LSC Communications Reports Third Quarter 2019 Results and Updates Full-Year 2019 Guidance

Financial Highlights:
• Net cash provided by operating activities of $86 million in the third quarter of 2019, compared to net cash from operating activities of $0 million in the third quarter of 2018
• Non-GAAP free cash flow of $75 million, compared to ($15) million in the third quarter of 2018
• Net sales of $834 million compared to $1,015 million in the third quarter of 2018
• Organic net sales decrease of 9.3% from the third quarter of 2018
• GAAP net income of $24 million, or $0.69 per diluted share, compared to net loss of $4 million, or $0.12 per diluted share in the third quarter of 2018
• Non-GAAP net loss of $2 million, or $0.06 per diluted share, compared to non-GAAP net income of $25 million, or $0.74 per diluted share in the third quarter of 2018
• Non-GAAP adjusted EBITDA of $49 million, or 5.9% of net sales, compared to $90 million, or 8.9% of net sales, in the third quarter of 2018

“I am pleased with the very strong free cash flow performance in the quarter, and our focus remains on initiatives designed to deepen our customer relationships in order to further strengthen our leadership position in our industry” said Thomas J. Quinlan III, LSC Communications’ Chairman, President and Chief Executive Officer. “We continue to take the necessary actions to reduce costs and decrease leverage.”

Net Sales
Third quarter net sales were $834 million, down $181 million, or 17.9%, from the third quarter of 2018. After adjusting for acquisitions, dispositions, changes in foreign exchange rates and pass-through paper sales, organic net sales decreased 9.3% from the third quarter of 2018. The decrease in organic net sales was largely due to the ongoing impact of digital substitution on magazine and catalog volume and lower education book volume driven by earlier back-to-school production that benefitted the first half of 2019.

GAAP Net Income/Loss
The third quarter 2019 net income was $24 million, or $0.69 per diluted share, compared to net loss of $4 million, or $0.12 per diluted share, in the third quarter of 2018. The third quarter 2019 net income included the $45 million pre-tax merger termination fee received from Quad Graphics ($34 million net of tax) partially offset by other after-tax charges of $8 million. The third quarter 2018 net loss included after-tax charges of $29 million. These items 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 third quarter of 2019 was $49 million, or 5.9% of net sales, compared to $90 million, or 8.9% of net sales, in the third quarter of 2018. The decrease in non-GAAP adjusted EBITDA was primarily driven by volume declines, partially offset by the benefit of a $5.7 million gain on the previously-announced sale of the commingle business.

Non-GAAP net loss totaled $2 million, or $0.06 per diluted share, in the third quarter of 2019 compared to non-GAAP net income of $25 million, or $0.74 per diluted share in the third quarter of 2018 primarily due to the $45 million merger termination fee received from Quad Graphics. Reconciliations of net loss to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.
more detail at: https://investor.lsccom.com/news-releases/2019/11-07-2019-112951001

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