Good morning, ladies and gentlemen. Welcome to Quad's Fourth Quarter and Full Year 2019 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 this morning's earnings release. Alternatively, you can access the slide presentation on the Investors section of Quad's website under the Events & Recent Presentations link. Following today’s presentation, the conference call will be open for questions. [Operator Instructions] Please also note, today’s event is being recorded. And at this time, I’d like to turn the call over to Kyle Egan, Quad's Director of Investor and Assistant Treasurer. Kyle, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Jeol Quadracci, Quad's Chairman, President and Chief Executive Officer; and Dave Honan, Quad's Executive Vice President and Chief Financial Officer. In terms of our agenda today, Joel will lead off the call with an update of our fourth quarter and 2019 performance and the continued progress we are making with our Quad 3.0 Transformation. Dave will follow with a summary of Quad's fourth quarter and full year 2019 financial results, and a summary of our 2020 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 2. Quad's 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. Finally, a replay of the call and the slide presentation will be available on our Investors section of quad.com shortly after our call concludes today. I will now hand over the call to Joel.

Thank you Kyle, and welcome everyone. I am pleased to report that our fourth quarter results exceeded expectations driven by continued execution against our strategic priorities, including aggressive cost management and increased manufacturing productivity as well as winning new work to offset organic sales decline. We had one of the best quarters in the past decade in terms of customer service performance achieving strong quality and on-time delivery performance for our clients in their busiest season. This strong performance is due in large part to our decision to invest $40 million to increase hourly production employees wages as we saw significant productivity gains throughout the quarter. Given this performance, we ended 2019 with net sales, adjusted EBITDA, and free cash flow exceeding revised 2019 guidance, and we reduced our debt leverage ratio to 3.1 times. In 2020, we will continue to transform Quad as a marketing solutions partner through our consistent focus on our five key strategic priorities as shown on slide 3. Our first priority is to grow our business profitably over the long-term by leveraging our data-driven print expertise as part of an integrated marketing solutions platform. This unique platform helps our clients not only plan and produce marketing programs, but also deploy, manage, and measure them across all traditional and digital channels. It creates greater value and growth opportunities for our clients by helping them to reduce the complexity of working with multiple agency partners and vendors, eliminating multiple handoffs that compromise both the strategy of the programs as well as the speed at which they are executed, increase efficiencies through workflow reengineering, content production, and process optimization and improved marketing spend effectiveness across all channels through data-driven consumer insights, media planning, and creative and campaign strategy. Our second priority is to walk in the shoes of…

Thank you, Joel and good morning everyone. We ended 2019 performing well both operationally and financially. Customer service performance was exceptionally strong with high quality and on-time delivery metrics and great safety performance in our facilities. The strong operational performance sets the stage to finish the year with adjusted EBITDA and free cash flow above our latest guidance ranges. We look to build on that performance in 2020 while continuously improving productivity and focusing on reducing debt levels. Slide 5 shows our 2019 net sales breakdown as compared to 2018. These product types are classified into three marketing solutions categories: Integrated Solutions, Targeted Print and Large-Scale Print. Integrated Solutions, represents 21% of our net sales and includes higher margin agency solutions such as marketing strategy, creative, management, production and media planning and buying as well as logistics services. Integrated Solutions is a growing category for Quad with organic growth of just over 1% per year over the past five years. This growth is despite a significant change in the mix of our service sales from large scale print-related services and into surrounding targeted print and other media channels. Targeted Print represents 39% of our net sales and includes highly targeted and personalized print products such as catalogs, direct mail, in-store signage, packaging and special interest publications that clients use to create a connected, personalized consumer experience. Targeted Print organic sales have remained flat over the past five years as marketers continue to utilize more forms of targeted and personalized print to realize higher returns on advertising to drive sales and brand exposure. The combination of Integrated Solutions and Targeted Print now represents 60% of our net sales and is growing as a result of our Quad 3.0 strategy. Lastly, Large-Scale Print accounts for 30% of our net sales and includes…

[Operator Instructions] And our first question comes from James Clement from Buckingham. Please go ahead with your question.

Hey, Joel and Dave, good morning.

Good morning.

Good morning, Jamie.

If I could go to you real quick. I was just trying to jot some of this stuff down. So in the thinking about annual EBITDA guidance and kind of the cadence between first half and second half, do I have it – so paper byproducts, did you say an incremental $20 million hit in the first half. Is that right?

Yes. So we…

Sorry go ahead.

We experienced the decline rate towards the last half of last year. This will annualize through this year. So, we have built into our guidance $20 million of annualized impact, all hitting the front half of the year.

Okay. And then on to the labor side, is that another $10 million and that would be in the first half also?

That's correct.

So is the way to think about this just kind of at the midpoint, I think you said – did you say substantially all of the year-over-year decline in the first half and then things flatten out in the back half? Or is – if I'm putting words in your mouth there?

A little bit of words of my mouth, but technically you're correct. You're correct. And we expect sequential improvement. So on a year-over-year comparison basis, the first quarter will be the most decrease followed by the second quarter with improving a decrease year-over-year and then on throughout the year.

A moderating decrease, Dave moderating, right?

Exactly.

Okay.

So definitely you're going to see front half pressure with back half of the year looking a lot better. As we've annualized a lot of the kind of headwinds coming at us with paper byproduct rates with our investments in labor rates to – which really, really benefited us this year in the fourth quarter as we just hit record levels of on-time delivery and performance for our customers, it was just outstanding performance by our manufacturing team. And so that really led to what you saw with a strong financial performance in the fourth quarter as we exceeded guidance.

So to think about the labor aspect of things, you still face just -- as you annualize those increases you still face the EBITDA headwinds, but you're already demonstrating productivity. So, would you no longer have that headwind then we should see margin improvement in the numbers. Is that all being equal?

Yeah, I agree with all that really the doubling of our cost reduction initiative, which also includes EBITDA producing revenue wins in it that grows throughout the year for a full $100 million of impact for 2020. That's really helping to offset the headwinds that we're seeing in just organic print decline especially in that large-scale print category we have retail inserts pressure, direct reach pressure, and magazines pressure.

And I think that would be a good point to segue to Joel if I may. Obviously, the organic decline as the year progressed got a little harsher with the most severe number being in the fourth quarter. And I guess how much of this in your opinion is the demand side of the equation the customer side changing their mix with things that you're helping them with obviously in 3.0 versus – and I have to ask the question versus maybe other suppliers out there that are potentially running into trouble and maybe not impacting pricing in one way or the other?

Yeah. Well, look I think if you look at the different categories, I mean, we all know that retail head search is probably one of the most heavily pressured. And if I look at like fourth quarter, as an industry retail inserts were down about 20%. Our mix was actually down about 13%. So we outperformed. And if you kind of converted that to a trailing 12 months, the industry was like 17 we were 10. But in this space, it's retailers are probably the ones that we're probably having the most engagement with on 3.0, because they're under a lot of pressure from lots of different angles. And so, the retail insert decline, let's not forget also has to do with the decline of the carrier of the retail insert to the market, which is the [indiscernible] circulation…

Yeah. Sure.

…along with people kind of trying to figure out different mixes. And so what we're finding is, as you see some significant reductions there. We're actually increasing use of things like direct mail, so heavily personalized direct mail like if you look at a Kroger direct mail piece, it's almost 100% variable where there's coupons of product that you actually bought last week, imaged right on the piece with a one-time individual barcode for you across -- and this is every piece across millions of pieces every month being completely variable. So some of that -- that's a good example of how some of this is being diverted to other print areas, because our customers do know that print is important. And as they lose the ability to circulate retail inserts, they obviously look at the whole mix, but they do continue to look for other ways to use print in it. And the example that we used in the script of doing retail inserts for that huge retailer that suddenly we ended up gaining $10 million of in-store signage from them just through helping them with the pressures was really important, because it wasn't just about printing in-store signage. We actually built the technology that the store managers use across 1,700 stores to spec out the demand, and then we use our own analysis to make sure that each store is getting the right amount. But more importantly, we're cutting the time it takes for them to do this, which gives them time to react to their competitive set in pricing and things like that. So that's really important. And I look at the catalog industry, we have like a J. C. Penney went back to catalog you have other big retailers who never did catalog, doing catalog right now. The industry -- number of books in Q4 were down almost 7%.

Right.

Quad in terms of catalogs mailed was up 10%. And that's up 10% in the fourth quarter. A good chunk of that was new entry into catalog and actually new entry into print. So, again, about rediscovering it, but you also see people who are kind of cutting back on retail will also still focus on catalog is another print opportunity.

And sorry…

Yeah?

I was just going to ask you like is this comp been a theme for a couple of years. What about traditional e-tailer only going to catalogs?

Well, that's what we're talking about.

Right.

I mean, if you look at what's going on with Google, Facebook, even Amazon. It's the -- and you especially hear it from the new upstarts, because they're a little more honest about it, but the cost of using social media is going up and the effectiveness is going down. And I think that's only going to increase as you look at the cookies going away as you look at antitrust things going on. And it's really going to benefit the publisher or, put it this way, think about a big retailer advertising their own stuff direct-to-consumer as opposed to through these third parties, it only will enhance that. So we believe that there's going to be a decent amount of new revenue coming into print that may not have existed before. And again, we'll still deal with the natural decline of the industry. But for us it's all data-driven and that's why it's so important for us to have our services aspect of the business, which includes workflow solutions, which includes data analytics which is accelerated insights, combined with the ability to execute, on the core print products. Because that's where we're giving not only our current customers, an edge up, on how their existing print works with the other channels. But then, when you think about the people coming into print, they really don't have the experience or the know-how, on how to even execute on it. And so we're able to give them the equivalent of a full staff, to ramp up very quickly, in using print campaigns, and also to show them how to analyze it.

Okay. I appreciate the time. Is there anything else in queue? I don't want to hog up all the time.

Let me just -- there's another important aspect here, when I talk about …

Yeah.

… shifting through print. I mean our direct mail volume. So in Q4 of 2019, the industry was -- according to USPS was down about 3.8%. Our direct mail volume was up 13%. And almost all of that was very much data-driven, type of direct mail as opposed to commodity type of direct mail. …

So…

And as I said, in the script -- Go ahead.

Oh! I'm sorry. I was just wondering are there certain like to help people like me to help investors understand like the kind of customer verticals, where you're seeing like the outsized growth? Like, can you help us out there?

Yeah. I mean, it's anywhere from financial services …

Okay.

…to satellite radio …

Okay.

… to even to traditional catalogers. And what's happening is, with the accelerated insights program where we can show them a different way to target people. And prove to them the increase in response. That's been a real door opener and about 40% of the new sales volume in DM, that we saw came. Because we're engaged with them about how do they use data and use content and align those to market to people in a more effective way.

Okay. Okay, got it, hi anybody else in queue?

No, one else in queue? No, there is no one else in queue.

Can I, -- back to Dave, if I could Dave, I may have made a mistake in my head, about something. Can you talk about -- because I've heard some questions about this, the adjusted EBITDA that you all report versus the adjusted EBITDA that's used for leverage calculations? I think I may have in my head ignored stock-based comp. Is there anything else that you need to think about in terms of add back to EBITDA?

Well, I think, your question is those two calculations, aren't identical. We've got -- so what we always do is this a simple street leverage calculation…

Yeah.

… that just takes total debt divided by EBITDA. Our covenants are negotiated. Those have more room than that of a simple street leverage. You highlight one key difference is, we're allowed to add back, to our EBITDA non-cash expense related to stock compensation.

Okay.

But for the -- when you think about it in terms of a covenant versus the street, the covenant has more room in it than that of a street calculation.

Okay. And then the other thing, in terms of cash restructuring spending for the year, I know you have your guidance out there. Should we think about that as kind of even throughout the year? And then also, is there any kind of working capital movement in the first half versus second half that we need to be aware of, other than the normal kind of usage of working capital, in the first half of the year versus second half? Thank you.

Yeah, yeah, good question, Jamie. On restructuring, we often make a lot of restructuring changes in the front half of the year, because that's our seasonally low point.

Okay.

So that's when we have the need to reduce those fixed costs, during that low point. So, you won't see a straight-line basis of it. You'll probably see a little bit more, in first and second quarter and then maybe …

Okay.

… kind of more smooth throughout the year. But nothing on working capital other than the typical seasonal movement of working capital, and just a reminder, we do generate the majority of that free cash flow in the fourth quarter, because of the working capital decline in the fourth quarter …

Okay.

…as we come out of our seasonal peak.

Okay. Thank you very much. I appreciate that.

Yeah anybody else, in the queue?

And at this point, I'd like to turn it back over to management for any closing remarks.

Okay. Well thank you all for joining us. We look forward to our next update, at the next quarterly call. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.