ARC Document Solutions Reports Results for Third Quarter 2013

ARC Document Solutions Reports Results for Third Quarter 2013 
WALNUT CREEK, CA -- (Marketwired) -- 11/06/13 --  ARC Document
Solutions, Inc. (NYSE: ARC), the nation's leading document solutions
provider for the architecture, engineering, and construction (AEC)
industry, today reported its financial results for the third quarter
ended September 30, 2013. 
Business Highlights: 


 
--  Quarterly revenue grew year-over-year for first time in five years
--  Q3 adjusted earnings per share of $0.02 vs. $(0.04) in Q3 2012
--  Gross margin in Q3 of 32.5%; year-over-year increase of 310 basis
    points
--  Q3 Adjusted EBITDA margin of 16.3%; year-over-year increase of 320
    basis points
--  YTD cash flow from operations of $40.0 million vs. $30.9 million for
    the same period last year
--  Maintains 2013 fully-diluted annual adjusted earnings per share
    forecast to be in the range $0.06 to $0.09 and maintains projected
    2013 annual cash provided by operating activities to be in the range
    of $38-$45 million

 
                                                                            
Financial Highlights:                                                       
                                  Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
(All dollar amounts in millions,                                            
 except EPS)                        2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Net Revenue                      $   101.3  $    99.4  $   305.9  $   309.2 
Gross Margin                          32.5%      29.4%      33.0%      30.7%
Net (loss) Income attributable                                              
 to ARC                          $    (0.5) $   (20.1) $     0.7  $   (26.1)
Adjusted Net Income (loss)                                                  
 attributable to ARC             $     0.8  $    (1.7) $     3.0  $    (0.9)
Earnings (loss) per share        $   (0.01) $   (0.44) $    0.01  $   (0.57)
Adjusted earnings (loss) per                                                
 share                           $    0.02  $   (0.04) $    0.07  $   (0.02)
Cash provided by operating                                                  
 activities                      $    20.0  $    14.0  $    40.0  $    30.9 
Capital Expenditures             $     4.8  $     4.9  $    14.9  $    14.2 
Debt & Capital Leases (including                                            
 current)                                              $   213.4  $   224.2 

 
Management Commentary
 "We're very happy to have achieved
year-over-year organic growth in the third quarter," said K. "Suri"
Suriyakumar, Chairman, President and CEO of ARC Document Solutions,
Inc. "After five long years of an unprecedented downturn in the
industry, it's exciting to see our sales trend in a positive
direction again." 
"While the non-residential segment of our business has yet to
recover, our impressive performance is attributable to the excellent
execution of the management team," Mr. Suriyakumar continued. "On a
year-over-year basis we have significantly improved our gross
margins, and by positioning ourselves as a document solutions
provider, we have dramatically expanded our addressable market. Sales
of onsite services are now the largest segment of our business,
surpassing our traditional reprographics line for the second quarter
in a row, we've continued to receive recognition for our innovation
in managed print services, and our color services sales have improved
year-over-year. We intend to build on these strong performance trends
in 2014 as our markets pick up steam." 
"We are continuing to make progress expanding our margins, increasing
our cashflow, and changing our capital structure -- the very things
we promised to do in the fourth quarter of 2012," said John Toth, ARC
Document Solution's Chief Financial Officer. "Adjusted EBITDA margin
for the quarter improved by 320 basis points from a year ago, our
cash position improved 21% year-over-year even after $11 million of
cash outlays for bond repurchases and restructuring payments during
the period, and we generated an increase of 51% in free cash flow
over the same period last year."  
Mr. Toth continued, "Thanks to the seven million dollar re-purchase
of our bonds early in the third quarter and stronger margin
performance, we've also made significant progress on our
debt-to-EBITDA ratio which is now 3.3 as compared to 3.6 in the
second quarter. We're in an excellent position to end the year with
strength and momentum to carry us forward in 2014." 
2013 Third Quarter Supplemental Information:
 Net sales were $101.3
million, a 2% increase compared to the third quarter of 2012.  
Days sales outstanding in Q3 2013 were 52, which were consistent with
52 days in Q3 2012.  
AEC customers comprised approximately 76% of our total net sales,
while non-AEC customers made up 24% of our total net sales. 
Total number of Onsite Services contracts was approximately 7,500, a
gain of nearly 200 contracts in Q3 2013. 


 
                                                                            
Sales from Services and Product Lines as a Percentage of                    
 Net Sales                                                                  
                                                         Three Months Ended 
                                                            September 30,   
                                                         ------------------ 
Services and Product Line                                  2013      2012   
                                                         --------  -------- 
Traditional Reprographics                                    28.5%     31.0%
Onsite Services                                              30.6%     27.3%
Color Services                                               20.4%     19.4%
Digital Services                                              8.2%      8.6%
Equipment and Supplies Sales                                 12.3%     13.7%

 
Sales Reporting Format
 In February 2013, ARC Document Solutions
announced that in its statement of operations the Company would begin
reporting net sales under "Service sales" and "Equipment and supplies
sales" to better identify and report its individual services and
product lines. The two new categories replace the three categories
previously used to report net sales of "Reprographics services,"
"Facilities management," and "Equipment and supplies sales." 
"Service sales" includes traditional reprographics services, onsite
services, color printing services, and digital services. "Equipment
and supplies sales" is self-explanatory. Net sales for the individual
services and product lines that comprise each category are reported
and reconciled in the Company's "Net Sales by Services and Product
Line" table included herein. For historical comparisons, please
consult the Company's 2012 annual report on Form 10-K. 
Outlook:
 ARC
Document Solutions maintained its annual adjusted earnings per share
forecast for 2013 to be in the range of $0.06 to $0.09 on a
fully-diluted basis, and its annual cash flow provided by operations
to be in the range of $38 million to $45 million. 
Teleconference and Webcast:
 ARC Document Solutions will host a
conference call and audio webcast today at 2:00 P.M. Pacific Time
(5:00 P.M. Eastern Time) to discuss results for the Company's third
quarter of 2013. To access the live audio call, dial 1-877-638-9067.
International callers may join the conference by dialing
647-438-1131. The conference ID number is 5660213. A live webcast
will also be made available on the investor relations page of ARC
Document Solution's website at www.e-arc.com.  
A replay of the call will be available for seven days after the
call's conclusion. To access the replay, dial 1-888-203-1112.
International callers may access the replay by dialing 719-457-0820.
The conference ID number is 5660213. The webcast will also be made
available at www.e-arc.com for approximately 90 days following the
call's conclusion. 
About ARC Document Solutions (NYSE: ARC)
 ARC Document Solutions is a
leading document solutions company serving businesses of all types,
with an emphasis on the non-residential segment of the architecture,
engineering and construction industries. The Company helps more than
90,000 customers reduce costs and increase efficiency in the use of
their documents, improve document access and control, and offers a
wide variety of ways to print, produce, and store documents. ARC
provides its solutions onsite in more than 7,000 of its customers'
offices, offsite in service centers around the world, and digitally
in the form of proprietary software and web applications. For more
information please visit www.e-arc.com.  
Forward-Looking Statements
 This press release contains
forward-looking statements that are based on current opinions,
estimates and assumptions of management regarding future events and
the future financial performance of the Company. Words such as
"expected," "consider" "intended," and similar expressions identify
forward-looking statements and all statements other than statements
of historical fact, including, but not limited to, any projections
regarding earnings, revenues and financial performance of the
Company, could be deemed forward-looking statements. We caution you
that such statements are only predictions and are subject to certain
risks and uncertainties that could cause actual results to differ
materially from those contained in the forward-looking statements. In
addition to matters affecting the construction, managed print
services, document management or reprographics industries, or the
economy generally, factors that could cause actual results to differ
from expectations stated in forward-looking statements include, among
others, the factors described in the caption entitled "Risk Factors"
in Item 1A in ARC Document Solution's Annual Report on Form 10-K for
the fiscal year ended December 31, 2012, Quarterly Reports on Form
10-Q, and other periodic filings and prospectuses. The Company
undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise, except as required by law. 


 
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Balance Sheets                                                 
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                                September 30,  December 31, 
                                               -------------- --------------
Current assets:                                     2013           2012     
                                               -------------- --------------
  Cash and cash equivalents                    $       37,054 $       28,021
  Accounts receivable, net of allowances for                                
   accounts receivable of $2,672 and $2,634            58,643         51,855
  Inventories, net                                     13,750         14,251
  Deferred income taxes                                   468             --
  Prepaid expenses                                      4,711          3,277
  Other current assets                                  3,418          6,819
                                               -------------- --------------
    Total current assets                              118,044        104,223
Property and equipment, net of accumulated                                  
 depreciation of $204,231 and $197,830                 56,367         56,471
Goodwill                                              212,608        212,608
Other intangible assets, net                           29,436         34,498
Deferred financing fees, net                            3,291          4,219
Deferred income taxes                                   1,269          1,246
Other assets                                            2,591          2,574
                                               -------------- --------------
    Total assets                               $      423,606 $      415,839
                                               ============== ==============
Current liabilities:                                                        
  Accounts payable                             $       21,889 $       21,215
  Accrued payroll and payroll-related expenses         12,834          6,774
  Accrued expenses                                     27,623         22,321
  Current portion of long-term debt and                                     
   capital leases                                      11,505         13,263
                                               -------------- --------------
    Total current liabilities                          73,851         63,573
Long-term debt and capital leases                     201,880        209,262
Deferred income taxes                                  30,938         28,936
Other long-term liabilities                             3,122          3,231
                                               -------------- --------------
    Total liabilities                                 309,791        305,002
                                               -------------- --------------
Commitments and contingencies                                               
Stockholders' equity:                                                       
ARC Document Solutions, Inc. stockholders'                                  
 equity:                                                                    
  Preferred stock, $0.001 par value, 25,000                                 
   shares authorized; 0 shares issued and                                   
   outstanding                                             --             --
  Common stock, $0.001 par value, 150,000                                   
   shares authorized; 46,356 and 46,274 shares                              
   issued and 46,316 and 46,262 shares                                      
   outstanding                                             46             46
  Additional paid-in capital                          104,572        102,510
  Retained earnings                                     1,382            695
  Accumulated other comprehensive income                  736            689
                                               -------------- --------------
                                                      106,736        103,940
  Less cost of common stock in treasury, 40                                 
   and 12 shares                                          134             44
                                               -------------- --------------
    Total ARC Document Solutions, Inc.                                      
     stockholders' equity                             106,602        103,896
Noncontrolling interest                                 7,213          6,941
                                               -------------- --------------
    Total equity                                      113,815        110,837
                                               -------------- --------------
    Total liabilities and equity               $      423,606 $      415,839
                                               ============== ==============
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Statements of Operations                                       
(Dollars in thousands, except per share data)                               
(Unaudited)                       Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Service sales                    $  88,830  $  85,836  $ 268,258  $ 267,291 
Equipment and supplies sales        12,422     13,590     37,652     41,936 
                                 ---------  ---------  ---------  --------- 
  Total net sales                  101,252     99,426    305,910    309,227 
Cost of sales                       68,372     70,178    205,040    214,348 
                                 ---------  ---------  ---------  --------- 
  Gross profit                      32,880     29,248    100,870     94,879 
Selling, general and                                                        
 administrative expenses            24,019     23,916     72,683     71,346 
Amortization of intangible                                                  
 assets                              1,610      1,846      5,056      9,244 
Goodwill impairment                     --     16,707         --     16,707 
Restructuring expense                  657         --      1,765         -- 
                                 ---------  ---------  ---------  --------- 
  Income (loss) from operations      6,594    (13,221)    21,366     (2,418)
Other income                           (25)       (25)       (86)       (79)
Loss on extinguishment of debt         262         --        262         -- 
Interest expense, net                5,895      6,982     18,012     21,675 
                                 ---------  ---------  ---------  --------- 
  Income (loss) before income                                               
   tax provision (benefit)             462    (20,178)     3,178    (24,014)
Income tax provision (benefit)         790        (84)     1,946      1,845 
                                 ---------  ---------  ---------  --------- 
  Net (loss) income                   (328)   (20,094)     1,232    (25,859)
Income attributable to                                                      
 noncontrolling interest              (122)       (18)      (545)      (213)
                                 ---------  ---------  ---------  --------- 
  Net (loss) income attributable                                            
   to ARC Document Solutions,                                               
   Inc. shareholders             $    (450) $ (20,112) $     687  $ (26,072)
                                 =========  =========  =========  ========= 
(Loss) earnings per share                                                   
 attributable to ARC Document                                               
 Solutions, Inc. shareholders:                                              
  Basic                          $   (0.01) $   (0.44) $    0.01  $   (0.57)
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.01) $   (0.44) $    0.01  $   (0.57)
                                 =========  =========  =========  ========= 
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,976     45,716     45,880     45,641 
  Diluted                           45,976     45,716     45,947     45,641 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of cash flows provided by operating activities to EBIT,      
 EBITDA and Adjusted EBITDA                                                 
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                  Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Cash flows provided by operating                                            
 activities (1)                  $  20,019  $  14,029  $  40,010  $  30,879 
  Changes in operating assets                                               
   and liabilities, net of                                                  
   effect of business                                                       
   acquisitions                     (9,575)    (6,893)    (7,017)    (2,110)
  Non-cash expenses, including                                              
   depreciation, amortization                                               
   and restructuring               (10,772)   (27,230)   (31,761)   (54,628)
  Income tax provision (benefit)       790        (84)     1,946      1,845 
  Interest expense, net              5,895      6,982     18,012     21,675 
  Income attributable to the                                                
   noncontrolling interest            (122)       (18)      (545)      (213)
                                 ---------  ---------  ---------  --------- 
EBIT                                 6,235    (13,214)    20,645     (2,552)
  Depreciation and amortization      8,669      8,989     26,090     30,510 
                                 ---------  ---------  ---------  --------- 
EBITDA                              14,904     (4,225)    46,735     27,958 
  Loss on extinguishment of debt       262         --        262         -- 
  Goodwill impairment                   --     16,707         --     16,707 
  Restructuring expense                657         --      1,765         -- 
  Stock-based compensation             728        554      2,049      1,457 
                                 ---------  ---------  ---------  --------- 
Adjusted EBITDA                  $  16,551  $  13,036  $  50,811  $  46,122 
                                 =========  =========  =========  ========= 

 
(1) For the three and nine months ended September 30, 2013 cash flows
provided by operating activities includes $0.7 million and $3.3
million, respectively, in cash payments related to restructuring. 


 
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net (loss) income attributable to ARC to unaudited        
 adjusted net income (loss) attributable to ARC                             
(Dollars in thousands, except per share data)                               
(Unaudited)                                                                 
                                  Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Net (loss) income attributable                                              
 to ARC Document Solutions, Inc. $    (450) $ (20,112) $     687  $ (26,072)
  Loss on extinguishment of debt       262         --        262         -- 
  Goodwill impairment                   --     16,707         --     16,707 
  Restructuring expense                657         --      1,765         -- 
  Change in trade name impact to                                            
   amortization                         --         --         --      3,158 
  Interest rate swap related                                                
   costs                                --        776         --      3,047 
  Income tax benefit related to                                             
   above items                        (359)    (4,230)      (790)    (6,279)
  Deferred tax valuation                                                    
   allowance and other discrete                                             
   tax items                           685      5,142      1,073      8,575 
                                 ---------  ---------  ---------  --------- 
Unaudited adjusted net income                                               
 (loss) attributable to ARC                                                 
 Document Solutions, Inc.        $     795  $  (1,717) $   2,997  $    (864)
                                 =========  =========  =========  ========= 
Actual:                                                                     
(Loss) earnings per share                                                   
 attributable to ARC Document                                               
 Solutions, Inc. shareholders:                                              
  Basic                          $   (0.01) $   (0.44) $    0.01  $   (0.57)
                                 =========  =========  =========  ========= 
  Diluted                        $   (0.01) $   (0.44) $    0.01  $   (0.57)
                                 =========  =========  =========  ========= 
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,976     45,716     45,880     45,641 
  Diluted                           45,976     45,716     45,947     45,641 
Adjusted:                                                                   
Earnings (loss) per share                                                   
 attributable to ARC Document                                               
 Solutions, Inc. shareholders:                                              
  Basic                          $    0.02  $   (0.04) $    0.07  $   (0.02)
                                 =========  =========  =========  ========= 
  Diluted                        $    0.02  $   (0.04) $    0.07  $   (0.02)
                                 =========  =========  =========  ========= 
Weighted average common shares                                              
 outstanding:                                                               
  Basic                             45,976     45,716     45,880     45,641 
  Diluted                           46,487     45,716     45,947     45,641 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Non-GAAP Measures                                                           
Reconciliation of net (loss) income attributable to ARC Document Solutions, 
 Inc. shareholders to EBIT, EBITDA and Adjusted EBITDA                      
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                   Three Months Ended    Nine Months Ended  
                                      September 30,        September 30,    
                                  --------------------  ------------------- 
                                     2013       2012       2013      2012   
                                  ---------  ---------  --------- --------- 
Net (loss) income attributable to                                           
 ARC Document Solutions, Inc.                                               
 shareholders                     $    (450) $ (20,112) $     687 $ (26,072)
  Interest expense, net               5,895      6,982     18,012    21,675 
  Income tax provision (benefit)        790        (84)     1,946     1,845 
                                  ---------  ---------  --------- --------- 
EBIT                                  6,235    (13,214)    20,645    (2,552)
  Depreciation and amortization       8,669      8,989     26,090    30,510 
                                  ---------  ---------  --------- --------- 
EBITDA                               14,904     (4,225)    46,735    27,958 
  Loss on extinguishment of debt        262         --        262        -- 
  Goodwill impairment                    --     16,707         --    16,707 
  Restructuring expense                 657         --      1,765        -- 
  Stock-based compensation              728        554      2,049     1,457 
                                  ---------  ---------  --------- --------- 
Adjusted EBITDA                   $  16,551  $  13,036  $  50,811 $  46,122 
                                  =========  =========  ========= ========= 
                                                                            
                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Net Sales by Product Line                                                   
(Dollars in thousands)                                                      
(Unaudited)                                                                 
                                   Three Months Ended    Nine Months Ended  
                                      September 30,        September 30,    
                                  --------------------  ------------------- 
                                     2013       2012       2013      2012   
                                  ---------  ---------  --------- --------- 
Service Sales                                                               
Traditional reprographics         $  28,907  $  30,820  $  88,981 $  98,427 
Color                                20,638     19,335     63,389    59,839 
Digital                               8,295      8,565     25,346    27,763 
                                  ---------  ---------  --------- --------- 
  Subtotal(1)                        57,840     58,720    177,716   186,029 
Onsite services(2)                   30,990     27,116     90,542    81,262 
                                  ---------  ---------  --------- --------- 
  Total services sales               88,830     85,836    268,258   267,291 
Equipment and supplies sales         12,422     13,590     37,652    41,936 
                                  ---------  ---------  --------- --------- 
  Total net sales                 $ 101,252  $  99,426  $ 305,910 $ 309,227 
                                  =========  =========  ========= ========= 

 
(1) For comparison purposes this subtotal agrees with reprographics
services historically reported prior to the 2012 Annual Report on
Form 10-K. 
(2) Represents work done at our customer sites, which includes
Facilities Management ("FM") and Managed Print Services ("MPS"). 
Non-GAAP Financial Measures.
 EBIT, 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
("GAAP"). These measures are not measurements of our financial
performance under GAAP and should not be considered as alternatives
to net income, 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. 
EBIT represents net income before interest and taxes. EBITDA
represents net income before interest, taxes, depreciation and
amortization. EBIT margin is a non-GAAP measure calculated by
dividing EBIT by net sales. EBITDA margin is a non-GAAP measure
calculated by dividing EBITDA by net sales. 
We present EBIT, 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 EBIT and EBITDA to measure and compare the performance of our
operating segments. Our operating segments' financial performance
includes all of the operating activities except debt and taxation
which are managed at the corporate level for U.S. operating segments.
As a result, we believe EBIT is the best measure of operating segment
profitability and the most useful metric by which to measure and
compare the performance of our operating segments. We also use EBIT
to measure performance for determining operating segment-level
compensation and we use EBITDA to measure performance for determining
consolidated-level compensation. In addition, we use EBIT and EBITDA
to evaluate potential acquisitions and potential capital
expenditures. 
EBIT, 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, or future requirements for
    capital expenditures and contractual commitments;
--  They do not reflect changes in, or cash requirements for, our working
    capital needs;
--  They do not reflect the significant interest expense, or the cash
    requirements necessary, to service interest or principal payments on
    our debt;
--  Although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be replaced
    in the future, and EBITDA does not reflect any cash requirements for
    such replacements; and
--  Other companies, including companies in our industry, may calculate
    these measures differently than we do, limiting their usefulness as
    comparative measures.

  
Because of these limitations, EBIT, 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 EBIT, EBITDA and related ratios only as
supplements. For more information, see our interim Condensed
Consolidated Financial Statements and related notes on our 2013 third
quarter report on Form 10-Q. Additionally, please refer to our 2012
Annual Report on Form 10-K. 
Our presentation of adjusted net income and adjusted EBITDA over
certain periods 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 above. 
Specifically, we have presented adjusted net income (loss)
attributable to ARC and adjusted earnings (loss) per share
attributable to ARC shareholders for the three and nine months ended
September 30, 2013 and 2012 to reflect the exclusion of amortization
impact related specifically to the change in useful lives of trade
names, loss on extinguishment of debt, goodwill impairment,
restructuring expense, interest rate swap related costs, and 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 the three and nine
months ended September 30, 2013 and 2012. We believe these charges
were the result of the current macroeconomic environment, our capital
restructuring, or other items which are not indicative of our actual
operating performance. 
We presented adjusted EBITDA in three and nine months ended September
30, 2013 and 2012 to exclude stock-based compensation expense,
restructuring expense, goodwill impairment and loss on extinguishment
of debt. The adjustment of EBITDA for non-cash adjustments 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. 


 
                                                                            
ARC Document Solutions                                                      
Consolidated Statements of Cash Flows                                       
(Dollars in thousands)                                                      
(Unaudited)                       Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Cash flows from operating                                                   
 activities                                                                 
Net (loss) income                $    (328) $ (20,094) $   1,232  $ (25,859)
Adjustments to reconcile net                                                
 (loss) income to net cash                                                  
 provided by operating                                                      
 activities:                                                                
  Allowance for accounts                                                    
   receivable                      
    105        128        551        532 
  Depreciation                       7,059      7,143     21,034     21,266 
  Amortization of intangible                                                
   assets                            1,610      1,846      5,056      9,244 
  Amortization of deferred                                                  
   financing costs                     270        276        831        812 
  Amortization of bond discount        168        156        500        453 
  Goodwill impairment                   --     16,707         --     16,707 
  Stock-based compensation             728        554      2,049      1,457 
  Deferred income taxes                182     (3,797)       918     (4,301)
  Deferred tax valuation                                                    
   allowance                           386      3,854        560      6,766 
  Restructuring expense, non-                                               
   cash portion                         70         --        363         -- 
  Amortization of derivative,                                               
   net of tax effect                    --        486         --      1,908 
  Other non-cash items, net            194       (123)      (101)      (216)
  Changes in operating assets                                               
   and liabilities, net of                                                  
   effect of business                                                       
   acquisitions:                                                            
    Accounts receivable              4,491      2,796     (7,358)    (3,331)
    Inventory                          441     (1,081)       721     (2,666)
    Prepaid expenses and other                                              
     assets                         (1,102)      (795)     1,988     (1,201)
    Accounts payable and accrued                                            
     expenses                        5,745      5,973     11,666      9,308 
                                 ---------  ---------  ---------  --------- 
Net cash provided by operating                                              
 activities                         20,019     14,029     40,010     30,879 
                                 ---------  ---------  ---------  --------- 
Cash flows from investing                                                   
 activities                                                                 
Capital expenditures                (4,814)    (4,932)   (14,856)   (14,194)
Other                                   83        317        622        133 
                                 ---------  ---------  ---------  --------- 
Net cash used in investing                                                  
 activities                         (4,731)    (4,615)   (14,234)   (14,061)
                                 ---------  ---------  ---------  --------- 
Cash flows from financing                                                   
 activities                                                                 
Proceeds from stock option                                                  
 exercises                              --         --         --         79 
Proceeds from issuance of common                                            
 stock under Employee Stock                                                 
 Purchase Plan                           4         --         13         28 
Share repurchases, including                                                
 shares surrendered for tax                                                 
 withholding                            --         --        (90)        -- 
Proceeds from borrowings on                                                 
 long-term debt agreements              --         --        402         -- 
Payments of debt extinguishment                                             
 costs                                 (66)        --        (66)        -- 
Early extinguishment of long-                                               
 term debt                          (7,000)        --     (7,000)        -- 
Payments on long-term debt                                                  
 agreements and capital leases      (2,988)    (3,575)    (9,395)   (12,041)
Net (repayments) borrowings                                                 
 under revolving credit                                                     
 facilities                           (228)     1,424       (438)     1,041 
Payment of deferred financing                                               
 costs                                  --         --         --       (839)
Dividends paid to noncontrolling                                            
 interest                             (485)        --       (485)        -- 
                                 ---------  ---------  ---------  --------- 
Net cash used in financing                                                  
 activities                        (10,763)    (2,151)   (17,059)   (11,732)
                                 ---------  ---------  ---------  --------- 
Effect of foreign currency                                                  
 translation on cash balances          152        (47)       316         11 
                                 ---------  ---------  ---------  --------- 
Net change in cash and cash                                                 
 equivalents                         4,677      7,216      9,033      5,097 
Cash and cash equivalents at                                                
 beginning of period                32,377     23,318     28,021     25,437 
                                 ---------  ---------  ---------  --------- 
Cash and cash equivalents at end                                            
 of period                       $  37,054  $  30,534  $  37,054  $  30,534 
                                 =========  =========  =========  ========= 
Supplemental disclosure of cash                                             
 flow information                                                           
Noncash financing activities                                                
  Capital lease obligations                                                 
   incurred                      $   2,491  $   1,781  $   6,737  $   8,511 

  
Contact Information:
David Stickney
VP Corporate Communications
925-949-5114