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Quad/Graphics Reports Q3 and Year-To-Date 2017 Results

Wednesday, November 01, 2017

Press release from the issuing company

Consistent Execution of Strategic Objectives Drives Increased Net Earnings and Earnings per Share

SUSSEX, Wisc. - Quad/Graphics, Inc. (NYSE:QUAD) ("Quad/Graphics" or the "Company") today reported results for its third quarter ending September 30, 2017.

Financial Highlights

  • Increased third quarter 2017 net earnings by $9 million to $20 million and diluted earnings per share by $0.16 to $0.38 on net sales of $1.0 billion.
  • Achieved third quarter 2017 Non-GAAP Adjusted EBITDA margin of 11.5%, flat to prior year’s quarter, on Non-GAAP Adjusted EBITDA of $116 million.
  • Achieved year-to-date cash flow from operations of $180 million and generated $118 million of Non-GAAP Free Cash Flow, both in-line with Company’s guidance.
  • Reduced debt and capital leases by $77 million, or 7%, through the first nine months of 2017 and improved Debt Leverage Ratio to 2.22x.
  • Narrows full-year 2017 guidance for net sales to be approximately $4.1 billion, Adjusted EBITDA of $450 million to $470 million, and Free Cash Flow of $240 million to $260 million.
  • Declares quarterly dividend of $0.30 per share.

“Our third quarter results were in-line with our expectations, reflecting the continued great work our team is doing to sustainably reduce costs, win profitable new work and expand relationships with existing clients,” said Joel Quadracci, Chairman, President & CEO ofQuad/Graphics. “Through our consistent, disciplined approach to managing all aspects of our business, we remain the industry’s high-quality, low-cost producer. Our sales momentum, which includes securing exclusive multi-year, multi-million-dollar contracts with premier publishers, retailers and marketers, will fuel Quad/Graphics’ ongoing strategic transformation to expand our integrated marketing services platform, which helps brand owners improve both process efficiencies and marketing spend effectiveness. In Quad 3.0 we are transforming into a marketing services provider that helps brand owners market their products, services and content more efficiently and effectively. This transformation creates significant value for our clients by addressing their urgent marketing needs.”

Summary Results

Net earnings improved during the third quarter of 2017 to $20 million, a $9 million year-over-year increase, despite a 4.8% decrease in net sales to $1.0 billion. Organic sales decreased 3.7% due to ongoing industry volume and pricing pressures after excluding pass-through paper sales (-1.2% impact) and foreign exchange (+0.1% impact), and is consistent with the Company’s previous guidance. Diluted earnings per share for the third quarter of 2017 improved to $0.38 compared to $0.22 in 2016 primarily due to lower depreciation and amortization, and cost reductions and productivity improvement activities. Third quarter 2017 Non-GAAP Adjusted EBITDA decreased to $116 million compared to $122 million in 2016; however, due to ongoing productivity improvements and sustainable cost reductions, the Company was able to keep Adjusted EBITDA margin flat year-over-year at 11.5%.

Net earnings improved for the nine months ended September 30, 2017, to $52 million, a $45 million increase from 2016, despite a 5.2% decrease in net sales to $3.0 billion. Organic sales decreased 3.7% due to ongoing industry volume and pricing pressures after excluding pass-through paper sales (-1.4% impact) and foreign exchange (-0.1% impact). Diluted earnings per share improved to $1.01 during the nine months ended September 30, 2017, compared to $0.15 in 2016. Year-to-date Non-GAAP Adjusted EBITDA was $334 million, a 1.8% decrease from 2016, and Adjusted EBITDA margin improved to 11.2% as compared to 10.9% in 2016.

GAAP net cash provided by operating activities was $180 million for the first nine months of 2017. Free Cash Flow was $118 million compared with $202 million for the previous year. This expected decrease over prior year was due to lower employee-related liabilities and a reduction in the benefit from our controllable working capital improvement program.

“We delivered third quarter results as expected and, based on our ability to consistently execute on our strategic objectives, we are narrowing our 2017 financial guidance,” said Dave Honan, Quad/Graphics Executive Vice President & Chief Financial Officer. “Ongoing productivity improvements and sustainable cost reductions have driven stronger net earnings during the first nine months of 2017, and we expect to finish the year with increased annual Adjusted EBITDA margin at the midpoint of our guidance. We continue to focus on strengthening our balance sheet through debt reduction and improving our Debt Leverage Ratio, which is 2.22x as of the end of the third quarter and well within our long-term targeted range of 2.0x to 2.5x. In addition, significant Free Cash Flow allows the Company to continue to strategically invest in our business transformation and maintain an affordable and sustainable annual dividend of $1.20 per share, representing approximately 25% of Free Cash Flow at the midpoint of our annual guidance.”

Quad/Graphics’ next quarterly dividend of $0.30 per share will be payable on December 1, 2017, to shareholders of record as of November 20, 2017.



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