LSC Communications Reports 13.2% Net Sales Increase in Q1 2018 Results

CHICAGO - May 3, 2018 - LSC Communications, Inc. reported financial results for the first quarter of 2018.

1Q 2018 Highlights:

• Net sales of $929 million compared to $821 million in the first quarter of 2017, an increase of $108 million, or 13.2%
• Organic net sales decrease of 1.7% compared to the first quarter of 2017, an improvement in organic net sales trends
• GAAP net loss of $11 million, or $0.32 per diluted share compared to a net loss of $1 million, or $0.02 per diluted share in the first quarter of 2017
• Non-GAAP net loss of $4 million, or $0.11 per diluted share, compared to non-GAAP net income of $4 million, or $0.14 per diluted share in the first quarter of 2017
• Non-GAAP adjusted EBITDA of $53 million, or 5.7% of net sales, compared to $65 million, or 7.9% of net sales, in the first quarter of 2017
• Company reaffirms full-year guidance

Thomas J. Quinlan III, CEO of LSC Communications

“We are pleased with the overall revenue trends in the quarter and, as we expected given the sales mix, the first quarter’s margin comparisons were difficult. We anticipate margin improvements as we move through 2018, driven by improved sales mix, integration synergies and cost actions taken earlier this year,” said Thomas J. Quinlan III, LSC Communications’ Chairman, Chief Executive Officer and President. “In 2018, we have continued to execute on our strategic initiatives and are excited to add the Print Logistics component of RRD’s Logistics business to further strengthen our logistics infrastructure to drive growth in warehousing and distribution services. Additionally, we announced the sale of LSC’s retail offset printing facilities as we continue to focus on our adjacencies growth strategy.”

Net Sales

First quarter net sales were $929 million, up $108 million, or 13.2%, from the first quarter of 2017. After adjusting for acquisitions, changes in foreign exchange rates, pass-through paper sales, and the adoption of new revenue recognition standards, organic net sales decreased 1.7% from the first quarter of 2017 which represents an improvement in the Company’s organic net sales trend. This improvement was driven by sales performance in the Print segment, especially within the book reporting unit, that was more than offset by the impact of customer inventory reductions in the Office Products segment.

GAAP Net Income

First quarter 2018 net loss was $11 million, or $0.32 per diluted share, compared to a net loss of $1 million, or $0.02 per diluted share, in the first quarter of 2017. The first quarter 2018 net loss included after-tax charges of $7 million and first quarter 2017 net income included after-tax charges of $5 million, both of which are excluded from the presentation of non-GAAP net income. Additional details regarding the amount and nature of these adjustments and other items are included in the attached schedules.

Non-GAAP Adjusted EBITDA and Non-GAAP Net Income

Non-GAAP adjusted EBITDA in the first quarter of 2018 was $53 million, or 5.7% of net sales, compared to $65 million, or 7.9% of net sales, in the first quarter of 2017. The decrease in non-GAAP adjusted EBITDA margin was primarily due to sales mix, pricing pressure and the impact of lower margins related to recent acquisitions partially offset by on-going productivity and cost control initiatives.

Non-GAAP net loss totaled $4 million, or $0.11 per diluted share, in the first quarter of 2018 compared to non-GAAP net income of $4 million, or $0.14 per diluted share in the first quarter of 2017. Reconciliations of net income to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.

2018 Guidance

The Company reaffirms the following full-year guidance for 2018, which includes the estimated impact of its announced transactions assuming a closing date in the second quarter for the sale of LSC’s retail offset printing facilities and in the third quarter for the Print Logistics component of RRD’s Logistics business⁽¹⁾:

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(1) The completion of each transaction is subject to customary closing conditions

(2) 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.

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

(4) This guidance assumes no shares are repurchased under the Board of Director’s authorization to repurchase up to $20 million of the Company’s shares of common stock.

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.

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.