2019 THIRD QUARTER RESULT S N o v e m b e r 7 , 2 0 1 9
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
Leading Book Publisher, Strong free cash flow and no Enthusiast Magazine, Catalog, Rationalizing debt maturities until Sept. 30 Office Products and Logistics Manufacturing platform 2021 Solutions platforms Our Plan to Navigate the Industry Landscape Improving margins through Positioning for more Investing in strengths and increased efficiencies, profitable growth leveraging technology for enhanced revenue and more significant value creation opportunities maximized productivity 3 | LSC COMMUNICATIONS
Q3 2019 FINANCIAL SUMMARY ($ millions, except earnings per share) Q3 2019 Q3 2018 Q3 2019 YTD Q3 2018 YTD $834 $1,015 $2,548 $2,887 Net sales As reported % change -17.9% -11.7% Organic % change (1) -9.3% -6.1% $24 ($4) ($126) ($7) Net (loss) income Non-GAAP adjusted EBITDA (1) $49 $90 $144 $220 Non-GAAP adjusted EBITDA Margin (1) 5.9% 8.9% 5.7% 7.6% Non-GAAP earnings per diluted share (1) ($0.06) $0.74 ($0.14) $1.10 CO-MAIL BOOK FULFILLMENT SERVICES 4 | LSC COMMUNICATIONS (1) Please refer to the Appendix for reconciliation of non-GAAP measures
Taking Necessary MAGAZINES, CATALOGS & LOGISTICS Actions to Reduce Cost Structure S E G M E N T O V E RV I E W Digital disruption continues to negatively impact demand for • Recently announced shutdown of printed advertising and catalogs Reno facility with expected sales proceeds to exceed $20 million less shutdown costs of approximately $ MILLIONS Q3’19 Q3’18 $10 million • As communicated in August, Revenues $392 $463 Torrance plant sale expected As reported -15.5% proceeds to be $35 million • Proceeds from sales of facilities will Organic % change (1) -12.1% be applied towards debt reduction Non-GAAP Adjusted EBITDA margin decreased Non-GAAP Adj EBITDA (1) $11 $17 primarily due to the impact of lower volumes offset • Moving quickly to further rationalize by the impact of synergies associated with the the platform Non-GAAP Adj EBITDA Margin (1) 2.8% 3.7% Company’s logistics acquisitions and favorable transportation rates 5 | LSC COMMUNICATIONS (1) Please refer to the Appendix for reconciliation of non-GAAP measures
Deepening Customer BOOK Relationships through Value-Added S E G M E N T O V E RV I E W Services • K-12 volume declined after significant increases in previous 3 quarters + Warehousing and Fulfillment • Higher Education continues to be negatively impacted by digital alternatives Services • Trade volume steady and services continue to grow + Order-to-Cash + Reverse Logistics Solutions $ MILLIONS Q3’19 Q3’18 Plant Shutdown Revenues $256 $282 + Recently announced shutdown of As reported -9.6% Philadelphia facility Organic % change (1) -6.7% Non-GAAP Adjusted EBITDA margin decreased Non-GAAP Adj EBITDA (1) $19 $34 compared with the third quarter of 2018, primarily due to the education volume declines and wage Non-GAAP Adj EBITDA Margin (1) 7.4% 12.1% increases implemented in tight labor markets. 6 | LSC COMMUNICATIONS (1) Please refer to the Appendix for reconciliation of non-GAAP measures
OFFICE PRODUCTS Investing in Growing E-tail Channel S E G M E N T O V E RV I E W Secular volume declines reflects the ongoing disruption and consolidation in the Plant Shutdowns retail channel, along with our continuing shift away from low-margin commodity + Recently announced shutdowns of products Canton, MA and St. George, UT facilities $ MILLIONS Q3’19 Q3’18 Revenues $128 $145 As reported % change -11.7% Organic % change (1) -11.6% Office Products margins declined as compared to Q3 2018 primarily related to less favorable Non-GAAP Adj EBITDA (1) $13 $19 mix of branded vs. private label sales, partially offset by price increases and synergies Non-GAAP Adj EBITDA Margin (1) 10.2% 13.1% associated with the acquisition of Quality Park 7 | LSC COMMUNICATIONS (1) Please refer to the Appendix for reconciliation of non-GAAP measures
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