LSC COMMUNICATIONS Investor Presentation February, 20 18
SAFE HARBOR 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 22, 2018 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 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
AGENDA + Business Overview + Investment Highlights + Financial Overview + Appendix 4 | LSC COMMUNICATIONS
Business Overview 5 | LSC COMMUNICATIONS
LSC COMMUNICATIONS: A GLOBAL LEADER LSC AT A GLANCE EXTENSIVE PRODUCTS & SERVICE CAPABILITIES Global leader in traditional and digital print, print-related services Office Products 14% and office products Books Directories Serves the needs of publishers, merchandisers and retailers 28% 3% Service offering includes supply chain management, mail and Europe distribution services, and e-book formatting 7% $3.6BN Serves over 3,000 customers 2017 Sales Strategically located operations with 54 production and manufacturing facilities in the U.S., Europe and Mexico Magazines, catalogs Print & retail inserts 25 acquisitions completed since 2004 48% $3.60BN of revenues with $328MM of EBITDA (1) in 2017 Office Products GLOBAL PLATFORM WITH SIGNIFICANT SCALE UNITED STATES MEXICO POLAND Print Locations 45 9 ~19 million Office Products Locations Production International Square Feet of 1. Non-GAAP adjusted EBITDA Facilities Manufacturing Owned Facility 6 | LSC COMMUNICATIONS in the U.S. Facilities Space
VALUE CREATION STRATEGY LSC IS UNIQUELY POSITIONED WITH A CLEAR STRATEGY FOR DELIVERING SIGNIFICANT VALUE TO ITS SHAREHOLDERS IN A DYNAMIC MARKET ENVIRONMENT Leverage Scale Improve Disciplined Operational M&A Efficiency Value Creation Grow Select New Existing Revenue Revenue Streams Streams 7 | LSC COMMUNICATIONS
PRINT SEGMENT OVERVIEW SEGMENT SNAPSHOT NET SALES ($MM) + Print segment (86% of total revenues) produces magazines, catalogs, $3,181 $3,127 $3,108 retail inserts, books and directories and provides print-related services $144 $126 $109 + Largest producer of books in the U.S. $305 $247 $272 + One of the largest producers of catalogs, magazines and retail inserts in $925 $1,022 $1,097 North America + Offers a wide range of products and services to customers: Books: Produces hardcover and softcover books serving the $1,807 $1,730 $1,632 education, trade, religious and testing sectors using a combination of offset and digital printing processes to better manage customer inventory 2015 2016 2017 Magazines, Catalogs & Retail Inserts: Produces catalogs, Magazines, Catalogs & Retail Inserts Books Europe Directories magazines & retail inserts to customers’ specifications using either offset or gravure printing processes in combination with either on- press finishing, saddle-stitch binding or patent binding SELECT CUSTOMERS Directories: Produces directories which are mainly phone directories that support local and small business advertising Print-related Services: + Supply chain management offering includes procurement, warehousing, distribution, and inventory management for book 8 of the top 10 book publishers in North America + Europe publishers + Mail services offering includes list processing and mail sortation 7 of the top 10 direct mail catalogers in the United States services that optimize postal costs for magazine and catalog customers 7 of the top 10 magazine publishers in the United States + Other offerings include e-book formatting and distribution services 8 | LSC COMMUNICATIONS
PRINT INDUSTRY TRENDS THEMES LSC’S ADVANTAGE + Despite a slight uptick in 2016, the overall industry’s + Experienced management team with proven Excess Industry capacity utilization remains low at 68% (1) strategy for identifying plant rationalization Capacity opportunities in time-efficient manner + Despite recent consolidation, this highly + LSC continues to be one of the largest players Highly Competitive price-competitive segment continues to in its segments and an active consolidator in Environment remain fragmented the industry with 25 acquisitions since 2004 + Expectation for continued pricing pressure as + LSC’s scale and services offerings allow its Customers’ Focus customers focus on total cost – including not only customers to benefit from postal and supply price, but materials and distribution costs chain efficiencies lowering their overall on Total Cost total costs + e-book adoption rates are stabilizing and LSC + Changes in technology including electronic has benefited from growing industry-wide print substitution and migration of paper based book volume in recent years Technological documents to digital data formats remain threats to + Service offerings represents significant growth the traditional print industry Changes / Volume potential for LSC Pressures + Continued investments in digital print technology and focus on innovation initiatives help offset declines 1. Printing & Support capacity utilization per Federal Reserve as of January 17, 2018. 9 | LSC COMMUNICATIONS
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