ARC DOCUMENT SOLUTIONS, INC., 10-Q filed on 11/5/2020
Quarterly Report
v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Oct. 29, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-32407  
Entity Registrant Name ARC DOCUMENT SOLUTIONS, INC.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-1700361  
Entity Address, Address Line One 12657 Alcosta Blvd, Suite 200  
Entity Address, City or Town San Ramon  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94583  
City Area Code 925  
Local Phone Number 949-5100  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth false  
Entity Shell Company false  
Title of 12(b) Security Common Stock, par value $0.001 per share  
Trading Symbol ARC  
Security Exchange Name NYSE  
Entity Common Stock, Shares Outstanding (in shares)   43,863,017
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001305168  
Current Fiscal Year End Date --12-31  
v3.20.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 50,342 $ 29,425
Accounts receivable, net of allowances for accounts receivable of $2,305 and $2,099 41,322 51,432
Inventory 10,502 13,936
Prepaid expenses 4,663 4,783
Other current assets 4,051 6,807
Total current assets 110,880 106,383
Property and equipment, net of accumulated depreciation of $223,197 and $210,849 62,971 70,334
Right-of-use assets from operating leases 37,743 41,238
Goodwill 121,051 121,051
Other intangible assets, net 641 1,996
Deferred income taxes 17,287 19,755
Other assets 2,127 2,400
Total assets 352,700 363,157
Current liabilities:    
Accounts payable 19,317 23,231
Accrued payroll and payroll-related expenses 10,798 14,569
Accrued expenses 17,167 20,440
Current operating lease liability 11,779 11,060
Current portion of finance leases 18,748 17,075
Total current liabilities 77,809 86,375
Long-term operating lease liabilities 34,082 37,260
Long-term debt and finance leases 87,374 89,082
Other long-term liabilities 500 400
Total liabilities 199,765 213,117
Commitments and contingencies (Note 6)
ARC Document Solutions, Inc. shareholders’ 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; 49,911 and 49,189 shares issued and 43,863 and 45,228 shares outstanding 50 49
Additional paid-in capital 127,505 126,117
Retained earnings 36,477 31,969
Accumulated other comprehensive loss (3,611) (3,357)
Total stockholders equity before adjustment of treasury stock 160,421 154,778
Less cost of common stock in treasury, 6,048 and 3,960 shares 13,842 11,410
Total ARC Document Solutions, Inc. shareholders’ equity 146,579 143,368
Noncontrolling interest 6,356 6,672
Total equity 152,935 150,040
Total liabilities and equity $ 352,700 $ 363,157
v3.20.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowances for accounts receivable $ 2,305 $ 2,099
Accumulated depreciation on property and equipment $ 223,197 $ 210,849
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) 49,911,000 49,189,000
Common stock, shares outstanding (in shares) 43,863,000 45,228,000
Treasury stock, (in shares) 6,048,000 3,960,000
v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Net sales $ 72,379 $ 94,104 $ 225,123 $ 290,099
Cost of sales 48,186 63,702 152,888 195,174
Gross profit 24,193 30,402 72,235 94,925
Selling, general and administrative expenses 19,186 26,025 60,816 80,881
Amortization of intangible assets 285 718 1,353 2,480
Restructuring expense 0 311 0 311
Income from operations 4,722 3,348 10,066 11,253
Other income, net (11) (17) (44) (53)
Interest expense, net 871 1,264 3,111 4,066
Income before income tax provision 3,862 2,101 6,999 7,240
Income tax provision 1,234 1,042 2,489 5,222
Net income 2,628 1,059 4,510 2,018
Loss attributable to the noncontrolling interest 163 16 425 173
Net income attributable to ARC Document Solutions, Inc. shareholders $ 2,791 $ 1,075 $ 4,935 $ 2,191
Earnings per share attributable to ARC Document Solutions, Inc. shareholders:        
Basic (in usd per share) $ 0.07 $ 0.02 $ 0.11 $ 0.05
Diluted (in usd per share) $ 0.07 $ 0.02 $ 0.11 $ 0.05
Weighted average common shares outstanding:        
Basic (in shares) 42,747 44,978 43,017 45,107
Diluted (in shares) 42,918 44,992 43,160 45,213
v3.20.2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 2,628 $ 1,059 $ 4,510 $ 2,018
Other comprehensive income (loss), net of tax        
Foreign currency translation adjustments, net of tax 444 201 (145) (753)
Other comprehensive income (loss), net of tax 444 201 (145) (753)
Comprehensive income 3,072 1,260 4,365 1,265
Comprehensive income (loss) attributable to noncontrolling interest 44 102 (316) (537)
Comprehensive income attributable to ARC Document Solutions, Inc. shareholders $ 3,028 $ 1,158 $ 4,681 $ 1,802
v3.20.2
Condensed Consolidated Statements of Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Other Comprehensive Loss
Common Stock in Treasury
Noncontrolling Interest
Beginning Balance (in shares) at Dec. 31, 2018   48,492          
Beginning Balance at Dec. 31, 2018 $ 147,302 $ 48 $ 123,525 $ 29,397 $ (3,351) $ (9,350) $ 7,033
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation (in shares)   607          
Stock-based compensation 1,855 $ 1 1,854        
Issuance of common stock under employee stock purchase plan (in shares)   70          
Issuance of common stock under Employee Stock Purchase Plan 109   109        
Treasury shares (1,186)         (1,186)  
Comprehensive income (loss) 1,265     2,191 (389)   (537)
Ending Balance (in shares) at Sep. 30, 2019   49,169          
Ending Balance at Sep. 30, 2019 149,345 $ 49 125,488 31,588 (3,740) (10,536) 6,496
Beginning Balance (in shares) at Jun. 30, 2019   49,144          
Beginning Balance at Jun. 30, 2019 147,753 $ 49 124,837 30,513 (3,823) (10,217) 6,394
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation 623   623        
Issuance of common stock under employee stock purchase plan (in shares)   25          
Issuance of common stock under Employee Stock Purchase Plan 28   28        
Treasury shares (319)         (319)  
Comprehensive income (loss) 1,260     1,075 83   102
Ending Balance (in shares) at Sep. 30, 2019   49,169          
Ending Balance at Sep. 30, 2019 $ 149,345 $ 49 125,488 31,588 (3,740) (10,536) 6,496
Beginning Balance (in shares) at Dec. 31, 2019 49,189 49,189          
Beginning Balance at Dec. 31, 2019 $ 150,040 $ 49 126,117 31,969 (3,357) (11,410) 6,672
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation (in shares)   643          
Stock-based compensation 1,334 $ 1 1,333        
Issuance of common stock under employee stock purchase plan (in shares)   79          
Issuance of common stock under Employee Stock Purchase Plan 55   55        
Treasury shares (2,432)         (2,432)  
Dividends, Cash (427)     (427)      
Comprehensive income (loss) $ 4,365     4,935 (254)   (316)
Ending Balance (in shares) at Sep. 30, 2020 49,911 49,911          
Ending Balance at Sep. 30, 2020 $ 152,935 $ 50 127,505 36,477 (3,611) (13,842) 6,356
Beginning Balance (in shares) at Jun. 30, 2020   49,891          
Beginning Balance at Jun. 30, 2020 149,435 $ 50 127,077 33,686 (3,848) (13,842) 6,312
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Stock-based compensation 413   413        
Issuance of common stock under employee stock purchase plan (in shares)   20          
Issuance of common stock under Employee Stock Purchase Plan 15   15        
Comprehensive income (loss) $ 3,072     2,791 237   44
Ending Balance (in shares) at Sep. 30, 2020 49,911 49,911          
Ending Balance at Sep. 30, 2020 $ 152,935 $ 50 $ 127,505 $ 36,477 $ (3,611) $ (13,842) $ 6,356
v3.20.2
Condensed Consolidated Statements of Equity (Unaudited) (Parenthetical) - $ / shares
1 Months Ended 9 Months Ended
Feb. 29, 2020
Sep. 30, 2020
Statement of Stockholders' Equity [Abstract]    
Quarterly cash dividends declared (in usd per share) $ 0.01 $ 0.01
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities    
Net income $ 4,510 $ 2,018
Adjustments to reconcile net income to net cash provided by operating activities:    
Allowance for accounts receivable 706 430
Depreciation 21,402 21,600
Amortization of intangible assets 1,353 2,480
Amortization of deferred financing costs 48 162
Stock-based compensation 1,333 1,854
Deferred income taxes 2,419 4,684
Deferred tax valuation allowance 22 115
Restructuring expense, non-cash portion 0 46
Other non-cash items, net 226 (209)
Changes in operating assets and liabilities:    
Accounts receivable, net 9,310 (258)
Inventory 3,469 1,242
Prepaid expenses and other assets 10,765 7,094
Accounts payable and accrued expenses (16,548) (11,464)
Net cash provided by operating activities 39,015 29,794
Cash flows from investing activities    
Capital expenditures (5,053) (8,406)
Other 250 342
Net cash used in investing activities (4,803) (8,064)
Cash flows from financing activities    
Proceeds from issuance of common stock under Employee Stock Purchase Plan 55 109
Share repurchases (2,432) (1,186)
Contingent consideration on prior acquisitions 0 (3)
Payments on finance leases and long-term debt agreements (10,236) (17,551)
Borrowings under revolving credit facilities 45,000 19,750
Payments under revolving credit facilities (45,000) (31,000)
Dividends paid (870) 0
Net cash used in financing activities (13,483) (29,881)
Effect of foreign currency translation on cash balances 188 (479)
Net change in cash and cash equivalents 20,917 (8,630)
Cash and cash equivalents at beginning of period 29,425 29,433
Cash and cash equivalents at end of period 50,342 20,803
Noncash investing and financing activities    
Finance lease obligations incurred 9,624 13,010
Operating lease obligations incurred $ 4,582 $ 3,257
v3.20.2
Description of Business and Basis of Presentation
9 Months Ended
Sep. 30, 2020
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 U.S. 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 reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim Condensed Consolidated Financial Statements. All intercompany accounts and transactions have been eliminated in consolidation. The operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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 2019 Form 10-K.
Revenue Recognition
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. Net sales of the Company’s principal services and products were as follows:
 
 Three Months Ended 
September 30,
Nine Months Ended 
September 30,
 2020201920202019
CDIM$47,107 $50,502 $137,337 $155,701 
MPS(1)
17,648 30,607 61,189 93,092 
AIM2,910 3,516 9,163 10,380 
Equipment and supplies sales4,714 9,479 17,434 30,926 
Net sales$72,379 $94,104 $225,123 $290,099 
(1) MPS includes $16.1 million of rental income and $1.6 million of service income for the three months ended September 30, 2020 and $56.2 million of rental income and $5.0 million of service income for the nine months ended September 30, 2020. MPS includes $28.5 million of rental income and $2.1 million of service income for the three months ended September 30, 2019 and $86.5 million of rental income and $6.6 million of service income for the nine months ended September 30, 2019.
CDIM consists of professional services and software services to (i) reproduce and distribute large-format and small-format documents in either black and white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all of the Company’s revenue from CDIM comes from professional services to reproduce 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, which generally occurs with the transfer of control of the 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.
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 our hosted proprietary technology, Abacus®, which allows our 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.
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 represents the majority of AIM revenue, 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, which generally 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, which 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.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company elected to early adopt ASU 2019-12 on January 1, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
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.
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, all of which have been amplified due to the COVID-19 pandemic. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and it would therefore negatively affect revenues and have a material adverse effect on ARC's 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.
v3.20.2
Earnings per Share
9 Months Ended
Sep. 30, 2019
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, 2020, 5.2 million common shares were excluded from the calculation of diluted net income attributable to ARC per common share, because they were anti-dilutive. For the three and nine months ended September 30, 2019, 5.0 million and 5.4 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, 2020 and 2019:
 
 Three Months Ended 
September 30,
Nine Months Ended 
September 30,
 2020201920202019
Weighted average common shares outstanding during the period—basic42,747 44,978 43,017 45,107 
Effect of dilutive stock awards171 14 143 106 
Weighted average common shares outstanding during the period—diluted42,918 44,992 43,160 45,213 
v3.20.2
Goodwill and Other Intangibles
9 Months Ended
Sep. 30, 2020
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, 2020, 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. 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 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. The level of judgment and estimation is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic.  The Company has evaluated numerous factors disrupting its business and made significant assumptions which include the severity and duration of the business disruption, the timing and degree of economic recovery and the combined effect of these assumptions on the Company's future operating results and cash flows.
Given the uncertainty regarding the ultimate financial impact of the COVID-19 pandemic and the ensuing economic recovery, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment analysis in 2020 will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, or its assumptions regarding disruptions caused by the pandemic, and its impact on the recovery from COVID-19 change, then the Company may be required to record goodwill impairment charges in future periods, whether in connection with the next annual impairment testing in the third quarter of 2021, 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. There was no change in the carrying amount of goodwill from January 1, 2019 through September 30, 2020. 
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.
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, 2020 and December 31, 2019 which continue to be amortized: 
 September 30, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizable other intangible assets
Customer relationships$99,190 $98,828 $362 $99,127 $97,430 $1,697 
Trade names and trademarks20,295 20,016 279 20,279 19,980 299 
$119,485 $118,844 $641 $119,406 $117,410 $1,996 
Estimated future amortization expense of other intangible assets for the remainder of the 2020 fiscal year, and each of the subsequent four fiscal years and thereafter, are as follows: 
2020 (excluding the nine months ended September 30, 2020) $150 
2021172 
2022109 
202342 
202440 
Thereafter128 
$641 
v3.20.2
Income Taxes
9 Months Ended
Sep. 30, 2020
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 $1.2 million and $2.5 million in relation to pretax income of $3.9 million and $7.0 million for the three and nine months ended September 30, 2020, respectively, which resulted in an effective income tax rate of 32.0% and 35.6%, respectively. The Company recorded an income tax provision of $1.0 million and $5.2 million in relation to pretax income of $2.1 million and $7.2 million for the three and nine months ended September 30, 2019, respectively, which resulted in an effective income tax rate of 49.6% and 72.1%, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2020 was primarily impacted by certain stock-based compensation, change in valuation allowances against certain deferred tax assets and non-deductible expenses.
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, such as the ultimate financial impact of and recovery from the COVID-19 pandemic or otherwise, could have a material effect on its financial condition and results of operations. The Company has a $2.3 million valuation allowance against certain deferred tax assets as of September 30, 2020.
Based on the Company’s current assessment, the remaining net deferred tax assets as of September 30, 2020 are considered more likely than not to be realized. The valuation allowance of $2.3 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 depends on future taxable income, reversals of existing taxable temporary differences or through a loss carry back. The Company has income tax receivables of $0.2 million as of September 30, 2020 included in other current assets in its interim Condensed Consolidated Balance Sheet primarily related to income tax refunds for prior years.
v3.20.2
Long-Term Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term Debt
Long-term debt consists of the following: 
September 30, 2020December 31, 2019
Revolving Loans; 1.7% and 3.63% interest rate at September 30, 2020 and December 31, 2019
60,000 60,000 
Various finance leases; weighted average interest rate of 4.8% and 4.9% at September 30, 2020 and December 31, 2019; principal and interest payable monthly through January 2026
46,122 46,157 
106,122 106,157 
Less current portion(18,748)(17,075)
$87,374 $89,082 
Credit Agreement
On December 17, 2019, 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.
The amendment increased the maximum aggregate principal amount of revolving loans under the Credit Agreement from $65 million to $80 million. Proceeds of a portion of the revolving loans available to be drawn under the Credit Agreement were used to fully repay the $49.5 million term loan that was outstanding under the Credit Agreement.
As of September 30, 2020, the Company's borrowing availability of Revolving Loans under the Revolving Loan commitment was $17.8 million, after deducting outstanding letters of credit of $2.2 million and outstanding Revolving Loans of $60.0 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 1.75%, 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 0.75%, based on the Company’s Total Leverage Ratio.
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 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 2.75 to 1.00; and (ii) a Fixed Charge Coverage Ratio (as defined in the Credit Agreement), as of the last day of each fiscal quarter, an amount not less than 1.15 to 1.00. We were in compliance with our covenants as of September 30, 2020.
The amendment also modified certain tests the Company is required to meet in order to pay dividends, repurchase stock and make other restricted payments. In order to make such payments which are permitted subject to certain customary conditions set forth in the Credit Agreement, the amount of all such payments will be limited to $15 million during any twelve-month period. Pursuant to the amendment, when calculating the fixed charge coverage ratio, the Company may exclude up to $10 million of such restricted payments that would otherwise constitute fixed charges in any twelve month period.
The amendment allows for payment of dividends. In February 2020, the Company's board of directors declared a quarterly cash dividend of $0.01 per share that was paid on May 29, 2020 to shareholders of record as of April 30, 2020. Due to the impact of the COVID-19 pandemic, the Company has temporarily suspended its dividend program.
The Credit Agreement contains customary events of default, including with respect to: 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 of its other United States subsidiaries. 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).
v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
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. 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 8, Leasing, on our Annual Report on Form 10-K for a schedule of the Company's future minimum operating lease payments.
Indemnification Agreements. The Company has entered into indemnification agreements with each director and named executive officer which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require the Company, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms. There have been no events to date which would require the Company to indemnify its officers or directors.
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 those matters will have a material effect on our consolidated financial position, results of operations or cash flows.
v3.20.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [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. As of September 30, 2020, 1.0 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 is 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, 2020, the Company granted options to acquire a total of 0.5 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, 2020, 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 86 thousand shares of restricted stock awards to each of the Company's four 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.
Stock-based compensation expense was $0.4 million and $1.3 million for the three and nine months ended September 30, 2020, respectively compared to stock-based compensation expense of $0.6 million and $1.9 million for the three and nine months ended September 30, 2019, respectively.
As of September 30, 2020, total unrecognized compensation cost related to unvested stock-based payments totaled $1.9 million and is expected to be recognized over a weighted-average period of approximately 1.6 years.
v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
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.
As of September 30, 2020, the Company's assets and liabilities that are measured at fair value were not material.
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 $7.2 million as of September 30, 2020 and $9.3 million as of December 31, 2019, 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 September 30, 2020 for borrowings under its Credit Agreement is $60.0 million. The Company has determined, utilizing observable market quotes, that the fair value of borrowings under its Credit Agreement is $60.0 million as of September 30, 2020.
v3.20.2
Description of Business and Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2020
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 U.S. 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 reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim Condensed Consolidated Financial Statements. All intercompany accounts and transactions have been eliminated in consolidation. The operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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 2019 Form 10-K.
Revenue Recognition Revenue RecognitionRevenue 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.
CDIM consists of professional services and software services to (i) reproduce and distribute large-format and small-format documents in either black and white or color (“Ordered Prints”) and (ii) specialized graphic color printing. Substantially all of the Company’s revenue from CDIM comes from professional services to reproduce 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, which generally occurs with the transfer of control of the 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.
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 our hosted proprietary technology, Abacus®, which allows our 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.
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 represents the majority of AIM revenue, 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, which generally 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, which 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.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Not Yet Adopted
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company elected to early adopt ASU 2019-12 on January 1, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
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.
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, all of which have been amplified due to the COVID-19 pandemic. Reduced activity (relative to historic levels) in the AEC/O industry would diminish demand for some of ARC’s services and products, and it would therefore negatively affect revenues and have a material adverse effect on ARC's 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 ShareThe 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, 2020, 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. 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 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. The level of judgment and estimation is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic.  The Company has evaluated numerous factors disrupting its business and made significant assumptions which include the severity and duration of the business disruption, the timing and degree of economic recovery and the combined effect of these assumptions on the Company's future operating results and cash flows.
Given the uncertainty regarding the ultimate financial impact of the COVID-19 pandemic and the ensuing economic recovery, there can be no assurance that the estimates and assumptions made for purposes of the Company’s goodwill impairment analysis in 2020 will prove to be accurate predictions of the future. If the Company’s assumptions, including forecasted EBITDA of certain reporting units, are not achieved, or its assumptions regarding disruptions caused by the pandemic, and its impact on the recovery from COVID-19 change, then the Company may be required to record goodwill impairment charges in future periods, whether in connection with the next annual impairment testing in the third quarter of 2021, 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. There was no change in the carrying amount of goodwill from January 1, 2019 through September 30, 2020.
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.
v3.20.2
Description of Business and Basis of Presentation (Tables)
9 Months Ended
Sep. 30, 2020
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,
 2020201920202019
CDIM$47,107 $50,502 $137,337 $155,701 
MPS(1)
17,648 30,607 61,189 93,092 
AIM2,910 3,516 9,163 10,380 
Equipment and supplies sales4,714 9,479 17,434 30,926 
Net sales$72,379 $94,104 $225,123 $290,099 
(1) MPS includes $16.1 million of rental income and $1.6 million of service income for the three months ended September 30, 2020 and $56.2 million of rental income and $5.0 million of service income for the nine months ended September 30, 2020. MPS includes $28.5 million of rental income and $2.1 million of service income for the three months ended September 30, 2019 and $86.5 million of rental income and $6.6 million of service income for the nine months ended September 30, 2019.
v3.20.2
Earnings per Share (Tables)
9 Months Ended
Sep. 30, 2020
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, 2020 and 2019:
 
 Three Months Ended 
September 30,
Nine Months Ended 
September 30,
 2020201920202019
Weighted average common shares outstanding during the period—basic42,747 44,978 43,017 45,107 
Effect of dilutive stock awards171 14 143 106 
Weighted average common shares outstanding during the period—diluted42,918 44,992 43,160 45,213 
v3.20.2
Goodwill and Other Intangibles (Tables)
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
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, 2020 and December 31, 2019 which continue to be amortized: 
 September 30, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizable other intangible assets
Customer relationships$99,190 $98,828 $362 $99,127 $97,430 $1,697 
Trade names and trademarks20,295 20,016 279 20,279 19,980 299 
$119,485 $118,844 $641 $119,406 $117,410 $1,996 
Estimated Future Amortization Expense of Amortizable Intangible Assets
Estimated future amortization expense of other intangible assets for the remainder of the 2020 fiscal year, and each of the subsequent four fiscal years and thereafter, are as follows: 
2020 (excluding the nine months ended September 30, 2020) $150 
2021172 
2022109 
202342 
202440 
Thereafter128 
$641 
v3.20.2
Long-Term Debt (Tables)
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt
Long-term debt consists of the following: 
September 30, 2020December 31, 2019
Revolving Loans; 1.7% and 3.63% interest rate at September 30, 2020 and December 31, 2019
60,000 60,000 
Various finance leases; weighted average interest rate of 4.8% and 4.9% at September 30, 2020 and December 31, 2019; principal and interest payable monthly through January 2026
46,122 46,157 
106,122 106,157 
Less current portion(18,748)(17,075)
$87,374 $89,082 
v3.20.2
Description of Business and Basis of Presentation (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Segment Reporting Information [Line Items]        
Net sales $ 72,379 $ 94,104 $ 225,123 $ 290,099
CDIM        
Segment Reporting Information [Line Items]        
Net sales 47,107 50,502 137,337 155,701
MPS        
Segment Reporting Information [Line Items]        
Net sales 17,648 30,607 61,189 93,092
Rental income 16,100 28,500 56,200 86,500
Service income 1,600 2,100 5,000 6,600
AIM        
Segment Reporting Information [Line Items]        
Net sales 2,910 3,516 9,163 10,380
Equipment and supplies sales        
Segment Reporting Information [Line Items]        
Net sales $ 4,714 $ 9,479 $ 17,434 $ 30,926
v3.20.2
Earnings per Share - Additional Information (Details) - shares
shares in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Earnings Per Share [Abstract]        
Common stock options excluded for anti-dilutive (in shares) 5.2 5.0 5.2 5.4
v3.20.2
Earnings per Share - Basic and Diluted Earnings Per Share (Details) - shares
shares in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Earnings Per Share [Abstract]        
Weighted average common shares outstanding during the period—basic (in shares) 42,747 44,978 43,017 45,107
Effect of dilutive stock awards (in shares) 171 14 143 106
Weighted average common shares outstanding during the period—diluted (in shares) 42,918 44,992 43,160 45,213
v3.20.2
Goodwill and Other Intangibles - Additional Information (Details) - USD ($)
9 Months Ended 21 Months Ended
Sep. 30, 2020
Sep. 30, 2020
Finite-Lived Intangible Assets [Line Items]    
Goodwill impairment $ 0  
Change of goodwill during period   $ 0
Customer relationships    
Finite-Lived Intangible Assets [Line Items]    
Estimated period for amortization (in years) 13 years  
v3.20.2
Goodwill and Other Intangibles - Schedule of Other Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 119,485 $ 119,406
Accumulated Amortization 118,844 117,410
Net Carrying Amount 641 1,996
Customer relationships    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 99,190 99,127
Accumulated Amortization 98,828 97,430
Net Carrying Amount 362 1,697
Trade names and trademarks    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 20,295 20,279
Accumulated Amortization 20,016 19,980
Net Carrying Amount $ 279 $ 299
v3.20.2
Goodwill and Other Intangibles - Estimated Future Amortization Expense of Amortizable Intangible Assets (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
2020 (excluding the nine months ended September 30, 2020) $ 150  
2021 172  
2022 109  
2023 42  
2024 40  
Thereafter 128  
Net Carrying Amount $ 641 $ 1,996
v3.20.2
Income Taxes (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Tax Disclosure [Abstract]        
Income tax provision $ 1,234 $ 1,042 $ 2,489 $ 5,222
Pretax income $ 3,862 $ 2,101 $ 6,999 $ 7,240
Effective income tax rate reconciliation, percent 32.00%   35.60%  
Deferred tax assets, net of valuation allowance, current $ 2,300   $ 2,300  
Income tax receivables $ 200   $ 200  
v3.20.2
Long-Term Debt - Summary of Long Term Debt (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Various finance leases; weighted average interest rate of 4.8% and 4.9% at September 30, 2020 and December 31, 2019; principal and interest payable monthly through January 2026 $ 46,122 $ 46,157
Long-term debt and finance leases, including current maturities 106,122 106,157
Current portion of long-term debt and capital leases (18,748) (17,075)
Long-term debt and finance leases $ 87,374 $ 89,082
Weighted average discount rate, finance leases 4.80% 4.90%
Line of Credit | Revolving Credit Facility    
Debt Instrument [Line Items]    
Revolving Loans; 1.7% and 3.63% interest rate at September 30, 2020 and December 31, 2019 $ 60,000 $ 60,000
Interest rate, effective percentage 1.70% 3.63%
v3.20.2
Long-Term Debt - Narrative (Details) - USD ($)
1 Months Ended 9 Months Ended
Dec. 17, 2019
Feb. 29, 2020
Sep. 30, 2020
Dec. 31, 2019
Nov. 30, 2018
Debt Instrument [Line Items]          
Quarterly cash dividends declared (in usd per share)   $ 0.01 $ 0.01    
Line of Credit          
Debt Instrument [Line Items]          
Covenant term, total leverage ratio     2.75    
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%    
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]          
Repayments of debt $ 49,500,000        
Revolving Credit Facility | Line of Credit          
Debt Instrument [Line Items]          
Line of credit facility, maximum borrowing capacity 80,000,000       $ 65,000,000
Line of credit available borrowing capacity     $ 17,800,000    
Long-term debt outstanding     60,000,000 $ 60,000,000  
Debt covenant terms, fixed charge coverage ratio, maximum annual payments 15,000,000        
Debt covenant terms, fixed charge coverage ratio, payments excluded $ 10,000,000        
Revolving Credit Facility | Letter of Credit          
Debt Instrument [Line Items]          
Long-term debt outstanding     $ 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     1.75%    
Maximum | Line of Credit | Prime Rate          
Debt Instrument [Line Items]          
Basis spread on variable rate     0.75%    
v3.20.2
Stock-Based Compensation (Details)
$ in Millions
3 Months Ended 9 Months Ended
Apr. 26, 2018
shares
Sep. 30, 2020
USD ($)
shares
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
director
shares
Sep. 30, 2019
USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Authorization to issue additional number of common stock (in shares) 3,500,000        
Shares available for issuance (in shares)   1,000,000.0   1,000,000.0  
Stock option expiration period (in years)       10 years  
Exercise price of options, percentage of fair market value of Company's common stock       100.00%  
Share-based compensation expense | $   $ 0.4 $ 0.6 $ 1.3 $ 1.9
Total unrecognized compensation cost related to unvested stock-based payments | $   $ 1.9   $ 1.9  
Expected weighted-average period to recognize compensation cost (in years)       1 year 7 months 6 days  
Minimum          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period (in years)       3 years  
Maximum          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period (in years)       4 years  
Key Employees          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Vesting period (in years)       3 years  
Options granted (in shares)       500,000  
Key Employees | Restricted Stock          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Grants in period (in shares)       300,000  
Non-employee members of board of directors | Restricted Stock          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Grants in period (in shares)       86,000  
Number of recipients | director       4  
v3.20.2
Fair Value Measurements (Details) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Cash and cash equivalents $ 7.2 $ 9.3
Term Loan | Line of Credit    
Debt Instrument [Line Items]    
Long-term debt 60.0  
Fair value of borrowings $ 60.0