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February 21, 2018

Quad/Graphics reports fourth quarter and full-year 2017 results

Execution of strategic priorities drives increased earnings and cash flow

Company accelerates Quad 3.0 transformation with acquisition of Ivie & Associates

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SUSSEX, WI, February 21, 2018 — Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics” or the “Company”), today reported fourth quarter and full-year 2017 results.

Financial highlights

  • Net sales of $1.2 billion for the fourth quarter 2017 and $4.1 billion for full-year 2017 resulted in a 47% increase in net earnings to $55 million in the quarter and a 139% increase to $107 million for the year.
  • Achieved Non-GAAP Adjusted EBITDA and Margin of $125 million and 10.7%, respectively, for the fourth quarter 2017 and $459 million and 11.1%, respectively, for full-year 2017.
  • Generated cash flow from operations of $344 million and increased Free Cash Flow to $258 million for full-year 2017.
  • Reduced debt by $166 million, or 15%, during 2017 and improved Debt Leverage Ratio to 1.99x, net of excess cash.
  • Announces acquisition of Ivie & Associates (“Ivie”), a leading marketing services provider.
  • Provides 2018 outlook.
  • Declares quarterly dividend of $0.30 per share.

“We are pleased with our fourth quarter and full-year 2017 results, which were in-line with our expectations and demonstrate continued execution of our strategic priorities to generate consistent earnings and strong, sustainable Free Cash Flow that further strengthen our balance sheet, provide long-term shareholder value and accelerate our Quad 3.0 transformation,” said Joel Quadracci, Quad/Graphics Chairman, President & Chief Executive Officer. “We have made great progress with our transformation and will continue to leverage our strong print foundation as part of a much larger and more robust integrated marketing platform. We are proactively addressing our clients’ increasing needs to reduce complexity, and improve process efficiency and marketing spend effectiveness to offset ongoing marketplace disruption. Our acquisition of Ivie, a leading marketing services provider, accelerates our Quad 3.0 transformation. Our companies have complementary offerings that we can quickly scale as we create a powerful marketing solution focused on multichannel content creation and marketing execution.”

Quadracci added: “As we move forward in 2018, we remain steadfast in our goal to aggressively manage costs and productivity to hold the line on Adjusted EBITDA margins. This will allow us to maintain our position as the industry’s high-quality, low-cost producer, and continue generating consistent earnings and strong Free Cash Flow to support future value-creating opportunities for all our stakeholders.”

Summary results

Net earnings improved during the fourth quarter of 2017 to $55 million, an $18 million year-over-year increase, despite a 2.8% decrease in net sales to $1.2 billion. Organic sales decreased 2.8% due to ongoing industry volume and pricing pressures, after excluding pass-through paper sales (-0.3% impact) and favorable foreign exchange (0.3% impact). Diluted earnings per share for the fourth quarter of 2017 improved to $1.06 compared to $0.73 in 2016 primarily due to lower income tax expense related to tax reform. Fourth quarter 2017 Non-GAAP Adjusted EBITDA decreased to $125 million compared to $140 million in 2017, and Non-GAAP Adjusted EBITDA margin decreased to 10.7%.

Net earnings improved for the year ended December 31, 2017 to $107 million, a $62 million increase from 2016, despite a 4.6% decrease in net sales to $4.1 billion. Organic sales decreased 3.5% due to ongoing industry volume and pricing pressures after excluding pass-through paper sales (-1.1% impact), and is consistent with the Company’s previous guidance. Diluted earnings per share increased 130% to $2.07 for the year ended December 31, 2017, compared to $0.90 in 2016 due to operating income improvements and lower income tax expense related to tax reform. As expected, full-year 2017 Non-GAAP Adjusted EBITDA decreased to $459 million compared to $480 million in 2016; however, due to ongoing productivity improvements and sustainable cost reductions, Non-GAAP Adjusted EBITDA margin remained flat year-over-year at 11.1%.

Net cash provided by operating activities was $344 million for the year ended December 31, 2017. Free Cash Flow was $258 million, compared with $246 million for 2016, and was at the top end of the Company’s guidance range. The $12 million, or 5%, increase over 2016 was due to higher net earnings, lower capital expenditures and sustainable ongoing improvements in controllable working capital levels.

“Quad/Graphics continues to generate significant Free Cash Flow, which is important to maintaining a strong and flexible balance sheet that supports our disciplined capital deployment strategy,” said Dave Honan, Quad/GraphicsExecutive Vice President & Chief Financial Officer. “We reduced debt by $166 million in 2017 and improved our Debt Leverage Ratio to 1.99x, when excluding excess cash, which is below our long-term targeted leverage range of 2.0x to 2.5x. Our significant Free Cash Flow also allows us to strategically invest in our business to accelerate our Quad 3.0 transformation, as evidenced by today’s acquisition of Ivie. In addition, it allows us to maintain an affordable and sustainable annual dividend of $1.20 per share and opportunistic share repurchases.”

Quad/Graphics’ next quarterly dividend of $0.30 per share will be payable on March 30, 2018, to shareholders of record as of March 19, 2018.

2018 outlook

The Company provided the following 2018 financial guidance:

Honan concluded: “Positive revenue momentum from our Quad 3.0 transformation, combined with $150 million in incremental revenue from the Ivie acquisition, help offset ongoing print industry volume and pricing pressures and support our outlook for flat 2018 net sales at the midpoint of our guidance. Our 2018 Adjusted EBITDA guidance reflects $10 million of additional investment in SG&A expense for hiring marketing services talent to further support our Quad 3.0 transformation primarily offset by additional Adjusted EBITDA from the Ivie Acquisition.”

Quarterly conference call

Quad/Graphics (NYSE: QUAD) will hold a conference call at 10 a.m. ET / 9 a.m. CT on Wednesday, February 21. The call will be hosted by Joel Quadracci, Quad/Graphics Chairman, President & Chief Executive Officer, and Dave Honan, Executive Vice President & Chief Financial Officer. The full earnings release and slide presentation will be concurrently available on the Investors section of Quad/Graphics’ website at http://investors.qg.com.

Participants can pre-register for the webcast by navigating to http://dpregister.com/10115746. Participants will be given a unique PIN to gain immediate access to the call on February 21, bypassing the live operator. Participants may pre-register at any time, including up to and after the call start time.

Alternatively, participants without internet access may dial in on the day of the call as follows:

  • U.S. Toll-Free: 1-877-328-5508
  • International Toll: 1-412-317-5424

Telephone playback will be available following the conference call and will be accessible as follows:

  • U.S. Toll-Free: 1-877-344-7529
  • International Toll: 1-412-317-0088
  • Replay Access Code: 10115746

The playback will be available until March 21, 2018.

Forward-looking statements

This press release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, 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 the Company and can generally be identified by the use of words or phrases 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. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those expressed in or implied by such forward-looking statements. Forward-looking statements are based largely on the Company’s expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control.

The factors that could cause actual results to materially differ include, among others: the impact of decreasing demand for printed materials and significant overcapacity in the highly competitive commercial printing industry creates downward pricing pressures and potential underutilization of assets; 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 impact of increased business complexity as a result of the Company’s transformation into a marketing solutions provider; the impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, privacy and environmental laws; 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 attract and retain qualified production personnel; the impact of changes in postal rates, service levels or regulations; the fragility and decline in overall distribution channels, including newspaper distribution channels; 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; significant capital expenditures may be needed to maintain the Company’s platform and processes and to remain technologically and economically competitive; the impact of the various restrictive covenants in the Company’s debt facilities on the Company’s ability to operate its business; 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.

Except to the extent required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP financial measures

This press release contains financial measures not prepared in accordance with generally accepted accounting principles (referred to as Non-GAAP), specifically Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio and Adjusted Diluted Earnings Per Share. 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 (earnings) 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 transactionrelated charges, loss (gain) on debt extinguishment, equity in (earnings) loss of unconsolidated entity and discrete income tax items, divided by diluted weighted average number of common shares outstanding. 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. Reconciliation to the GAAP equivalent of these Non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

About Quad/Graphics

Quad/Graphics (NYSE:QUAD) is a leading marketing solutions provider. The Company leverages its strong print foundation as part of a much larger, robust integrated marketing services platform that helps marketers and content creators improve the efficiency and effectiveness of their marketing spend across offline and online media channels. With a consultative approach, worldwide capabilities, leading-edge technology and single-source simplicity, Quad/Graphics has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, publishing and healthcare. Quad/Graphics provides a diverse range of digital and print and related products, services and solutions from multiple locations throughout North America, South America and Europe, and strategic partnerships in Asia and other parts of the world. For additional information visit www.QG.com.

Investor relations contact:

Kyle Egan
Senior Manager of Treasury and Investor Relations, Quad/Graphics
414-566-2482
kegan@qg.com

Media contact:

Claire Ho
Manager of Corporate Communications, Quad/Graphics
414-566-2955
cho@qg.com

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