Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics Second Quarter 2017 Conference Call for Analysts and Investors. 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 would 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 discussion of our Company's ongoing strategic transformation. Dave will follow with a more detailed review of our second quarter 2017 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 on Slide 2. 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 today. 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. I am pleased to report that our second quarter 2017 results were in line with our expectations as we continue to execute on our strategic objectives. Despite ongoing industry-wide top line pressures, our adjusted EBITDA margin increased compared to the same period in 2016. In addition to our ongoing focus to reduce debt, our debt leverage ratio is at the lowest point since 2012. We remain disciplined in how we manage all aspects of our business, with a concentrated focus on improving productivity and sustainably reducing cost to drive EBITDA enhancements, while remaining focused on top line revenue. We believe this focus will minimize the impact of ongoing industry and economic pressures and help Quad/Graphics remain the industry's high-quality low-cost producer. We also continue our focus on generating sustainable strong free cash flow to strengthen our core platform to ensure it remains the strongest and most sustainable in the industry, return capital to shareholders through our quarterly dividend and support our continued transformation to help clients market their products, services and content more efficiently and effectively. We refer to our transformation as Quad 3.0, which reflects our evolution from startup product that grew rapidly in Quad 1.0 to a disciplined industry consolidator in 2.0 and now, in 3.0 to a global marketing services provider that leverages our strong print foundation in combination with our deep expertise in workflow reengineering and optimization, content management and data-driven marketing, including personalization across all media channels. Our transformation creates significant value for our clients by addressing their urgent business needs to improve process efficiencies and marketing spend effectiveness. Quad 3.0 leverages the seismic shift in today's business environment that are driving marketers and publishers to create more content at a faster pace with fewer resources and then…

Thanks, Joel, and good morning, everyone. We are pleased to report that our financial results through the first half of 2017 are in line with our expectations and we continue to remain on track to delivering our full-year 2017 financial guidance. Slide 4 provides a snapshot of our 2017 second quarter and year-to-date financial results as compared to 2016. Net sales for the three months ended June 30, 2017 were $963 million, down 6.7% from 2016. Organic sales, which excludes pass-through paper sales and foreign exchange impacts, declined 4.8%. Pass-through papers sales were down 1.7% in the quarter and foreign exchange losses impacted sales negatively by 0.2%. Net sales for the six months ended June 30, 2017 were $2 billion, down 5.4% from 2016, with our organic sales decline of 3.7%. The quarter and year-to-date organic sales declines were due to ongoing industry volume and pricing pressures and remain in line with our annual sales guidance assumptions, which anticipated volume declines in the range 1% to 4% and a price decline in the range of 1% to 1.5%. Adjusted EBITDA for the three months ended June 30, 2017 decreased $1 million to $97 million, as compared to $98 million in 2016, and our adjusted EBITDA margin increased 50 basis points to 10% compared to 9.5% a year-ago. Adjusted EBITDA for the six months ended June 30, 2017 remain flat with 2016 at $218 million, while our adjusted EBITDA margin increased 60 basis points to 11.1% compared to 10.5%, primarily driven by cost reductions and productivity improvements. Included in these lower costs are a $5 million gain from a property insurance claim during the second quarter and $7 million of net year-to-date non-recurring benefit from a $17 million reduction in our vacation accrual in 2017, partially offset by a $10 million…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Dan Jacome of Sidoti. Please go ahead.

Good morning, Dan. Dan?

Dan, your line is now open.

Good morning, can you hear me?

Yes, now we can hear you.

Great. Sorry about that. Couple of questions here. First on the National Geographic contract. Congrats. Just wondering overall what are their subscription trends with their customers on the print material? I was just curious on that. That was my first one.

Specific to them, that's - it's something I'm not sure they disclose. But I'd say that generally speaking, when you look at publications, circulation is not the problem. Some people focus on newsstand, but typically newsstand in this country is a very small part, their total reach. And the thing that always frustrates me when I look at the challenges they've had as the world has gone through marketing disruption is that their decline has been very slight on the circulation side for the most part. And so there eyeballs there to look at advertising. And so I think that as the world figures out the integration of where marketing dollars should be spent, I think it continues to be an opportunity. So again, advertising pages has been the publishers challenge, not circulation.

Okay. That's helpful. And then wanted to turn over as to - well, just so as you enter the second half, the back to school season, do you have any very high level thoughts on how conversations are going with customers about what you expect for any page count trends? Are they going to, you think, fall into that low-single-digit decline this year? Do you have any color on that?.

Well, obviously we have a big mix of different product side, so I think that you've seen continued top line pressure, at least page count pressure on the publication world due to the advertising trends. And they've continued to be double-digit decline, but again the circulation has been holding up. When you look at retail, it's going to be a mixed bag because they are under a lot of pressure and they've certainly been down as they've tried to really manage through disruption. But we see sort of different answers to that question. I've got one who has typically done lower pages counts or brought them down is now thinking about going back up. We've got a brand new grosser coming into the country that is going with high page counts and high quality. So in terms of number of pages, that tends to ebb and flow, but I will say we'd continue to see the overall circulation of retail inserts has been under pressure. But I'd also say that, as we go forward here, disruption is actually our friend. We are early on the disruption as a printer, and so we figured out a lot of things. So when we think about the stack we've created of services from not just execution with the print products we supply to these people but the 3.0 services that help them reduce cost but also increase pace of being able to iterate content and then start to be able to execute on where they spend their media dollars. Everyone has to remember that the agency world is really a sort of disruption themselves these days as evidenced by people like Procter & Gamble, who are throwing down and saying that the lack of integrated measurement cross-channel doesn't work anymore and the lack of transparency of how all these channels drive each other doesn't work anymore. And so as people are trying to go through this, we are seeing the scaling of those 3.0 services happen. And I'm proud to say - and people always ask us - but those upstream services have now created over $100 million in incremental downstream revenue for Quad that would not have existed before. And so specifically, as we do the things with like National Geographic or Cabela's, it's creating not just more print, it's also creating more revenue from all the different services we have, whether it's in-store signage to video. And so it's a long answer to your question but I think the world knows that we are going to continue to see the top line pressures from our clients but it's actually turning out to be a big revenue opportunity for Quad.

Great. And then - well, that brings me to the last one. Just on content. I know you're working with customers across all of the social media channels and I'm not an expert in that arena. It just seems like there is so many out there and it seems to be proliferating. You're growing every day. Which do you think are the largest ones? You mentioned video. I was just curious if you had any thoughts on that? And then my last one was just a quick update on your co-mailing operations. I think we've seen a little bit of consolidation in that space and nothing too large but just curious. And that's it for me.

Yes. So on the first question, digital has become a very crowded space. And I do sit on an ad tech board that we've invested in with, Pixability, which is a video-related ad tech company. There is about to be a big shakeout in ad tech and it's already happening because of the lack of integration of all these offerings. And so as we see it, yes, certainly video is very strong. Search is very efficient. However when you think about the things like traditional search, which really is driven a lot of the online quality of spend, we actually see a lot of over-indexing now. So we see people way overspending in search and starting to see diminishing returns. So does it mean you don't continue to focus on search for a focus on video. It just means you need to focus on what the data tells you, you should be spending and not just be spending for the sake of it. And so I'd say that all these channels continue to stack on top of each other. But the big push in marketing today is how do we integrate the measurement back to making sure that if I'm the CMO of a marketer, I don't care what company you're in, whether it's print-related or not, does the dollar of marketing spend create, say, $5 of revenue or is it create $10 of revenue, because at the end of the day that's all that matters. And then to your second part of the question, which really I think speaks to co-mailing - and it sounds like your question is a little bit related to consolidation in the industry - I think that this is a very large industry and we've played one of the main roles in consolidation. I think you're going to continue to see consolidation happen because scale matters to our clients. And the reason it matters is just, what you hit on, which is a big part of people who use print for marketing is distribution. And as we compete with all these other channels, because let's be clear, we are competing with other channels, part of that top line pressure the industry is seeing has been revenue going to other channels. And so we are competing with a whole different set here. And for us, it's really important - for the whole industry - that we continue to focus on having an upscale of volume to be able to effectively penetrate the post office to get the biggest discounts for our clients, so that the ROI on print remains competitive.

Okay. And then maybe I'll just sneak in another one. Your body language on the dividend was pretty interesting. You've been doing a good job pairing down debt. Does it sound like you might be considering, potentially down the road, a higher dividend payout or am I jumping the gun here?

Well, I think that we look at a lot of things - and you scared me when you say you see my body language. I'm looking [indiscernible] right now. But I think that our uses of capital, we've been very consistent and very clear. And we look at debt pay down as a primary because we think that you need to always have dry powder and operate in this industry in a range that's sustainable. But that being said, we also look at opportunities to acquire like we did in packaging, like we've invested in both Pixability and Rise Interactive. But also as we think about consolidating acquisitions, you got to be very disciplined about it. And so if we look at the use of capital being debt pay down, acquisitions or return to shareholders, right now I think we want to focus on debt pay down, unless we have opportunities for acquisition. But you got to be very careful on how you stay disciplined in any of these uses of capital.

Yes, Dave, to Joel's point on that, I think we've been pretty consistent and disciplined in applying our four criteria on the acquisition side. We always look at that strategic fit. But probably the second and most important is do the economics make sense and when you look at obviously valuing the businesses that - we see a lot of opportunities come across our desk to value. Third thing is we want to integrate but sometimes these businesses we see - we just don't think we can successfully integrate those, or in the case of a growth acquisition where it's not about integration, it's about does it move the needle on scale for a transformation. And finally does it stress our balance sheet. We've always tried to demonstrate and I think we've been pretty successful at demonstrating that. We will lever up for a deal but we'll provide a clear pathway back to our long-term leverage range of 2x to 2.5x. And So when we think about the print industry, especially when it comes to consolidating acquisitions, that will drive a lot of their value from removing costs and inefficient industry capacity. It's really important for us that we don't overpay and we don't stress our balance sheet. We've been pretty successful in maintaining this healthy balance sheet and let's just manage our business in a very disciplined manner, especially as Joel gives you the context of what's going on digitally because we believe that's kind of our ultimate competitors' digital substitution. So really an overpaying for a business. We've spent a lot of time looking at potential acquisitions to make sure that the underlying earnings and the cash flows are high quality. And that's why we talk in our script to about the cash flow conversion and we look at the efficiency for every dollar of EBITDA and what that generates in cash flow. We want to make sure that there is a quality of earnings that supports the underlying assets that we would buy.

And so getting back to your question two, we believe in a very sustainable dividend policy so that people can count on it. And so if there are other opportunities, we always weigh whether or not there is something in terms of returning cash to shareholders but I think we've got a lot of priorities that are going to create value where we're spending that capital now. And so right now with a 5% return, it's a not bad dividend that we're paying.

Yes, I agree. And then you brought up Rise, so I was just curious. Are they working with all of your customers because I know when you bought them, they were small and I think Midwest-focused. I was just curious if you are being - are you leveraging that team...

They are Midwest located but they are national, not international. And so they've got a pretty large client list of the who's who in marketing. Yes, we are absolutely leveraging them. That's all part of this scalable integrated offering that we're giving people. And it truly is scaling. Again we've created an annualized run rate of $100 million of downstream revenue between the efficiency, services, as well as the types of effectiveness conversations we're having with people.

Okay. That's interesting. Is it safe for me to assume that maybe you are able to use the Rise team or their platform and secret sauce with the National Geographic contract expansion, or is that maybe too…

Well, I'd rather - I'd probably spend a lot of time with them trying to leverage them for someone like National Geographic or any of our clients to - in their case to actually sell - I'd love to help them sell their online content, which is phenomenal. I mean, look at the series they are producing now that they are part of Fox, the company. I think we can help them do that just as we're helping other customers, retailers sell across channels to get people in stores or online. We've converted over 80 e-tailers to using print to drive traffic to their sites.

Okay. All very helpful. Looking forward to see you what develops in the second half. Thanks a lot.

Okay. Thanks Dan. Operator?

This concludes our question-and-answer session. I would now like to turn the conference back to management for closing remarks.

Well, thank you all joining us. I just want to say that we're very pleased with this whole strategy that we've been onto with dot-com 3.0 and it truly is scaling as evidenced by the $100 million of incremental revenue we're creating and we're at early innings. And so with that, I can continue to look forward to sharing our story with you on into the future. Enjoy the rest of the summer. Thank you.

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