ARC DOCUMENT SOLUTIONS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

Business Summary
ARC Document Solutions Inc. is a digital printing company. We provide digital
printing and document-related services to customers in a growing variety of
industries. Our primary services are:

•digital printing of general and specialized business documents such as those
found in marketing and advertising, engineering and construction and other
industries, as well as producing highly-customized display graphics of all types
and sizes;
•acquiring, placing and managing ARC-certified office printing equipment with
proprietary device tracking and print management software at our customers'
offices and job sites;
•scanning documents, indexing them and adding digital search features for use in
digital document management, document archives and facilities management, as
well as providing other digital imaging services; and,
•reselling digital printing equipment and supplies.

Each of these services often includes additional logistical services in the form of distribution and delivery of finished documents, installation of display graphics, or digital storage of graphic files.

For a more complete description of our business and our product and service offerings, see Part I, Item 1 – “Business” – of this Annual Report on Form 10-K.

Costs and expenses

Our cost of sales consists primarily of materials (paper, toner and other
consumables), labor, and "indirect costs." Indirect costs consist primarily of
equipment expenses related to our MPS locations (typically our customers'
offices and job sites) and our service centers. Facilities and equipment
expenses include maintenance, repairs, rents, insurance, and depreciation. Paper
is the largest component of our material cost; however, paper pricing typically
does not significantly affect our operating margins as they are often passed on
to our customers. We closely monitor material cost as a percentage of net sales
to measure volume and waste, and we maintain low levels of inventory. We also
track labor utilization, or net sales per employee, to measure productivity and
determine staffing levels.

Historically, our capital expenditure requirements have varied based on our need
for printing equipment in our MPS locations and service centers. Over the past
two years, the pandemic has reduced the number of employees in our customers'
locations, which has, in turn, reduced the need for equipment. We believe this
equipment trend is likely to become permanent and, as a result, we think the
past two years are more indicative of future capital needs than historical
trends.

Because our relationships with credit providers allow us to obtain attractive
lease rates, we chose to lease rather than purchase most of our equipment over
the past two years.

Research and development costs consist mainly of the salaries, leased building
space, and computer equipment related to our data storage and development
centers in San Ramon, California and Kolkata, India. Such costs are primarily
recorded to cost of sales.


COVID-19 Pandemic

The COVID-19 pandemic continued to have adverse effects on our financial
performance during 2021, but barring further negative developments of the virus
and its impact on personal and economic well-being, we expect that the worst of
those effects are behind us. The effects of its economic disruption continued to
be felt throughout the first quarter of 2021. As such, our first quarter
performance was the weakest of the year. Business momentum from that point
forward, however, increased throughout the remainder of the year. The
relationships we developed with new customers and in new markets during the
worst of the pandemic in 2020 began to normalize in 2021 as the products and
services we provided shifted from serving health and safety needs to serving the
needs of our clients' economic objectives. Our MPS business remained under
pressure throughout the year as work-from-home policies remained firmly in
place. We expect a hybrid office to remain the norm in 2022, but for print
volumes to increase marginally as employers bring their employees back into the
office at higher rates than we saw in 2021. We believe work-from-home practices
benefit our scanning business as employees need access to documents, regardless
of where they are working, and document scanning is the first step in making
them accessible in the cloud.
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Uncertainty continues around the potential disruption to our business related to
the COVID-19 pandemic, as well as the pandemic's overall impact on the U.S.
economy, on our clients' ongoing business operations, and on our results of
operations and financial condition. While our management team is actively
monitoring the impacts of the COVID-19 pandemic and may take further voluntary
or required actions to alter our business operations to protect employees and
customers, the full impact of the COVID-19 pandemic on our operational results,
financial condition, or liquidity for the future cannot be estimated at this
point. The following discussions are subject to the future effects of the
COVID-19 pandemic on our ongoing business operations.

Employee Safety

In response to the COVID-19 pandemic, we implemented significant changes to our
operating environment to help our employees around the world remain safe. Most
of our corporate, financial and administrative staff have been working entirely
or partially from home, while our service center staff continues to work in our
facilities and adhere to strict safety and health protocols.

We reconfigured our service center production and other high-traffic areas to
ensure sufficient distancing, installed clear barriers at our customer counters
and other high-density areas, limited visitor entry where appropriate, and
dramatically increased virtual meetings in place of face-to-face meetings.

Market review

We believe that the growing list of industries we serve are generally growing and provide continued sales opportunities for our services.

Demand for digital printing appears high across our customer base, and includes
environmental graphics, marketing and promotional work. We believe the
incorporation of hybrid work schedules and return-to-office initiatives across
the economy due to the pandemic continue to create opportunities for our MPS
services and software, and that work-from-home and other remote document access
requirements are spurring demand for scanning and digital imaging services.

We believe that the desire to communicate visually-and especially in color-is
growing in all areas of commerce, in office environments, in educational venues,
and in public spaces of all kinds. While office capacity has fluctuated with the
progress of the COVID-19 pandemic, we believe there is minimal desire to abandon
offices. We believe employers want to make environments more inviting and
engaging for the people who occupy them.

Construction activity has been remarkably robust over the past year. While
constrained by labor and supply chain issues, we think building activity for
both new buildings and retrofitting older structures continues to be driven by
property developers and owners who are intent on keeping their real estate
assets compelling to tenants and prospective tenants.

We do not believe in economic inflation in the we, Canada and overseas has had a significant impact on our business over the past year. Material price increases are generally passed on to our customers. Similarly, supply chain disruptions over the past year have been minimal, primarily due to the wide variety of suppliers we have developed over our history.













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Results of Operations
                                                                                                                   2021 Versus 2020
                                                      Year Ended December 31,                      Increase (decrease)
(In millions, except percentages)                2021 (1)             2020 (1)                                 $ (1)                   %
Digital Printing                              $      166.7          $   175.5                            $         (8.8)               (5.0) %
MPS                                                   72.4               79.3                                      (6.9)               (8.7) %
Scanning and Digital Imaging                          14.5               12.3                                       2.2                17.5  %
Total services sales                          $      253.6          $   267.2                            $        (13.6)               (5.1) %
Equipment and Supplies sales                          18.6               22.3                                      (3.7)              (16.5) %
Total net sales                               $      272.2          $   289.5                            $        (17.3)               (6.0) %
Gross profit                                  $       87.7          $    92.9                            $         (5.3)               (5.7) %
Selling, general and administrative expenses  $       72.3          $    79.0                            $         (6.7)               (8.5) %
Amortization of intangibles                   $        0.2          $     1.5                            $         (1.3)              (86.7) %

Interest expense, net                         $        2.1          $     3.9                            $         (1.8)              (45.1) %
Income tax provision                          $        4.2          $     2.7                            $          1.4                52.1  %
Net income attributable to ARC                $        9.1          $     6.2                            $          3.0                47.8  %

Adjusted net income attributable to ARC (2) $9.5 $6.3

                            $          3.2                50.6  %
Cash flows provided by operating activities   $       35.8          $    54.5                            $        (18.7)              (34.3) %
EBITDA (2)                                    $       40.0          $    43.2                            $         (3.2)               (7.4) %
Adjusted EBITDA (2)                           $       41.7          $    44.8                            $         (3.1)               (6.8) %

(1) The column has no foot due to rounding.

(2)See “Non-GAAP Financial Measures” after “Results of Operations” for definitions, reconciliations and more information regarding our non-GAAP information.


The following table provides information on the percentages of certain items of
selected financial data as a percentage of net sales for the periods indicated:

                                                                                          As Percentage of Net Sales
                                                                                           Year Ended December 31,
                                                                                      2021 (1)                          2020 (1)
Net Sales                                                                                           100.0  %                 100.0  %
Cost of sales                                                                                        67.8                     67.9
Gross profit                                                                                         32.2                     32.1
Selling, general and administrative expenses                                                         26.6                     27.3
Amortization of intangibles                                                                           0.1                      0.5

Income from operations                                                                                5.6                      4.3

Interest expense, net                                                                                 0.8                      1.4
Income before income tax provision                                                                    4.8                      3.0
Income tax provision                                                                                  1.5                      0.9
Net income                                                                                            3.2                      2.0
Loss attributable to the noncontrolling interest                                                      0.1                      0.1
Net income attributable to ARC                                                                        3.4  %                   2.1  %

EBITDA (2)                                                                                           14.7  %                  14.9  %
Adjusted EBITDA (2)                                                                                  15.3  %                  15.5  %


(1) The column has no foot due to rounding. (2)See “Non-GAAP Financial Measures” after “Results of Operations” for definitions, reconciliations and more information regarding our non-GAAP information.

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Year ended December 31, 2021 Compared to the year ended December 31, 2020

Net Sales

Net sales in 2021 decreased 6.0%, compared to 2020. The decrease in net sales
was driven largely by the negative impact of the COVID-19 pandemic during the
first quarter of 2021, offset by year-over-year quarterly net sales growth in
the remaining quarters of the year.

Digital Printing. Sales of Digital Printing services in 2021 decreased by $8.8
million, or 5.0%, compared to 2020. The decrease in sales of Digital Printing
services was primarily due to the $11.7 million year-over-year drop during the
first quarter of 2021 resulting from the economic slowdown caused by the
COVID-19 pandemic. Digital Printing services represented 61% of total net sales
for both 2021 and 2020.

MPS. Sales of MPS services in 2021 decreased by $6.9 million, or 8.7%, compared
to 2020. The decline in annual MPS sales was driven primarily by sales decreases
in the first quarter of 2021 as office employees in the U.S. and Canada followed
employer directives to work from home, significantly reducing the volume of
printing done in our customers' offices. MPS sales grew year-over-year in the
three subsequent quarters of 2021 as work-from-home directives eased as the year
progressed. MPS engagements on construction job sites operated throughout the
year as construction activity remained robust. Revenues from MPS sales
represented approximately 27% of total net sales for both 2021 and 2020.

The number of MPS locations remained relatively stable year-over-year at approximately 10,780 as of December 31, 2021.

Scanning and Digital Imaging. Year-over-year sales of Scanning and Digital
Imaging services increased by $2.2 million, or 17.5%, in 2021, compared to 2020.
The increase in sales of our Scanning and Digital Imaging services was primarily
attributable to the end of work-from-home directives for some of our customers,
resulting in greater demand for our scanning services. We continue to drive an
expansion of our addressable market for Scanning and Digital Imaging services
with increased marketing activity, as well as targeting building owners and
facility managers that require on-demand access to their legacy documents to
operate their assets efficiently. We believe that, with the expansion of the
markets and industries we serve and the desire of our existing customers to have
digital access to documents, our Scanning and Digital Imaging services will
continue to grow in the future.

Equipment and Supplies. Equipment and Supplies sales decreased by $3.7 million,
or 16.5%, in 2021, compared to 2020. The decrease was primarily driven by the
economic slowdown in China related to the COVID-19 pandemic, which decreased
sales from UNIS Document Solutions Co. Ltd, or UDS, our Chinese joint venture.
Equipment and Supplies sales derived from UDS, were $3.9 million in 2021, as
compared to $7.7 million in 2020. Equipment and Supplies sales represented
approximately 7% of total net sales for 2021 and approximately 8% for 2020.

Gross profit

Gross profit decreased to $87.7 million in 2021, compared to $92.9 million in
2020. Gross margin increased to 32.2% in 2021, compared to 32.1% in 2020,
despite a net sales decrease of $17.3 million. Gross margin improvement was
largely driven by the new cost structure we put in place in 2020, and through
our efforts to drive more work through our service centers to leverage our
infrastructure, cross-trained workforce, and production-grade equipment.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $6.7 millionor 8.5%, in 2021 compared to 2020. The reduction is mainly due to the ongoing cost reduction activities of the cost structure we put in place in 2020, which included among others headcount reductions.

Amortization of intangible assets

Amortization of intangibles of $0.2 million in 2021 decreased compared to 2020,
primarily due to the completed amortization of certain customer relationships
related to historical acquisitions. In the years following our inception, our
business grew through acquisitions, but for more than a decade acquisitions have
not been a focal point for growth.
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Interest expense, net

Net interest expense totaled $2.1 million in 2021, compared to $3.9 million in
2020. The decrease in 2021 compared to 2020 was due to the continuing reduction
of our long-term debt, decreases in LIBOR, and a decrease in bank debt interest
spread due to the improvement in our leverage ratio.

Income taxes

We recorded an income tax provision of $4.2 million in relation to a pretax
income of $13.0 million for 2021, which resulted in an effective income tax rate
of 32.1%. In addition to recurring state and foreign taxes and certain
nondeductible expenses, our effective income tax rate for 2021 was impacted by a
change in valuation allowances against certain deferred tax assets and stock
based compensation forfeitures. Excluding the impact of valuation allowances,
stock based compensation forfeitures and other discrete items, our effective
income tax rate for the consolidated company would have been 29.2% and our
effective income tax rate attributable to ARC Document Solutions, Inc. would
have been 28.7%.

We recorded an income tax provision of $2.7 million in relation to a pretax
income of $8.5 million for 2020, which resulted in an effective income tax rate
of 32.2%. Our effective income tax rate for 2020 was primarily impacted by
certain stock-based compensation, a change in valuation allowances against
certain deferred tax assets and non-deductible expenses. Excluding the impact of
valuation allowances, Internal Revenue Code Section 162(m), and other discrete
tax items, our effective income tax rate for the consolidated company would have
been 30.0% and our effective income tax rate attributable to ARC Document
Solutions, Inc. would have been 28.8%.

Non-controlling interest

Net earnings attributable to non-controlling interests represent 35% of earnings from our China joint venture with UDS and its subsidiaries, which together form our China joint venture business.

Net income attributable to ARC

Net income attributable to ARC was $9.1 million in 2021, as compared to $6.2
million in 2020. The increase in net income attributable to ARC in 2021 compared
to the prior year is driven by the decrease in interest expense and selling,
general and administrative expenses described above, partially offset by the
drop in gross profit resulting from the decline in sales.

EBITDA

EBITDA margin decreased slightly to 14.7% in 2021 from 14.9% in 2020. Excluding
the effect of stock-based compensation adjusted EBITDA margin decreased slightly
to 15.3% in 2021 from 15.5% in 2020. As a result of continued cost optimization
initiatives, margins remained relatively consistent with the prior year despite
the $17.3 million decline in sales.

Impact of inflation

We do not believe that inflation has had a significant effect on our operations. Raw material price increases, such as paper and fuel costs, have generally been, and we anticipate will continue to be, passed on to customers in the normal course of business.

Non-GAAP financial measures.

EBITDA and related ratios presented in this report are supplemental measures of
our performance that are not required by or presented in accordance with
accounting principles generally accepted in the United States of America or
GAAP. These measures are not measurements of our financial performance under
GAAP and should not be considered as alternatives to net income, net income
margin, income from operations, or any other performance measures derived in
accordance with GAAP or as an alternative to cash flows from operating,
investing or financing activities as a measure of our liquidity.

EBITDA represents net earnings before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by net sales.

We have presented EBITDA and related ratios because we consider them important
supplemental measures of our performance and liquidity. We believe investors may
also find these measures meaningful, given how our management makes use of them.
The following is a discussion of our use of these measures.

We use EBITDA to measure and compare the performance of our operating divisions.
Our operating divisions' financial performance includes all of the operating
activities except debt and taxation which are managed at the corporate level for
U.S.
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operating divisions. We use EBITDA to compare the performance of our divisions
and to measure performance for determining consolidated-level compensation. In
addition, we use EBITDA to evaluate potential acquisitions and potential capital
expenditures.

EBITDA and related ratios have limitations as analytical tools, and should not
be considered in isolation, or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are as follows:

•They do not reflect our cash expenditures, future capital expenditure requirements and contractual commitments;

•They do not reflect changes or cash requirements for our working capital requirements;

• They do not reflect the significant interest charges, nor the cash requirements necessary, to service interest or principal repayments on our debt;

•Although depreciation and amortization are non-cash charges, depreciated assets will often need to be replaced in the future, and EBITDA does not reflect any cash requirement for such replacements; and

• Other companies, including companies in our industry, may calculate these measures differently than we do, which limits their usefulness as comparative measures.

Because of these limitations, EBITDA and related ratios should not be considered
as measures of discretionary cash available to us to invest in business growth
or to reduce our indebtedness. We compensate for these limitations by relying
primarily on our GAAP results and using EBITDA and related ratios only as
supplements.

Our presentation of adjusted net income and adjusted EBITDA is an attempt to
provide meaningful comparisons to our historical performance for our existing
and future investors. The unprecedented changes in our end markets over the past
several years have required us to take measures that are unique in our history
and specific to individual circumstances. Comparisons inclusive of these actions
make normal financial and other performance patterns difficult to discern under
a strict GAAP presentation. Each non-GAAP presentation, however, is explained in
detail in the reconciliation tables below.

Specifically, we have presented adjusted net income attributable to ARC and
adjusted earnings per share attributable to ARC shareholders for 2021 and 2020
to reflect the exclusion of changes in the valuation allowances related to
certain deferred tax assets and other discrete tax items. This presentation
facilitates a meaningful comparison of our operating results for 2021 and 2020.
We believe these changes were the result of items which are not indicative of
our actual operating performance.

We have presented adjusted EBITDA for 2021 and 2020 to exclude stock-based
compensation expense. The adjustment of EBITDA for this item is consistent with
the definition of adjusted EBITDA in our Credit Agreement; therefore, we believe
this information is useful to investors in assessing our financial performance.

The following is a reconciliation of cash flows provided by operating activities
to EBITDA:

                                                         Year Ended December 31,
(In thousands)                                              2021                2020
Cash flows provided by operating activities        $      35,775             $ 54,478
Changes in operating assets and liabilities                3,331              (13,229)
Non-cash expenses                                         (5,708)              (5,096)
Income tax provision                                       4,181                2,749
Interest expense, net                                      2,147                3,908
Loss attributable to the noncontrolling interest             301                  395

EBITDA                                             $      40,027             $ 43,205










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The following is a reconciliation of net income attributable to ARC DocumentSolutions, Inc. shareholders to EBITDA and adjusted EBITDA:

                                                                              Year Ended December 31,
(In thousands)                                                                2021                 2020

Net income attributable to ARC DocumentSolutions, Inc. shareholders $

    9,143          $   6,188
Interest expense, net                                                           2,147              3,908
Income tax provision                                                            4,181              2,749

Depreciation and amortization                                                  24,556             30,360
EBITDA                                                                         40,027             43,205

Stock-based compensation                                                        1,686              1,571
Adjusted EBITDA                                                         $      41,713          $  44,776

The following is a reconciliation of net income margin attributable to ARC to EBITDA margin and Adjusted EBITDA margin:

                                                  Year Ended December 31,
                                                     2021               2020 (1)
Net income margin attributable to ARC                        3.4  %        2.1  %
Interest expense, net                                        0.8           1.4
Income tax provision                                         1.5           0.9

Depreciation and amortization                                9.0          10.5
EBITDA margin                                               14.7          14.9

Stock-based compensation                                     0.6           0.5
Adjusted EBITDA margin                                      15.3  %       15.5  %

(1) The column has no foot due to rounding.

The following is a reconciliation of net income attributable to ARC Document
Solutions, Inc. shareholders to Adjusted net income and Adjusted earnings per
share attributable to ARC Document Solutions, Inc. shareholders:

                                                                                  Year Ended December 31,
(In thousands, except per share data)                                             2021                2020

Net income attributable to ARC DocumentSolutions, Inc. shareholders

$9,143 $6,188

Deferred tax valuation allowance and other discrete tax items                         352               118

Adjusted net income attributable to ARC DocumentSolutions, Inc.
shareholders

                                                                 $      9,495          $  6,306
Actual:
Earnings per share attributable to ARC Document Solutions, Inc.
shareholders:
Basic                                                                        $       0.22          $   0.14
Diluted                                                                      $       0.21          $   0.14
Weighted average common shares outstanding:
Basic                                                                              42,164            42,925
Diluted                                                                            42,732            43,021
Adjusted:
Earnings per share attributable to ARC Document Solutions, Inc.
shareholders:
Basic                                                                        $       0.23          $   0.15
Diluted                                                                      $       0.22          $   0.15
Weighted average common shares outstanding:
Basic                                                                              42,164            42,925
Diluted                                                                            42,732            43,021



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Cash and capital resources

Our primary sources of cash were cash flow from operations and borrowings under our loan and lease agreements. Our recent historical uses of cash have been for ongoing operations, payment of principal and interest on outstanding debt securities, capital expenditures, dividends and share buybacks.

We continually assess our capital allocation strategy, including decisions
relating to dividends, repurchase shares of our common stock, capital
expenditures, and debt pay-downs. In the beginning of 2020 we suspended
dividends due to uncertainties caused by the COVID-19 pandemic. In December
2020, we recommenced our dividend program and subsequently increased the
quarterly dividend amount to 5 cents per share of our common stock. The timing,
declaration and payment of future dividends, however, falls within the
discretion of our Board of Directors and will depend upon many factors,
including our financial condition and earnings, the capital requirements of our
business, restrictions imposed by applicable law and the terms of any of our
debt agreements and any other factors the Board of Directors deems relevant from
time to time.

Our Board of Directors approved a stock repurchase program that authorized us to
purchase up to $15.0 million of our outstanding common stock through March 31,
2023. Purchases may be made from time to time in the open market at prevailing
market prices or in privately negotiated transactions. During the year ended
December 31, 2021 we repurchased 0.8 million shares of our common stock for a
total purchase price of $1.9 million. During the year ended December 31, 2020,
we repurchased 2.6 million shares of our common stock for a total purchase price
of $3.2 million.

Total cash and cash equivalents as of December 31, 2021 was $55.9 million. Of
this amount, $16.3 million was held in foreign countries, with $15.4 million
held in China. Repatriation of some of our cash and cash equivalents in foreign
countries could be subject to delay for local country approvals and could have
potential adverse tax consequences. As a result of holding cash and cash
equivalents outside of the U.S., our financial flexibility may be reduced.

Supplemental information pertaining to our historical sources and uses of cash
is presented as follows and should be read in conjunction with our Consolidated
Statements of Cash Flows and notes thereto included elsewhere in this report.

                                                     Year Ended December 31,
(In thousands)                                         2021               2020
Net cash provided by operating activities      $      35,775           $  

54,478

Net cash used in investing activities ($3,189) ($5,928)
Net cash used in financing activities $(32,022) ($23,985)



Operating Activities

Cash flow from operations is primarily driven by sales and the net profit generated by these sales, excluding non-cash charges.

The decrease in cash flows from operations in 2021 reflect normalized levels of
cash generation and collectibles for the period relative to the level of our
sales. By contrast, our 2020 cash flows from operations benefited from the
timing and collection of sales that occurred during the months leading up to the
onset of the COVID-19 pandemic, as well as aggressive measures implemented to
manage working capital and preserve cash in response to the COVID-19 pandemic.

The number of days of outstanding sales, or DSO, was 51 days at December 31, 2021 and
December 31, 2020. We are closely managing collections which have remained constant since the outbreak of the COVID-19 pandemic.

The DSO is calculated by taking the respective years December 31staccounts receivable balance divided by net sales during the fourth quarter of this year multiplied by the total number of days in a quarter.

We have presented DSO because we consider it an important metric as it is a
valuable indicator of the efficiency of the business and quality of our cash
flows. We believe investors may also find this metric meaningful given the
importance of cash flows from operations and management's ability to efficiently
manage our working capital.

We use DSO to measure and benchmark the cash management performance of our operating divisions.

Investing activities

Net cash used in investing activities was primarily related to capital
expenditures. We incurred capital expenditures totaling $3.6 million and $6.4
million, in 2021 and 2020, respectively. The decrease in capital expenditures
from 2020 to 2021 was driven primarily by a concerted effort to reduce and
closely manage our capital expenditures, as our need for printing equipment has
significantly decreased over the past two years.
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Because our relationships with credit providers allow us to obtain attractive
lease rates, we usually choose to lease rather than purchase equipment unless
there is a compelling reason to do otherwise.

Fundraising activities

Net cash of $32.0 million used in financing activities in 2021 primarily relates
to payments on our 2021 Credit Agreement, finance leases, dividends, and
repurchases of shares of our common stock. As part of our cash management
initiatives during the COVID-19 pandemic, we successfully negotiated the
deferral of approximately $4.4 million of equipment finance lease payments
during 2020. No comparable deferral occurred in 2021. As noted above, our need
for printing equipment has significantly decreased over the past two years,
resulting in a decrease of $10.2 million in our finance lease liability as of
December 31, 2021 compared to the balance in the prior year. This reduction in
the finance lease liability will drive a reduction in 2022 payments for financed
leases.

Our cash position, working capital, and debt obligations as of December 31, 2021
and 2020 are shown below and should be read in conjunction with our Consolidated
Balance Sheets and notes thereto contained elsewhere in this report.


                                                                 December 31,
           (In Thousands)                                     2021          2020
           Cash and cash equivalents                       $ 55,929      $ 54,950
           Working capital                                 $ 37,082      $ 32,500

           Borrowings from revolving credit facility       $ 46,250      $ 55,000
           Various finance leases                            31,992        42,236
           Total debt obligations                          $ 78,242      $ 97,236


The increase of $4.6 million in working capital in 2021 was primarily driven by
the increase in accounts receivable of $3.2 million and a $1.0 million increase
in cash over 2020. To manage our working capital, we chiefly focus on our DSO
and monitor the aging of our accounts receivable, as receivables are the most
significant element of our working capital.

We believe that our current cash and cash equivalents balance of $55.9 million,
the availability under our revolving credit facility, the availability under our
equipment lease lines, and cash flows provided by operations should be adequate
to cover the next twelve months and beyond of working capital needs, debt
requirements consisting of scheduled principal and interest payments, and
planned capital expenditures, to the extent such items are known or are
reasonably determinable based on current business and market conditions. See
"Debt Obligations" section for further information related to our revolving
credit facility.

A significant portion of our revenue across all of our product and services is
generated from customers in the AEC/O industry. As a result, our operating
results and financial condition can be significantly affected by economic
factors that influence the AEC/O industry, including the COVID-19 pandemic.
Additionally, a general economic downturn may adversely affect the ability of
our customers and suppliers to obtain financing for significant operations and
purchases, and to perform their obligations under their agreements with us. We
believe that credit constraints in the financial markets could result in a
decrease in, or cancellation of, existing business, could limit new business,
and could negatively affect our ability to collect our accounts receivable on a
timely basis.

We have not been actively seeking growth through acquisition since 2009, and
while we remain opportunistic with regard to opportunities, we don't intend to
pursue them in the near future.

Debt securities

credit agreement

On April 22, 2021, we entered into the 2021 Credit Agreement. The 2021 Credit
Agreement provides for the extension of revolving loans in an aggregate
principal amount not to exceed $70 million, or Revolving Loans, and replaces the
Credit Agreement dated as of November 20, 2014, as amended, or the 2014 Credit
Agreement. The 2021 Credit Agreement features terms similar to the 2014 Credit
Agreement, including the ability to use excess cash of up to $15 million per
year for restricted payments such as repurchase shares of our common stock and
dividends. The obligation under the 2021 Credit Agreement mature on April 22,
2026.

The 2021 Credit Agreement also includes certain tests we are 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
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conditions set forth in the 2021 Credit Agreement, the amount of all such
payments will be limited to $15 million during any twelve-month period. When
calculating the fixed charge coverage ratio, we may exclude up to $10 million of
such restricted payments that would otherwise constitute fixed charges in any
twelve-month period.

As of December 31, 2021, our borrowing availability under the Revolving Loan
commitment was $21.6 million, after deducting outstanding letters of credit of
$2.2 million and an outstanding Revolving Loan balance of $46.3 million.

Loans borrowed under the 2021 Credit Agreement bear interest, in the case of
LIBOR loans, at a per annum rate equal to the applicable LIBOR (which rate shall
not be less than zero), plus a margin ranging from 1.25% to 1.75%, based on our
Total Leverage Ratio (as defined in the 2021 Credit Agreement). Loans borrowed
under the 2021 Credit Agreement that are not LIBOR loans bear interest at a per
annum rate (which rate shall not be less than zero) 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 U.S.
Bank National Association as its "prime rate," plus (ii) a margin ranging from
0.25% to 0.75%, based on our Total Leverage Ratio. We pay certain recurring fees
with respect to the 2021 Credit Agreement, including administration fees to the
administrative agent.

The transition to non-LIBOR loan rates for us is uncertain, but we believe the
transitions will not have a material impact on our interest expense for the year
of transition.

Subject to certain exceptions, including, in certain circumstances, reinvestment
rights, the loans extended under the 2021 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 2021
Credit Agreement); the net proceeds from certain issuances of equity securities;
and net proceeds of certain insurance recoveries and condemnation events.

The 2021 Credit Agreement contains customary representations and warranties,
subject to limitations and exceptions, and customary covenants restricting the
ability (subject to various exceptions) of us and our 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 us or our subsidiaries; change the nature of their
business; prepay or amend certain indebtedness; engage in certain transactions
with affiliates; amend our organizational documents; or enter into certain
restrictive agreements. In addition, the 2021 Credit Agreement contains
financial covenants which requires us 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 2021 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 during the year ended December 31, 2021.

The 2021 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 our subsidiary that is the borrower under the 2021 Credit
Agreement are guaranteed by us and each of our other United States domestic
subsidiaries. The 2021 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 our and each guarantor's
assets (subject to certain exceptions).

credit agreement

The following table shows the outstanding balance, the borrowing capacity and the applicable interest rate under the credit agreement.

                                    December 31, 2021
                                        Available
                                        Borrowing      Interest
                          Balance       Capacity         Rate
                                 (Dollars in thousands)

Revolving Loans (1)      $ 46,250      $  21,594          1.7  %

(1) Available borrowing capacity of the Revolving Loan, net $2.2 million stand-by letters of credit in circulation at the December 31, 2021.

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Finance leases

From December 31, 2021we have had $32.0 million outstanding finance lease obligations, with a weighted average interest rate of 4.7% and maturities between 2022 and 2027.

Commitments and contingencies

Operating Leases. We lease machinery, equipment, and office and operational
facilities under non-cancelable operating lease agreements. Certain lease
agreements for our facilities generally contain renewal options and provide for
annual increases in rent based on the local Consumer Price Index. Refer to Note
7, Leasing, for the schedule of our future minimum operating lease payments as
of December 31, 2021.

Legal Proceedings. We are involved, and will continue to be involved, in legal
proceedings arising out of the conduct of our business, including commercial and
employment-related lawsuits. Some of these lawsuits purport or may be determined
to be class actions and seek substantial damages, and some may remain unresolved
for several years. We establish accruals for specific legal proceedings when it
is considered probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. We evaluate whether a loss is reasonably probable
based on our assessment and consultation with legal counsel regarding the
ultimate outcome of the matter. As of December 31, 2021, we have accrued for the
potential impact of loss contingencies that are probable and reasonably
estimable. We do not currently believe that the ultimate resolution of any of
these matters will have a material adverse effect on our results of operations,
financial condition, or cash flows. However, the results of these matters cannot
be predicted with certainty, and an unfavorable resolution of one or more of
these matters could have a material adverse effect on our results of operations,
financial condition, or cash flows.

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

Critical Accounting Policies and Significant Judgments and Estimates

Our management prepares financial statements in conformity with GAAP. When we
prepare these consolidated financial statements, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and
judgments, including those related to accounts receivable, inventories, deferred
tax assets, goodwill and intangible assets, long-lived assets and leases. We
base our estimates and judgments on historical experience and on various other
factors that we believe to be reasonable under the circumstances, the results of
which form the basis for our judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. To the extent that
there are material differences between these estimates and actual results, our
future financial statement presentation, financial condition, results of
operations and cash flows will be affected. We believe that the accounting
policies discussed below are critical to understanding our historical and future
performance, as these policies relate to the more significant areas involving
management's judgments and estimates.

Impairment of goodwill

In accordance with ASC 350, Intangibles - Goodwill and Other, we assess goodwill
for impairment annually as of September 30, and more frequently if events and
circumstances indicate that goodwill might be impaired. At September 30, 2021,
the Company performed its annual 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, we elected to early adopt ASU 2017-04 which simplifies the subsequent measurement of goodwill by eliminating the second step of goodwill impairment testing.

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

The results of the latest annual goodwill impairment test, as of September 30,
2021, were as follows:
                                                                     Number of
                                                                     Reporting             Representing
(Dollars in thousands)                                                 Units               Goodwill of
No goodwill balance                                                         6            $           -

Fair value of reporting units exceeds their carrying values by
more than 100%                                                              2                  121,051
                                                                            8            $     121,051


Based upon a sensitivity analysis, a reduction of approximately 50 basis points
of projected EBITDA in 2022 and beyond, assuming all other assumptions remain
constant, would result in no further impairment of goodwill.

Based on a separate sensitivity analysis, a 50 basis point increase in the weighted average cost of capital would not result in any additional goodwill impairment.

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

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 that
we are expected to be entitled to in exchange for those goods or services. We
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 the Company recognizes revenue at the amount to which
it has the right to invoice for services performed.

Digital Printing 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, or Ordered Prints and (ii) specialized graphic color
printing. Substantially, all the Company's revenue from Digital Printing 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; 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.

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. 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 ASC 842, Leases,
the Company concluded that certain of its MPS arrangements, which had previously
been
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accounted for as service revenue under ASC 606, Revenue from Contracts with
Customers, are accounted for as operating leases under ASC 842. The pattern of
revenue recognition for the Company's MPS revenue has remained substantially
unchanged following the adoption of ASC 842. See Note 7, Leasing, for additional
information.

Scanning and digital imaging combines software and professional services to
facilitate the capture, management, access and retrieval of documents and
information that have been produced in the past. Scanning and digital imaging
may include our hosted SKYSITE software and facilities solution 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, or Scanned Documents, and their cloud-based storage and maintenance.
Sales of scanning and digital imaging services, which represent substantially
all revenue for this business line, 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, our facilities
solution or through other 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, or 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. We have experienced minimal customer returns or
refunds and does not offer a warranty on equipment that it is reselling.

Leases

We recognize lease assets and corresponding lease liabilities for all operating
and finance leases on our Consolidated Balance Sheets, excluding short-term
leases (leases with terms of 12 months or less) as described under ASU No.
2016-02, Leases (Topic 842). Some of our long-term operating lease agreements
include options to extend, which are also factored into the recognition of their
respective assets and liabilities when appropriate based on management's
assessment of the probability that the options will be exercised. Lease payments
are discounted using the rate implicit in the lease, or, if not readily
determinable, a third-party secured incremental borrowing rate based on
information available at lease commencement. Additionally, certain of our lease
agreements include escalating rents over the lease terms which, under Topic 842,
results in rent being expensed on a straight-line basis over the life of the
lease that commences on the date we have the right to control the
property. Finance leases were not impacted by the adoption of ASC 842, as
finance lease liabilities and the corresponding ROU assets were already recorded
in the balance sheet under the previous guidance, ASC 840. For additional
information about the impact of the adoption of ASC 842, see Note 7, Leasing.

Income taxes

Deferred tax assets and liabilities reflect temporary differences between the
amount of assets and liabilities for financial and tax reporting purposes. Such
amounts are adjusted, as appropriate, to reflect changes in tax rates expected
to be in effect when the temporary differences reverse. A valuation allowance is
recorded to reduce our deferred tax assets to the amount that is more likely
than not to be realized. Changes in tax laws or accounting standards and methods
may affect recorded deferred taxes in future periods.

When establishing a valuation allowance, we consider future sources of taxable
income such as future reversals of existing taxable temporary differences,
future taxable income exclusive of reversing temporary differences and
carryforwards and tax planning strategies. A tax planning strategy is an action
that: is prudent and feasible; an enterprise ordinarily might not take but would
take to prevent an operating loss or tax credit carryforward from expiring
unused; and would result in realization of deferred tax assets. In the event we
determine that its deferred tax assets, more likely than not, will not be
realized in the future, the valuation adjustment to the deferred tax assets will
be charged to earnings in the period in which we make such a determination. We
have a $2.4 million valuation allowance against certain deferred tax assets as
of December 31, 2021.

In future quarters we will continue to evaluate our historical results for the
preceding twelve quarters and our future projections to determine whether we
will generate sufficient taxable income to utilize our deferred tax assets, and
whether a valuation allowance is required.
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We calculate our provision for current and deferred taxes based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on returns filed are recorded when identified.

Income tax has not been provided for on certain undistributed profits of foreign subsidiaries because these profits are considered to be permanently reinvested.

The amount of taxable income or loss we report to the various tax jurisdictions
is subject to ongoing audits by federal, state and foreign tax authorities. We
estimate of the potential outcome of any uncertain tax issue is subject to
management's assessment of relevant risks, facts, and circumstances existing at
that time. We use a more-likely-than-not threshold for financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. We record a liability for the difference between the benefit
recognized and measured and tax position taken or expected to be taken on its
tax return. To the extent that our assessment of such tax positions changes, the
change in estimate is recorded in the period in which the determination is made.
We report tax-related interest and penalties as a component of income tax
expense.

Recent accounting pronouncements

See Note 2, Summary of Significant Accounting Policies to our Consolidated Financial Statements for information on recently adopted and not yet adopted accounting standards.

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