Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics' Fourth Quarter 2017 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' Senior 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 detail discussion of our announcement today on the acquisition of Ivie & Associates. Dave will follow with a more detailed review of our fourth quarter and full-year 2017 financial results and the summary of our 2018 outlook 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. 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 fourth quarter and full-year 2017 results were in line with our expectations and showed consistent execution of our strategic priorities. As we move forward, we will continue to generate consistent earnings and strong sustainable free cash flow to further strengthen our balance sheet, provide long-term shareholder value and accelerate our transformation in Quad 3.0. We describe our company's history in terms of evolutions with each successive evolution strategically building on the strengths of the previous one. As we evolve, we continue to expand our offerings. In this way, no single evolution replaces the next, but layers on greater value for our clients across all product offerings. Quad 1.0 covered a period of tremendous organic growth that began with our company's founding in 1971. Over time, we established ourselves as innovators and formed a company culture based on strong values that remains in place today. Quad 2.0 began in 2010 and continues today with our ongoing role as a disciplined industry consolidator. In this evolution, we have added talent and expanded our product offering while also consolidating operations to create our industry leading, highly automated, and efficient manufacturing and distribution platform. Quad 3.0 has evolved over the past many years along with the seismic shifts in the multi-channel marketing environment, which provided the opportunity for Quad to expand its offering as a marketing solutions provider. In Quad 3.0, we continue to leverage our strong print foundation built over the past 47 years as part of a much larger and more robust integrated marketing platform. Today's marketers and content creators face incredible marketplace disruption. And they need a trusted partner to help them create, integrate, deploy, and measure that content more efficiently and effectively across all media channels,…

Thank you, Joel, and good morning everyone. We're pleased to report another solid year of financial performance in 2017. We executed well on our strategic objectives and continue to see a positive impact from Quad 3.0. Our financial performance was in line with our expectations and guidance including net sales, adjusted EBITDA and free cash flow. Additionally, we've reduced debt by $166 million or 15% during 2017 and lowered our debt leverage ratio below our long-term stated goal of 2 to 2.5 times leverage. This strengthens an already healthy and flexible balance sheet. The strength provides us the ability to invest in our employees, transforming Quad 3.0 and provide a healthy 5% dividend to our shareholders. Slide 8 provides a snapshot of our full-year and fourth quarter 2017 financial results as compared to 2016. Net sales in the quarter were $1.2 billion down 2.8% from 2016 and organic sales for the quarter also declined 2.8%. Full-year net sales were $4.1 billion down 4.6% from 2016, organic sales decline 3.5%. After excluding a 1.1% negative impact from past through paper sales with no net impact on sales from foreign exchange the Quarter and full-Year organic sales declines were due to ongoing industry volume and pricing pressures and where within 2017 guidance ranges. As Joe noted, our Quad 3.0 expanded integrated marketing services offering help offset some of the organic print revenue declines. Adjusted EBITDA in the fourth quarter declined as expected by $15 million to a $125 million as compared to $140 million in 2016 and our adjusted EBITDA margin decline to 10.7% due to reduced overall net sales and incremental investment in hiring marketing services talent for Quad 3.0. Adjusted EBITDA came in as expected at the midpoint of our guidance range for the full-year at $459 million representing a…

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

Hey, good morning guys. How are you?

Good morning.

Okay. Thank you for the time. So, just a couple of questions, first one housekeeping, the adjusted -- I think you said it, but I may have missed it, the adjusted EBITDA outlook for '18 factors in the change that you expect in pension income, is that correct?

Yes, it does. So, we've historically had $10 million to $12 million of pension income in our adjusted EBITDA. That's been pulled out of our guidance for '18. And on a pro forma basis, we also pulled it out of 2017.

Okay. And those are regulatory changes from the tax reform or something different? I missed that as well.

No, it was the change in accounting pronouncements that really just pulled out that pension income out of operating income and put it below operating income going forward.

Okay, all right.

So we've -- this is the same-store [ph] operating income. We pulled it out of adjusted EBITDA too.

Okay. I'll brush up on my FASB accounting going forward. Yes, next question. Just the Ivie business, I was trying to dig up some information on them before the call, couldn't find a lot. Can you give us at this juncture what you could as much color and flavor for their margins or at least, if you can't discuss numbers, how they stack up versus what you guys have been computing in the last couple of years. A little bit more color on their customer base. I think you mentioned retail, just curious like how much retail, what segments, or what customers that they have that you are really excited about. And then lastly, you mentioned Ivie was going to positively impact other revenue streams from Quad. So if you could answer those that would be great. So three little questions in there.

Thanks, Dan. I'll start out and I'll turn it over to Joel as we talk more about the scope of this Ivie acquisition. But from a financial perspective, initially Ivie would come in a little dilutive to our margins. However, this is not the typical acquisition we've made in the past where you've seen us make a consolidating acquisition within our industry space where the key driver of an acquisition, like that, is to improve margins through cost reduction. This is very much a growth acquisition for us, driven by the top line. And so what we're going to look for is revenue synergies coming out of this business, which would ultimately, we believe, improve margins well beyond our fleet averages right now as we put the combined power of the two companies together.

Okay.

And so kind of getting to the rest of your questions, this is Joel. 3.0 is about helping our clients market more efficiently and effectively. And that's why people ask about, well, what are the revenues going to be in 3.0? You have to take into account that there's going to be revenues, and better margin in the services sector of how we help our clients. But also as a part of that media spend, because we also helped them deploy execution of campaign, whether it's online and offline, it does create more incremental print. And we saw that in '17. And the print revenue typically has a lot more zeros attached to it. So it does impact things. But that's the whole plan, is to continue to get embedded with our clients, not as a vendor, but as a partner. Take and replace a hole that's been created through how the agencies have really operated over time and really help consolidate it. Many of our customers, just for like a back-to-school campaign, will use as many as 16 to 20 different agencies to execute on their campaign, and so, that will include TV, radio, it'll include print, in-store signage, it will include online search, et cetera. And so what we're doing as we kind of come in as that partner, we can help them get rid of all those different agencies because the problem with having that sort of approach is the measurement of how your overall marketing spend is hard to understand of what's working where, why, and when. Because we come through with actual execution, and really look at the full circle of all medial channels, we could actually help them streamline and really measure what works and what doesn't work. There is a tremendous amount of…

Okay, got you. I appreciate it. There's a lot in there.

Yes.

But like for prospecting new customer on the Ivie end, is there a sales cycle, like any dramatically different from what you guys see on your already digital marketing business in place? Like I'm just trying to think of like Rise versus Ivie, is there anything that we need to know or is it like…

Yes. So, no, they'll typically be long-term relationships because you're putting staff within someone's four walls.

Right.

I'd say that they've grown mostly organically thorough word of mouth because of their successes. So as people experience in them and then there's movement within the industry of talent going to other companies and other brands, they've actually been able to do their incredible growth through a lot of word or mouth. On our side, we have a huge list of logos of markers not just from retailers or magazines but cataloguers and CPGs and I think that the whole packaging world or the CPG opportunity is going to be huge in this as well as they're looking for the same integration whether they note or not of all the media channels. And so, I think what we bring to the table for Ivie's concept is a strong sales front to actually be much more aggressive without leveraging it to all the various logos we already have relationships with.

Okay, fantastic. And I just saw on the deck that you do provide the revenue contribution from the acquisition on Slide 11 I missed that terrific.

Yes.

Okay, yes, so it's more meaningful than I expected, last question here the book business digital book business -- I know don't want to hop too much on this but one of your peers continue to invest in heavy dollars on that side and I know it is a pocket of the industry that you kind of looked on, looked upon favorable. Do you have any high level of thoughts there? Anything you can share will be good, anything you can share will be good.

Yes, no, I love it. We made a significant investment in WordPress this past year and the Kentucky plant which is really helping traditional print compete with digital because it's very automated length of runs that we could produce there effectively has gone down because we need both the digital assets and the traditional assets to do what our publishers need today and so big push is about getting rid of inventory in the book industry and that's why we made such a significant investment in digital presses over the past several years. So we have a huge digital sell that is really sometimes getting down to versions of one but the most important thing is we totally bridge the gap from being able to do pay like you've got an initial order with strong demand, we have the traditional assets to do the high volume but the ability to do low volume on traditional has gotten even more effective but then we have the digital assets all within the same cell, so we can seamlessly send products to either one depending on the economics for our client without them having to worry about it. And so, we see the book world is obviously it's I think over the years everyone thought they're going away, they're certainly not when you look at the growth and but the importance is that we make it efficient for our clients, so that they can get rid of inventory and quite frankly also be able to start bringing in more customization and personalization.

Okay, fantastic. I think I'm out of questions for now, so thank you very much.

Okay, Dan. Thank you.

Thanks, Dan.

Operator?

Our next question comes from Bill Mastoris of Baird. Please go ahead.

Thank you very much. Hey, how are you, Dave? I'd like to start out with now that you've kind of fill that gap with iv what type of additional M&A activity might we see out of you given the fact that you're still at the very low end of your target leverage ratio. And one of the things I guess to kind of plays into this a little bit with rates raising our sellers a little bit more realistic about price and maybe multiples that they can sell their businesses for that's my first question.

Yes, this is Joel. Let me answer a little bit of that. Look, we will continue to look for strategic opportunities that help fill the 3.0 gap. We think we've pretty much we spend a lot of it now but I think depending on the demand will continue to either build buyer partner. So you'll see more of that out of us and then secondarily I'd like to make the point that Chapter two is about consolidating acquisitions and Chapter two is not over we will continue to look at opportunities for consolidation as a more opportunistic that where we can really strengthen that platform. We know how to do it. We know how to do consolidating acquisitions but we also know how to evaluate them. I would say to the point about multiples out there and I think that there's still a lot of people looking to deploy capital and so I think that multiples continue to be on the 3.0 side probably very healthy but I think on the consolidating side they've probably come down. So I think we're very pleased with the balance sheet I think Dave and his team have done an excellent job and as we've talked over time when we've done acquisitions we always like to say that we do it and we're okay with going above our range is long as we feel that there's a row back down and so I'm very pleased that we are proving out that we've consistently done that. And then, now being basically we need considering the cash at the year-end being at the lowest point in the history of our company, which is a capital incentive industry gives us so much opportunity or flexibility to do what we want to do depending on what's the marketplace demands and what your options come up, Dave?

That's well said. And I think, what we try to be is very balanced in our capital deployment Phil you heard us in the script talk about not only the acquisition we had just did with Ivie, which really comes at a great opportunity for us with a lot of disruption happening in this industry. But also what we do with our dividend and our opportunistic ability to repurchase shares and so during 2016 and 2017 despite all that debt reduction we talked about. We were also in the market buying shares opportunistically at times. So I think, we will – you will continue to see out of this as a consistent policy of maintaining that balance sheet in very disciplined and balanced on our capital deployment.

Okay. Thank you. That's very helpful. My second question also relates a little bit to Ivie. If you heard you correctly, Ivie seems as though at least over the long half, you are going to have better future margins and it's going to actually supplement all right many of your print products. But if we turn to print and kind of wondering in sub segment such as books, which seems that curve, that decline curve seems to be flattening out. If you could give us some color maybe on some of the major categories that you outlined on slide number seven maybe the top four retail and research magazines catalogs and direct mail. How, we might expect some type of organic decline or is that just going to flatten out and maybe with Ivie, we might even see some top line that would be study to maybe even up.

Yes, so that is augmented print operations and again like we said it's scaling within the services that we offer in 3.0, but also scaling with incremental print revenue down the stack as we show people the of what works and what doesn't work. But again a point to the two major areas that continue to be of concern, which is and it's pretty obvious retail inserts and magazine ad pages. Retail inserts, you are going to see, you continue to see a shakeout there. Retail will not go away, but there is a lot of I guess disruption underway where people are closing stores, other people are opening them. I think you are going to have a bifurcation and if you have a crappy experience at a retail store, you are not going to survive. Those who are really transitioning to a great experience, I think will. But on and off like you continue to see the downward pressure in both of those areas including magazines you see in consolidation in the magazine industry, which I think will help long-term, short-term we've seen some people change frequency or you may see with the timing narrative feel, will there be combining of some of the tittles or not. But we built this all into our guidance and we don't have a crystal ball, but we always plan or decline and specifically those are the areas that focus. When I look at catalogs, they have some pressure on them just from a cost standpoint, with paper increases and some uncertainty on the postal front as we try and get some postal reform bills through, which we are working on every day. But the book area is actually growth, so it was up 2% I think if you look at 2017 and within our book pages we are up almost 5%. And then, I'd say that DM space, it's also an area of growth that you will continue to see, because there is a lot of effectiveness of DM specifically when people start to use data to personalize direct mail. I say, you will continue to see pressure on sort of the down direct mail, which is the same thing to everybody. But when you start to use data as the effectiveness is really quite incredible. So we are seeing a lot of people reinvest in the direct mail segment. And then, obviously we continue to be in the packaging space in a smaller way, but some place that we are happy within one, we will go grow long-term. Does that -- is there anything there?

No, the only thing that, I would kind of follow-up to you, care to actually throw a forecast there may be for the retail inserts and catalogs?

You know what, if I could forecast the world today of disruption, I'd probably be in Vegas right now. So we are very cautious about that. So I think we gave pretty detailed guidance on top line, and we talked in general and split what we think the impact of pricing is from volume across the whole fleet of our business units. So, to go into each product line and give those elements of forecast, I just think that's too much detail, especially in an industry like ours, but overall what we talk about is volume declines of 1% to 4%, you know, on a net basis. So what's going on across kind of the long run…

And I think another thing to point to, is the way we run our plants. We don't specialize plants as much as possible; we actually use the different product lines with each other, because they all have different requirements, and when they hit the equipment. And so, as we have consolidated and closed outdated plants, you see suddenly plants that magazine catalog have retail on capabilities put in place. And so, to Dave's point, we kind of look at a portfolio view of it, because that's actually how we manage the plants and manage the capacity to offset decline that might happen in one versus the other.

Okay, fair enough. I really do appreciate all the color.

You're welcome. Thank you. Operator, next question?

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

Okay. Well, thank you all for joining us today, and specifically you know, thank you to the Quad employees and to the IV employees and management team for creating such a great asset. I'll actually be down at your headquarters in a couple of hours in Texas. And so with that, we will see you all next quarter. And enjoy today. Thank you.

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