LSC COMMUNICATIONS 2017 Third Quarter Results November 2, 20 17 - PowerPoint PPT Presentation

LSC COMMUNICATIONS 2017 Third Quarter Results November 2, 20 17

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 23, 2017 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. 2 | LSC COMMUNICATIONS

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 net income 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 net income 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 net income 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 and gain or loss on certain equity investments and asset sales, the Company believes that non-GAAP adjusted EBITDA and non-GAAP net income 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. 3 | LSC COMMUNICATIONS

STRATEGIC FOCUS Highlights Key Initiatives + Results for the third quarter were in line Continued focus on: with our expectations and continued the + Driving down cost for our trend of improving comparisons in year- clients and adding scale to over-year earnings. our core offerings. + Made significant progress in driving + Expanding services in: expansion of our offerings, both organically and through acquisitions. Media Services + Expansion of Book Publisher Services technologies has continued to gain Digital Technologies momentum. • Added a number of new clients to the Management Services IntercepTag TM platform this quarter, and are down the path to establishing Logistics the industry standard for anti-piracy. 4 | LSC COMMUNICATIONS

Q3 2017 FINANCIAL SUMMARY Q3 2017 Results Non-GAAP Adj. EBITDA $ Change vs. Prior Year ($ millions) ($ millions) Q3 2017 Q3 2016 Net sales $935 $949 As reported % change -1.5% $40 Organic % change (1) -6.6% $11 - $23 Total cost of sales 778 783 $20 SG&A expenses 65 66 Restructuring, impairment, and other charges - net 60 3 $- ($5) Depreciation and amortization 39 40 ($11) $(20) Income from operations ($7) $57 ($31) Interest expense (income) - net 19 1 $(40) (3) Q1 2017 Q2 2017 Q3 2017 Q4 2017 E Investment and other expense - net 0 0 Income before income taxes ($26) $56 + Improving year-over-year earnings trend throughout Fiscal Year 2017 Income tax (benefit) expense (23) 18 + Expected to improve year-over-year profitability during Q4 Net income ($3) $38 2017 (3) primarily due to incremental earnings from acquisitions, Non-GAAP Adjusted EBITDA (2) $96 $101 increase in co-mail volume, and productivity within Book platform Non-GAAP Adjusted EBITDA Margin (2) 10.3% 10.6% (1) Please refer to slide 14 for organic revenue reconciliations (2) Please refer to slide 12 for reconciliation of non-GAAP measures, including Non-GAAP Adjusted EBITDA and Non-GAAP Adjusted EBITDA Margin (3) Q4 2017 E represents implied fourth quarter results based on full year expected Non-GAAP Adjusted EBITDA in FY Guidance from November 2, 2017 5 | LSC COMMUNICATIONS

SEGMENT OVERVIEW Print Office Products Q3'17 Q3'16 Q3'17 Q3'16 ($ millions) ($ millions) Revenues $ 819 $ 822 Revenues $ 116 $ 127 Non-GAAP Adj EBITDA (1) Non-GAAP Adj EBITDA (1) $ 84 $ 85 $ 15 $ 15 Non-GAAP Adj EBITDA Margin (1) Non-GAAP Adj EBITDA Margin (1) 10.3% 10.3% 12.9% 11.8% + Print segment sales down 6.2% (2) on an organic basis in Q3 2017 + Office Products sales down 9.3% (2) on an organic basis in Q3 mainly due to lower volume and pricing pressure 2017 primarily due to lower volume driven by continued challenges with brick and mortar retail industry as well as the  Book organic declines driven by lower volume in educational resulting impact on wholesale distributors and price pressures and religious products, partially offset by strong digital services demand + Continue to experience strong growth from e-commerce distribution channel, partially offset by decline within wholesaler  CMR organic declines driven by pricing pressure and lower business volume, particularly in retail inserts + Non-GAAP Adjusted EBITDA margin increased 110 basis + Non-GAAP Adjusted EBITDA margin was flat (1) primarily due to points (1) primarily due to strong cost control and improved strong productivity and cost reductions, partially offset by the productivity, partially offset by lower price and an unfavorable impacts of price pressure and unfavorable product mix product mix Recent acquisitions enhance capabilities and complement Continue to expand e-commerce channel while organic investments in co-mail and digital printing providing cost-effective solutions for traditional channels (1) Please refer to slide 13 for reconciliation of non-GAAP measures (2) Please refer to slide 14 for organic revenue reconciliations 6 | LSC COMMUNICATIONS