LSC Reports Q4, Full-Year 2017 Results, Issues Full-Year 2018 Guidance

CHICAGO - February 22, 2018 - LSC Communications today reported financial results for the fourth quarter of 2017.

4Q 2017 Highlights:

• Net sales of $999 million compared to $919 million in the fourth quarter of 2016
• GAAP net loss of $58 million, or $1.68 per diluted share compared to net income of $9 million, or $0.26 per diluted share in the fourth quarter of 2016
• Non-GAAP net income of $17 million, or $0.50 per diluted share, compared to $15 million, or $0.48 per diluted share in the fourth quarter of 2016
• Non-GAAP adjusted EBITDA of $85 million, or 8.5% of net sales, compared to $80 million, or 8.7% of net sales, in the fourth quarter of 2016
• Net cash provided by operating activities of $147 million compared to $95 million in the fourth quarter of 2016
• Non-GAAP free cash flow of $138 million compared to $82 million in the fourth quarter of 2016

Thomas J. Quinlan III

“We are very pleased with our free cash flow generation in the fourth quarter, and despite continued challenging industry conditions, we delivered increases in non-GAAP adjusted EBITDA and non-GAAP earnings per share,” said Thomas J. Quinlan III, LSC Communications’ Chairman and Chief Executive Officer. “As we enter 2018, we are confident that LSC Communications is well positioned to further differentiate its industry-leading customer solutions and continue to deliver a solid balance sheet, strong cash flow and improved earnings.”

Net Sales

Fourth quarter net sales were $999 million, up $80 million, or 8.7%, from the fourth quarter of 2016. After adjusting for acquisitions, changes in foreign exchange rates, and pass-through paper sales, organic net sales decreased 4.6% from the fourth quarter of 2016. The organic decrease in net sales was due to lower volume and price declines in the Print segment and price declines in the Office Products segment.

GAAP Net Income

Fourth quarter 2017 net loss was $58 million, or $1.68 per diluted share, compared to net income of $9 million, or $0.26 per diluted share, in the fourth quarter of 2016. The effective tax rate for the fourth quarter of 2017 reflected $24 million of one-time provisional tax expense related to the enactment of the Tax Cuts and Jobs Act, which will be further detailed in the 2017 Form 10-K, as well as the impact from non-deductible goodwill impairment charges. The fourth quarter 2017 net loss included after tax charges of $75 million and fourth quarter 2016 net income included after- tax charges of $6 million, both of which are excluded from the presentation of non-GAAP net income.

Non-GAAP Adjusted EBITDA and Non-GAAP Net Income

Non-GAAP adjusted EBITDA in the fourth quarter of 2017 was $85 million, or 8.5% of net sales, compared to $80 million, or 8.7% of net sales, in the fourth quarter of 2016. The increase in non-GAAP adjusted EBITDA was primarily due to on-going productivity and cost control initiatives, as well as the impact from acquisitions, partially offset by volume declines, product mix and price pressure in the Print segment and price pressure in the Office Products segment.

Non-GAAP net income totaled $17 million, or $0.50 per diluted share, in the fourth quarter of 2017 compared to non-GAAP net income of $15 million, or $0.48 per diluted share in the fourth quarter of 2016.

2018 Guidance

The Company provides the following full-year guidance for 2018:

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(1) Consistent with historical guidance and presentation, non-GAAP adjusted EBITDA includes net pension income. Beginning in 2018, Accounting Standards Update No. 2017-07 requires companies to disaggregate the service cost component of net benefit cost from other components of net benefit cost and present the service cost component with other employee compensation costs. All other components of net benefit cost will need to be presented outside of income from operations. As a result, the Company expects to reclassify approximately $49 million, $46 million and $45 million of net pension income for years ended 2018, 2017 and 2016, respectively, out of income from operations to a line item outside of income from operations, resulting in no impact to net income or non-GAAP adjusted EBITDA.

(2) Free cash flow is defined as net cash provided by operating activities less capital expenditures

(3) This guidance assumes no shares are repurchased under the authorization available to the Company described below

Certain components of the guidance given in the table above are provided on a non-GAAP basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without "unreasonable efforts." The Company does not have access to certain information that would be necessary to provide such a reconciliation, including non-recurring items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals, losses on debt extinguishment and other similar gains or losses not reflective of the Company's ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company's ongoing operations, given that such excluded items are not indicators of business performance.

Share Repurchase Authorization

On February 15, 2018 the Company’s Board of Directors approved an initial share repurchase authorization of up to $20 million of common stock under which the Company may buy back LSC Communications’ shares at its discretion from February 15, 2018 through August 15, 2019. The Company expects to fund the repurchases, if any, from a combination of cash on hand, cash flow and borrowings under its credit facility. Shares may be repurchased from time to time in open market transactions and/or in privately negotiated transactions at the company’s discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. The company may commence, suspend or discontinue purchases of common stock under this authorization at any time or periodically without prior notice. Shares of stock repurchased will be held as treasury shares. The timing and actual number of shares repurchased will depend on a variety of factors including price and other conditions.

Source: LSC Communications.

The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of Printing Impressions.