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Quad/Graphics, Inc.
November 7, 2017
2017 Wells Fargo Media & Telecom Conference
Kelly VanderboomPresident of Logistics, Vice President & Treasurer
Dave HonanExecutive Vice President & CFO
Forward-Looking Statements• To the extent any statements in this investor presentation contain information that is not historical, these statements are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, our current expectations about the Company’s future results, financial condition, revenue, earnings, free cash flow, margins, objectives, goals, strategies, beliefs, intentions, plans, estimates, prospects, projections and outlook of Quad/Graphics, Inc. (the “Company” or “Quad/Graphics”), and can generally be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “project,” “believe,” “continue” or the negatives of these terms, variations on them and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
• These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of Quad/Graphics. These risks, uncertainties, and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements. Among risks, uncertainties and other factors that may impact Quad/Graphics are: the impact of decreasing demand for printed materials and significant overcapacity in the highly competitive commercial printing industry creates downward pricing pressures; the impact of electronic media and similar technological changes, including digital substitution by consumers; the inability of the Company to reduce costs and improve operating efficiency rapidly enough to meet market conditions; the impact of changing future economic conditions; the failure of clients to perform under contracts or to renew contracts with clients on favorable terms or at all; the failure to attract and retain qualified production personnel; the impact of increased business complexity as a result of the Company's entry into additional markets; the impact of fluctuations in costs (including labor and labor-related costs, energy costs, freight rates and raw materials) and the impact of fluctuations in the availability of raw materials; the failure to successfully identify, manage, complete and integrate acquisitions and investments; the impact of risks associated with the operations outside of the United States, including costs incurred or reputational damage suffered due to improper conduct of its employees, contractors or agents; the impact of changes in postal rates, service levels or regulations; the impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, privacy and environmental laws; the fragility and decline in overall distribution channels, including newspaper distribution channels; the impact of the various restrictive covenants in the Company's debt facilities on the Company's ability to operate its business; significant capital expenditures may be needed to maintain the Company's platform and processes and to remain technologically and economically competitive; the impact on the holders of Quad/Graphics class A common stock of a limited active market for such shares and the inability to independently elect directors or control decisions due to the voting power of the class B common stock; the impact of an other than temporary decline in operating results and enterprise value that could lead to non-cash impairment charges due to the impairment of property, plant and equipment and other intangible assets; and the other risk factors identified in the Company's most recent Annual Report on Form 10-K, as such may be amended or supplemented by subsequent Quarterly Reports on Form 10-Q or other reports filed with the Securities and Exchange Commission.
• Quad/Graphics cautions that the foregoing list of risks, uncertainties and other factors is not exhaustive and you should carefully consider the other factors detailed from time to time in Quad/Graphics’ filings with the United States Securities and Exchange Commission and other uncertainties and potential events when reviewing Quad/Graphics’ forward-looking statements.
• Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this investor presentation. Except to the extent required by the federal securities laws, Quad/Graphics undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
2
Quad/Graphics, Inc. Overview
22,600Employees Worldwide
$460 million2017 Adjusted EBITDA(1)
$250 million2017 Free Cash Flow(1)
2.25xDebt Leverage Ratio at
6/30/2017
Quad/Graphics, Inc. Overview4
$4.1 billion2017 Net Sales(1)
66Manufacturing Facilities
Located In:
United States
Argentina
Colombia
A global marketing services provider that helps brand owners market their products, services and content
more efficiently and effectively by using its strong print foundation in combination with other media channels.
France
Mexico
Poland
Peru
(1) Represents the mid-point of our 2017 annual guidance as presented on slide 17.
Fernley, NV
Portland, OR
Salt Lake City, UT
Sacramento, CA
Merced, CA
Riverside, CA
Oklahoma City, OK
Dallas, TX
Lufkin, TX
Shakopee, MN
Waukee, IA
Effingham, IL
Tampa, FL
The Rock, GA
Spartanburg, SCCharlotte, NC
Franklin, KY
Nashville, TN
Versailles, KY
Columbus, OH
Fairfield, PA
Winchester, VA
Martinsburg, WV
Westampton, NJ
Hazelton, PA
Chalfont, PALong Island City, NY
Leominster, MA
Woburn, MA
Springfield, MA
Taunton, MA
Saratoga Springs, NY
Greenville, MI
Midland, MI
New Berlin, WIBurlington, WI
Franklin, WI
Hartford, WILomira, WI
Pewaukee, WI
Sussex, WIWest Allis, WI
U.S. Print Production Footprint
Size (square footage)
> 1.5m 1m ― 1.5m 500k ― 1m < 500k
Omaha, NE
35534
5
Agency Automotive E-Tail Financial Healthcare Insurance Publishing Retail Travel & Hospitality CPG
8,600 Clients in Diverse Vertical Industries6
Walk in the Shoes of our Clients
Creating a Better Way
Drive EBITDA Enhancement
Strengthen the Balance Sheet
Accelerate Quad 3.0 Transformation
Sustainable Free Cash Flow
Provide Long Term Shareholder Returns
Strategic Goals
Grow the Business Profitably
Strengthen the Core
Engage Employees
Enhance Financial Strength & Create Shareholder Value
7
8Experienced Leadership Team
8
Joel QuadracciChairman, President & Chief Executive Officer
Dave HonanExecutive Vice President & Chief Financial Officer
Kelly VanderboomPresident of Logistics, Vice President & Treasurer
Eric AshworthExecutive Vice President of Product Solutions & Market Strategy, and President of BlueSoHo
Jennie KentExecutive Vice President of Administration & General Counsel
Tom FrankowskiExecutive Vice President & Chief Operating Officer
Renee BaduraExecutive Vice President of Sales
26
Dave BlaisExecutive Vice President of Global Procurement and Platform Strategy
38
231
33
8 7 24
48 Age
Tenure with QUAD
53 Age
Tenure with QUAD
Age
Tenure with QUAD
56
Age
Tenure with QUAD
51
Age
Tenure with QUAD
45Age
Tenure with QUAD
48 43
Age
Tenure with QUAD
Age
Tenure with QUAD
54
John FowlerVice Chairman, EVP Global Strategy & Corporate Development & BOD Member
37
Age
Tenure with QUAD
66
Quad 3.0
Commercial Print Industry Marketing Services Industry
Largest 400 printers represent less than half of total industry revenue(1)
Creating advertising campaigns, implementing public relations campaigns, and engaging in media buying, among other advertising services
Top 50 companies generate only 40% of industry revenue(3)
Pressures
Online Content
Mobile Devices
Ad Spend Split
USPS EconomyRetail
EnvironmentConsumer Confidence
Disposable Income
$85 BillionU.S. Annual Revenue(1)
49,000 Companies(1)
5 largest printers, only account for approximately 20% of annual revenue(1)
Stru
ctur
al
Cycl
ical
38,000Companies(3)
$95 BillionU.S. Annual Revenue(3)
53%Display Advertising, media buying, and
media representation
25%Print, Broadcast
and Online Media
Public Relations
10%Direct
Marketing
Industry capacity utilization is approximately 67%(2)
______________________________(1) Source: November 2016 Printing in the U.S. IBISWorld Industry Report and December 2016 Printing Impressions PI400.(2) Source: 2017 Federal Reserve Industrial Production and Capacity Utilization [G17] Reports. Includes printing of newspapers, magazines, books,
labels, stationary, etc., as well as data imaging, platemaking and bookbinding.(3) Source: Dun & Bradstreet November 2016 Industry Profile on Advertising & Marketing Services Industry
12%
10
Explosion of Media
Challenge is coordinating the strengths of different channels into an efficient and effective marketing campaign
11
12
Our Expanded Integrated Marketing Platform
13Create Enhanced Client Value
Integrated Marketing Platform
IMPROVE EFFICIENCY
INCREASE EFFECTIVENESS
UN
IQU
E O
FFER
ING SELL
MORE
With Multi-channel
Services
SAVE MORE
With Process
Optimization
High-Quality, Low-Cost Producer
14Creating A Better Way
14
ContinuedMulti-channel
TransformationQuad 3.0
$0 to
$1.
8B in
201
0 Re
venu
e
$1.8
to
$4.3
B in
201
6 Re
venu
e
Incr
ease
Rev
enue
Industry Consolidator
Quad 2.0
FoundationalGrowth
Quad 1.0
DIRECT MARKETING
PACKAGINGINSTORE
COMMERCIAL MEDIA PLANNING & PLACEMENT
MOBILE
BOOK
CATALOGMAGAZINE RETAIL INSERTS
SOCIAL MEDIA
CAMPAIGN CREATION &
ORCHESTRATION
Built strong foundation that continues today:• Technological innovator• Process excellence• Premier manufacturing & distribution platform• Lasting culture, values & leadership team
Pursued numerous acquisitions to:• Enhance and expand print product offering• Remove inefficient & underutilized capacity• Leverage efficient plants
Further diversify product offering to support our integrated marketing platform:• “Urgently Innovate” with an engaged workforce• Leverage status as industry’s high-quality,
low-cost producer to fuel transformation• Increase revenue by helping brand owners market
more efficiently & effectively
SEO/SEMPRODUCTION SERVICES
IMAGING
DIRECTORY
CREATIVE, PHOTO &
VIDEO
PREMEDIA & PROCESS
OPTIMIZATION
LOGISTICS
Financial Overview
Financial OverviewThird Quarter Year-to-Date
($ in millions) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Statement of Operations
Net Sales $ 1,005.4 $ 1,056.4 $ 2,967.2 $ 3,131.2
Cost of Sales 784.8 824.9 2,330.9 2,449.4
SG&A 104.9 109.9 302.6 341.9
Adjusted EBITDA(1) $ 115.7 $ 121.6 $ 333.7 $ 339.9
Adjusted EBITDA Margin(1) 11.5% 11.5% 11.2% 10.9%
Statement of Cash Flows
Cash from Operating Activities $ 179.7 $ 260.0
Capital Expenditures (61.6) (57.7)
Free Cash Flow(1) $ 118.1 $ 202.3
______________________________(1) See slide 24 for definitions of our non-GAAP measures and slides 25 and 26 for reconciliations of Adjusted EBITDA and
Adjusted EBITDA Margin and slide 27 for a reconciliation of Free Cash Flow as non-GAAP measures.
Q3 2017 results were in line with our expectations.
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2017 Annual Guidance
US $ Millions2017
(Previous)2017
(Narrowed)Net Sales $4.1 to $4.3 billion Approximately $4.1 billion
Adjusted EBITDA(1) $440 to $480 million $450 to $470 million
Free Cash Flow(1) $225 to $275 million $240 to $260 million
Depreciation and Amortization $225 to $235 million No change
Interest Expense $70 to $80 million $70 to $75 million
Restructuring and Transaction-Related Cash Expenses $30 to $40 million No change
Capital Expenditures $75 to $90 million No change
Cash Taxes $10 to $20 million $5 to $10 million
Pension Cash Contributions(2) Approximately $10 million Approximately $25 million
______________________________(1) See slide 24 for definitions of our non-GAAP measures.(2) Includes single employer pension plans and multi-employer pension plans.
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2.88x
2.62x
2.43x2.37x 2.36x
2.29x2.25x
2.00x
2.20x
2.40x
2.60x
2.80x
3.00x
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Capital Structure as of September 30, 2017
______________________________
(1) See slide 24 for definitions of our non-GAAP measures and slide 28 for a reconciliation of Debt Leverage Ratio as a non-GAAP measure.
Debt Leverage Ratio(1)
Long-Term Targeted Range
37%Floating
Rate Debt 63%Fixed Rate
Debt
$686 millionAvailable Liquidity
Under Revolver
5.1%Blended Interest Rate
January 2021Next Significant Maturity
$295 million, or 22%, reduction of debt since December 2015
2.22x
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Shareholder Value
Declared dividend of $0.30 per share to be payable on December 1, 2017, to shareholders of record as of November 20, 2017
$0.00
$1.00
$2.00
2013 2014 2015 2016 2017
Regular Cash Dividend
$0.30$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
$0.30
______________________________
(1) Dividend Yield is calculated as an annualized dividend of $1.20 per share divided by Quad/Graphics closing stock price on November 1, 2017 of $22.41.
Commitment to Dividend
5%Dividend Yield(1)
25%Dividend as % of Free Cash Flow
$0.30
$0.30
$0.30
$0.30 $0.30 $0.30 $0.30
$0.30
$0.30 $0.30
$0.30
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20Disciplined Acquisition Approach
Good Strategic Fit
Conduct a thorough review process to ensure a potential acquisition will be a good strategic fit.
Economics Make Sense
Ensure that target will create value through an enhanced range of products and services, revenue-generating solutions and increased efficiencies. Quality of earnings and cash flow conversion are paramount.
Executable Integration
Holistic approach to integration and measures success through financial metrics, client retention and satisfaction, employee integration and IT and platform integration.
Balance Sheet Integrity
Quad ensures that post-acquisition, it retains the financial strength and flexibility it had prior to the acquisition.
Financial Strength
Disciplined Capital
Deployment
Maximize Free Cash
Flow
Strong Balance Sheet
Strong Earnings Margin
Financial Policies• Maintain normalized leverage of 2.0x to 2.5x granted we may
operate above or below this range given timing of investments and growth opportunities
• Reduce leverage with generated free cash flow
• De-risk underfunded pensions and MEPPs
• Maintain strong relationships with a diversified group of Lenders
• Continue to maintain a staggered maturity profile to minimize refinancing risk
• Have a healthy balance of fixed vs. floating rate debt
• Always have adequate dry powder to pursue opportunities that are accretive to earnings, as well as to maintain a healthy access to liquidity during difficult economic times
• Return capital to shareholders as part of a balanced capital allocation strategy and maintenance of financial policies
21
For questions contact:Kyle Egan – [email protected]
Supplemental Information
Use of Non-GAAP Financial Measures• In addition to financial measures prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP), this presentation also contains Non-GAAP financial measures, specifically EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio and Adjusted Diluted Earnings Per Share. The Company believes that these Non-GAAP measures, when presented in conjunction with comparable GAAP measures, provide additional information for evaluating Quad/Graphics’ performance and are important measures by which Quad/Graphics’ management assesses the profitability and liquidity of its business. These Non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net earnings (loss) as a measure of operating performance or to cash flows provided by operating activities as a measure of liquidity. These Non-GAAP measures may be different than Non-GAAP financial measures used by other companies. Reconciliations to the GAAP equivalent of these Non-GAAP measures are contained on slides 25 – 31.
• Adjusted EBITDA is defined as net earnings (loss) excluding interest expense, income tax expense (benefit), depreciation and amortization, restructuring, impairment and transaction-related charges, loss (gain) on debt extinguishment, and equity in loss of unconsolidated entity.
• Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.
• Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment.
• Debt Leverage Ratio is defined as total debt and capital lease obligations divided by the last twelve months of Adjusted EBITDA.
• Adjusted Diluted Earnings Per Share is defined as net earnings (loss) excluding restructuring, impairment and transaction-related charges, loss (gain) on debt extinguishment, equity in loss of unconsolidated entity and discrete income tax items, divided by diluted weighted average number of common shares outstanding.
Select icons throughout the presentation were designed by Plainicon from Flaticon. 24
Adjusted EBITDAThird Quarter (US $ Millions)
Three Months Ended September 30,
2017 2016
Net earnings $ 19.8 $ 11.3
Interest expense 17.8 19.6Income tax expense 11.8 2.9Depreciation and amortization 58.3 61.7
EBITDA [Non-GAAP] $ 107.7 $ 95.5EBITDA Margin [Non-GAAP] 10.7% 9.0%
Restructuring, impairment and transaction-related charges 8.0 26.1Equity in loss of unconsolidated entity ― ―
Adjusted EBITDA [Non-GAAP] $ 115.7 $ 121.6
Adjusted EBITDA Margin [Non-GAAP] 11.5% 11.5%
25
Adjusted EBITDAYear-to-Date (US $ Millions)
Nine Months Ended September 30,
2017 2016
Net earnings $ 51.9 $ 7.4
Interest expense 53.6 58.9Income tax expense 26.8 5.6Depreciation and amortization 175.5 217.4
EBITDA [Non-GAAP] $ 307.8 $ 289.3EBITDA Margin [Non-GAAP] 10.4% 9.2%
Restructuring, impairment and transaction-related charges 22.5 62.4Loss (gain) on debt extinguishment 2.6 (14.1)Equity in loss of unconsolidated entity 0.8 2.3
Adjusted EBITDA [Non-GAAP] $ 333.7 $ 339.9
Adjusted EBITDA Margin [Non-GAAP] 11.2% 10.9%
26
Free Cash Flow(US $ Millions)
Nine Months Ended September 30,
2017 2016
Net cash provided by operating activities $ 179.7 $ 260.0
Less: purchases of property, plant and equipment (61.6) (57.7)
Free Cash Flow [Non-GAAP] $ 118.1 $ 202.3
27
September 30, 2017 December 31, 2016
Total debt and capital lease obligations on the balance sheets $ 1,054.2 $ 1,130.8
Divided by: Trailing twelve months Adjusted EBITDA [Non-GAAP] 473.9 480.1
Debt Leverage Ratio [Non-GAAP] 2.22x 2.36x
Debt Leverage Ratio(US $ Millions, Except Ratio Data)
______________________________
(1) The calculation of Adjusted EBITDA for the trailing twelve months ended September 30, 2017 and December 31, 2016, was as follows:
Add SubtractTrailing Twelve Months EndedYear Ended Nine Months Ended
December 31, 2016 September 30, 2017 September 30, 2016 September 30, 2017
Net earnings $ 44.9 $ 51.9 $ 7.4 $ 89.4
Interest expense 77.2 53.6 58.9 71.9
Income tax expense 13.0 26.8 5.6 34.2
Depreciation and amortization 277.1 175.5 217.4 235.2
EBITDA [Non-GAAP] $ 412.2 $ 307.8 $ 289.3 $ 430.7
Restructuring, impairment and transaction-related charges 80.6 22.5 62.4 40.7
Loss (gain) on debt extinguishment (14.1) 2.6 (14.1) 2.6
Equity in loss (gain) of unconsolidated entity 1.4 0.8 2.3 (0.1)
Adjusted EBITDA [Non-GAAP] $ 480.1 $ 333.7 $ 339.9 $ 473.9
28
September 30, 2017 December 31, 2016
ASSETSCash and cash equivalents $ 15.4 $ 9.0Receivables 542.0 563.6Inventories 308.0 265.4Other current assets 42.7 64.6Property, plant and equipment—net 1,427.4 1,519.9Other intangible assets 47.8 59.7Other long-term assets 94.1 87.9
Total assets $ 2,477.4 $ 2,570.1
LIABILITIES AND SHAREHOLDERS’ EQUITYAccounts payable $ 344.5 $ 323.5Other current liabilities 303.8 346.6Current debt and capital leases 73.0 92.1Long-term debt and capital leases 981.2 1,038.7Deferred income taxes 50.7 35.3Single and multi-employer pension obligations 136.6 162.3Other long-term liabilities 121.6 130.1
Total liabilities $ 2,011.4 $ 2,128.6Shareholders’ equity $ 466.0 $ 441.5
Total liabilities and shareholders’ equity $ 2,477.4 $ 2,570.1
Balance Sheet(US $ Millions)
29
Three Months Ended September 30,
2017 2016
Earnings before income taxes and equity in loss of unconsolidated entity $ 31.6 $ 14.2
Restructuring, impairment and transaction-related charges 8.0 26.139.6 40.3
Income tax expense at 40% normalized tax rate 15.8 16.1
Adjusted net earnings [Non-GAAP] $ 23.8 $ 24.2
Basic weighted average number of common shares outstanding 49.5 47.8Plus: effect of dilutive equity incentive instruments [Non-GAAP] 2.0 2.8Diluted weighted average number of common shares outstanding [Non-GAAP] 51.5 50.6
Adjusted Diluted Earnings Per Share [Non-GAAP] $ 0.46 $ 0.48
Diluted Earnings Per Share [GAAP] $ 0.38 $ 0.22
Adjusted Diluted Earnings Per ShareThird Quarter (US $ Millions, Except Per Share Data)
30
Nine Months Ended September 30,
2017 2016
Earnings before income taxes and equity in loss of unconsolidated entity $ 79.5 $ 15.3
Restructuring, impairment and transaction-related charges 22.5 62.4Loss (gain) on debt extinguishment 2.6 (14.1)
104.6 63.6
Income tax expense at 40% normalized tax rate 41.8 25.4
Adjusted net earnings [Non-GAAP] $ 62.8 $ 38.2
Basic weighted average number of common shares outstanding 49.4 47.6Plus: effect of dilutive equity incentive instruments [Non-GAAP] 2.2 1.7Diluted weighted average number of common shares outstanding [Non-GAAP] 51.6 49.3
Adjusted Diluted Earnings Per Share [Non-GAAP] $ 1.22 $ 0.77
Diluted Earnings Per Share [GAAP] $ 1.01 $ 0.15
Adjusted Diluted Earnings Per ShareYear-to-Date (US $ Millions, Except Per Share Data)
31