ARC Document Solutions Meets or Exceeds Revised Financial

ARC Document Solutions Meets or Exceeds Revised Financial Guidance for Full Year 2016

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. For more information, see our 2015 Annual Report on Form 10-K.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three and twelve months ended December 31, 2016 and 2015 to reflect the exclusion of loss on extinguishment of debt, goodwill impairment, restructuring expense, trade secret litigation 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 twelve months ended December 31, 2016 and 2015. We believe these charges were the result of the then current macroeconomic environment, our capital restructuring, or other items which are not indicative of our actual operating performance.

We have presented adjusted EBITDA for the three and twelve months ended December 31, 2016 and 2015 to exclude loss on extinguishment of debt, goodwill impairment, trade secret litigation costs, restructuring expense, and stock-based compensation expense. The adjustment of EBITDA for these items 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 (In thousands) (Unaudited)	Three Months Ended December 31,				Twelve Months Ended December 31,
	2016		2015		2016		2015
Cash flows from operating activities
Net income (loss)	$	2,779	$	3,184	$	(47,499)	$	97,388
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Allowance for accounts receivable	274		48		918		340
Depreciation	6,886		6,835		26,918		28,019
Amortization of intangible assets	1,128		1,336		4,833		5,642
Amortization of deferred financing costs	101		129		445		589
Goodwill impairment	—		—		73,920		—
Stock-based compensation	620		773		2,693		3,512
Deferred income taxes	1,307		1,952		(4,711)		10,173
Deferred tax valuation allowance	67		213		51		(80,669)
Loss on early extinguishment of debt	52		89		208		282
Other non-cash items, net	(176)		(33)		(716)		(390)
Changes in operating assets and liabilities, net of effect of business acquisitions:
Accounts receivable	991		4,366		(1,294)		729
Inventory	1,606		808		(1,590)		(967)
Prepaid expenses and other assets	(404)		(645)		109		2,296
Accounts payable and accrued expenses	3,865		(2,191)		(1,143)		(6,963)
Net cash provided by operating activities	19,096		16,864		53,142		59,981
Cash flows from investing activities
Capital expenditures	(4,517)		(2,728)		(12,097)		(14,245)
Other	259		75		1,101		589
Net cash used in investing activities	(4,258)		(2,653)		(10,996)		(13,656)
Cash flows from financing activities
Proceeds from stock option exercises	22		112		98		673
Proceeds from issuance of common stock under Employee Stock Purchase Plan	24		28		120		111
Share repurchases	—		—		(5,297)		(204)
Contingent consideration on prior acquisitions	(118)		(54)		(571)		(413)
Early extinguishment of long-term debt	(6,000)		(3,625)		(22,000)		(14,500)
Payments on long-term debt agreements and capital leases	(3,339)		(7,287)		(12,990)		(27,329)
Net borrowings (repayments) under revolving credit facilities	950		—		950		(1,888)
Payment of deferred financing costs	—		—		(106)		(25)
Payment of hedge premium	—		—		—		(632)
Net cash used in financing activities	(8,461)		(10,826)		(39,796)		(44,207)
Effect of foreign currency translation on cash balances	(778)		(246)		(1,074)		(791)
Net change in cash and cash equivalents	5,599		3,139		1,276		1,327
Cash and cash equivalents at beginning of period	19,640		20,824		23,963		22,636
Cash and cash equivalents at end of period	$	25,239	$	23,963	$	25,239	$	23,963
Supplemental disclosure of cash flow information:
Noncash financing activities:
Capital lease obligations incurred	$	6,603	$	3,490	$	18,948	$	13,157
Contingent liabilities in connection with the acquisition of businesses	$	—	$	—	$	75	$	—

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