Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics Third 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 Investors section of Quad/Graphics website under the Events & Recent Presentations link in the left-hand navigation bar. 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. Sir, 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 Investors section of our website shortly after we conclude. The slide presentation will remain posted on Quad/Graphics website for future reference. I will now hand the call over to Joel.

Thank you, Kyle. And good morning, everyone. As we communicated in our news release, our performance in the third quarter was challenging and well below our expectations. We attribute our performance to three main drivers. First, we saw a greater than expected pull-back in industry volumes during the third quarter. Publishers continued to experience sluggish ad sales with third quarter pages down 11.7% versus the same period in 2014. Retailers also cut back on current ad spending in the quarter because of the low growth economy and challenging retail environment. Additionally, we saw pricing pressures accelerate in the quarter, primarily in long-run print due to an increased competitive environment. Pricing is now down 1.5%, which is the high end of the range we originally anticipated for fiscal 2015. And finally, our manufacturing productivity was down in the quarter, primarily due to labor availability in our Wisconsin platform, higher training and on-boarding costs associated with hiring in that platform, especially as we ramped up for the busiest time of the year and increased manufacturing complexity in our product mix. As a result, we have reduced our full year 2015 guidance, and Dave will provide full details a little later in the call. We are confident in our ability to skillfully manage the challenges before us whether they are short-term productivity issues or long-term industry conditions. Through the dedication, determination and hard work of our employees, we will continue to transform our Company during this challenging time in the printing industry, serving our clients well while positioning ourselves to compete aggressively in the marketplace and achieve long-term stability and success. Accordingly, we are taking swift and decisive action to address our performance in the quarter and are announcing a $100 million cost reduction program for 2016, to bring our cost structure in…

Thanks, Joel. And good morning, everyone. Slide four is a snapshot of our third quarter 2015 financial results as compared to the third quarter of 2014. Net sales for the quarter were $1.2 billion, down 6.5% from 2014. This decline reflects a 5.4% combined volume and price decline, primarily due to greater than expected pull-back in publication volumes and retail inserts and pricing pressure that accelerated during the quarter, as well as a negative 1.1% impact from foreign exchange due to the strengthening dollar, on our international sales. Adjusted EBITDA was $117million for the third quarter as compared to a $151 million in 2014 and our adjusted EBITDA margin was 10.1% versus 12.2% respectively. The decrease in adjusted EBITDA and margin primarily reflects the pull-back in industry volumes and pricing pressures that accelerated in the third quarter and approximately $10 million of higher manufacturing costs associated with lower productivity. This decline was partially offset by additional earnings from recent acquisitions in our packaging business. During the third quarter, we took a non-operating, non-cash good will impairment charge of $775 million or $530 million after a related tax benefit. The Company performs an interim goodwill impairment test for the reporting units within the U.S. prints and related services segment triggered by the decrease on our stock price and ongoing volumes and pricing pressure that we’ve been experiencing, which resulted an impairment charge in the quarter. The goodwill that was written off was almost entirely associated with the 2010 World Color Press acquisition. While the amount of the impairment charge is significant, it is the non-cash impairment charge and ultimately does not have an impact on our key financial metrics including adjusted EBITDA and free cash flow. On slide five, we’ve included a summary of revised 2015 annual guidance that reflects the…

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

You guys talked I think a fair amount about playing capacity reductions and that being a component of the $100 million in cost savings. Can you talk about some of the other areas? You talked about productivity a little bit. But can you go into little bit more detail on that and perhaps some of the other things that make up the 100?

Yes, absolutely. If you don’t mind humor me for a few minutes here. Let me just kind of go back towards the journey we’ve been on cost. So, when we got through the beginning of the recession and we changed course and started being a consolidator, after time, the industry needed a major reset in the base line of capacity. And so, we knew that with our capacity being what it was, well invested in large plants that we could adjust the volume need of our specific combined companies in terms of capacity returns. So, we started aggressively taking plants down. Not only did we do that because that’s what adjusted volume by taking capacity out but we also started investing in things with IT infrastructure, automation, things that allow you then later on to continue to take cost out of the existing plants. And so, if we fast forward to 2015, I’ve talked about this being the first year where we haven’t being doing a major integrating acquisition. And so, it’s not about right now it hasn’t been about as much trying to pull these companies in and figure out which plants where down, although we’re doing that to but it’s been about looking at the course of the Company. The indirect labor that we have to support the resulting platform. It’s hard to focus on the core business and how we run as a corporation when you are doing all these integrations. So, we did a lot of switching of gears this year, putting a lot of plants to start taking out the cost we know we can take out because we know there is a better way. We just haven’t had the manpower and the focus to be able to do it while we’re doing these other…

So, Joel, one of the things you touched on there and I’m very curious to get a little bit more on this is I think you talked about indirect cost, indirect labor, not related to manufacturing and that kind of thing. And one of the concerns I think that some of us have had about Quad over the years is that you all have gone away above and beyond in terms of investing in things like data analytics, even like some of the app stuff you’ve been working on for years and really trying to help some of your customers, in my opinion kind of solve some of their problems. Think about it is, it’s not been clear to us that you guys had actually been paid for this. So, I mean…

Jamie, it’s not clear to me that I was actually been paid for it. But what I will tell you is we’ve been talking this game for a long time. And our customer base is going through lots of challenges. First of all, if you look at the retail community, the top -- I don’t know, four or five retailers, all have new management teams with all new chief marketing officers. And so, they’re all taking a fresh look at things. You have things like what Amazon did for back-to-school on July 15 by announcing Prime Day which threw everybody off their game. And so, a lot of disruption is happening in how they go to market. And what is very clear to me because in the last, call it 0 to 12 months in my conversations at the sea suite of large retailers, small retailers, catalogers, publications is this sort of confusion or the surprises of measurement is real that people are looking at how their marketing departments work and their silos. That means they’re measuring channels separate from each other without understanding the interconnection. And a lot of the stuff we’ve been investing in is allowing them or helping many customers and we’re proving it that we could show them the interrelationship and many times show them that they need to do more print. We have 12 e-tailer pure players who a year ago weren’t doing catalogs. They are now doing catalogs and they can’t believe the traffic being driven to their e-tailer sites. And so I think it’s a matter of how fast our customers evolve to understand how they can fix this problem and understand how we can be the ones to fix that for them. I have never seen so much momentum in all the years I’ve been doing this type of conversation that I’ve seen in the last 10 to 12 months. There are certainly our customer who are waking up in a very big way and are paying us. But it’s a matter of -- we need these industries to kind of -- and they know it, they need to get going and understanding this omni-channel thing faster and better. And that’s where I think we’ll win.

And last one if I may, I mean, Joel it sounds like with the $100 million in the bag, even if current business conditions continue, I mean quite simply the way the math works for me is I mean it sounds like free cash flow next year should be stable. And it actually sounds like EBITDA should be up with the cost savings plans, right?

Well, look, I mean next year -- I am looking at Q3 right now and again I was surprised by the pull-back in volume as well as the increased pricing pressure, even after all those capacities come out. It’s all going to depend on all the factors that you know. I mean what the consumer really doing. I hate to tell you, and maybe I’m the first one to tell you this that the headlines about the economy do not actually match what’s going on. I think in many sectors, you’re seeing a lot of people pull-back. Milwaukee, a lot of manufacturing companies gotten hit really hard. And I am worried about next year GDP growth if it’s under 2%. This is a lot of consecutive years of all these businesses they have to manage cost out. So, I am talking about our customers; I am talking about everybody for us the change. But like I said, I can’t predict where those pressures will go. But I look at third quarter as sort of one of those warning signs of whatever happens, I need to reset my baseline of cost. We’re doing it aggressively and I am not stopping at $100 million.

Okay.

Yes, Jamie, just to add-on to that. I think the key assumption to look at what’s going on in this industry pricing. You’ve heard us talk about that’s now gone to the higher end of our range in terms of decline in pricing at 1.5%. So really, if pricing goes, so goes, how we will guide next year. We will be back after the fourth quarter results to give you a look at 2016, so we will be able to update you a little bit more from an adjusted EBITDA standpoint. But we felt that it was important to understand that despite what’s going on with the adjusted EBITDA, there is a lot of tailwind to this free cash flow. And as you look at our free cash flow and what we can do in terms of improving our operating effectiveness of our working capital and investing wisely into our business, but we have the benefit of a lot of investment in the past that’s been way above industry norms and which this platform was built upon and which drives the productivity we have that can be maintained at a much lower investment level and quite frankly not having to put as much money in the pension. It gives us a nice tailwind just to say, this cash flow that you’re seeing this year, what we’re guiding to, is sustainable into the near term future. So, we really like how the year kind of plays out from a free cash flow perspective and will be able to monitor what’s going on with the top line and before we come back to you after the fourth quarter call.

Jamie, let me also just reiterate something that we had hit hard on our foot. A good $10 million of our miss was productivity. And so, it’s kind of tale of two cities. Here I am closing two plants this morning which you’d say okay, well, why was the labor availability a problem? Well, because it shows you that it’s working in terms of moving work to the plants that have had all that significant investment are the most efficient. And specifically a lot of that challenge happened in our Wisconsin operations where we have multiple, million plus worth plant, 14 total plants. And we got caught starting in the spring of having a real challenge finding skilled labor. And so, I think you’re seeing that play out in a lot of areas of the country. But for us, we were ramping up because a lot of work was coming in the Wisconsin. We’ve got some great tax credits in partnership with Wisconsin to do it but a lot of our productivity issues stem from just too long to get the people win. And so now we are actually in a better place and we’re -- the training has kicked in, we spent a lot of money on the training to get people to speeds faster and we make sure we retain people in the first 60 days where the highest turnover is. But that’s a important thing because productivity to me, that issue is the fixable part of this. The other stuff is stuff we have to react to it.

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

Joel, you briefly mentioned the expansion of digital press technology. Can you provide us with an update as to how it’s going and also remind us what the value of digital print is?

From a standpoint of the book operation where most of it’s been, there is a big transformation going on in what our clients need. And everyone thought it was -- what they needed is to move everything to a kindle. That hasn’t played out that way because people actually do like books. But what they do need to do is get rid of inventory. And so there is a transformation going on from these long-run heavy metal presses that produce hundreds of thousands of things very efficiently to on-demand digital presses that can create much lower batch sizes. The book publishing industry because of the legacy and technology of digital wasn’t here yet, this forced to have those hundreds of millions of dollars worth of inventory at any given point where much of it is become obsolete. That’s a huge cost. So, that’s why we invested in the five digital presses down in Versailles, Kentucky. Those are up fully running. Our only challenge in terms of taking on more work there is we’ve hired a lot of people to train up. And that’s happening; they’re running great and we will continue with that. And we’ve found another possibility -- not another possibility; we’ve installed another digital press into our DM platform. Because what’s happening in direct mail is people want total variability, four color all the way through where when a direct mail piece comes to Joel about what people are online and why did you abandoned your shopping cart; we want to be able to have a personalized PC with image of that piece right there to increase response rate. So, I see this technology continue to evolve very quickly and continue to expand within the Quad operations as we just installed the one in direct mail. The value of it is changing the gaming in books, in terms of inventory levels and also being able to personalize text books. And the value in DM is to turbo-charge an already very aggressive offering in terms of using data to drive response.

If I’m not mistaking, you previously mentioned that you are going to install more of these digital press technologies. Is this strategy going to change now with the more challenging environment?

We will be opportunistic about the CapEx. As Dave said, a lot of the big CapEx was done as being in the heavy platform that’s automating things like forklifts, bringing plants that we acquired up to speed to our level of what needs to be done, and so we could back off that gas paddle because these are already the most modern plants in the printing world. And we are not going to stop spending in CapEx but the requirements on the heavy metal side is a lot less, so that as we look at CapEx projects, it could be about creating value for our customers and creating top-line revenue, which is where we’ll be opportunistic but we’ll also be very disciplined about it, as always.

Now, your debt leverage is little elevated because of the acquisitions. When do you -- what’s the timeframe as to when could you bring it back to the more normal two point times?

From a use of cash perspective, our primary use of cash is going to be in debt pay down. So, we are slightly elevated, as you mentioned, due to the acquisitions we’ve done this year and lower EBITDA levels. We will continue there for to pay down debt aggressively. Be opportunistic about investments back into the platform, as Joel talked about especially from a strategic standpoint. And then the third thing is our commitment to the dividend, it’s a $1.20 per share; it’s yielding well over 10% now. It’s based on what we’re trading at today. And that we believe is a sustainable dividend as we move forward. It’s only a third of our free cash flow. So, those three things are the primary uses of our cash. We’ll continue to pay down that debt because when it’s above three, that’s just at a level that we believe is the smartest thing is to continue to pull it down and get back towards our long-term horizon of 2 to 2.5 times.

At this time, I’m showing no additional questions.

Okay. Before we go, look, I want to make it clear; I think I’ve made it clear that I’m very frustrated with the quarter and we all are. At Quad/Graphics, frustration usually leads to a high degree of motivation. And that’s just the way our culture works. And I think that’s proven with being very confident about our cost takeout program that we’re putting through. And also the free cash flow that this Company generates, sustainability is real which I think is great story for 10% plus yield that our stock has right now But finally, I just want to take a brief moment to recognize two employees. This is a family Company, it’s a family based Company and now we have over 24,000 employees. In many ways for me, it’s not like what it was where I could know everybody and see everybody. And we lose people from time to time. Their life ends and it has an impact on everyone around them. But two in particular I would like to talk about because I am not able to talk about everybody who touched my life in one way or the other. First is Gary Anderson. Gary is the 30 plus employee who literally helped build this Company. He works in our maintenance group that is responsible for installing presses, moving presses, bringing them up to snuff, making the machine work. And he literally helped us build in the Greenfield days and recreate the industry in the consolidation days. Gary lost his life to a long battle of cancer couple of weeks ago. And the other person is John Gerdes. John is a 20 plus year employee in our IT group, wide known over the years. And I know his partner Heather Schneider over the years. In fact I have to give her a big hug this morning as I’m walking in the work because I hadn’t seen her since John passed away. I think it’s important and this is a message really to our employees that we recognize that we got a lot of people, we recognize when we close plants we’re parting ways. But when we lose someone to death that impacts the family. It’s not just losing someone who helped build the company but it’s losing somebody who impacts the employees around them and these two are certainly two who had impacted a lot of employees around them. So on behalf of all of you who may have lost coworkers over the past couple of years, please I wanted to just use these two as -- these were personal connection to me, but that doesn’t mean I don’t’ want to have a personal connection with everybody. I get an email whenever we lose anybody. But I would like to end with that and thank all the employees for all the work they’re doing and all the work they’re going to be doing. Thank you.

Ladies and gentlemen, the conference is now concluded. We do thank you for attending today’s presentation. You may now disconnect your lines.