Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the Quad/Graphics Second Quarter 2015 Conference Call. During today's call, all participants will be in a listen-only mode. [Operator Instructions] A slide presentation accompanies today's webcast and participants are invited to follow along advancing the slides themselves. To access the webcast follow the instructions posted in last night's earnings release. Alternatively, you can access the slide presentation on the Investor section of Quad/Graphics Web site under the Events & Recent Presentation's link in the left-hand navigation bar. Again, participants have the ability to advance the slides themselves. Following today's presentation, the conference call will be opened for questions. [Operator Instructions] Please also note that today's event is being recorded. At this time, I would like to turn the conference call over to Kyle Egan, Quad/Graphics Manager of Treasury and Investor Relations. Kyle, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, our Chairman, President and Chief Executive Officer; and Dave Honan, our Executive Vice President and Chief Financial Officer. Joel will lead off today's call with key highlights for the quarter and Dave will follow with a more detailed review of the financial results followed by Q&A. I would like to remind everyone that this call is being webcast, and forward-looking statements are subject to Safe Harbor provisions as outlined in our quarterly news release and in today's slide presentation. Our financial results are prepared in accordance with Generally Accepted Accounting Principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, free cash flow and debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. The replay of the call will be available on the Investor section of our Web site shortly after we conclude. The slide presentation will remain posted on Quad/Graphics' Web site for future reference. I will now hand the call over to Joel.

Thanks, Kyle, and good morning, everyone. As you saw in our news release issued last evening, a key narrative for the second quarter is our continued solid cash flow generation. Free cash flow is the foundation of our strong balance sheet and enables us to deploy capital in ways that generate value for our company and our shareholders including pursuing compelling investment opportunities, deleveraging the balance sheet through debt and pension liability reductions and returning cash to our shareholders. We believe Quad/Graphics will continue to be a significant free cash flow generator and accordingly reaffirm full year 2015 free cash flow guidance in the range of $180 million to $200 million. In addition, we are narrowing our guidance for net sales and adjusted EBITDA due to ongoing industry headwinds including a sluggish advertising environment for publishers and a less than robust retail environment all of which impacted our sales. As we continue our journey to transform Quad/Graphics and our industry, we remain focused on creating value for our clients through a full complement of integrated solutions across print and digital channels to advance their marketing programs. We accomplished this objective through our strategy to walk in the shoes of our clients. One of our five longstanding strategic goals that we believe will allow us to be successful despite ongoing industry headwinds. When it comes to strengthening our core print operations another of our primary strategic goals, we are focused on reducing our overall cost structure by maximizing the productivity of our platform through technology, automation and process improvement programs and increasing the capacity utilization of our most efficient plants and equipment to continue to be the industry's low cost provider. For example, we are currently in the process of installing a significant number of automated guided vehicles and automatic palletizers…

Thank you, Joel, and good morning, everyone. Slide 4 is a snapshot of our second quarter 2015 financial results as compared to 2014. Net sales for the second quarter of 2015 were $1.1 billion down 1.8% from 2014. Excluding the impact of acquisitions and pass through paper sales, organic sales declined 5.2%. The decline was reflective of 4% volume and pricing decline primarily within publications and retail inserts and a negative 1.2% impact from foreign exchange due to the strengthening dollar on our international sales. Adjusted EBITDA was $90 million for the second quarter of 2015 as compared to a $102 million in 2014 and our adjusted EBITDA margin was 8.4% versus 9.3% respectively. The decrease in adjusted EBITDA and margin primarily reflects ongoing industry volume and pricing pressures partially offset by additional earnings on sales from recent acquisitions. On Slide 5, you will see that we have updated our 2015 annual guidance, reflective of the recent economic trends and publications in retail product lines and the corresponding impact on our revenue and outlook, we believe it's an appropriate time to update and narrow our guidance ranges for net sales and adjusted EBITDA. We anticipate full year 2015 net sales to be in the range of $4.8 billion to $4.9 billion narrowed to the low-end of our previously disclosed guidance range of $4.8 billion to $5 billion and adjusted EBITDA to be in the range of $500 million to $520 million narrowed from our previously disclosed guidance range of $500 million to $540 million. Our 2015 free cash flow range remains unchanged and $180 million to $200 million reflecting our strong free cash flow generation as we continue to drive sustainable improvements in our cash conversion process primarily through reduced working capital. We remain confident in our long-term ability to…

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question comes from Jamie Clement from Macquarie. Please go ahead with your question.

Gentlemen, good morning.

Good morning.

Good morning, Jamie.

Joel, I was wondering if I can get a little bit more detail on comments about the retail environment as you see it. Often times we get a little bit confused about your customers who are retailers, who are using various product lines versus the discussion of retail inserts as one of your product lines? So can you help us out a little bit there in terms of what you are seeing here in the first half of the year and what you saw here in the second quarter?

Yes. That's a good point. If you really think about retailers, it's pretty broad scope. In fact a lot of our catalog customers are retailers also. But, I think when we referred to sort of softness in the retail environment, it's more specifically the bigger retailers. And I will tell you what we have seen is not necessarily across the board. We have had a couple of customers where we saw more softness than others. So and I think if you look at the retail environment there is a lot of difference stories out there. But, yes, we saw enough of pullback. And I think generally in the first and second quarter just economically, I mean I think you have seen a lot of sort of caution out there, which also speaks to the advertising climate. I mean this is not just print advertising. There was a pullback in overall advertising across most channels. And so of course, print is not going to be immune to that. And just jumping into that, I mean, it's also -- tell a different categories, you have to look at what categories are getting hit. And so in advertising, I think the biggest hit category we saw in terms of individual titles is really the technology titles where you saw a double-digit decline, if you go to sort of like the women's fashion main publications that you have it's more like a 1% decline. So certainly not across the board, but she got other things playing out like P&G reinventing itself and in the process did a major pullback of all advertising spend. So but, I think the theme is – the theme you are hearing sort of across the spectrum in many places is that, while there is improving economic numbers there was sort of a cautionary I think attitude everywhere that I have seen mostly in Q1 and Q2 and we felt that.

Joel, just out of curiosity, magazine ad pages are what they are, but as you look, as you talk to publishing customers and when they talk to their advertising customers, what do we all need to start seeing or what needs to happen before that level of ad page decline to start to kind of drop in your opinion?

Yes. In my opinion, it's getting much more aggressive about the power of marketing in general. And I talk about it in a lot of these days because it's really – it's playing out as we have conversations with our different publishers and catalogers. We are getting involved way more upstream with the CMO of the companies or the advertising groups. With our different various publishers we do days where we come in and show the whole gamut to the advertisers and you are seeing people start doing more interesting things with covers. We have a really sweet [poly] [ph] program that allows you to not only co-mail your magazines, but also be able to offer things within the [polybag] [ph] itself whether it's samples or things like that. And I also noticed made the point and I think I may have made the point before that earlier this year, you had Sir Martin Sorrell, who was always the big digital advocate out there in the big agency side basically make a pretty vocal comment about the power of magazines and that we probably go on to too far away from them as they started to get the data about engagement. All these sort of algorithms that show you what you should use or not use in terms of a digital spend, don't include the human element. It's hard to build the human element in things and that's really about emotionally connection. And his comments, he said we are starting to see data that the depth of engagement in print. And he was actually even mentioned newspaper is much stronger than they thought. And it's something I'm a broken record about that, look I'm not trying to tell you print or that. I'm trying to tell you print is a…

And Joel, if I could ask you a follow-up – quick follow-up there and I will let somebody else ask a question. As you think about the traditional product lines you have been strong in, now, you bought Copac obviously, not a big deal, it would seem that there would be a natural link from what you have done historically to packaging. It seems that's been – that's an acquisition and an idea that's been well received by both your customers and your shareholders, is packaging an area that you would continue to focus acquisition spending on going forward?

Absolutely. We have been focused more on falling carbon because it's very close to our knitting. And the other thing that people forget is, we got this wonderful Quantek business that's in our R&D and it has developed a lot of technology for the industry. And we have – their fastest growing space is helping packagers bring more process and color control and things like that. So if you have like a brand color that used to be the same on every package across the world, we have the tool to be able to help them do that. But furthermore, imagine instead of having a soda package, or the thing that a six pack of beers comes in, instead of just being the same everywhere, imagine us supplying digital presses to it, so that retailers could become much more micro in their marketing strategy. So you are hearing Sussex, Wisconsin the local owner of a national food franchise can actually – we can start to market packaging directly to that and tied into a direct mail program that announces that. And also pull in mobile activation as it goes to walking down the isles and finding able to story about that beer and how it was made and things like that. So yes, it's very much not – let's go into packaging because we think there is more growth there. Let's go into packaging because it's growing, but also it fits really well this concept that you got to be using everything to market your product and data is behind it. Everyone uses the word big data, most people don't – still don't understand what it means. But it comes down to making sure that whatever you know about your potential customer or existing customer that you are using that data to put in front of them what they are interested in at the right price, at the right time, in the right channel that they maybe interacting with you.

Joel. Thanks very much. I have taken up too much time for now. I will do some more questions, but I will get back in the queue okay.

Okay. Thank you, Jamie.

Thank you.

Next question.

Our next question comes from Katja Jancic from Sidoti & Company. Please go ahead with your question.

Good morning, Katja.

Good morning. Joe, you mentioned that first half was weak because of more cautious spending by the retailers now considering –

Retailers and advertisers.

And advertisers, well, in general, we – what many expect is that the collapse in the energy prices in a way spur consumer demand. Do you think that we could see a more aggressive spending in the second half of the year than we saw even last year for example?

Well, if I could predict that, I have to go to Vegas tomorrow. But, if I look at my typical employee and you look at employees across the country specifically in manufacturing, it's been hard, everybody has been in a period of low growth for so many years that everyone, cut, cut, cut. So that's why you see some of those slow growth in wages. But, a lot of our employees live in outside of cities have trucks and things like that. And it's sort of a hidden race, right? You start to see gasoline prices drop, it has an impact. But, I think you also have to take into account that people are going to be more conservative these days because the world is not in a great place. And I think they use a lot of appropriate caution to make sure they don't get themselves into a place that they have gotten in the past. So if I could predict that that would be wonderful, but that's my $0.02 that you would hope and I think there are some good things coming in the economy. But, you also have to remember that when we look at the unemployment rate expect the people who are willing to work. There is a whole lot of people out there that are not in the workforce probably more than ever before. And so you have a smaller group trying to fuel an economy to pay for everything else. And that's very worrisome to me, if you go back and you look at those statistics that might be helpful for you to understand the impact of that problem we have in this country.

Now regarding your logistics business, do you benefit from low oil prices right now?

Well, it's really when we talk about logistics that stuff is typically pass through on us sort of as a week-by-week fuel surcharge. The challenge though in logistics is that the whole trucking world is under a lot of pressure. We have got a shortage of drivers, shortage of trucks and part of it, a lot of it is regulation driven that the number of work hours that drivers are allowed to drive, it's a very much an aging group with people retiring and not enough people coming behind because we have a good idea so the world bought that why should we led a 18-year-old get CDL to drive a truck, they are too young, it's not safe. So they can't do until they are 21 now. Well, that 18-year-old is going to go off into a different career path in that timeframe and never come back. And so right now, there is a lot pressure on cost on the logistic side, but when you talk about energy that's typically in our industry that's something that's a pass through week-by-week.

Okay. That's all for me. Thank you so much.

Thank you, Katja. Operator?

[Operator Instructions] And we do have a follow-up from Jamie Clement from Macquarie. Please go ahead with your follow-up.

As promised Joel.

Thank you, Jamie.

No problem. You do report international results, you did talk three months ago about the challenges in Argentina, clearly, there is still some work to be done in Latin America, it seems like based on your press release, can you talk a little bit more in detail about that?

Yes. I mean look – over the long-term, you know me, I do get intrigued by fast growing middle classes. But with that it comes with lots of generations, I think specifically Latin America you are seeing that play out. Argentina, we had a partnership there years ago. And that when Argentina went through their last bout of prices, we ended up being owners of that. And as you know, when we did the Worldcolor deal, we picked up another plant. And have since restructured that because of the prices that's going on down there. And so we got a great platform down there, it's the strongest business in the industry. But, within a country that's a work in process. So I would tell you Argentina will continue to be a work in process for us. No fault of their own. It's a great platform, great people, they are doing a great job in a very difficult environment. One of the things that we just did recently is our partnership in Chile was with a family that is a wonderful caretaker of the asset that partnership started under Worldcolor. As we sold that back to them, it's not a big business, but the family was interested in buying it back. Quite frankly, when we look at all our businesses, we look at the portfolio and say okay, what's going to add value to us and while we loved that business and we loved that platform, we love that management team and the family, there is not much we can add to it, and there is not much that's going to move the needle for us. And so we are very pleased to be selling it back to a family company because I'm a strong believer in the power of family companies. And we will continue to maintain a very strong relationship with them. We have another partnership in Brazil that is a fairly large one and Brazil is obviously going through its challenges, so we managed through that. And then we got Colombia and Peru, which we think are promising marketplaces again within the context of a tough Latin America as well as Mexico. We have gone through some challenges there as we integrated the Transcontinental assets and just the challenges of Mexico in general. But, again, it's a marketplace that is not going away as a lot of demand. So that sort of what's going on there and Dave maybe you can speak to some of the – what we did with some of the restructuring costs.

I think Jamie one of the questions we may get is, we have a little bit higher restructuring costs in the quarter roughly 50% of those were not cash, 17% of which was related to our exit of the investment – the equity investment we had in Chile with the partnership there. That transaction just closed at the end of July.

I will tell you that the family members running Carlos [indiscernible] and Alejandro, the next generation I put up against anybody. They have been fantastic – fantastic leaders.

All right. And final question and I will cut to the chase here with the stock under some pressure this morning? There is Marin's; there is Copac and about a year ago Brown. I think quite frankly and I would count myself as part of this crowd, it looks to me like your SG&A is quite frankly running too high that needs to come down. And I think you all would agree that needs to come down, I know there are plans in place for that to come down, when should we start to expect to see some progress there?

Yes. Jamie, we are up $10 million year-over-year in the quarter and $16 million year-to-date and that's all from acquisition incremental SG&A from acquisition. But, we don't disagree with you that given the challenges of this industry you got to be very efficient with the overhead and indirect costs associated within SG&A. So that's an area we continually focus on, you will see us focused on there going forward. And I think you can also refer to us, look at the cost of sales line for us, it's relatively flat year-over-year.

Absolutely, no question.

That's the result of a sustainable cost reduction lean and continuous improvement environment that we have there and that same principle applies into our SG&A side.

Keep in mind Jamie, I mean, while we are doing some smaller acquisitions which we [indiscernible] integration. This is really the first year we haven't been doing a major integration. And so when you are in those major integrations you are focused on bringing in the girth and making plants work and closing plants and selling them out. But now, we have chance to take a breath here and kind of look at, okay, look at the platform not just for a standpoint post these big integrations, are we where we want to be with most efficient plants being at the highest capacity utilization. But also, what's the curse of the company and so we are aggressively looking at the whole SG&A side to catch it up to where we should be post bringing these companies in.

Yes. I think the people needed perhaps this morning some reinsurance that that work was being done and people could expect some progress over the next couple of quarters and it sounds like that is in fact coming. Okay. Thank you all for your time.

Absolutely. Okay. Thanks Jamie. Operator?

And ladies and gentlemen at this time, I'm showing no additional questions. I would like to turn the conference call back over to management for any closing remarks.

Well, thank you, operator. Obviously, it's an interesting time in the industry with lots of different developments, but we are going to continue to focus on running our business and looking at opportunities that make sense. But, really making sure that we continue to evolve who we are to our customers and really helping drive the whole change in attitude about how marketing needs to change and how we can apply all of our different assets in a very integrated way to help drive customer sales. So with that, we will talk to you all next quarter. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.