LSC Reports Q4, Full-Year 2016 Results, Issues Full-Year 2017 Guidance

CHICAGO — February 23, 2017 — LSC Communications today reported financial results for the fourth quarter of 2016 and guidance for the full year of 2017.

4Q 2016 Highlights:

Net sales of $919 million compared to $1.0 billion in the fourth quarter of 2015
GAAP net income of $9 million, or $0.26 per diluted share
Non-GAAP net income of $15 million, or $0.48 per diluted share
Non-GAAP adjusted EBITDA of $80 million, or 8.7% of net sales, compared to $111 million, or 11.1% of net sales, in the fourth quarter of 2015
Net cash provided by operating activities of $95 million
Non-GAAP free cash flow of $82 million

Full Year 2016 Highlights:

Net sales of $3.65 billion compared to $3.74 billion for full year 2015
GAAP net income of $106 million, or $3.23 per diluted share
Non-GAAP net income of $121 million, or $3.69 per diluted share
Non-GAAP adjusted EBITDA of $370 million, or 10.1% of net sales, compared to $398 million, or 10.6% of net sales for full year 2015

Company issues full-year 2017 guidance

“In our first quarter as a standalone company, we are pleased to have delivered results in line with our guidance,” said Thomas J. Quinlan III, LSC Communications’ Chairman and Chief Executive Officer. “In 2017, we expect to continue growing our industry-leading supply chain management services offering and are excited to execute our strategy as we enter our first full year as a standalone public company.”

Net Sales
Fourth quarter net sales were $919 million, down $85 million, or 8.5%, from the fourth quarter of 2015. After adjusting for the December 2, 2016 acquisition of Continuum, changes in foreign exchange rates, and pass-through paper sales, organic sales decreased 6.3% from the fourth quarter of 2015. The decrease in organic net sales was due to lower volume and price pressures in the Print segment.

GAAP Net Income
Fourth quarter 2016 net income was $9 million, or $0.26 per diluted share, compared to net income of $38 million, or $1.17 per diluted share, in the fourth quarter of 2015. The fourth quarter of 2016 includes $18 million of interest expense related to debt issued in connection with the October 1 separation from RR Donnelley & Sons Company, while no interest expense was allocated to LSC Communications in the fourth quarter of 2015. Also, fourth-quarter net income included after-tax charges of $6 million and $2 million in 2016 and 2015, respectively, both of which 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 Income
Non-GAAP adjusted EBITDA in the fourth quarter of 2016 was $80 million, or 8.7% of net sales, compared to $111 million, or 11.1% of net sales, in the fourth quarter of 2015. The decrease in non-GAAP adjusted EBITDA was primarily due to volume declines and price pressure in the Print segment, a lower LIFO reserve release in 2016 compared to 2015, and an increase in healthcare costs, partially offset by ongoing cost control initiatives.

Non-GAAP net income totaled $15 million, or $0.44 per diluted share, in the fourth quarter of 2016 compared to non-GAAP net income in the fourth quarter of 2015 of $40 million, or $1.23 per diluted share. The fourth quarter of 2016 includes $18 million of interest expense related to debt issued in connection with the separation from RR Donnelley, while no interest expense was allocated to LSC Communications in 2015 the fourth quarter of 2015. Reconciliations of net income to non-GAAP adjusted EBITDA and non-GAAP net income are presented in the attached schedules.

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Certain components of the guidance given in the table above are provided on a non-GAAP basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without "unreasonable efforts." The Company does not have access to certain information that would be necessary to provide such a reconciliation, including non-recurring items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, spinoff-related transaction expenses, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals, losses on debt extinguishment and other similar gains or losses not reflective of the Company's ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company's ongoing operations, given that such excluded items are not indicators of business performance.

LSC Reports Decrease in Q4, Full-Year 2016 Sales; Issues Full-Year 2017 Guidance