Good morning ladies and gentlemen for standing by, and welcome to the Quad/Graphics Third Quarter 2017 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' Web site under the Events and Recent Presentations link in the left-hand navigation bar. Following today's presentation, the conference call will be open for questions. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Kyle Egan, Quad/Graphics' Senior Manger 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 third 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 Web site shortly after we conclude today. The slide presentation will remain posted on Quad/Graphics Web site for future reference. I will now hand the call to Joel.

Thank you, Kyle, and good morning everyone. I am pleased to report that our third quarter 2017 results were inline with our expectations and reflect the continued great work by our team to sustainably reduce costs, win profitable new volume, and expand existing relationships. On our path forward, we will remain consistent and disciplined in how we manage all aspects of our business to minimize the impact of ongoing industry and economic pressures, and help maintain Quad/Graphics' status as the industry's high-quality low-cost producer. This includes generating sustainable free cash flow to strengthen our core platform, support our company's ongoing transformation in Quad 3.0, and fulfill our commitment to providing long-term shareholder returns. We continue to drive EBITDA enhancement through ongoing productivity improvements and sustainable cost reductions, while staying focused on improving top line revenue. Despite ongoing industry pressures, we again demonstrated our operational expertise this quarter and held the line on adjusted EBITDA margin, which remained flat to 2016. To strengthen our balance sheet we remain focused on reducing debt. As a result, our debt leverage ratio, at 2.22 times, is lower than last quarter and at the lowest point since 2012. We continue to accelerate our Quad 3.0 transformation through the creation of an integrated marketing services platform that helps brand-owners market their products, services, and content more efficiently and effectively. To fuel our transformation, we continue to build sales momentum in the marketplace. In fact, a number of marketers and publishers have entered into exclusive contracts with Quad/Graphics. For example, Bluestem Brands recently extended and expanded its relationship with us for paper purchasing, printing, and mail distribution for all 13 of its brands. The new contract extends catalogue production of Bluestem's Fingerhut and Gettington Brands, and awards us 11 additional brands under its Orchard portfolio beginning in…

Thanks, Joel, and good morning everyone. We're pleased to report that we delivered third quarter results that were inline with our expectations as would continue to execute on our strategic objectives and delivery our full-year 2017 financial guidance, which was narrowed for today's call. Slide four provides a snapshot of our 2017 third quarter and year-to-date financial results as compared to 2016. Net sales for the three months ended September 30, 2017 were $1 billion, down 4.8% from 2016. Organic sales, which exclude pass-through paper sales and foreign exchange impacts, declined 3.7%. Pass-through paper sales were down 1.2%, and foreign exchange gains positively impacted sales by 0.1%. Net sales for the nine months ended September 30, 2017, were $3 billion, down 5.2% from 2016, with an organic sale decline of 3.7%. The quarter and year-to-date organic sales declines were due to ongoing industry volume and pricing pressures and were within our annual guidance for volume declines in the range of 1% to 4%, and price declines in the range of 1% to 1.5%. Adjusted EBTDA for the three months ended September 30, 2017 declined $6 million to $116 million, as compared to $122 million in 2016, while our adjusted EBITDA margin remained flat year-over-year, at 11.5%. Adjusted EBITDA for the nine months ended September 30, 2017, was $334 million, a $6 million or 1.8% decrease from 2016, of $340 million. Yes, our adjusted EBITDA margin increased 30 basis points to 11.2% compared to 10.9% in 2016. This was primarily driven by sustainable cost reductions and ongoing productivity improvements. Included in these lower costs are a $5 million gain from a property insurance claim during the second quarter of 2017, and $9 million of net non-recurring benefits primarily from a $19 million reduction in our vacation accrual in the first quarter…

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

Yes, good morning, gentlemen. Can you hear me?

Yes, we hear. Good morning, James. How are you?

Okay, great. Hi. Joel, top line performance for the quarter, at or maybe even a little bit better than trend line looking back over the last couple of years. Retailers is struggling, publishing industry being disrupted. But you guys seem to be doing quite well. Is this a function of perhaps concerns about the intersection of Quad/Graphics and those kinds of customers being overstated, or is this because you're winning business via Quad 3.0, or a little bit of both?

Well, look, we'll continue to watch our clients closely because, as I say, we experienced the disruption as apparent a lot earlier than most. But again, you look at what's happened in publishing or in retail; they have continued disruption going on. There's lots of things going on to help offset that. People are reinvesting in stores, some people are closing stores, and you'll see this continue to happen, but I think you're right in your assumption that our strategy is really working. We've talked about 3.0 for a while. And 3.0 wasn't just a light switch that happened yesterday, it's something that we started migrating towards several years ago. But at a time of disruption is the time where new models can really take hold. And I've talked about that I've been surprised at how fast people are reacting to this. And so yes, we referenced the $100 million in incremental revenue that just the 3.0 conversations have had with existing clients for 2017, and we're in early innings. So long story short, we continue to plan for decline, but not just 3.0 conversations are starting to create momentum, but also we're in other product lines that we've created, whether it's packaging or direct mail. I mean, talking about direct mail, I talked about having these personalized direct mails. And in fact, we've started up our second large format digital press just in October that has created a lot of opportunities. So it's coming from a lot of areas. But I think that what we feel good about is the strategy is playing out and it's working the way that we hoped it would.

Okay, great. And then, next question. You all stayed out of the acquisition market for the last couple of quarters here although the last couple of years, couple of packaging deal that kind of thing. Is there anything keeping out of that market? The acquisition market in packaging, is it just a function of evaluation of price at this point?

No, I mean to say we are out of it is we are not out of it, we just haven't executed on anything. We are always looking and we're always paying attention. But it's got to make a lot of sense. You know the story in the consolidating acquisitions. We know how to do that. We pay attention to those opportunities. Right now with 3.0, there is a lot of philosophical sort of balancing we had to between the do you go bid or do you buy it because a lot of things that we do in sort of scaling the 3.0 conversations is really talent based.

Right.

And so, I got to be careful about there is a lot of disruption in the agency world. And so do you buy someone else's legacy model that is starting to fail or do you take the displaced talent that is leaving that model because they see a better way. And we're having no problem finding talent to fill those roles. And when you think about packaging, we've created close to a $200 million packaging business, but where we are spending a lot of time on that is the 3.0 conversations in packaging which we are finding is rather unique. And so, we're having conversations with some very big packaging brands that are more along lines of what I referenced in that -- in the scripted part of the call, with that retailer were the agency of record and by the way we don't print for them yet. So we're seeing those opportunities play out in every sector that we are in. And that's if you'll recall, I switched from talking to QUAD about Chapters to 1.0, 2.0, 3.0 because it's really an enhancement of all the product lines that we have. And again -- so we've got a great balance sheet going on here. We have created a lot of dry powder not because we're trying to, but because the strategy working is allowing us to. And so what's happening here is we were paying attention to a lot of things. We are trying to figure out build versus buy in all the right areas. But we've created huge amounts of optionality no matter what comes our way in terms of uses of capital. And we'll be very disciplined about that.

Okay, thank you very much for your time, and good job, good job.

All right, thank you, Jamie. Operator, next question?

Our next question comes from Dan Jacome from Sidoti & Company. Please go ahead with your question.

Good morning. How is everybody?

Good. How are you?

Good morning, Dan.

Doing well. Thank you. Just couple of questions here; first on the Bluestem contract renewal, that looks like a positive, can you just flesh out for us what you're going to -- I know you talked a little bit about it, but some more details on that please. What are you going to be doing different with one you think versus the prior contract which I am assuming was probably within 3 to 5 years? And then if you can elaborate on it, I was just curious about how typically the bidding process is for these sorts of contract. And if this one was by any chance competitive or not competitive, any color there? That was my first question.

Well, first of all, in this industry every contract bid process is competitive. But the relationship we created with Bluestem which is many of you know is the old Fingerhut has been over many years. And has been a lot of big aspect too has been sort of the 3.0 conversation early on. We had taken over the paper buying from them. We do a lot of imaging work. We do a lot of video and photography for them. And so, when you look at I think the importance of this is they acquired a competitor that was bigger than them from a volume standpoint. So Orchard brand is one of the biggest catalogers out there. And so, I think the real big thing to note here is that the part we are winning is bigger than what we have. And so combined it's worth over $450 million over the term of the contract. And is heavily focused on the QUAD print as well as payer buying but also creates the opportunity to expand some of the other services that we have been doing for legacy Bluestem. We still have to earn that. We have to bid on it competitively. But again, I think that we have proven over time with the parent company that we're great partner. And so, I think that's the most color I can probably give on it. But, yes, I mean it's a great win for us and we are pleased with it. And it's a profitable win. So from the standpoint of, yes, everything is competitive, but we're not going to -- yes, we have spent so much time and effort on right sizing platforms and investing on the best platforms, we are not going to tie up valuable capacity with stuff that isn't profitable. And so, we do maintain a very heavy discipline making sure that the value add is greater than the pressure to lower prices. And so, I think we've hit a pretty good balance in a lot of market share wins we are having these days.

Okay, okay, that helps. And then, I feel silly for asking this, but media placement seem like a buzz word in the prepared remark you had. And can you just elaborate a little bit more on what that is for people like me that are not very marketing savvy? Is that more like a customer trying to figure out if they are going to put a printed add in a Condé Nast magazine or is it something like in a Twitter, Instagram? Any help there will be good.

Yes. So the media planning and placement actually came as part of an acquisition of Vertis, which is a retail insert. I have my good friend Stephanie Staben [ph] who runs that, and her whole team split up in a couple of areas; I just visited some of them in Saratova [ph]. They are doing originally traditional media planning and placement. So when a marketer is trying to decide where do they put those retail inserts, they use a lot of analytics to tell you very efficiently what newspapers, which geography should you be in to get the most bang for the buck. And so, it's not just as simple as oh, well, let's just go place these inserts. It's actually let's place them in the right places. And so, we entered this relationship through that, not through print but ended up executing as agency record. I think they went from 10+ agencies down to two now, which was one of their goals. And they also had flat sales for the past -- flat to declining sales last several years. And because of our program, we turned that to a 5% increase in revenue on same number of transactions. So it's to me the power that we've done in 3.0 is about integration of the offering. And if -- and if we had to disrupt ourselves several time to make that work, so I have had to change how the sales force functions. I had to change how even the executives run each of their different product line function, so that when we are executing as one company, it really feels like one company. And so, to me that allows us to have any conversation we have with any customer, any one of those areas can be an entry point…

Okay, and then -- appreciate that. I just had a two more high level questions. Is there any update -- you've been doing co-mailing for quite some time. Is there a maybe -- is that running status quo in line with your expectations when you started the year? Maybe a little commentary there just to help out. And then from modeling, I know we are not about 2018 just yet, but is there any reason to think that your tax rate would be different -- GAAP tax rate would be any different versus what you have for 2017 at all? Maybe you can talk about that. Thank you.

I'll start with the role of co-mailing and Dave can take on the exciting role of tax. So co-mailing is given again very economically driven because the post office gives a lot discount -- potential discounts to our clients to bypass most of the post office. And when you look at the volume that comes out of QUAD, it's over 7% as a volume of the post office. It's comes out QUAD plants. And so the printing industry has become good at that. We will continue to wring out every last cent on that. I think the challenge for everyone now is where does the post office go, because we are kind of coming up against a timeframe here where they will be going making some calls the future process for rate increases. I just spoke to the speaker of the house just last week or the week before to really try and urge him to get the bill to fix the post office on to the floor, which has been around for awhile. It's just that we can't get through all the noise of Washington even though as I point out to him this is easy win for everyone. It's got bipartisan support. It's got support of all four unions and it's got support of the mailing community and the post office. And so he is obviously from Wisconsin. We have a lot of employees that are impacted by the post office here and throughout the country. And so we are doing what we can to try and impact that. But in terms of the continued efficiency through the post office, that's a place that we only increase every year our ability to offset the cost.

Okay.

And so with that, I'll turn it over to Dave for some exciting tax thoughts?

Thanks, Joel. No real change in the outlook for the long term effective rate. That's something between 37 and 38%. Now that's obviously pre any legislation that could happen on tax reform.

Okay, fair enough. Appreciate that and -- okay, Joel, actually follow-up on just what you were saying about the post office. I am assuming you are not the only leader from a commercial printer entity that is speaking to people on that, is that just kind of a safe assumption?

No, I think industry you have a lots of associations. You've got competitors, but we do try and speak where we can as one voice. And so, we'll be in the room with competitors with different client segments all the time, and the fact that there is agreement -- general agreement that's not perfect but on the future solution that's a big deal in an industry like this.

Yes, absolutely. I meant it in a positive way. You have support behind your back with other people in the industry, it would make more sense that the people…

It's in everyone's best interest. I mean RR Donnelley is a big mailer. LSC is a big mailer. We are a big mailer. There is a lot of other people out there. Survival of the post office means a lot to commerce in general. So, it's not just the printing industry. It's not just the users of the print industry, but it's very important to even rural communities and how they conduct commerce. So there is a lot of voices on this.

Okay, great. Thanks a lot.

Any other questions, Operator?

Sir, at this time, I am showing no additional questions.

Okay. With that, we thank you all for your time and we will be back to you at the yearend in February. Enjoy the rest of the week. Thank you.