine months ended September 30, 2017. See Note 3, “Goodwill and Other Intangibles” for further information regarding the process of determining the implied fair value of goodwill and change in goodwill.
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 $6.6 million and $8.5 million as of September 30, 2018 and December 31, 2017, respectively, 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 capital 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 September 30, 2018 for borrowings under its Credit Agreement is $85.0 million, excluding unamortized deferred financing fees. The Company has determined, utilizing observable market quotes, that the fair value of borrowings under its Credit Agreement is $85.0 million as of September 30, 2018.
v3.10.0.1
Description of Business and Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying interim Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conformity with the requirements of the Securities and Exchange Commission (SEC). As permitted under those rules, certain footnotes or other financial information required by GAAP for complete financial statements have been condensed or omitted. In management’s opinion, the accompanying interim Condensed Consolidated Financial Statements presented reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim Condensed Consolidated Financial Statements. All material intercompany accounts and transactions have been eliminated in consolidation. The operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim Condensed Consolidated Financial Statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis and relies on historical experience and various other factors that it believes to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the interim Condensed Consolidated Financial Statements.
These interim Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2017 Form 10-K.
Revenue Recognition
Construction Document and Information Management (CDIM) consists of professional services and software services to (i) re-produce and distribute large-format and small-format documents in either black & white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all the Company’s revenue from CDIM comes from professional services to re-produce Ordered Prints. Sales of Ordered Prints are initiated through a customer order or quote and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the re-produced Ordered Prints. Transfer of control occurs at a specific point-in-time, when the Ordered Prints are delivered to the customer’s site or handed to the customer for walk in orders. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Managed Print Services (MPS), consists of placement, management, and optimization of print and imaging equipment in the 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 shifts their costs to a “per-use” basis. MPS is supported by our hosted proprietary technology, Abacus™, which allows our customers to capture, control, manage, print, and account for their documents. MPS contracts include a term ranging from 3 to 5 years and 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. MPS sales are governed by the mutually agreed upon written agreement which outlines the Company’s terms and conditions. In providing MPS on a per-use basis, the Company is providing a series of services that have the same pattern of transfer and are measured as each customer produces a print or per-use. Accordingly, the performance obligations are satisfied over-time on an output method as each print is produced (per-use) by the customer. For each month of service, the prints produced during the period equate to the consideration that the Company expects to receive from the invoice generated for this period. Taxes collected concurrent with revenue-producing activities are excluded from revenue.
Archiving and Information Management (AIM), combines software and professional services to facilitate the capture, management, access and retrieval of documents and information that have been produced in the past. AIM includes our hosted SKYSITE ® software to organize, search and retrieve documents, as well as the provision of services that include the capture and conversion of hardcopy and electronic documents into digital files (“Scanned Documents”), and their cloud-based storage and maintenance. Sales of AIM professional services, which represent substantially all revenue for AIM, are initiated through a customer order or proposal and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligation under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the digital files. Transfer of control occurs at a specific point-in-time, when the Scanned Documents are delivered to the customer either through SKYSITE or on electronic media. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue.

Equipment and Supplies sales consist of reselling printing, imaging, and related equipment (“Goods”) to customers primarily in architectural, engineering and construction firms. Sales of Equipment and Supplies are initiated through a customer order and are governed by established terms and conditions agreed upon at the onset of the customer relationship. Revenue is recognized when the performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of control of the Goods. Transfer of control occurs at a specific point-in-time, when the Goods are delivered to the customer’s site. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Taxes collected concurrent with revenue-producing activities are excluded from revenue. The Company has experienced minimal customer returns or refunds and does not offer a warranty on equipment that it is reselling.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance requires entities to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. In addition, Topic 606 provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts.

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting. The adoption of Topic 606 did not result in an adjustment to retained earnings in the Company's consolidated balance sheet as of January 1, 2018.
 
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Company applied practical expedients related to unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Recent Accounting Pronouncements Not Yet Adopted
Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), Leases. The new guidance replaces the existing guidance in ASC 840, Leases. ASC 842 requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases, and is to be applied using a modified retrospective approach. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee will recognize interest expense and amortization of the ROU asset and for operating leases the lessee will recognize a straight-line total lease expense. ASC 842 is effective for the Company January 1, 2019.

In July, 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities the option to use the effective date as the date of initial application on transition to the new guidance. The Company plans to elect this transition method, and as a result, the Company will not adjust comparative information for prior periods. While the Company is continuing to assess the potential impacts that ASC 842 will have on its consolidated financial statements, the Company believes that the most significant impact relates to its accounting for facility leases for its service centers and office space, which are currently classified as operating leases. The Company expects the accounting for capital leases related to its machinery and equipment will remain substantially unchanged under the new standard. Due to the substantial number of operating leases that it has, the Company believes this ASU will increase assets and liabilities by the same material amount on its consolidated balance sheet. The Company’s undiscounted minimum commitments under noncancelable operating leases as of December 31, 2017 was approximately $64.0 million. The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of operations, equity, or cash flows.
Segment Reporting
Segment Reporting
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.
Risk and Uncertainties
Risk and Uncertainties
The Company generates the majority of its revenue from sales of services and products to customers in the architectural, engineering, construction and building owner/operator (AEC/O) industry. As a result, the Company’s operating results and financial condition can be significantly affected by economic factors that influence the AEC/O industry, such as non-residential construction spending, GDP growth, interest rates, unemployment rates, and office vacancy rates. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and would therefore negatively affect revenues and have a material adverse effect on its business, operating results and financial condition.
As part of the Company’s growth strategy, ARC intends to continue to offer and grow a variety of service offerings, some of which are relatively new to the Company. The success of the Company’s efforts will be affected by its ability to acquire new customers for the Company’s new service offerings, as well as to sell the new service offerings to existing customers. The Company’s inability to successfully market and execute these relatively new service offerings could significantly affect its business and reduce its long term revenue, resulting in an adverse effect on its results of operations and financial condition.
Earnings Per Share
Earnings per Share
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 common shares 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 common shares that would have been outstanding if common shares subject to outstanding options and acquisition rights had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the computation if their effect is anti-dilutive.
Goodwill
Goodwill
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of September 30, and more frequently if events and circumstances indicate that goodwill might be impaired. At September 30, 2018, the Company performed its assessment and determined that goodwill was not impaired.
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.

For its annual goodwill impairment test as of September 30, 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. As a result, the Company compared the fair value of a reporting unit with its respective carrying value, and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.

At September 30, 2017, the Company's goodwill impairment analysis showed one reporting unit with goodwill attributed to it with a carrying amount which exceeded its fair value. The underperformance of the Company relative to its forecast in the third quarter of 2017, and more specifically, the underperformance against forecast of one of the Company's reporting units which previously had goodwill impairment in 2016 drove the decline in the fair value of the reporting unit. As a result, the Company recorded a pretax, non-cash charge for the three months ended September 30, 2017 to reduce the carrying value of goodwill by $17.6 million.
The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company 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.
Given the changing document and printing needs of the Company’s customers, and the uncertainties regarding the effect on the Company’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment test in 2018 will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, the Company may be required to record additional goodwill impairment charges in future periods, whether in connection with the Company’s next annual impairment testing in the third quarter of 2019, 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 the Company regularly performs its annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.
Long-Lived Assets
Long-lived and Other Intangible Assets
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.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available.
Other Intangible Assets
Other intangible assets that have finite lives are amortized over their useful lives. Customer relationships are amortized using the accelerated method, based on customer attrition rates, over their estimated useful lives of 13 (weighted average) years.
Fair Value Measurements
Fair Value Measurements
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.
v3.10.0.1
Description of Business and Basis of Presentation (Tables)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Net Sales of Principal Services and Products
Net sales of the Company’s principal services and products were as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Service Sales
 
 
 
 
 
 
 
CDIM
$
52,418

 
$
50,089

 
$
160,270

 
$
155,031

MPS
32,384

 
32,153

 
97,181

 
97,697

AIM
3,617

 
3,383

 
9,709

 
9,731

Total service sales
88,419

 
85,625

 
267,160

 
262,459

Equipment and supplies sales
12,054

 
10,833

 
35,211

 
35,010

Total net sales
$
100,473

 
$
96,458

 
$
302,371

 
$
297,469

v3.10.0.1
Earnings per Share (Tables)
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
Basic and Diluted Earnings Per Share
Basic and diluted weighted average common shares outstanding were calculated as follows for the three and nine months ended September 30, 2018 and 2017:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average common shares outstanding during the period—basic
44,983

 
45,834

 
44,888

 
45,756

Effect of dilutive stock options
205

 

 
105

 

Weighted average common shares outstanding during the period—diluted
45,188

 
45,834

 
44,993

 
45,756

v3.10.0.1
Goodwill and Other Intangibles (Tables)
9 Months Ended
Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill
The changes in the carrying amount of goodwill from January 1, 2017 through September 30, 2018 are summarized as follows:
 
 
Gross
Goodwill
 
Accumulated
Impairment
Loss
 
Net
Carrying
Amount
 
 
 
 
 
 
January 1, 2017
$
405,558

 
$
266,870

 
$
138,688

Goodwill impairment

 
17,637

 
(17,637
)
December 31, 2017
405,558

 
284,507

 
121,051

Goodwill impairment

 

 

September 30, 2018
$
405,558

 
$
284,507

 
$
121,051

Other Intangible Assets Resulting from Business Acquisitions
The following table sets forth the Company’s other intangible assets resulting from business acquisitions as of September 30, 2018 and December 31, 2017 which continue to be amortized:
 
 
September 30, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizable other intangible assets
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
99,332

 
$
93,598

 
$
5,734

 
$
99,486

 
$
90,805

 
$
8,681

Trade names and trademarks
20,262

 
19,918

 
344

 
20,297

 
19,910

 
387

 
$
119,594

 
$
113,516

 
$
6,078

 
$
119,783

 
$
110,715

 
$
9,068

Estimated Future Amortization Expense of Amortizable Intangible Assets
Estimated future amortization expense of other intangible assets for the remainder of the 2018 fiscal year, each of the subsequent four fiscal years and thereafter are as follows:
 
2018 (excluding the nine months ended September 30, 2018)
$
931

2019
3,138

2020
1,529

2021
173

2022
99

Thereafter
208

 
$
6,078

v3.10.0.1
Long-Term Debt (Tables)
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Long-Term Debt
Long-term debt consists of the following:
 
 
 
September 30, 2018
 
December 31, 2017
Term Loan maturing 2022, net of deferred financing fees of $605 and $757; 3.87% and 3.12% interest rate at September 30, 2018 and December 31, 2017
 
$
53,770

 
$
56,993

Revolving Loans; 4.09% and 3.64% interest rate at September 30, 2018 and December 31, 2017
 
30,625

 
42,250

Various capital leases; weighted average interest rate of 4.6% and 5.0% at September 30, 2018 and December 31, 2017; principal and interest payable monthly through September 2023
 
47,817

 
45,157

Various other notes payable with a weighted average interest rate of 10.7% at September 30, 2018 and December 31, 2017; principal and interest payable monthly through November 2019
 
11

 
17

 
 
132,223

 
144,417

Less current portion
 
(21,334
)
 
(20,791
)
 
 
$
110,889

 
$
123,626

v3.10.0.1
Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value, Assets Measured on Recurring and Nonrecurring Basis
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a nonrecurring basis as of and for the nine months ended September 30, 2018 and 2017:
 
Significant Other Unobservable Inputs
 
September 30, 2018
 
September 30, 2017
 
Level 3
 
Total Losses
 
Level 3
 
Total Losses
 Nonrecurring Fair Values
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Goodwill
$
121,051

 
$

 
$
121,051

 
$
17,637

v3.10.0.1
Description of Business and Basis of Presentation - Net Sales of Principal Services and Products (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Segment Reporting Information [Line Items]          
Total net sales $ 100,473 $ 96,458 $ 302,371 $ 297,469  
Revenue, performance obligation, description of timing     one year or less    
Operating lease commitments         $ 64,000
Construction document and information management          
Segment Reporting Information [Line Items]          
Total net sales 52,418 50,089 $ 160,270 155,031  
Managed print services          
Segment Reporting Information [Line Items]          
Total net sales 32,384 32,153 97,181 97,697  
Archiving and information management          
Segment Reporting Information [Line Items]          
Total net sales 3,617 3,383 9,709 9,731  
Service          
Segment Reporting Information [Line Items]          
Total net sales 88,419 85,625 267,160 262,459  
Equipment and supplies sales          
Segment Reporting Information [Line Items]          
Total net sales $ 12,054 $ 10,833 $ 35,211 $ 35,010  
Minimum | Managed print services          
Segment Reporting Information [Line Items]          
Revenue, performance obligation, description of timing     P3Y    
Maximum | Managed print services          
Segment Reporting Information [Line Items]          
Revenue, performance obligation, description of timing     P5Y    
v3.10.0.1
Earnings per Share - Additional Information (Details) - shares
shares in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Earnings Per Share [Abstract]        
Common stock options excluded for anti-dilutive (in shares) 4.0 5.3 5.1 5.3
v3.10.0.1
Earnings per Share - Basic and Diluted Earnings Per Share (Details) - shares
shares in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Earnings Per Share [Abstract]        
Weighted average common shares outstanding during the period—basic (in shares) 44,983 45,834 44,888 45,756
Effect of dilutive stock options (in shares) 205 0 105 0
Weighted average common shares outstanding during the period—diluted (in shares) 45,188 45,834 44,993 45,756
v3.10.0.1
Goodwill and Other Intangibles - Additional Information (Details)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2017
USD ($)
Sep. 30, 2018
USD ($)
Sep. 30, 2017
USD ($)
Sep. 30, 2018
USD ($)
Sep. 30, 2017
USD ($)
reporting_unit
Dec. 31, 2017
USD ($)
Finite-Lived Intangible Assets [Line Items]            
Number of reporting units, impaired | reporting_unit         1  
Goodwill impairment   $ 0 $ 17,637,000 $ 0 $ 17,637,000 $ 17,637,000
Impairment of intangible assets, finite-lived $ 0          
Customer relationships            
Finite-Lived Intangible Assets [Line Items]            
Estimated period for amortization       13 years    
v3.10.0.1
Goodwill and Other Intangibles - Schedule of Goodwill (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]          
Goodwill   $ 121,100   $ 121,100  
Goodwill [Roll Forward]          
Gross Goodwill     $ 405,558 405,558 $ 405,558
Accumulated Impairment Loss     284,507 266,870 266,870
Net Carrying Amount     121,051 138,688 138,688
Goodwill impairment $ 0 $ 17,637 0 $ 17,637 17,637
Gross Goodwill 405,558   405,558   405,558
Accumulated Impairment Loss 284,507   284,507   284,507
Net Carrying Amount $ 121,051   $ 121,051   $ 121,051
v3.10.0.1
Goodwill and Other Intangibles - Schedule of Other Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 119,594 $ 119,783
Accumulated Amortization 113,516 110,715
Net Carrying Amount 6,078 9,068
Customer relationships    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 99,332 99,486
Accumulated Amortization 93,598 90,805
Net Carrying Amount 5,734 8,681
Trade names and trademarks    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 20,262 20,297
Accumulated Amortization 19,918 19,910
Net Carrying Amount $ 344 $ 387
v3.10.0.1
Goodwill and Other Intangibles - Estimated Future Amortization Expense of Amortizable Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]    
2018 (excluding the nine months ended September 30, 2018) $ 931  
2019 3,138  
2020 1,529  
2021 173  
2022 99  
Thereafter 208  
Net Carrying Amount $ 6,078 $ 9,068
v3.10.0.1
Income Taxes - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Tax Disclosure [Abstract]          
Income tax provision (benefit) $ 647   $ (2,174) $ 2,526 $ 1,574
Pretax gain (loss) amount $ 3,234   $ (16,941) $ 9,597 $ (7,725)
Effective income tax rate reconciliation, percent 20.00%   12.80% 26.30% (20.40%)
Tax cuts and jobs act of 2017, tax expense   $ 11,900      
Deferred tax assets, net of valuation allowance, current $ 2,400     $ 2,400  
Income taxes receivable $ 136     $ 136  
v3.10.0.1
Long-Term Debt - Summary of Long Term Debt (Details) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Jul. 14, 2017
Debt Instrument [Line Items]      
Capital lease obligations $ 47,817 $ 45,157  
Long-term debt and capital lease obligations, including current maturities 132,223 144,417  
Current portion of long-term debt and capital leases (21,334) (20,791)  
Long-term debt and capital leases 110,889 123,626  
Line of Credit      
Debt Instrument [Line Items]      
Long-term debt     $ 110,000
Line of Credit | Term Loan      
Debt Instrument [Line Items]      
Long-term debt $ 53,770 $ 56,993 $ 60,000
Interest rate, effective percentage 3.87% 3.12%  
Deferred financing fees $ 605 $ 757  
Line of Credit | Revolving Credit Facility      
Debt Instrument [Line Items]      
Long-term debt $ 30,625 $ 42,250  
Interest rate, effective percentage 4.09% 3.64%  
Capital Lease Obligations      
Debt Instrument [Line Items]      
Weighted average interest rate 4.60% 5.00%  
Other Notes Payable      
Debt Instrument [Line Items]      
Long-term debt $ 11 $ 17  
Weighted average interest rate 10.70% 10.70%  
v3.10.0.1
Long-Term Debt - Narrative (Details) - USD ($)
9 Months Ended
Jan. 01, 2018
Sep. 30, 2018
Nov. 07, 2018
Dec. 31, 2017
Jul. 14, 2017
Nov. 20, 2014
Line of Credit            
Debt Instrument [Line Items]            
Long-term debt         $ 110,000,000  
Covenant term, total leverage ratio   3.25        
Fixed charged coverage ratio   1.15        
Line of Credit | London Interbank Offered Rate (LIBOR)            
Debt Instrument [Line Items]            
Basis spread on variable rate   1.00%        
Rate reduction   0.25%        
Line of Credit | Federal Funds Effective Swap Rate            
Debt Instrument [Line Items]            
Basis spread on variable rate   0.50%        
Line of Credit | Term Loan            
Debt Instrument [Line Items]            
Line of credit facility, maximum borrowing capacity           $ 175,000,000.0
Long-term debt   $ 53,770,000   $ 56,993,000 $ 60,000,000  
Annual amortization rate of debt, year one         7.50%  
Annual amortization rate of debt, year two         7.50%  
Annual amortization rate of debt, year three         10.00%  
Annual amortization rate of debt, year four         10.00%  
Annual amortization rate of debt, year five         10.00%  
Revolving Credit Facility | Line of Credit            
Debt Instrument [Line Items]            
Line of credit facility, maximum borrowing capacity   80,000,000.0     $ 80,000,000 $ 30,000,000
Long-term debt   30,625,000   $ 42,250,000    
Long-term line of credit   47,200,000        
Line of credit, maximum borrowing capacity, reduction $ 15,000,000.0          
Revolving Credit Facility | Letter of Credit            
Debt Instrument [Line Items]            
Long-term debt   $ 2,200,000        
Minimum | Line of Credit | London Interbank Offered Rate (LIBOR)            
Debt Instrument [Line Items]            
Basis spread on variable rate   1.25%        
Minimum | Line of Credit | Prime Rate            
Debt Instrument [Line Items]            
Basis spread on variable rate   0.25%        
Maximum | Line of Credit | London Interbank Offered Rate (LIBOR)            
Debt Instrument [Line Items]            
Basis spread on variable rate   2.25%        
Maximum | Line of Credit | Prime Rate            
Debt Instrument [Line Items]            
Basis spread on variable rate   1.25%        
Subsequent Event | Revolving Credit Facility | Line of Credit            
Debt Instrument [Line Items]            
Long-term line of credit     $ 32,200,000      
v3.10.0.1
Stock-Based Compensation - Narrative (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Apr. 26, 2018
shares
Sep. 30, 2018
USD ($)
director
shares
Sep. 30, 2017
USD ($)
Sep. 30, 2018
USD ($)
director
shares
Sep. 30, 2017
USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Authorization to issue additional number of common stock (in shares) 3,500,000.0        
Number of shares authorized (up to) (in shares)   7,000,000.0   7,000,000.0  
Shares available for issuance (in shares)   3,100,000   3,100,000  
Stock option expiration period       10 years  
Exercise price of options, percentage of fair market value of Company's common stock       100.00%  
Stock-based compensation | $   $ 600 $ 700 $ 1,824 $ 2,251
Total unrecognized compensation cost related to unvested stock-based payments | $   $ 3,200   $ 3,200  
Expected weighted-average period to recognize compensation cost       1 year 10 months 24 days  
Minimum          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period       3 years  
Maximum          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period       4 years  
Key Employees          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period       3 years  
Options granted (in shares)       700,000  
Restricted Stock | Key Employees          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Grants in period (in shares)       300,000  
Nonemployee Restricted Stock | Board of Directors Chairman          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period       1 year  
Grants in period (in shares)       28,000  
Non-employee members | director   6   6  
v3.10.0.1
Fair Value Measurements - Significant Other Unobservable Inputs (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]          
Goodwill   $ 121,100   $ 121,100  
Goodwill impairment $ 0 17,637 $ 0 17,637 $ 17,637
Fair Value, Measurements, Nonrecurring | Fair Value, Inputs, Level 3          
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]          
Goodwill $ 121,051 $ 121,051 $ 121,051 $ 121,051  
v3.10.0.1
Fair Value Measurements - Narrative (Details) - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Debt Instrument [Line Items]    
Cash and cash equivalents $ 6.6 $ 8.5
Term Loan | Line of Credit    
Debt Instrument [Line Items]    
Long-term debt 85.0  
Fair value of borrowings $ 85.0