LSC Communications — Presentation (September 2020)
39 slides from LSC Communications's investor presentation, Sep 15, 2020
Slide 1: Discussion Materials August 2020
Exhibit 99.1 Discussion Materials August 2020 HI HIGHL GHLY Y CONF CONFIIDE DENT NTIIA AL L DR DRA AF FT T, , S SUB UBJE JECT CT T TO O ND NDA A;; S SUB UBJE JECT CT T TO O F FRE RE 4 40 08 8 A AND ND RU RUL LE ES S O OF F S SIIM MIIL LA AR R IIM MP PORT ORTExhibit 99.1 Discussion Materials August 2
Slide 2: Confidentiality & Disclaimer
Confidentiality & Disclaimer By accepting this presentation, recipients acknowledge that they have read, understood and accepted the terms of this Disclaimer. This presentation is the property of, and contains the proprietary and confidential information of LSC Communications, Inc., and its direct a
Slide 3: Table of Contents
Table of Contents + Business Update 1 + Financial Projections 2 + WholeCo A + Book B + Office Products C + Magazine, Catalog and Logistics (MCL) D + Mexico E + Appendix 3 HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTTable of Contents + Business Update 1 +
Slide 4: Business Update
1 1. Business Update HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT1 1. Business Update HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 5: LSC Communications: North American Market Leader
LSC Communications: North American Market Leader Overview North American Platform + North American leader in traditional and digital print, print-related services and office products + Serves the needs of publishers, merchandisers and retailers + Service offering includes logistics, warehousing, ful
Slide 6: Segment Financial Overview and Outlook
Segment Financial Overview and Outlook Adj. 1 1 1 1 EBITDA Revenue % of Total Margin % Outlook + Leadership position and steady book demand has supported stable performance and profitability 31% Book ~$1.0B ~$80M ~8% + Track record of consistent profitability expected to continue + Consistent perfor
Slide 7: COVID-19 Mitigation Plans
COVID-19 Mitigation Plans The Company has Implemented Best-in-Class Continuity Plans to Mitigate Business Disruption from COVID-19, but Potential Risks Remain Across each of the Business Segments + Detailed Business Continuity Plans refreshed; plans have components to mitigate virus-related supply c
Slide 8: COVID-19 Impact: Key Assumptions
COVID-19 Impact: Key Assumptions + COVID-19 pandemic is expected to impact 2020 revenues across all segments, with volumes expected to rebound in the second half of 2020 and into 2021. The below provides an overview of key assumption on the COVID-19 revenue impact in 2020 + Book: Company assumes an
Slide 9: COVID-19 Impact: Key Assumptions (Cont'd)
COVID-19 Impact: Key Assumptions (Cont’d) + COVID-19 pandemic is expected to impact 2020 revenues across all segments, with volumes expected to rebound in the second half of 2020 and into 2021. The below provides an overview of key assumption on the COVID-19 revenue impact in 2020 + MCL: Company ass
Slide 10: Strategic Initiatives
Strategic Initiatives Robust Pipeline of Strategic Initiatives to Enhance Market Position, Improve Margins and Cash Flow and Reduce Leverage Key Initiatives + Significantly reduce footprint and excess capacity in Long-Run magazine and catalog plants Continued Plant to drive margin improvement Consol
Slide 11: Consolidated July 2020 Results
Consolidated July 2020 Results ($ in millions) Actual Forecast July Δ + On a consolidated basis, July results exceeded the revised revenue and EBITDA July July $ % forecasts as volumes continued to show Book $70.4 $75.4 ($5.0) (6.6%) month over month growth from April lows, in addition to better tha
Slide 12: Consolidated July YTD Results
Consolidated July YTD Results ($ in millions) Actual January February March April May June July July YTD Book $70.3 $62.8 $71.0 $59.7 $69.0 $69.1 $70.4 $472.4 Office Products 36.7 37.7 38.1 18.9 24.0 37.3 42.1 234.8 MCL 121.0 110.2 118.2 84.1 73.5 69.8 81.0 657.7 Mexico 8.5 6.4 7.8 4.2 5.8 6.5 7.0 4
Slide 13: Financial Projections
3. 2 Financial Projections HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT3. 2 Financial Projections HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 14: WholeCo
A 3. WholeCo HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTA 3. WholeCo HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 15: Consolidated Financial Outlook: 2019A – 2024E
Consolidated Financial Outlook: 2019A – 2024E Execution on Cost Initiatives Expected to Result in Stable Adj. EBITDA Margins Starting in 2021E Revenue ($M) Adjusted EBITDA ($M) $3,310 6.9% 59 6.5% 6.0% 5.2% 91 2 4.9% 3.5% $2,913 517 $164 $155 401 1.0% $2,509 $145 $2,429 38 $2,396 $2,364 $144 79 80 8
Slide 16: 2020E Pro Forma Revenue & Adj. EBITDA Summary
2020E Pro Forma Revenue & Adj. EBITDA Summary ($ in millions) Book Office Products MCL Mexico Total Revenue $813 $427 $1,154 $80 $2,474 (+) Normalized for COVID-19 112 72 208 10 401 Adj. Normalized Revenue $925 $499 $1,362 $89 $2,875 (+) Corporate & Other 38 Adj. Consolidated Revenue $2,913 Adj. EBI
Slide 17: Book
B 3. Book HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTB 3. Book HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 18: Book | Segment Overview
Book | Segment Overview LSC is the Largest Book Producer and Service Provider in the U.S. Overview Key Statistics + Prints for the top 10 U.S. book publishers 1 ~$1.0B ~$80M ~8% + Serves book publishers across multiple verticals 2019 Revenue 2019 Adj. 2019 Adj. including the Trade & Specialty, K-12
Slide 19: Book | Revenue Forecast
Book | Revenue Forecast Top-Line Revenue Expected to Stabilize Despite Secular Headwinds Commentary Revenue ($M) '19A-'24E + LSC is well-positioned to weather the secular $1,011 CAGR headwinds in physical print books due to its current 50 $925 market position, marquee customer base and ability $888
Slide 20: Book | Adj. EBITDA Forecast
Book | Adj. EBITDA Forecast New Technologies and a Focus on Productivity Expected to Maintain Margins Commentary Adj. EBITDA ($M) 1 7.9% 8.3% 9.0% 9.5% 10.1% 10.7% + Margins expected to remain stable as a result of $89 5.3% continued focus on improving productivity, price $86 increases, improved pro
Slide 21: Office Products
C 3. Office Products HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTC 3. Office Products HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 22: Office Products | Segment Overview
Office Products | Segment Overview TOPS Products Overview Key Statistics + The Office Products segment of LSC Communications (“TOPS”), is an industry leader in the manufacturing of office products and stationery in ~$0.5B ~$59M ~11% North America 2019 Revenue 2019 Adj. EBITDA Adj. EBITDA Margin + TO
Slide 23: Office Products | Revenue Forecast
Office Products | Revenue Forecast TOPS is Expected to Maintain Top-Line Stability Despite Secular Headwinds Commentary Revenue ($M) '19A-'24E + Industry-wide secular declines expected to continue CAGR $517 at ~4% annually $499 $469 + The company is well-positioned, relative to peers, to $460 $451 7
Slide 24: Office Products | Adj. EBITDA Forecast
Office Products | Adj. EBITDA Forecast Proactive Steps are Expected to Lead to Stable Margins Over the Projection Period Commentary Adj. EBITDA ($M) 1 12.7% 12.6% 12.8% 12.7% 12.0% 11.4% + Projected to maintain stable double-digit margins over the forecast period 10.0% + Margin impacts reflect secul
Slide 25: Magazine, Catalog and Logistics (MCL)
D 3. Magazine, Catalog and Logistics (MCL) HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTD 3. Magazine, Catalog and Logistics (MCL) HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 26: MCL | Segment Overview
MCL | Segment Overview Leading Producer of Magazines, Catalogs & Digital Print with a Full Suite of Value-Added Services Overview Key Statistics 2 + Print: Produces catalogs, magazines & retail inserts ~1,100 14 to customer specifications using offset, gravure or Magazine Production digital printing
Slide 27: MCL | Revenue Forecast
MCL | Revenue Forecast Revenue Forecast Reflects a Return to Stability After Plant Consolidation Commentary Revenue ($M) Proactive plant closures, further accelerated by Revenue CAGR + Significant decline in Long-Run Magazine and COVID-19 Catalog is driving company’s proactive strategic '19 - '21 '2
Slide 28: MCL | Adj. EBITDA Forecast
MCL | Adj. EBITDA Forecast Value-Creation Initiatives Expected to Deliver Return to Profitability in 2022 Commentary Adj. EBITDA ($M) + Profitability of the business is expected to stabilize as $35 the revenue mix shifts towards more profitable $27 businesses in Short-Run / Niche Publications, Logis
Slide 29: MCL | Facilities
MCL | Facilities Large Footprint to Support Customer Needs Est. Property 2 # of FTE Union Status Size (Sq. Ft.) Ownership Value ($M) Manufacturing Facilities Long Run Baraboo, WI 332 Non-Union 165,000 Leased NA Danville, KY 741 Non-Union 821,000 Owned 8.6 Lancaster, PA 1,178 Non-Union 1,503,000 Owne
Slide 30: MCL | Facilities (Cont'd)
MCL | Facilities (Cont’d) Large Footprint to Support Customer Needs Est. Property # of FTE Union Status Size (Sq. Ft.) Ownership Value ($M) Warehouses Logistics Atlanta, GA 1 Non-Union 135,200 Leased NA Bolingbrook, IL 3 Non-Union 659,157 Leased NA Bolingbrook, IL 44 Non-Union 417,090 Leased NA Grap
Slide 31: Mexico
E 3. Mexico HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTE 3. Mexico HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 32: Mexico | Segment Overview
Mexico | Segment Overview LSC Mexico is a Standalone Low Cost, High Quality Producer of Magazine, Catalog and Books Overview Key Statistics + Mexico segment consists of three locations; two plants based in Tlalnepantla and San Juan Del Río, $91M ~20% and the headquarters also based in Tlalnepantla 2
Slide 33: Mexico | Facilities
Mexico | Facilities Strategically-Located Facilities to Best Serve Our Customers Overview Mexico Facility Locations Tlalnepantla (Mexico City Metro Area) - HQ San Juan Del Río + 99 employees in SG&A, Finance, IT, HR and Legal roles San Juan Del Río plant + 862 employees, 642 of whom are unionized +
Slide 34: Mexico | Financial Summary
Mexico | Financial Summary Top-Line Impacted by Recent Currency Fluctuations While EBITDA Margins Remain Stable Revenue Revenue ($M) + Top-line impacted by recent adverse exchange rate $98 $97 fluctuations resulting in ~20% devaluation of the peso relative $91 $80 $81 $80 $79 $80 to 3-year average +
Slide 35: Appendix
Appendix HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORTAppendix HIGHLY CONFIDENTIAL DRAFT, SUBJECT TO NDA; SUBJECT TO FRE 408 AND RULES OF SIMILAR IMPORT
Slide 36: Consolidated Financial Summary
Consolidated Financial Summary ($ in millions) 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E Book $1,022 $1,056 $1,011 $813 $888 $869 $853 $838 Office Products 589 562 517 427 469 460 451 442 Magazine, Catalog and Logistics 1,939 1,883 1,631 1,154 1,073 1,021 1,011 1,002 Mexico 98 97 91 80 79 80 8
Slide 37: Net Working Capital Summary
($ in millions) Net Working Capital Summary Balance as of 12/31/17 12/31/18 12/31/19 3/31/20 6/30/20 Consolidated Accounts Receivable $740.3 $651.8 $472.4 $458.1 $410.9 Inventory 223.5 196.8 170.3 156.3 140.7 Accounts Payable 413.1 400.8 174.9 151.0 87.8 Net Working Capital $550.7 $447.8 $467.8 $463
Slide 38: Capital Expenditures Summary
Capital Expenditures Summary ($ in millions) 2017A Q1 2018A Q2 2018A Q3 2018A Q4 2018A 2018A Q1 2019A Q2 2019A Q3 2019A Q4 2019A 2019A Q1 2020A Q2 2020E Q3 2020E Q4 2020E 2020E 2021E 2022E 2023E 2024E Capital Expenditures by Segment Book $13 $9 $9 $6 $6 $31 $17 $7 $4 $2 $30 $4 $2 $4 $5 $15 $21 $17 $
Slide 39: Tax Profile
Tax Profile + Estimated 2020 Non-GAAP effective tax rate is expected to be negative, consisting of an insignificant benefit on the US loss and a provision on international income + US has a full valuation allowance and tax benefit is limited to minor refundable credits + Impact of the contemplated r