LSC Communications — Investor Day (March 2018)
81 slides from LSC Communications's investor day presentation, Mar 6, 2018
Slide 1: LSC Communications 2018 Investor Meeting
LSC COMMUNICATIONS 2018 INVESTOR MEETING March 6, 2018
Slide 2: Safe Harbor and Non-GAAP Information
Safe Harbor and Non-GAAP Information 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 a
Slide 3: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 4: Strategy Execution
Strategy Execution COMMITMENTS MADE COMMITMENTS MET Disciplined M&A + Acquired eight companies - increasing capabilities and breadth of product offering + Purchased additional co-mail lines and digital Invest in growth areas presses to drive growth + Developed and commercialized innovations to help
Slide 5: LSC Communications: A Global Leader
LSC Communications: A Global Leader LSC AT A GLANCE EXTENSIVE PRODUCTS & SERVICE CAPABILITIES + Global leader in traditional and digital print, print-related services and Office Products office products 14% + Serves the needs of publishers, merchandisers and retailers Directories Books 3% 28% + Serv
Slide 6: Value Creation Strategy
Value Creation Strategy Leverage Scale Improve Disciplined Operational M&A Efficiency VALUE CREATION Grow Select New Existing Revenue Revenue Streams Streams LSC IS WELL-POSITIONED WITH A CLEAR STRATEGY FOR DELIVERING SIGNIFICANT VALUE TO ITS SHAREHOLDERS IN A DYNAMIC MARKET ENVIRONMENT 6 | LSC COMM
Slide 7: Drive Lower Total Cost and Wider Breadth of Service
Leverage Scale Drive Lower Total Cost and Wider Breadth of Service CUSTOMERS DEMAND FULL SERVICE LARGEST PLAYERS BY REVENUES IN CORE LSC MARKETS AND LOWEST TOTAL DELIVERED COST PRINT + Scale drives procurement and distribution savings $ billions • National footprint for efficient distribution (1) (2
Slide 8: Continuous Improvement and Cost Reduction
Improve Operational Continuous Improvement and Cost Reduction Efficiency BEST-IN-CLASS SAFETY METRICS + Injury rate 27% below the industry average + 12 facilities with 1+ years/1million work hours without a Days Away Case PLANT RATIONALIZATION AND CONTINUOUS IMPROVEMENT + Match capacity with demand
Slide 9: Focused Investment in Growth Drivers
Grow Select Existing Focused Investment in Growth Drivers Revenue Streams INVESTMENT FOCUSED ON GROWTH AREAS WITHIN AND ADJACENT TO CORE OFFERINGS + Book digital print + Supply chain management services + Co-mail services and logistics + Office Products e-commerce channel GROWING REVENUE STREAMS EXP
Slide 10: Innovation Drives New Growth Areas
New Revenue Innovation Drives New Growth Areas Streams ADJACENT SERVICE OFFERINGS BRING INCREASED OPPORTUNITY + Book Order-to-Cash services + Reverse logistics solutions for magazine and book retailers TECHNOLOGY FOCUS HAS TRACTION TO DRIVE FURTHER GROWTH + Physical re-targeting to drive consumer re
Slide 11: Expand Capabilities and Drive Synergies
Disciplined M&A Expand Capabilities and Drive Synergies M&A CRITERIA SIGNIFICANT TARGET MARKET THAT FITS CRITERIA Top 400 Largest Printing Companies Breakdown by Revenue Size by 2017E Revenue(1) + Enhance existing product offerings Companies in Relevant Target Segments(2) >$25MM+ + Expand technologi
Slide 12: LSC Adjacencies Growth Strategy
LSC Adjacencies Growth Strategy FULFILLMENT, LOGISTICS, CO-MAIL, AND PERSONALIZATION DRIVE EXPECTED GROWTH EXPECTED ANNUAL $ millions GROWTH RATES ~ $800 - $1,100 ANTI-PIRACY 4% - 8% PHYSICAL RETARGETING OFFICE (4%) – 1% PRODUCTS ANTI-PIRACY $538 LOGISTICS PHYSICAL CORE PRINT 0% – (3%) RETARGETING L
Slide 13: LSC Communications Strategic Vision
LSC Communications Strategic Vision VALUE CREATION DRIVERS + Maintain and invest in solid core businesses + Leverage supply chain management, logistics and cooperative mailing capabilities to grow share with existing clients + Build on capabilities to personalize print and drive growth in physical r
Slide 14: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 15: Where We Have Been…
Where We Have Been… Births DOT.COM HOUSING Ages 30-45 (Derived) Bubble Bubble Ages 30-45 (Per Census) 1995: Internet Print Industry Revenues 2006 iPhone 1920 1923 1926 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 20
Slide 16: Where We Are Going…
Where We Are Going… 1995: Internet 2006 2018 KNOW EVERY CUSTOMER iPhone - Print evolving, leveraging behavioral data - Growing base of consumers Ages 30-45 (Derived) 1990 2000 2010 2020 2030 2040 16 | LSC COMMUNICATIONS Source: LSC Communications management estimates
Slide 17: Data and Processing Power Drive Change in Consumer Behavior
Data and Processing Power Drive Change in Consumer Behavior and 360 Degree Marketing Strategies U.S. consumers now spend 5 hours per Hyper-Personalization Is About To day on mobile devices Disrupt Three Major Industries People still prefer print books over e- Mass-Customized Magazines Now readers, t
Slide 18: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 19: Largest Book Producer and Service Provider in US
Largest Book Producer and Service Provider in US DESCRIPTION NET SALES ($MM) + Book represents 33% of print segment sales and 28% of total sales in 2017 $1,097 $1,022 $925 + Clients include book publishers in the education, trade, religious and testing sectors + LSC prints for all 10 of the top US b
Slide 20: Higher Ed Publisher Expectations
Higher Ed Publisher Expectations DIGITAL PRINT CAPABILITIES ABLE TO MATCH COSTS TO DEMAND IN HIGHER EDUCATION HIGHER EDUCATION ENROLLMENT EDUCATIONAL BOOK MARKET(1) Thousands of US students HIGHER ED ~ 30% K-12 19,000 18,000 MARKET DRIVERS IMPACTING BOOK DEMAND + Student enrollment is expected to gr
Slide 21: K-12 Educational Publisher Expectations
K-12 Educational Publisher Expectations K-12 BASAL UNDERLYING DEMAND EXPECTED TO GROW IN 2019 EDUCATIONAL PUBLISHER REVENUE EDUCATIONAL BOOK MARKET(1) $ billions HIGHER ED ~ 70% K-12 1.8 1.7 1.3 1.2 1.2 MARKET DRIVERS IMPACTING BOOK DEMAND + Adoption States(2) Expectations ~ • 2018: FL – Science (K-
Slide 22: Growing Print Trade Book Volume
Growing Print Trade Book Volume PUBLISHER TRADE BOOK REVENUE BY FORMAT KEY MARKET TRENDS + Hardback and Paperback segments both grew in 2017 18% 18% 17% 25% 25% 26% 24% + eBook sales have plateaued and not expected to rise above 20% of total 8% 7% 11% trade book revenues 9% 9% 9% 5% 6% 3% 8% 3% 3% 3
Slide 23: Growth Opportunity: Supply Chain Services
Growth Opportunity: Supply Chain Services SUPPLY CHAIN SERVICES OFFERING ESTIMATED BOOK PUBLISHERS’ COST STRUCTURE (1) Earnings 100.0% + LSC has successfully operated its supply chain services Obsolescence offering for two years Administrative Title Dev & Royalties 80.0% Sales & Marketing + Book ful
Slide 24: Growth Opportunity Example: Order to Cash
Growth Opportunity Example: Order to Cash WHAT IS ORDER TO CASH ? CLIENT BENEFITS + Allows publishers to convert fixed costs into variable costs CASH ORDER APPLICATION PROCESSING + Permits publishers to focus more on their core business + Provides publishers access to state-of-the-art technology pla
Slide 25: Providing the Complete Range of Book Publisher Solutions
Providing the Complete Range of Book Publisher Solutions ALLOWS LSC TO PROVIDE UNIQUE SOLUTIONS THAT MORE NARROW COMPETITORS CANNOT EASILY DUPLICATE END-TO-END PRINT & SUPPLY CHAIN SERVICES Vendor Book Fulfillment Order to Materials Manufacturing Logistics Management Services Cash SERVICE OFFERING S
Slide 26: Continue to Innovate New and Growing Existing Services
Continue to Innovate New and Growing Existing Services VALUE CREATION STRATEGY + Leverage scale as largest book printer and digital printing 1 platform to create best in class quality and service model LEVERAGE SCALE + Continue to consolidate the industry by pursuing acquisitions 2 GROW REVENUE + Ex
Slide 27: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 28: Well Positioned to Drive Value Through Technology and Innovation
Well Positioned to Drive Value for Clients Through Technology and Innovation LSC INNOVATION VALUE CREATION CLIENT CHALLENGES LSC’S ADVANTAGE + Existing client base that includes largest publishers/retailers in their respective markets DIGITAL MIGRATION + Uniquely positioned to support both the digit
Slide 29: Harvest Product Suite: One Dashboard, All Publisher Activity
Harvest Product Suite: One Dashboard, All Publisher Activity LSC UNIFIED PLATFORMS: ASSETS, DISTRIBUTION, AND ANALYTICS IN ONE VIEW Asset Repository: Print Distribution to 200+ Channels eBooks Audio Books Marketing Collateral Competitive HARVEST Marketplace Analytics Monitoring (HarvestView) (Harves
Slide 30: HarvestView: Helping Publishers React in Real-Time
HarvestView: Helping Publishers React in Real-Time MARKETPLACE MONITORING: DATA AGGREGATION FOR ACTIONABLE INTELLIGENCE COMPLIANCE ENGAGEMENT COMPETITION + On sale compliance + Consumer engagement data + Aggregated market data for competitive analytics + Price compliance + Trends and analytics + Cov
Slide 31: Helping Publishers Make Data-Informed Decisions
Helping Publishers Make Data-Informed Decisions (1) MACHINE LEARNING AND CONTENT ANALYTICS + Assists publishers to make smarter, data-informed decisions + Uses augmented intelligence and content analytics to rank keywords, then monitor and refine results • Drives increased discoverability • Applicab
Slide 32: Machine Learning and AI for Keywords
Machine Learning and AI for Keywords HOW IT WORKS Dictionaries Industry Best Practices Amazon Best Practices New Manuscript Feature Analysis PROPRIETARY KEYWORD DATABASE KEYWORDS Feature examples: RE-RANKED QUALITY SALES META + N-grams (continuous sequences) KEYWORDS CHECK DATA DATA + Sentiment valu
Slide 33: 71% of Titles Improved After 2 Months
71% of Titles Improved After 2 Months (1) Keywords Case Study SCENARIO RESULTS 2017 Lift Due To Keywords: + 100 Books – mostly published since + Pre-keyword average weekly sales for 2017: $44,713/week 2013 + Post-keyword average weekly sales for 2017: $90,098/week + Mixed genre fiction and narrative
Slide 34: Creating Additional Data Streams to Address Publisher Challenges
Creating Additional Data Streams to Address Publisher Challenges INTERCEPTAG: ANTI-PIRACY AND ANALYTICS PLATFORM VALUE PROPOSITION INTERCEPTAG ECOSYSTEM ► Addresses publisher’s piracy challenges + Books are easy to counterfeit + Counterfeit product is easy to sell PARTNERS MANUFACTURING PUBLISHERS +
Slide 35: IntercepTag Creates Mobility & Robust Data Analytics
IntercepTag Creates Mobility & Robust Data Analytics MOBILE AUTHENTICATION DASHBOARD / ANALYTICS + Mobile application (iOS and Android) + Units Registered + IntercepTag Scan activity enables scan authentication + Distribution Events + Piracy Hot spots + Scan activity validates IntercepTag, analyzes
Slide 36: IntercepTag Leverages the LSC Platform
IntercepTag Leverages the LSC Platform LSC INTERCEPTAG AT SCALE + Volume growth – over 6 times YOY • 3 million units labeled to date • 20 million expected units by end of 2018 + Capacity at scale • 10 Manufacturing plants • 2 Distribution warehouses • 60 million labels + Next steps • Channel partner
Slide 37: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 38: 75% of Magazine Brand Revenues are from Print Editions
75% of Magazine Brand Revenues are from Print Editions LSC MAGAZINE PLATFORM MAGAZINE INDUSTRY STATISTICS + 10 plants and numerous postal optimization centers + ~7,200 magazines circulated in the US(1) + Long-run, short-run, digital, and commercial capabilities • Over 200 new magazines launched in 2
Slide 39: From Consumer to Special Interest Titles
From Consumer to Special Interest Titles LSC Serves The Complete Range of Magazines LONG RUN LIFESTYLE/ FSI ASSOCIATION SHORT RUN CITY & CONSUMER (FREE STANDING TRADE/B2B ENTHUSIAST INSERT) /JOURNALS REGIONAL CLIENTS DEMAND SPEED AND COST EFFECTIVE DISTRIBUTION CLIENTS DEMAND BOUTIQUE ACCOMODATIONS
Slide 40: LSC is Aligned with the Future Path of Magazine Brands
LSC is Aligned with the Future Path of Magazine Brands ROLE OF PRINT IN MAGAZINES FUTURE BRANDING / A FULL MEDIA PRESENCE + Print still drives a large percentage of publishers’ margins New launches centered around the total community + Print brings credibility to content and advertisers + Meredith p
Slide 41: Adding Value to Magazine Brands
Adding Value to Magazine Brands VALUE CREATION STRATEGY 1 + Increase focus within core magazine segment through LEVERAGE acquisitions and strategic investment SCALE + 2017 acquisitions added ~ 700 new magazine clients 2 + Expand products/services for publishers GROW • Distribution: enhance mail co-s
Slide 42: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 43: LSC Provides Leading Catalog Solutions for Top Direct Marketing Companies
LSC Provides Leading Catalog Solutions for Top Direct Marketing Companies LSC CATALOG PLATFORM CATALOGS MAILED IN UNITED STATES (1) Billions of catalogs + Produces catalogs for 8 out of the top 10 largest direct marketing catalog companies 12 + 350+ clients with 80% under multi-year contracts 8 + La
Slide 44: A Large Majority of Retailers Use Catalogs in Their Marketing Mix
A Large Majority of Retailers Use Catalogs in Their Marketing Mix % of RETAILERS WHO USE CATALOGS LSC CLIENT INSIGHTS “… the print catalog “Our primary objective with the continues to serve as an catalog is to drive customers to important vehicle in its 16% omnichannel marketing the site by providin
Slide 45: A Significant Incremental Sales Opportunity
A Significant Incremental Sales Opportunity LSC Retargeting Capabilities PERSONALIZED PRINT PRODUCTION OVERVIEW WHERE WE’VE BEEN … WHERE WE’RE GOING… VERSIONING PHYSICAL RETARGETING VARIABLE PRINTING 100’s of versions 1000’s of versions 1000’s of versions + Different versions by region, gender, and
Slide 46: LSC Retargeting Capabilities Workflow
LSC Retargeting Capabilities Workflow IDENTIFICATION, INSIGHT & INTERACTIONS DISTRIBUTION IDENTIFICATION Timing | Content | CHANNELS Offer | Audiences Social Data Network Ad Audiences History | Data | Rules | Learning Email DECISIONING Mail Client Data CONSUMER App INSIGHTS & INTERACTION Website Dat
Slide 47: Turning Abandoned Shopping Cart Into Sales Results
Turning Abandoned Shopping Cart Into Sales Results LSC Retargeting Technology DRIVE CONSUMER BEHAVIOR TRACK SALES RESULTS 47 | LSC COMMUNICATIONS
Slide 48: Driving Growth Through Scale and New Technology
Driving Growth Through Scale and New Technology VALUE CREATION STRATEGY 1 + Strong client base with over 350 clients LEVERAGE + Procurement advantage drives savings for clients SCALE + Redundancy, compliance, and disaster recovery provides clients reliable distribution channels 2 GROW + Co-mail offe
Slide 49: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 50: Logistics Provides Key Value for LSC Print Clients
Logistics Provides Key Value for LSC Print Clients LSC LOGISTICS BUSINESS (1) STRATEGICALLY LOCATED CONSOLIDATION CENTERS + Leading full-service logistics provider of value-added distribution, consolidation, transportation management, and international freight forwarding services to the print, Bolin
Slide 51: Full-Service Logistics Offering
Full-Service Logistics Offering LSC COMMUNICATIONS PROVIDES A COMPREHENSIVE SUITE OF VALUE-ADDED LOGISTICS SERVICES MAGAZINE AND BOOK RETAIL REVERSE LOGISTICS DISTRIBUTION + Retail store pickup + Newsstand distribution + Carton and unit level sortation + End-to-end services + Delivery consolidation
Slide 52: Reverse Logistics Demand is Large and Growing
Reverse Logistics Demand is Large and Growing REVERSE LOGISTICS INDUSTRY OVERVIEW + Retail sales in the U.S. totaled nearly $4.7 trillion in 2015 with a median return rate of 8%, over $375 billion of merchandise is returned annually (1) + An estimated 30%+ of goods purchased online are returned (1)
Slide 53: Co-Mail Service Offering Value Creation
Co-Mail Service Offering Value Creation LSC’S SCALE ENABLES ITS CO-MAIL SERVICES OFFERING, WHICH COMBINES THE DISTRIBUTION OF PRINTED PUBLICATIONS IN AN EFFICIENT MANNER TO PROVIDE POSTAL SAVINGS Illustrative Cost Breakdown for Catalogers and Magazine Postal Savings Based on Sortation Level(2) Publi
Slide 54: Co-Services Achieves The Best Postal Rates
Co-Services Achieves The Best Postal Rates Carrier Route Carrier Route Carrier Route Sortation Level 3-Digit 5-Digit Basic High Density Saturation Mail Piece Address Representation Visual of Mail Density After Preparation By Mailer 6-15 People 75% of People Minimum Required Density 6-10 People 6-10
Slide 55: Traditional Co-Mail Solution
Traditional Co-Mail Solution Without Co-Mail With Co-Mail Co-Mail For a national mailing, need ≈ 5 to 8 thousand(1) For a national mailing, need Fact: There are ≈ 3 to 5 million(1) ≈ 540,000 active Co-Mail Upgrades to Carrier Routes Carrier Route For a national mailing, need Basic Mail ≈ 183 to 457
Slide 56: LSC's Co-Services Solution Yields Higher Savings
LSC’s Co-Services Solution Yields Higher Savings Without Co-Mail WithWithCo-Mail Co-Mail Co-Mail For a national mailing, need ≈ 5 to 8 thousand(1) For a national mailing, need Fact: There are ≈ 3 to 5 million(1) ≈ 540,000 active Co-Mail Upgrades to Carrier Routes Carrier Route For a national mailing
Slide 57: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 58: Office Products Segment Overview
Office Products Segment Overview SEGMENT SNAPSHOT HISTORICAL FINANCIAL PERFORMANCE (1) $562 + Office Products segment (14% of total revenues), produces$600 $527 $495 a wide range of branded and private label products in five $500 core categories: filing products, note-taking products, binder 11.9% 1
Slide 59: Expanding The Platform
Expanding The Platform PROVEN TRACK RECORD ACQUISITION HISTORY Office Products has a proven track record of: + 2008 Cardinal Brands + Meeting and/or exceeding synergy targets + 2014 Esselte NA Operations + Leveraging scale and driving supply chain efficiencies + Consolidating manufacturing and distr
Slide 60: Industry Market Trends & The LSC Advantage
Industry Market Trends & The LSC Advantage MARKET TRENDS + Margin compression – continued fallout from the E-commerce evolution + Electronic substitution – “Rise of the Virtual Office” Office Mass Client Response Initiatives Superstores Wholesalers Merchandisers E-Commerce Reduce inventory/increase
Slide 61: LSC Office Products Gaining Share
LSC Office Products Gaining Share E-Commerce Case Study MARKET SHARE – LSC OFFICE PRODUCTS RELATED CATEGORIES (2017-2018) 40% LSC hired additional resources dedicated to 35% e-commerce channel, drives promotions to gain share 30% 25% SHARE 20% 15% 10% 5% MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN L
Slide 62: Creating Value Through Growth
Creating Value Through Growth VALUE CREATION STRATEGY 1 + Continue to benefit from economies of scale in production, materials procurement, logistics and distribution, and product design in both LEVERAGE SCALE / branded and private label offerings DISCIPLINED M&A + Leverage scale and breadth of offe
Slide 63: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 64: 2017 Recap
2017 Recap Net Sales 2017 DRIVERS $MM + Education book sales significantly worse than expected with related impact $4,000 $3,654 $3,603 Office Products on margin $3,000 Directory + Negative impact from retail store consolidation impacting Office Products and $2,000 Retail Inserts sales Europe $1,000
Slide 65: Financial Performance 2018 Expectations
Financial Performance 2018 Expectations NET SALES ($MM) NON-GAAP ADJ. EBITDA ($MM) $5,000 $500 $398 $3,743 $3,654 $3,603 $3,800 - $3,900 $370 $320 - $360 $328 $2,500 $250 $0 $0 (1) (1) % Reported Growth 2015 2016 2017 2018E 2015 2016 2017 2018E / (Decline) (2.9)% (2.4%) (1.4%) 5.5% – 8.2% % Margin 1
Slide 66: Strong Free Cash Flow Generation
Strong Free Cash Flow Generation NON-GAAP FREE CASH FLOW(1) ($MM) CASH FLOW HIGHLIGHTS 2018 Guidance of $120 - $160 MM(2) + Disciplined approach to capital expenditures and cost $300 management $233 $250 + Focus on capital efficiency driving strong cash flow conversion $183 $200 $145 $120 - $160 + A
Slide 67: Sharp Focus on Cost Structure and Efficiency Improvement
Sharp Focus on Cost Structure and Efficiency Improvement EXPERIENCED TEAM PROACTIVELY MANAGING FACILITY COSTS AND RATIONALIZATION PROCESS 2018 PRIORITIES + Focus on realization of acquisition synergies + Investment in information technology solutions + Investment in automation + Streamlined administ
Slide 68: Capitalization
Capitalization DEBT AND LEVERAGE ($MM) as of 12/31/2017 TOTAL LIQUIDITY ($MM) as of 12/31/2017 Capitalization Total Liquidity Cash & Cash Equivalents $34 Cash $34 Term Loan Facility due Sept. 2022 $306 Stated Amount of Revolving Credit Facility $400 8.75% Senior Secured Notes due Oct. 2023 450 Less:
Slide 69: Pension Plans Overview
Pension Plans Overview QUALIFIED & NON QUALIFIED DE-RISKING STRATEGY PENSION PLANS ($MM) + US pension plans closed and frozen Obligation Asset Net Funded status + Investment objective $3,000 ($500) Reduce funded status volatility $2,599 $2,531 $2,667 $2,480 Growth assets being utilized to improv
Slide 70: Financial Policy
Financial Policy + Continuing to target 1.75x to 2.25x gross leverage(1) LEVERAGE & + Strong free cash flow(2) generation supports commitment to leverage target LIQUIDITY + Combination of pre-payable and long term debt provides ability to efficiently pay down debt + US pension plans closed and froze
Slide 71: Full Year 2018 Guidance
Full Year 2018 Guidance 2018 Guidance (1) 2017 Actual (5) Net Sales $3.8 - $3.9 billion $3.6 billion (2) Non-GAAP Adjusted EBITDA $320 - $360 million $328 million Depreciation and Amortization $135 - $145 million $160 million Interest Expense- Net $72 - $76 million $72 million Non-GAAP Effective Tax
Slide 72: Long-Term Revenue Outlook: Next 5 Years
Long-Term Revenue Outlook: Next 5 Years CORE OUTLOOK REFLECTS INDUSTRY DYNAMICS AND LSC COMPETITIVE POSITIONING % of 2017 Pro Organic Growth Outlook Commentary Forma Net Sales + Ongoing shift in advertiser spend from print to electronic media + Offset by growth from investment in co-mail, sourcing,
Slide 73: LSC Adjacencies Growth Strategy
LSC Adjacencies Growth Strategy FULFILLMENT, LOGISTICS, CO-MAIL, AND PERSONALIZATION DRIVE EXPECTED GROWTH EXPECTED ANNUAL $ millions GROWTH RATES ~ $800 - $1,100 ANTI-PIRACY 4% - 8% PHYSICAL RETARGETING OFFICE (4%) – 1% PRODUCTS ANTI-PIRACY $538 LOGISTICS PHYSICAL CORE PRINT 0% – (3%) RETARGETING L
Slide 74: Investor Meeting Agenda
Investor Meeting Agenda WELCOME AND INTRODUCTION Thomas Quinlan Chairman & Chief Executive Officer INDUSTRY OVERVIEW AND LSC STRATEGY Rick Lane Chief Strategy and Supply Chain Officer BOOK Dave McCree Rajeev Balakrishna President – Book/Directory President – Publishing Group INNOVATION AND TECHNOLOG
Slide 75: Our Value Creation is Our Competitive Advantage
Our Value Creation is Our Competitive Advantage SHAREHOLDER VALUE CREATION STRATEGY + Maintain and invest in solid core businesses Leverage Scale + Leverage supply chain management, logistics and cooperative mailing capabilities to grow share with Disciplined Improve Operational M&A existing clients
Slide 76: Q&A
Q&A
Slide 77: Appendix
Appendix
Slide 78: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES ($ millions) Total LSC Communications Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 FY 2017 FY 2016 FY 2015 Net sales $999 $935 $848 $821 $919 $3,603 $3,654 $3,743 GAAP Net income (loss) (58) (3) 5 (1) 9 (57) 106 74 Restructuring, impairment and other 42 60 21 6 7 129 18 57 cha
Slide 79: Non-GAAP Financial Measures (Cont'd)
NON-GAAP FINANCIAL MEASURES (Cont’d) ($ millions) Print Segment Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 FY 2017 FY 2016 FY 2015 Magazines, catalogs and retail inserts $521 $448 $378 $383 $441 $1,730 $1,632 $1,807 Book 245 276 262 239 256 1,022 1,097 925 Europe 67 68 56 56 63 247 272 305 Directories
Slide 80: Organic Growth Rates
ORGANIC GROWTH RATES Magazines, Total Office Catalogs, and Books Europe Directories Total Print Total LSC Products Retail Inserts ($ millions) Q4 2016 Net Sales as Reported $ 441 $ 256 $ 63 $ 29 $ 789 $ 130 $ 919 (1) Adjustments 109 - - - 109 32 141 Q4 2016 Net Sales Pro Forma $ 550 $ 256 $ 63 $ 29
Slide 81: Investor Relations Contact
investor.relations@lsccom.com | 773-272-9275 | 191 N Wacker (Suite 1400), Chicago, Illinois 60606