ARC Document Solutions Reports Results for Third Quarter 2014

                                                                            
                                                                            
ARC Document Solutions, Inc.                                                
Consolidated Balance Sheets                                                 
(In thousands, except per share data)                                       
(Unaudited)                                                                 
                                               September 30,   December 31, 
Current assets:                                     2014           2013     
                                               -------------  ------------- 
Cash and cash equivalents                      $      24,835  $      27,362 
  Accounts receivable, net of allowances for                                
   accounts receivable of $2,507 and $2,517           64,056         56,328 
  Inventories, net                                    16,167         14,047 
  Deferred income taxes                                  347            356 
  Prepaid expenses                                     5,208          4,324 
  Other current assets                                 3,466          4,013 
                                               -------------  ------------- 
    Total current assets                             114,079        106,430 
Property and equipment, net of accumulated                                  
 depreciation of $215,606 and $206,636                59,515         56,181 
Goodwill                                             212,608        212,608 
Other intangible assets, net                          24,682         27,856 
Deferred financing fees, net                           2,575          3,242 
Deferred income taxes                                    976          1,186 
Other assets                                           2,356          2,419 
                                               -------------  ------------- 
    Total assets                               $     416,791  $     409,922 
                                               =============  ============= 
Current liabilities:                                                        
  Accounts payable                             $      25,427  $      23,363 
  Accrued payroll and payroll-related expenses        14,733                 11,497  
    Accrued  expenses                                                                        23,369                  21,365  
    Current  portion  of  long-term  debt  and                                                                          
      capital  leases                                                                          11,394                  21,500  
                                                                                              -------------    -------------  
        Total  current  liabilities                                                  74,923                  77,725  
Long-term  debt  and  capital  leases                                        194,238                198,228  
Deferred  income  taxes                                                                  33,110                  31,667  
Other  long-term  liabilities                                                        3,059                    3,163  
                                                                                              -------------    -------------  
        Total  liabilities                                                                305,330                310,783  
                                                                                              -------------    -------------  
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;  46,790  and  46,365  shares                                                            
      issued  and  46,721  and  46,320  shares                                                                            
      outstanding                                                                                        46                          46  
    Additional  paid-in  capital                                                  109,690                105,806  
    Retained  deficit                                                                        (5,026)              (14,628)
    Accumulated  other  comprehensive  income                                  229                        634  
                                                                                              -------------    -------------  
                                                                                                          104,939                  91,858  
    Less  cost  of  common  stock  in  treasury,  69                                                                  
      and  45  shares                                                                                  319                        168  
                                                                                              -------------    -------------  
        Total  ARC  Document  Solutions,  Inc.                                                                            
          stockholders'  equity                                                        104,620                  91,690  
Noncontrolling  interest                                                                6,841                    7,449  
                                                                                              -------------    -------------  
        Total  equity                                                                          111,461                  99,139  
                                                                                              -------------    -------------  
        Total  liabilities  and  equity                              $          416,791    $          409,922  
                                                                                              =============    =============  
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        
ARC  Document  Solutions,  Inc.                                                                                                
Consolidated  Statements  of  Operations                                                                              
(In  thousands,  except  per  share  data)                                                                              
(Unaudited)                                                                                                                                  
                                                                    Three  Months  Ended          Nine  Months  Ended    
                                                                          September  30,                  September  30,        
                                                                  --------------------    --------------------  
                                                                        2014              2013              2014              2013      
                                                                  ---------    ---------    ---------    ---------  
Service  sales                                        $    94,426    $    88,830    $  279,555    $  268,258  
Equipment  and  supplies  sales                12,381          12,422          36,607          37,652  
                                                                  ---------    ---------    ---------    ---------  
    Total  net  sales                                    106,807        101,252        316,162        305,910  
Cost  of  sales                                              70,584          68,372        206,798        205,040  
                                                                  ---------    ---------    ---------    ---------  
    Gross  profit                                            36,223          32,880        109,364        100,870  
Selling,  general  and                                                                                                                
  administrative  expenses                        26,331          24,019          80,720          72,683  
Amortization  of  intangible                                                                                                    
  assets                                                            1,497            1,610            4,498            5,056  
Restructuring  expense                                      11                657                765            1,765  
                                                                  ---------    ---------    ---------    ---------  
    Income  from  operations                          8,384            6,594          23,381          21,366  
Other  income                                                      (22)              (25)              (71)              (86)
Loss  on  extinguishment  of  debt                  347                262                347                262  
Interest  expense,  net                                3,780            5,895          11,637          18,012  
                                                                  ---------    ---------    ---------    ---------  
    Income  before  income  tax                                                                                                    
      provision                                                  4,279                462          11,468            3,178  
Income  tax  provision                                      659                790            1,930            1,946  
                                                                  ---------    ---------    ---------    ---------  
    Net  income  (loss)                                    3,620              (328)          9,538            1,232  
Loss  (income)  attributable  to                                                                                              
  noncontrolling  interest                                41              (122)                64              (545)
                                                                  ---------    ---------    ---------    ---------  
    Net  income  (loss)  attributable                                                                                        
      to  ARC  Document  Solutions,                                                                                              
      Inc.  shareholders                          $      3,661    $        (450)  $      9,602    $          687  
                                                                  =========    =========    =========    =========  
Earnings  (loss)  per  share                                                                                                      
  attributable  to  ARC  Document                                                                                              
  Solutions,  Inc.  shareholders:                                                                                            
    Basic                                                    $        0.08    $      (0.01)  $        0.21    $        0.01  
                                                                  =========    =========    =========    =========  
    Diluted                                                $        0.08    $      (0.01)  $        0.20    $        0.01  
                                                                  =========    =========    =========    =========  
Weighted  average  common  shares                                                                                            
  outstanding:                                                                                                                              
    Basic                                                          46,338          45,976          46,195          45,880  
    Diluted                                                      47,015          45,976          46,856          45,947  
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        
ARC  Document  Solutions,  Inc.                                                                                                
Non-GAAP  Measures                                                                                                                      
Reconciliation  of  cash  flows  provided  by  operating  activities  to  EBIT,            
  EBITDA  and  Adjusted  EBITDA                                                                                                  
(In  thousands)                                                                                                                            
(Unaudited)                                                                                                                                  
                                                                    Three  Months  Ended          Nine  Months  Ended    
                                                                          September  30,                  September  30,        
                                                                  --------------------    --------------------  
                                                                        2014              2013              2014              2013      
                                                                  ---------    ---------    ---------    ---------  
Cash  flows  provided  by  operating                                                                                        
  activities  (1)                                    $    15,311    $    20,019    $    37,049    $    40,010  
    Changes  in  operating  assets                                                                                              
      and  liabilities,  net  of                                                                                                    
      effect  of  business                                                                                                              
      acquisitions                                          (1,174)        (9,575)          3,985          (7,017)
    Non-cash  expenses,  including                                                                                            
      depreciation,  amortization                                                                                              
      and  restructuring                              (10,517)      (10,772)      (31,496)      (31,761)
    Income  tax  provision                                  659                790            1,930            1,946  
    Interest  expense,  net                            3,780            5,895          11,637          18,012  
    Loss  (income)  attributable  to                                                                                          
      the  noncontrolling  interest                    41              (122)                64              (545)
                                                                  ---------    ---------    ---------    ---------  
EBIT                                                                  8,100            6,235          23,169          20,645  
    Depreciation  and  amortization            8,536            8,669          25,561          26,090  
                                                                  ---------    ---------    ---------    ---------  
EBITDA                                                            16,636          14,904          48,730          46,735  
    Loss  on  extinguishment  of  debt              347                262                347                262  
    Trade  secret  litigation  costs                                                                                          
      (2)                                                                  306                  --            2,787                  --  
    Restructuring  expense                                  11                657                765            1,765  
    Stock-based  compensation                          956                728            2,618            2,049  
                                                                  ---------    ---------    ---------    ---------  
Adjusted  EBITDA                                    $    18,256    $    16,551    $    55,247    $    50,811  
                                                                  =========    =========    =========    =========  
                                                                                                                                                        
(1)  Cash  flows  provided  by  operating  activities  for  the  three  and  nine            
        months  ended  September  30,  2013  includes  cash  payments  related  to              
        restructuring  of  $0.7  million  and  $3.3  million,  respectively.  Cash  flows
        provided  by  operating  activities  for  the  nine  months  ended  September  30,
        2013  includes  an  income  tax  refund  of  $3.8  million  received  in  2013          
        related  to  our  2009  consolidated  federal  income  tax  return.  Cash  flows    
        provided  by  operating  activities  for  the  three  and  nine  months  ended        
        September  30,  2014  includes  cash  payments  for  trade  secret  litigation      
        costs  of  $1.1  million  and  $2.6  million,  respectively,  and  cash  payments  
        related  to  restructuring  of  $0.6  million  and  $1.2  million,  respectively.
                                                                                                                                                        
(2)  On  February  1,  2013,  we  filed  a  civil  complaint  against  a  competitor  and
        a  former  employee  in  the  Superior  Court  of  California  for  Orange  County,
        which  alleged,  among  other  claims,  the  misappropriation  of  ARC  trade        
        secrets;  namely,  proprietary  customer  lists  that  were  used  to                      
        communicate  with  our  customers  in  an  attempt  to  unfairly  acquire  their    
        business.  In  prior  litigation  with  the  competitor  based  on  related            
        facts,  in  2007  the  competitor  entered  into  a  settlement  agreement  and      
        stipulated  judgment,  which  included  an  injunction.  We  instituted  this      
        suit  to  stop  the  defendant  from  using  similar  unfair  business  practices  
        against  us  in  the  Southern  California  market.  The  case  proceeded  to          
        trial  in  May  2014,  and  a  jury  verdict  was  entered  for  the  defendants.  In
        August  2014,  we  filed  a  Notice  of  Appeal.  Legal  fees  associated  with  the
        litigation  totaled  $0.3  million  and  $2.8  million  for  the  three  and  nine  
        months  ended  September  30,  2014,  respectively.                                                    
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        
ARC  Document  Solutions,  Inc.                                                                                                
Non-GAAP  Measures                                                                                                                      
Reconciliation  of  net  income  (loss)  attributable  to  ARC  to  unaudited                
  adjusted  net  income  attributable  to  ARC                                                                        
(In  thousands,  except  per  share  data)                                                                              
(Unaudited)                                                                                                                                  
                                                                    Three  Months  Ended          Nine  Months  Ended    
                                                                          September  30,                  September  30,        
                                                                  --------------------    --------------------  
                                                                        2014              2013              2014              2013      
                                                                  ---------    ---------    ---------    ---------  
Net  income  (loss)  attributable                                                                                            
  to  ARC  Document  Solutions,  Inc.  $      3,661    $        (450)  $      9,602    $          687  
    Loss  on  extinguishment  of  debt              347                262                347                262  
    Restructuring  expense                                  11                657                765            1,765  
    Trade  secret  litigation  costs                306                  --            2,787                  --  
    Income  tax  benefit  related  to                                                                                          
      above  items                                                (258)            (359)        (1,519)            (790)
    Deferred  tax  valuation                                                                                                        
      allowance  and  other  discrete                                                                                          
      tax  items                                                (1,172)              685          (2,798)          1,073  
                                                                  ---------    ---------    ---------    ---------  
Unaudited  adjusted  net  income                                                                                              
  attributable  to  ARC  Document                                                                                              
  Solutions,  Inc.                                  $      2,895    $          795    $      9,184    $      2,997  
                                                                  =========    =========    =========    =========  
                                                                                                                                                        
Actual:                                                                                                                                          
Earnings  (loss)  per  share                                                                                                      
  attributable  to  ARC  Document                                                                                              
  Solutions,  Inc.  shareholders:                                                                                            
    Basic                                                    $        0.08    $      (0.01)  $        0.21    $        0.01  
                                                                  =========    =========    =========    =========  
    Diluted                                                $        0.08    $      (0.01)  $        0.20    $        0.01  
                                                                  =========    =========    =========    =========  
Weighted  average  common  shares                                                                                            
  outstanding:                                                                                                                              
    Basic                                                          46,338          45,976          46,195          45,880  
    Diluted                                                      47,015          45,976          46,856          45,947  
                                                                                                                                                        
Adjusted:                                                                                                                                      
Earnings  per  share  attributable                                                                                          
  to  ARC  Document  Solutions,  Inc.                                                                                        
  shareholders:                                                                                                                            
    Basic                                                    $        0.06    $        0.02    $        0.20    $        0.07  
                                                                  =========    =========    =========    =========  
    Diluted                                                $        0.06    $        0.02    $        0.20    $        0.07  
                                                                  =========    =========    =========    =========  
Weighted  average  common  shares                                                                                            
  outstanding:                                                                                                                              
    Basic                                                          46,338          45,976          46,195          45,880  
    Diluted                                                      47,015          46,487          46,856          45,947  
                                                                                                                                                        
                                                                                                                                                        
                                                                                                                                                        
ARC  Document  Solutions,  Inc.                                                                                                
Non-GAAP  Measures                                                                                                                      
Reconciliation  of  net  income  (loss)  attributable  to  ARC  Document  Solutions,  
  Inc.  shareholders  to  EBIT,  EBITDA  and  Adjusted  EBITDA                                            
(In  thousands)                                                                                                                            
(Unaudited)                                                                                                                                  
                                                                  Three  Months  Ended            Nine  Months  Ended    
                                                                      September  30,                      September  30,        
                                                              ---------------------    ----------------------
                                                                    2014                2013              2014                2013      
                                                              ----------    ---------    ----------    ----------
Net  income  (loss)  attributable                                                                                            
  to  ARC  Document  Solutions,                                                                                                  
  Inc.  shareholders                          $        3,661    $        (450)  $        9,602    $            687
    Interest  expense,  net                          3,780            5,895            11,637            18,012
    Income  tax  provision                                659                790              1,930              1,946
                                                              ----------    ---------    ----------    ----------
EBIT                                                                8,100            6,235            23,169            20,645
    Depreciation  and                                                                                                                    
      amortization                                          8,536            8,669            25,561            26,090
                                                              ----------    ---------    ----------    ----------
EBITDA                                                          16,636          14,904            48,730            46,735
    Loss  on  extinguishment  of                                                                                                  
      debt                                                              347                262                  347                  262
    Trade  secret  litigation                                                                                                      
      costs                                                            306                  --              2,787                    --
    Restructuring  expense                                11                657                  765              1,765
    Stock-based  compensation                        956                728              2,618              2,049
                                                              ----------    ---------    ----------    ----------
Adjusted  EBITDA                                $      18,256    $    16,551    $      55,247    $      50,811
                                                              ==========    =========    ==========    ==========
                                                                                                                                                        
                                                                                                                                                        
ARC  Document  Solutions,  Inc.                                                                                                
Net  Sales  by  Product  Line                                                                                                      
(In  thousands)                                                                                                                            
(Unaudited)                                                                                                                                  
                                                                Three  Months  Ended              Nine  Months  Ended    
                                                                      September  30,                      September  30,        
                                                            ----------------------    ----------------------
                                                                  2014                2013                2014                2013      
                                                            ----------    ----------    ----------    ----------
Service  Sales                                                                                                                              
Onsite  services(1)                        $      34,950    $      30,990    $    100,442    $      90,542
Traditional  reprographics                  28,196            28,907            86,702            88,981
Color                                                          22,869            20,638            67,182            63,389
Digital                                                        8,411              8,295            25,229            25,346
                                                            ----------    ----------    ----------    ----------
    Total  services  sales                        94,426            88,830          279,555          268,258
Equipment  and  supplies  sales            12,381            12,422            36,607            37,652
                                                            ----------    ----------    ----------    ----------
    Total  net  sales                          $    106,807    $    101,252    $    316,162    $    305,910
                                                            ==========    ==========    ==========    ==========
                                                                                                                                                        
(1)  Represents  work  done  at  our  customer  sites,  which  includes  Facilities      
        Management  ("FM")  and  Managed  Print  Services  ("MPS").                                      
                                                                                                                                                        
 

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