LSC COMMUNICATIONS 2019 Second Quarter Results August 8, 20 19
SAFE HARBOR AND NON-GAAP INFORMATION LSC Communications Cautionary Statement Regarding Forward-Looking Statements This presentation includes certain "forward-looking statements" within the meaning of, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of LSC Communications and its expectations relating to future financial condition and performance. Statements that are not historical facts, including statements about LSC Communications management’s beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While LSC Communications believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond LSC Communications’ control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from LSC Communications’ current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in LSC Communications’ Form 10-K filed on February 19, 2019 and LSC Communications’ periodic filings with the SEC. LSC Communications does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward- looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. Non-GAAP Financial Information This presentation contains certain non-GAAP measures. The Company believes that these non-GAAP measures, such as non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP net income/loss, organic net sales and free cash flow, when presented in conjunction with comparable GAAP measures, provide useful information about the Company’s operating results and liquidity and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP net income/loss, organic net sales and free cash flow allow investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that non- GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP net income/loss, organic net sales and free cash flow, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods, caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges, gain or loss on certain equity investments and asset sales and acquisitions and dispositions, the Company believes that non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non- GAAP net income/loss and organic net sales can provide useful additional basis for comparing the current performance of the underlying operations being evaluated. By adjusting for the level of capital investment in operations, the Company believes that free cash flow can provide useful additional basis for understanding the Company’s ability to generate cash after capital investment and provides a comparison to peers with differing capital intensity. 2 | LSC COMMUNICATIONS
Q2 2019 FINANCIAL SUMMARY ($ millions, except earnings per share) Q2 2019 Q2 2018 Q2 2019 YTD Q2 2018 YTD $869 $943 $1,714 $1,872 Net sales As reported % change -7.7% -8.4% Organic % change (1) -4.2% -4.4% ($24) $8 ($150) ($3) Net (loss) income Non-GAAP adjusted EBITDA (1) $53 $77 $95 $130 Non-GAAP adjusted EBITDA Margin (1) 6.1% 8.2% 5.5% 6.9% Non-GAAP earnings per diluted share (1) $0.08 $0.48 ($0.08) $0.37 3 | LSC COMMUNICATIONS (1) Please refer to the Appendix for reconciliation of non-GAAP measures
SEGMENT OVERVIEW Magazines, Catalogs and Logistics Book Q2'19 Q2'18 Q2'19 Q2'18 ($ millions) ($ millions) Revenues $380 $401 Revenues $289 $266 As reported % change -5.3% As reported % change 9.2% Organic % change (1) Organic % change (1) -8.8% 5.1% Non-GAAP Adj EBITDA (1) Non-GAAP Adj EBITDA (1) ($9) $15 $32 $35 Non-GAAP Adj EBITDA Margin (1) Non-GAAP Adj EBITDA Margin (1) -2.4% 3.7% 11.1% 13.2% + MCL segment sales down 8.8% (1) on an organic basis in Q2 + Book sales increased 5.1% (1) on an organic basis in Q2 2019 2019 driven mainly by digital disruption of demand for primarily driven by increased education book volume due to printed advertising and marketing materials new adoptions in Texas and California in the K-12 market as well as increased fulfillment and procurement services + Non-GAAP Adjusted EBITDA margin declined primarily due + Non-GAAP Adjusted EBITDA margin decreased 210 bps to the impact of lower volumes and unfavorable mix partially compared with the second quarter of 2018, primarily due to offset by the impact of synergies associated with the the wage increases implemented to attract and retain Company’s logistics acquisitions employees in facilities most impacted by the tight labor market Strong K-12 textbook adoption cycle and continued Focus on cost saving initiatives and facility rationalization solid trade book demand expected to continue to address the change in product demand (1) Please refer to the Appendix for reconciliation of non-GAAP measures 4 | LSC COMMUNICATIONS
SEGMENT OVERVIEW Office Products Other Q2'19 Q2'18 Q2'19 Q2'18 ($ millions) ($ millions) Revenues $139 $154 Revenues $61 $122 As reported % change -9.7% As reported % change -50.1% Organic % change (1) Organic % change (1) -9.5% -1.6% Non-GAAP Adj EBITDA (1) Non-GAAP Adj EBITDA (1) $17 $17 $9 $9 Non-GAAP Adj EBITDA Margin (1) Non-GAAP Adj EBITDA Margin (1) 12.2% 11.0% 14.8% 7.4% + Office Products sales down 9.5% (1) on an organic basis in Q2 + Other segment sales were down 1.6% (1) on an organic basis in 2019 primarily related to lower volume in low-margin, Q2 2019 primarily due to lower directories volume, partially commodity filing and note-taking products, partially offset by offset by higher sales in print management services and the impact of price increases implemented to pass along price increases in Mexico higher costs for material and freight + Non-GAAP Adjusted EBITDA margin increased 740 bps + Non-GAAP Adjusted EBITDA margin increased 120 bps due driven by improved product mix due to the sale of the to the impact of the volume reductions in low-margin European printing business in Q3 2018 as well as the products, price increases, a favorable mix of branded versus impact of price increases in Mexico private label sales and synergies associated with the acquisition of Quality Park Synergies, improved mix, productivity improvement, and price Includes stable and profitable Mexico business and growing increases drive margin improvement print management offering (1) Please refer to the Appendix for reconciliation of non-GAAP measures 5 | LSC COMMUNICATIONS
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