LSC Communications — Merger or Acquisition (October 2018)
33 slides from LSC Communications's merger presentation, Oct 31, 2018
Slide 1: Call Participants
Call Participants Thomas J. Quinlan III Chairman, Chief Executive Officer and President LSC Communications, Inc. Joel Quadracci Chairman, President & Chief Executive Officer Quad/Graphics, Inc. Dave Honan Executive Vice President & Chief Financial Officer Quad/Graphics, Inc. 2
Slide 2: Forward-Looking Statements
Forward-Looking Statements • This communication contains certain forward-looking statements with respect to the financial condition, results of operations and business of Quad/Graphics and the combined businesses of Quad/Graphics and LSC Communications and certain plans and objectives of Quad/Graphi
Slide 3: Transaction-Related Communications
Transaction-Related Communications Additional Information and Where to Find It The proposed transaction involving Quad/Graphics and LSC Communications will be submitted to the holders of class A and class B common stock of Quad/Graphics and to the holders of common stock of LSC Communications for th
Slide 4: LSC Communications Acquisition Overview
LSC Communications Acquisition Overview Joel Quadracci Chairman, President & Chief Executive Officer Quad/Graphics, Inc. Thomas J. Quinlan III Chairman, Chief Executive Officer and President LSC Communications, Inc.
Slide 5: Stronger Together
Stronger Together A leading marketing solutions provider. A global leader in print and digital media solutions. $4.2 billion $3.9 billion 9/30/2018 Net Sales — Trailing Twelve Months(1) 9/30/2018 Net Sales — Trailing Twelve Months 55 Manufacturing & Distribution Facilities Worldwide 59 Manufacturing
Slide 6: Strategic Rationale for Acquisition Fuels Quad 3.0 Transformation
Strategic Rationale for Acquisition Fuels Quad 3.0 Transformation • Creates a highly efficient print platform to fuel Quad’s 3.0 transformation strategy that creates value by leveraging Quad’s strong print foundation as part of a much larger and more robust integrated marketing solutions offering. S
Slide 7: Combination Strengthens Print Platform
Combination Strengthens Print Platform 4% 6% Magazine, Catalog $4.2 billion Int’l. Logistics $8.1 billion 9/30/2018 Net Sales — 8% Logistics Magazine, & Retail Magazine, 14% Products Int’l.(1) & Retail Books Books Trailing Twelve Months(1) 8 Packaging Other & Instore Media Bo ks Solutions 9%49% & Re
Slide 8: Transaction Overview
Transaction Overview 100% Stock Transaction 0.625 share exchange ratio Expected to achieve approximately $135 million in net synergies in less than two years Closing of the transaction is not contingent on financing. Quad has secured a financing commitment from JPMorgan Chase Bank, N.A. Expected to
Slide 9: Quad's Evolution 3.0 Continued Multi-Channel Transformation
Quad’s Evolution 3.0 Continued Multi-Channel Transformation Diversifying offering to support customers with integrated marketing solutions CAMPAIGN PLANNING AUDIENCE TARGETING PROCESS OPTIMIZATION PRE-MEDIA PRODUCTION CONSUMER INSIGHTS PHOTO/VIDEO PERSONALIZATION 2.0 Industry Efficiencies Acquired t
Slide 10: Integrated Marketing Solutions Offering
Integrated Marketing Solutions Offering PLAN PRODUCE Create content Understand and connect with your customer assets smarter and faster MANAGE & MEASURE Alleviate operational burden and reduce DEPLOY Reach the right customer at the right time complexity 11
Slide 11: Financial Summary of the Transaction
Financial Summary of the Transaction Dave Honan Executive Vice President & Chief Financial Officer Quad/Graphics, Inc.
Slide 12: Pro Forma 2018 Adjusted EBITDA
Pro Forma 2018 Adjusted EBITDA CALCULATION OF PRO FORMA ADJUSTED EBITDA (US $ Millions) $135 Approx. ($50) $280 $785 $420 2018(1) 2018(1) Pension Income(2) Pre-Synergy 2018(3) Annualized Deal Net Synergies(4) Post-Synergy 2018(3) (1) (2) (3) (4) Represents the midpoint of each respective company’s n
Slide 13: Net Synergy Breakdown
Net Synergy Breakdown Net Synergies Cost to Achieve $60 million $80 million $50 million $45 million $25 million $10 million $1 Cost to Achieve $ 1 to Annual Net Synergy $135 million $135 million 14 TOTAL Supply Chain Management Efficiencies Administrative Efficiencies Capacity Rationalization We hav
Slide 14: Strong Free Cash Flow Generation
Strong Free Cash Flow Generation PRE-SYNERGY PRO FORMA 2018(1) PRE-SYNERGY CONVERSION RATE USES OF FREE CASH FLOW(2) $650 700 million 45% Free Cash Flow Conversion(2) 600 $295 million Affordable Dividend ($1.20/share) Dividend 30% $90 million 500 400 300 (1) Strong Free Cash 200 Available Cash 70% 1
Slide 15: Strong Balance Sheet
Strong Balance Sheet POST-SYNERGY PRO FORMA DEBT LEVERAGE — 2018 PRE-SYNERGY PRO FORMA DEBT LEVERAGE — 2018 $2,500 $2,500 $1,905 million 2.72x $650 2.43x $1,770 million $2,000 $2,000 $1,500 $1,500 million (2) $1,000 $1,000 $230 million $230 million $500 $500 million(1) $0 $0 (3) (3) Debt QUAD Adjust
Slide 16: Acquisition History
Acquisition History $8.0 3.50x 3.14x 2.93x 3.00x 2.68x 2.64x 2.45x $6.0 2.40x 2.35x 2.38x 2.50x 2.15x 2.05x 2.00x $4.0 1.50x 1.00x $2.0 0.50x billion $0.0 0.00x (1) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (E) Annual Net Sales Debt Leverage Ratio at Year End (2) (1) Represents Quad/Graphics
Slide 17: Quad/Graphics Q3 2018 Financials
Quad/Graphics Q3 2018 Financials Dave Honan Executive Vice President & Chief Financial Officer Quad/Graphics, Inc.
Slide 18: Financial Overview – Quad/Graphics, Inc.
Financial Overview – Quad/Graphics, Inc. Third Quarter Year-to-Date STATEMENT OF OPERATIONS Cost of Sales 831.7 784.8 2,450.8 2,330.9 Adjusted EBITDA(1) $ 105.0 $ 113.1 $ 305.1 $ 325.9 STATEMENT OF CASH FLOWS Capital Expenditures (85.0) (61.6) (1) See slide 26 for definitions of our non-GAAP measure
Slide 19: 2018 Annual Guidance – Quad/Graphics, Inc. (Narrowed)
2018 Annual Guidance – Quad/Graphics, Inc. (Narrowed) Net Sales $4.0 to $4.2 billion Approximately $4.2 billion Free Cash Flow(2) $200 to $240 million Approximately $200 million Interest Expense $65 to $75 million $70 to $75 million Capital Expenditures $85 to $95 million $95 to $100 million Cash Ta
Slide 20: Debt & Pension Obligations
Debt & Pension Obligations DEBT & CAPITAL LEASES PENSION & MEPP OBLIGATIONS $112 million $1,200 $120 $109 $1,000 $80 $800 $600 $40 $400 $200 $0 12/31/2017 9/30/2018 $0 12/31/2017 9/30/2018 (1) Assumes a re-measurement of Quad/Graphics, Inc.’s pension liability as of 9/30/2018. 21 Pension plan funded
Slide 21: Capital Structure as of September 30, 2018
Capital Structure as of September 30, 2018 DEBT LEVERAGE RATIO(1) INTEREST 2.60x 2.50x 2.40x 2.30x 2.20x 2.10x 2.00x 1.90x Floating Long-Term Targeted Range of 2.0x to 2.5x 5.2% Blended Interest Rate 42% 58% 2.28x 28x Fixed REVOLVER AVAILABILITY Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 (2) 2018 (E
Slide 22: Shareholder Value
Shareholder Value (as of October 30, 2018) $1.25 23 Commitment to the Dividend $1.50 $1.20 $1.20 $1.20 $1.20 $1.00 $0.75 $0.50 $0.25 $0.00 2014 2015 2016 2017 2018 Dividend Yield 7% Dividend as % of Free Cash Flow 30% Declared dividend of $0.30 per share to be payable on December 7, 2018, to shareho
Slide 23: For questions contact
For questions contact: Kyle Egan IR@qg.com For questions contact: Janet Halpin investor.relations@lsccom.com
Slide 24: For questions contact
quad Os Quad COMMUNICATIONS For questions contact: For questions contact: Kyle Egan Janet Halpin IR@qg.com investor.relations@lsccom.com
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial Measures • In addition to financial measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), this presentation also contains Non-GAAP financial measures, specifically EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBIT
Slide 26: Adjusted EBITDA Third Quarter
Adjusted EBITDA Third Quarter Three Months Ended September 30, Net earnings attributable to Quad/Graphics common shareholders $ 23.4 $ 19.8 Income tax expense 3.1 11.8 EBITDA [Non-GAAP] $ 103.9 $ 107.7 Restructuring, impairment and transaction-related charges 5.3 8.0 Equity in earnings of unconsolid
Slide 27: Adjusted EBITDA Year-to-Date
Adjusted EBITDA Year-to-Date Nine Months Ended September 30, Net earnings attributable to Quad/Graphics common shareholders $ 29.3 $ 51.9 Income tax (benefit) expense (3.9) 26.8 EBITDA [Non-GAAP] $ 253.0 $ 307.8 Restructuring, impairment and transaction-related charges 40.6 22.5 Employee stock owner
Slide 28: Free Cash Flow Year-to-Date
Free Cash Flow Year-to-Date Nine Months Ended September 30, Net cash provided by operating activities $ 46.6 $ 179.7 Free Cash Flow [Non-GAAP] $ (38.4) $ 118.1 29 Less: purchases of property, plant and equipment (85.0)(61.6) US $ Millions 2018 2017
Slide 29: Debt Leverage Ratio
Debt Leverage Ratio Total debt and capital lease obligations on the balance sheets $ 1,074.4 $ 964.8 Trailing twelve months Adjusted EBITDA for Quad/Graphics [Non-GAAP] $ 427.4 $ 448.2 Trailing twelve months Adjusted EBITDA [Non-GAAP] $ 436.0 $ 448.2 (1) The calculation of Adjusted EBITDA for the tr
Slide 30: Balance Sheet
Balance Sheet ASSETS Receivables 553.0 552.5 Other current assets 57.6 45.1 Goodwill 55.5 — Other long-term assets 100.7 122.9 LIABILITIES AND SHAREHOLDERS’ EQUITY Other current liabilities 274.1 306.2 Long-term debt and capital leases 1,027.0 917.2 Single and multi-employer pension obligations 88.3
Slide 31: Adjusted Diluted Earnings Per Share Third Quarter
Adjusted Diluted Earnings Per Share Third Quarter Three Months Ended September 30, Earnings before income taxes and equity in earnings of unconsolidated entity $ 25.4 $ 31.6 30.7 39.6 Adjusted net earnings [Non-GAAP] $ 23.0 $ 23.8 Basic weighted average number of common shares outstanding 49.3 49.5
Slide 32: Adjusted Diluted Earnings Per Share Year-to-Date
Adjusted Diluted Earnings Per Share Year-to-Date Nine Months Ended September 30, Earnings before income taxes and equity in (earnings) loss of unconsolidated entity $ 23.9 $ 79.5 Employee stock ownership plan contribution 22.3 — 86.8 104.6 Adjusted net earnings [Non-GAAP] $ 65.1 $ 62.8 Basic weighte
Slide 33: Adjusted Diluted Earnings Per Share Year-to-Date
Adjusted Diluted Earnings Per Share veor-to.0ate Nine Months Ended September 30, US $ Millions (Except Per Share Data) 2018 2017 Earnings before income taxes and equity in (earnings) loss of unconsolidated entity $23.9 $795 Restructuring, impairment and transaction-related charges 40.6 22.5 Employee
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