Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics Fourth Quarter 2016 Conference Call. During today's call, all participants will be in 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 note this event is being recorded. I will now turn the conference 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 highlights of our financial results along with a more detailed discussion of our path forward in 2017. Dave will follow with a more detailed review of our fourth quarter and full year 2016 financial results and the summary of our 2017 guidance 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 on slide two. 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. A 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.

Thanks, Kyle, and good morning, everyone. Today I am pleased to report that our fourth quarter and full year 2016 results exceeded our expectations and show that we are more than a -- we more than accomplished what we set out to achieve for the year. Throughout 2016 we continued to transform both our business and industry through strategic investments in our asset base and through the creation of new and innovative solutions designed to create greater value for our clients. We also continue to implement sustainable cost reductions and productivity improvements, while maintaining a focus on topline revenue to drive EBITDA enhancement. Full year 2016 net sales were $4.3 billion and reflect ongoing industry pricing and volume pressures. Slide three shows net sales by product line and geography, which have not changed significantly year-over-year, with the exception of increased revenue in Quad packaging, one of our targeted growth areas. In a year with continued topline pressure I could not be more proud of our performance. As a team we increased full year 2016 adjusted EBITDA by $11 million to $480 million, increased adjusted EBITDA margin by 90 basis points to 11.1%, increased full year free cash flow by $31 million to $246 million, reduced debt and capital leases in 2016 by $218 million and improved our debt leverage ratio by 52 basis points to 2.36 times well within our guided range of 2 times to 2.5 times. As we look forward to 2017 we will continue to take advantage of our unique position in the industry as both a global printer and marketing services provider. To ensure we maintain our momentum on our path forward, we will continue to generate sustainable strong free cash flow to support value creating opportunities as part of our company's ongoing transformation. Drive further…

Thanks, Joel, and good morning, everyone. We have a strong year in 2016 and our financial performance exceeded expectations that we set out to achieve at the beginning of the year due to driving operational efficiencies and cost reductions throughout the entire company. Bottomline, despite a sales decline, we increased earnings and cash flow in 2016, using that cash flow to pay down $218 million in debt to continue to strengthen an already healthy and flexible balance sheet. Slide six provides a snapshot of our full year and fourth quarter 2016 financial results as compared to 2015. Full year net sales were $4.3 billion, down 5.8% from 2015. Organic sales declined 4.5% due to ongoing industry volume and pricing pressures after excluding a 1.4% positive impact from acquisitions, a 2.1% negative impact for more pass-through paper sales and a 0.6% negative impact from foreign exchange. The organic sales decline was consistent with our previous guidance of a sales decline of 5% to 7%. Full year adjusted EBITDA increased $11 million to $480 million in 2016. Adjusted EBITDA margin increased 90 basis points to 11.1% as compared to 10.2% in 2015. The increases in both adjusted EBITDA and margin exceeded the top end of our original guidance range for the year and were at the midpoints of our increased guidance range we provided during our second quarter call. It primarily reflect ongoing improvements in manufacturing productivity and sustainable cost reductions as part of our previously announced and implemented cost reduction program. For the fourth quarter net sales were $1.2 billion, down 8.8% from 2016. Organic sales declined 6.3% due to ongoing industry volume and pricing pressures after excluding a 2.2% negative impact from lower pass-through paper sales and a 0.3% negative impact from foreign exchange. Adjusted EBITDA declined $14 million in…

[Operator Instructions] The first question comes from Jamie Clement with Macquarie. Please go ahead.

Hi. Gentlemen, good morning. Thanks a lot for taking my questions in advance.

Good morning, Jamie.

Hi.

Joel, no comments in the script about the macro backdrops and I figured just take a shot and ask you what maybe your customers, are they sounding more optimistic, et cetera, et cetera?

So that’s why you are looking for my crystal ball.

Exactly. Or better yet, another way to ask what signs would be looking for other than more pages coming on in your press that things are getting better?

Well, I think, that there is all sorts of economic aspiration going on out there and I think, if you look at like the fourth quarter we saw some softness but then you look at what you the growth actually was, it was below 2%. So now we are seeing just out there, a lot of people trying to adjust with the pressures. You look at the retailers et cetera. But I think there is a lot of wait and see. There is obviously administration trying to pull itself together which always takes a little bit of time and when we -- everyone starts to get more guidance and understanding of what they are going to do with tax law or regulation, I think, that’s going to be one of those things everyone’s looking at. Meanwhile, I think, a lot of our customers are looking at themselves and they are really trying to speed up their own transformations and it’s actually created a big opportunity for us, because when people are looking at themselves and trying to figure who to compete in the ever changing world that just seems to constantly happen now it’s actually given us the ability to have conversations that we weren’t able to have before. And I have talked about this all last year, but I have to tell you the willingness and the acceptance of thinking differently with some of the solutions we are bringing to our clients is spread up rapidly and so we are like Cengage, like Cabela, there are quite few other things like that that we are doing to help people manage their times and gear up for whatever positive stuff comes or whether slow growth for awhile. So I feel really good about where we are position with our clients…

Joel, how can you talk about the relevance stickiness of business that you generate really through BlueSoho. Like in other words is this kind of project by project or is it more like a longer-term consultancy kind of economic arrangement?

It's really a long-term arrangement, I mean, you start with some short-term things where you start process map and really look at how this content creation flow in their four walls, but also back into our four walls, because we are process connected as a printer between our customers and us. And like we are in transformation, we -- Quad as lean enterprise, we are not lean manufacturer, we are lean enterprise. And what happens in these process mappings that we do is the first sort of what you call initiation phase really sets up an ongoing opportunity for creating more and more savings or more and more opportunity in terms of what you do with the data and how you market it. And so for those who really understand continuous improvement and you think we leave in our four walls but all the cost takeout we took out last year and what we will continue to do, people start to think, well, that’s just, you are cutting out fat. Well, no, what -- that’s the beginning stages, what happens in continuous improvement is you start to be able to look at your business in a very different way and it becomes less about you and just cutting cost and actually thinking differently about how I do things and where I do them. And Cabela is a perfect example that that started with just a process map, how we could help them streamline their internal operations and it just started spider webbing into a whole different view that said, had Cabela said, well, why are we doing this internally, why don’t you take over our customer -- our employees and do it on your side, because clearly you are going to keep moving the ball forward both in content creation but then content execution. And so, that's -- and so when you think about stickiness, I think, that any time that you really focused on the client, but doing it in a very deep manner with lots of investment and talent on our side and capabilities, certainly, it’s going to be a longer term sticky opportunity.

Okay. And Dave, if I can ask you a quick question, how many innings into a nine inning game do you think you are from the ability, from the perspective of taking out permanent working capital from the business?

Yeah. I would say we are probably mid innings on that.

Okay.

And so, and it really goes back to Joel’s comment about how you look at continues improvement, et cetera. So it’s about how we operated from the time an order comes at the door, so we get paid by our customers and how can we reduce that through better process, better communication and better delivery for our clients.

Okay. Guys, thanks very much for your time. I appreciate it.

You’re welcome.

Thanks, Jamie.

The next question comes from Dan Jacome with Sidoti. Please go ahead.

Good morning, guys. How are you?

Hi, Dan.

Thanks a lot for your time. So nice year for sure without a doubt. Just wanted to first turn to the debt structure change, it looks like you kept the covenants intact. So just trying to understand that better, I am not credit guru by any means, what were the lending parties kind of looking at and feeling good about, was it just a free cash flow, EBITDA generation you picked up in the last year or two and the debt, was there any other metrics for me to understand?

Well, I think, it really comes to, Dan, we continue to deliver on what we say we are going to do and with our bank group. Really what we did in this amendment we’ve purely extend out our debt structure another two years from 2019 to 2021, everything else stays the same. And it was a debt amendment that went very well for us…

Yes.

… and was over subscribe, so just tells you we continue to deliver on those results and our partners will continue to support us, we have got deep and long relationships with that bank group. I mean, this date back to the early ‘80s and they have seen kind of our openness, our transparency and our ability to do what we say we are going to do and that really helps out as you go through a challenging industry like print and as we go into our transformation, you got a full bank group that’s on board. I also would add into this, besides the great execution on that, we really did see this as a risk off opportunity. We paid down a lot of debt. So we were able to shrink down the size of that debt agreement. We also were able to take a portfolio of that that was 60% floating interest rate debt and changes to 62% fixed interest rate debt. At a time when we believe that there is likelihood of rising rates. So it’s kind of chance to take some risk off in terms of the structure of the debt capital structure, so we are really pleased quite frankly with how that went in February and it’s really rejuvenating to us to see the strong support we get from our bank group.

Excellent. All right. I appreciate that. And then, Jamie, touched on cost reduction, middle innings sounds good. Just on working capital, remind us again what buckets, there might be some low hanging fruit left, I know in the past you have talked about receivables, but then it's a lot more than just that. Just help us understand a little bit better as we close the year?

Is it specific to working capital or free cash flow in total.

Yeah. Working capital like what buckets, I mean, if you could talk about, it is -- what buckets are exciting you guys?

Yeah. I think we have got still work to do on the receivable side and that's really about continues improvement and process throughout. Inventory is another area that provides an opportunity for us.

Yes.

And it really harkens back to what Joel talked about how we take on more work for our clients, we can more efficiently across our scale purchase paper than what our client can’t. And the more we pull actually paper into our platform the more efficient we can be in managing that paper whether it would be space in our warehouses, whether it would be the scale which we can negotiate contracts at lower prices, but also how we manage the turn of that inventory, quickly -- typically we turn our inventory a lot faster than what our clients turn their inventory and it allows our client to get a working capital benefits as part of that. So inventory is an area where we will continue to see progress and improvement in our working capital.

And one thing I just want to add on that point and it can goes to Jamie’s question before about the stickiness. When we are doing all these services and like in the case of Cengage or Cabela where we are acquiring the paper for them and they used to do it. That’s a true supply chain approach and what we are doing for them is returning all sort of working capital to them. So you look at the relationship and it works from really just one -- what’s the pricing to one of how is the overall relationship helping improve their business and that’s one example of what we are doing.

Got it. And then, staying on free cash flow, CapEx guidance $75 million to $90 million, do you guys talk about how much of that is like maintenance or is that all maintenance and how much it might be strategic, I can’t remember if you guys break that out in on past calls so just curious?

We directly talk about that, Dan. I think, at these levels above a point of -- we invest about 2% of our topline in the CapEx and upwards of 3% in times where we see compelling opportunities, about 1 point, 1% of our sales does go to maintenance type of CapEx to continue to…

Okay.

… maintain this very efficient and productive manufacturing and distribution platform.

Yeah. The other half than would be innovation like automation on [ph] Chap 4 (38:59), it will be like digital transformation on the book side and in other cases growth as we've been doing in the packaging side.

Okay. And then, that's helpful. I wanted to turn just like the industry overall commercial printing, because you are doing a good job rationalizing capacity. I am just curious if you have any line, let’s say, what are the other industry actors doing, because at the end of the day it’s still a very fragmented industry, due you have any view on that?

Yeah. I think it’s -- there -- you are going to see continued consolidation especially at the lower level. These are lot of single plant companies, some multi-plant companies. But ultimately you have to get rid of the fixed costs when there is a capacity demand change and I think that’s what we are most proud of is from day one…

Right.

… when we started Chapter 2, regardless of what the industry was doing as a whole. We were doing it ourselves, because if you don’t do it, it really speaks to sustainability of not only your platform but your company because ultimately even if as Jamie says the economic times continue to be tough what impact does it have on the industry. Well, ultimately has a much worse impact on the rest of the industry than us. And so that's our ability to, I think, consolidate the industry maybe not through all these acquisitions but consolidating it through one client at a time. And if you look at our history that's how we grew up in Chapter 1, it was one client at the time…

Right.

… creating sustainable very involved and very trusted partnerships. And so we see that as an opportunity, so I am, whatever the economy does here, I am very comfortable with not just how the platform is sustainable, but the fact that we are bringing in overall offering now and being able to interact with the highest levels in our customers’ organizations to help them manage cost and opportunity.

Got it. Okay. And then, two quick ones and then I'll let you go. Do you have any, what’s the latest and greatest on kind of the postage USPS, was there and I think there are, it’s suppose to be more benign, I just wonder what’s happening there, I think, just one the…

Well, we refer to it as the latest, not necessarily the greatest.

Okay. Yeah.

But, no, actually there is a lot of positive stuff going on right now. In fact, it’s a whole live as we speak. Chaffetz and the House side has really led the charge on getting the postal reform bill through that we all tried to focus on last year. And right now on the House side there is total bipartisan support for this, there is support across all four unions which is a big deal. We know that when Chaffetz had his meeting with the President that he put it on the President -- on his radar. And so right now they are targeting about the second week of March to sort of get through it and really get it into committee and then from there it will take its process. But it’s nothing perfect, but what it does, it does a lot of the things that that have a huge amount of cost associated with it.

Yeah.

Such as the pre-funding of the retiring healthcare, I mean, this is billions and billions of dollars of cost that can appropriately get removed and so, there is even been strong support in all the what the PRC had said and their point is if this some like this doesn’t happen, there are only thing they can operate by is rate increases.

Yeah.

And so, you do that, you end up talking about significant rate increases again, whereas this bill will be able to really manage that down, it’s actually be increase free but it’s going to be at a manageable rate. So I am always…

Okay.

I am bullish on where we are at with this.

All right.

Yeah.

Okay. So you -- if I understood that there is a bill in place…

Yeah.

That is going to reduce the likelihood of another exigent, is that what I am get -- you are getting at?

Well, it’s -- what it’s going to do, it’s going to help manage what the process goes through in terms of what the future rates will be. It will include sort of adding back half of the exigent case from the past of just over 2%.

Yeah.

But and so there is a little bit of rate increase there, but hopefully, by removing literally north of $5 billion a year in cost that allows them then to act…

Yeah.

… more rationally in terms of what the rate structures in the future will be.

Yeah. Now 2% is better, I was thinking about the trauma of couple years ago where I think it was like…

Yeah.

…6%, yeah, okay, so…

Yeah. And remember some of what they did, some of the trauma in the past, so is when we did a rule change with unintended consequences which caused us spike in rates even though it wasn’t -- technically rate increase and that got fixed.

Right.

So now we are just going to add back a little bit of the exigent case and most parties are aligned and it’s not perfect but it’s a long way to get into sustainability here.

Okay. And then last one, kind of a tough one, so I don’t know, it’s been kind of exactly two years since you ended the discussions with Courier, a lot has changed just industry typography, are you just -- overall just on the book business, how your views changed on demand to zero inventory. I mean, I understand the value proposition but how far can this go, like, what’s the tail of this interesting kind of bucket in the commercial printing landscape?

Actually, it’s a great story and we love Courier and obviously, Courier’s with LSC now.

Yeah.

Great acquisition, but and they have a digital platform as well.

Yeah.

If you remember we already headed it on our way to building our digital platform. And so I think that the more we as the vendors really help impact the book business in terms of their challenges, because they have got a lot of waste in the system with inventory and the way that they have to manage it in a world where just in time is great. So I see a long run way of the book industry continue to convert…

Okay.

… to a much more efficient industry and as we all know the demise of books was way overplayed and has actually been on a growth trajectory.

Yeah. Yeah. No, I agree, I think there is still some Barnes & Nobles in New York City, so that’s a good.

Well, there are but you are seeing a whole resurgence of the neighborhood book stores and…

Yeah. Yes.

… it just -- and you see who would have guessed that Amazon.com is building book stores, right.

Got it. Exactly. Yeah. Great. Great. All right. Okay. That’s it. Thank you very much. Have a fantastic day.

The next question is a follow-up from Jamie Clement with Macquarie. Please go ahead.

Hey, Joel. It’s the same way that e-tailers are mailing catalogs now, right?

Well, yeah, and I think, I mentioned this is the past. With the offering we have done. We have converted over 80 e-tailers to become print consumers whether that’s catalog or direct mail and what’s kind of fun about it is you go in there typically millennials working there and we get to go in as a printer and say, hey we can help drive traffic, we got this two technology, it’s call the catalog, he say like, ah-ha, and so we actually have seen a lot of traffic it driven as a result of that, because even at my point about over indexing and sort of the confusion in digital marketing they still need to drive traffic and they are realizing that traditional does help drive a lot of traffic and so that’s been a pretty powerful message.

A question I did have for you Joel, we have heard a little bit through this earnings season from some other consolidating industries that as companies look at their acquisition pipelines some of the businesses they've been talking to just because of the changes in Washington DC that sellers may be a little bit more on hold waiting to see kind of what tax policies might be, that kind of thing, I assume, I mean, you've always got a pipeline that you're looking at. Have you noticed the same thing?

I wouldn’t say that I have noticed a sort of on hold. I think I have seen in specifically like places like packaging multiples go up. But, no, I think that people, there is a wait and see, what’s the impact of the new administration, it always takes time to flush it out whether it’s on the anti-trust side or whether it’s on regulation. But I can’t tell you I have seen people saying on hold because of it. But I will tell you that we are very disciplined in what we look at and any acquisition takes a lot of effort, it takes capital…

Yeah.

… and it's got to be the right thing and into my point before there is two ways to consolidate. There is acquiring things and then there is also acquiring customers.

All right. Thank you all for your time. I appreciate it.

You’re welcome.

Operator, any more questions?

There are no further questioners in the queue. So this concludes the question-and-answer session. I will now turn the conference back over to management for any closing remarks.

Yeah. Actually, just one other question that I have been asked more on a one on one basis I would love to cover here just to give some clarity is, I think, you have probably seen myself and some of the family are doing some stock sales as of late. Really what's happening there is we lost my mother, second to die in an estate three years ago and we have hit a pretty good milestone in terms of closure to the estate which has allowed now the family to take advantage of some opportunity for diversification as we pretty much stated all in and we will continue to. But you will see overtime me and some other people in the family do some sales but not a lot. We continue to be very bullish about this company and very committed and passionate about it. And so with that, we had a great 2016. I think that we are very happy with how we are managing the company for 2017 regardless of some of the lack of visibility and we are ready to manage for whatever comes our way. And so, with that, thank you all for joining us and we'll see you on our next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.