Quad/Graphics Reports Second Quarter and Year-to-Date 2017 Results

Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics” or the “Company”) today reported results for its second quarter ending June 30, 2017.

Financial Highlights
• Increased second quarter 2017 net earnings to $7 million and diluted earnings per share to $0.13 on net sales of $963 million.
• Increased second quarter 2017 Non-GAAP Adjusted EBITDA margin by 50 basis points to 10.0% on Non-GAAP Adjusted EBITDA of $97 million.
• Increased second quarter 2017 Non-GAAP Adjusted Diluted Earnings per Share by $0.21 to $0.24.
• Achieved year-to-date cash flow from operations of $112 million and generated $69 million of Non-GAAP Free Cash Flow, both in-line with expectations.
• Reduced debt and capital leases by $53 million, or 5%, through the first six months of 2017 and improved Debt Leverage Ratio to 2.25x from 2.36x at December 31, 2016.
• Declares quarterly dividend of $0.30 per share.

“Our second quarter results were in-line with our expectations and reflect our consistent, disciplined approach to improving productivity and sustainably reducing costs, which helps us remain the industry’s high-quality, low-cost producer,” said Joel Quadracci, Chairman, President & CEO of Quad/Graphics. “We continue our strategic transformation into a marketing services provider that helps brand owners market their products, services and content more efficiently and effectively. We do this by leveraging our strong print foundation in combination with our deep expertise in workflow re-engineering and optimization, content management and data-driven marketing, including personalization, across all media channels. This transformation, which we refer to as ‘Quad 3.0,’ creates significant value for our clients by addressing their urgent marketing needs to improve process efficiencies and spend effectiveness. Our scalable solutions allow clients to create more content for more channels faster, with fewer resources, and iteratively update that content quickly based on consumer behavior. National Geographic Partners is among a growing list of publishers, marketers and retailers now capitalizing on our expertise in workflow optimization and content management solutions. In addition to awarding us comprehensive production services, including paper procurement and prepress, National Geographic Partners also extended and expanded the amount of printing we do for them under contract. This is a prime example of how Quad/Graphics is driving substantial downstream revenue in our business from offering upstream efficiency-focused services.”

Summary Results
Net earnings improved during the second quarter of 2017 to $7 million, a $15 million increase, versus an $8 million net loss in 2016, despite a 6.7% decrease in net sales to $963 million. Organic sales decreased 4.8% due to ongoing industry volume and pricing pressures after excluding pass-through paper sales (-1.7% impact) and foreign exchange (-0.2% impact). The organic sales decrease is consistent with the Company’s previous guidance. Diluted earnings per share improved to $0.13 compared to a $0.16 loss in 2016 primarily due to lower depreciation and amortization, and cost reductions and productivity improvement activities. Second quarter 2017 Non-GAAP Adjusted EBITDA decreased $1 million to $97 million compared to $98 million in 2016; however, Adjusted EBITDA margin improved to 10.0% from 9.5% in 2016. Non-GAAP Adjusted Diluted Earnings per Share improved by $0.21 during the second quarter 2017 to $0.24. The improvement in Adjusted EBITDA margin and Adjusted Diluted Earnings per Share was primarily due to cost reductions and productivity improvement activities.

Net earnings improved for the six months ended June 30, 2017, to $32 million, a $36 million increase, versus a $4 million net loss in 2016, despite a 5.4% decrease in net sales to $2.0 billion. Organic sales decreased 3.7% due to ongoing industry volume and pricing pressures after excluding pass-through paper sales (-1.5% impact) and foreign exchange (-0.2% impact). Diluted earnings per share improved to $0.62 during the six months ended June 30, 2017, compared to a $0.08 loss in 2016. Year-to-date Non-GAAP Adjusted EBITDA was $218 million, flat with 2016, and Adjusted EBITDA margin improved to 11.1% as compared to 10.5% in 2016. Year-to-date Non-GAAP Adjusted Diluted Earnings per Share improved by $0.47 to $0.76.

GAAP net cash provided by operating activities was $112 million for the first six months of 2017, a decrease of $107 million from 2016. Free Cash Flow was $69 million compared with $179 million for the previous year. This decrease over prior year was due to an expected reduction in benefits from ongoing working capital improvements, and a reduction in employee-related liabilities.

“We delivered second quarter results in-line with our expectations and, as we enter the seasonally busy second half of the year, we remain on track to deliver on our 2017 financial guidance,” said Dave Honan, Executive Vice President and Chief Financial Officer for Quad/Graphics. “As the industry’s high-quality, low-cost producer, we will continue to drive EBITDA enhancement through ongoing sustainable cost reductions and productivity improvements while remaining focused on our Quad 3.0 transformation. Equally important, we continue to focus on strengthening an already healthy balance sheet through ongoing debt reduction, while also continuing to invest in our business to accelerate our transformation and return capital to our shareholders through our quarterly dividend, among other priorities.”
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