LSC Reports Q2 Results, Including $24M Net Loss, Plant Closure, Amended Credit
LSC Communications Financial Highlights:
- Completed amendment to credit agreement provides additional liquidity
- Announced plan to close production facility in Torrance, Calif., and sell the land and building resulting in net proceeds of approximately $35 million
- Net cash provided by operating activities of $27 million in the second quarter of 2019, compared to net cash used in operating activities of $2 million in the second quarter of 2018
- Non-GAAP free cash flow of $6 million, compared to ($19) million in the second quarter of 2018
- Net sales of $869 million compared to $943 million in the second quarter of 2018
- Organic net sales decrease of 4.2% from the second quarter of 2018
- GAAP net loss of $24 million, or $0.69 per diluted share, compared to net income of $8 million, or $0.23 per diluted share in the second quarter of 2018
- Non-GAAP net income of $2 million, or $0.08 per diluted share, compared to non-GAAP net income of $17 million, or $0.48 per diluted share in the second quarter of 2018
- Non-GAAP adjusted EBITDA of $53 million, or 6.1% of net sales, compared to $77 million, or 8.2% of net sales, in the second quarter of 2018
“As we reduce costs, enhance our financial flexibility, and focus on initiatives designed to deepen our customer relationships, I am confident we will further strengthen our position within the industry.” said Thomas J. Quinlan III, LSC Communications’ Chairman, President and Chief Executive Officer. “As a standalone company operating in an evolving industry, we are taking decisive steps to better position the Company for the future.”
Second quarter net sales were $869 million, down $74 million, or 7.7%, from the second quarter of 2018. After adjusting for acquisitions, dispositions, changes in foreign exchange rates and pass-through paper sales, organic net sales decreased 4.2% from the second quarter of 2018. The decrease in organic net sales was largely due to lower volume in Magazines, Catalogs and Logistics, as well as Office Products, partially offset by volume growth in Book and price increases in Office Products.
GAAP Net Loss
The second quarter 2019 net loss was $24 million, or $0.69 per diluted share, compared to net income of $8 million, or $0.23 per diluted share, in the second quarter of 2018. The second quarter 2019 net loss included after-tax charges of $26 million, primarily due to the impairment of intangible assets in the Magazines, Catalogs and Logistics segment and other restructuring costs. The second quarter 2018 net income included after-tax charges of $9 million. These after-tax charges 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 Loss
Non-GAAP adjusted EBITDA in the second quarter of 2019 was $53 million, or 6.1% of net sales, compared to $77 million, or 8.2% of net sales, in the second quarter of 2018. The decrease in non-GAAP adjusted EBITDA was primarily due to volume declines in the Magazines, Catalogs and Logistics segment.
Non-GAAP net income totaled $2 million, or $0.08 per diluted share, in the second quarter of 2019 compared to non-GAAP net income of $17 million, or $0.48 per diluted share in the second quarter of 2018. Reconciliations of net loss to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.
The Company’s full-year guidance for 2019 has not changed from the guidance provided on July 23, 2019 and is included in the table 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, merger-related expenses 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.
Credit Agreement Amendment
On August 2, 2019, the Company entered into an amendment to its credit agreement to, among other things, decrease the minimum Interest Coverage Ratio and increase the maximum Consolidated Leverage Ratio, as defined in the agreement, which would have increased the net available liquidity under the revolving credit facility as of June 30, 2019 notwithstanding the reduction in the revolving credit facility aggregate principal amount from $400 million to $300 million, which was also effected through the amendment.
The amendment also removed the general allowance to pay annual dividends up to $50 million, as well as other changes that generally further restrict the Company’s ability to incur additional indebtedness, create liens and make investments and acquisitions. The maturity date of the revolving credit facility remains September 30, 2021, and the outstanding principal amount, required amortization payments and maturity date of the term loan facility remains the same. Additional details regarding the credit agreement amendment can be found in the current report on Form 8-K filed by the Company on August 5, 2019.
The Company recently announced the planned closure of its production facility in Torrance, Calif. The Company has entered into an agreement to sell the land and building in Torrance and expects to receive net proceeds of approximately $35 million.
To see LSC Communications' 2019 Earnings Call PowerPoint Presentation, click here.
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 the staff of Printing Impressions.