LSC Reports Slight Q3 Net Sales Decrease, Updates Guidance

CHICAGO - November 2, 2017 - LSC Communications, Inc. today reported financial results for the third quarter of 2017.

3Q 2017 Highlights

• Net sales of $935 million compared to $949 million in the third quarter of 2016
• GAAP net loss of $3 million, or $0.07 per diluted share
• Non-GAAP net income of $25 million, or $0.73 per diluted share
• Non-GAAP adjusted EBITDA of $96 million, or 10.3% of net sales, compared to $101 million, or 10.6% of net sales, in the third quarter of 2016

Thomas J. Quinlan III

“We are pleased with our third quarter results. As the year has progressed, we have improved our year-over-year earnings trend, and we continue to focus on integrating our recent acquisitions, to realize synergy opportunities and further drive productivity savings,” said Thomas J. Quinlan III, LSC Communications’ chairman and CEO. “In our first full year as a standalone company, we have made significant progress executing our strategy with targeted acquisitions and investments that position LSC to better serve our customers with enhanced capabilities and technology and improved geographic reach. As we approach the end of the year, we are updating our full year guidance to reflect the expected impact of the acquisition of Publishers Press, as well as ongoing trends in our business and expect full year non-GAAP adjusted EBITDA to be approximately $340 million.”

Net Sales

Third quarter net sales were $935 million, down $14 million, or 1.5%, from the third quarter of 2016. Pro forma for acquisitions completed in the last four quarters, changes in foreign exchange rates, and pass-through paper sales, organic net sales decreased 6.6% from the third quarter of 2016. The decrease in organic net sales was due to lower volume and price declines in both the Print and Office Products segments.

GAAP Net Income

Third quarter 2017 net loss was $3 million, or $0.07 per diluted share, compared to net income of $38 million, or $1.17 per diluted share, in the third quarter of 2016. The third quarter of 2017 included $19 million of interest expense primarily related to debt issued in connection with the October 1, 2016 separation from RR Donnelley & Sons Company, while no interest expense was allocated to LSC Communications in the third quarter of 2016. The effective tax rate for the third quarter of 2017 reflected the impact of non-deductible goodwill impairment charges. Third quarter net income included net of tax charges of $28 million and $4 million in 2017 and 2016, respectively, 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 third quarter of 2017 was $96 million, or 10.3% of net sales, compared to $101 million, or 10.6% of net sales, in the third quarter of 2016. The decrease in non-GAAP adjusted EBITDA was primarily due to volume declines and price pressure in the Print and Office Products segments as well as product mix within the Print segment, partially offset by ongoing productivity and cost control initiatives and the impact from the acquisitions.

Non-GAAP net income totaled $25 million, or $0.73 per diluted share, in the third quarter of 2017 compared to non-GAAP net income of $42 million, or $1.26 per diluted share in the third quarter of 2016. Non-GAAP net income in the third quarter of 2017 included $19 million of interest expense primarily related to debt issued in connection with the separation from RR Donnelley, while no interest expense was allocated to LSC Communications in the third quarter of 2016. Reconciliations of net income to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.

2017 Guidance

The Company’s updated full-year guidance for 2017, in the table below, is updated for the impact of the acquisition of Publishers Press and ongoing trends in our business:

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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.