Market Overview

Quad/Graphics Reports Second Quarter and Year-to-Date 2018 Results

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Company Achieved Revenue Growth from Continuing Transformation to
Marketing Solutions Provider; Board Authorizes New $100 Million Share
Repurchase Program

Quad/Graphics, Inc. (NYSE:QUAD) ("Quad/Graphics" or the "Company")
today reported results for its second quarter ending June 30, 2018. For
full financial results, please see the accompanying information.

Second Quarter Financial Highlights

  • Increased net sales 5% to $1 billion.
  • Increased net earnings by $2 million to $9 million and diluted
    earnings per share by $0.05 to $0.18.
  • Achieved Non-GAAP Adjusted EBITDA and Margin of $90 million and 8.8%,
    respectively, and generated Non-GAAP Adjusted Diluted Earnings Per
    Share of $0.23.
  • Repurchased $37 million of Quad/Graphics stock and launches a new
    $100 million share repurchase program authorized by the Board of
    Directors.
  • Declares quarterly dividend of $0.30 per share.

"Our results for the second quarter of 2018 were in-line with our
expectations and reflect the positive impact on revenue from our
transformation to a marketing solutions provider," said Joel Quadracci,
Quad/Graphics Chairman, President & Chief Executive Officer. "Our
integrated marketing platform is unique and enables our clients to
strategically plan, produce, deploy, manage and measure their marketing
content across traditional and digital channels. By having a fully
integrated offering, we reduce complexity, improve process efficiencies
and enhance marketing spend effectiveness for our clients."

Quadracci added: "Our investments in Ivie & Associates and Rise
Interactive continue to strengthen our integrated marketing platform and
the client value we create. Recent wins validate that our strategy is
working, especially in the digital marketing and technology solutions
spaces. For example, one of our large national retail clients recently
partnered with Quad for digital services including paid search, social
and display placement, spend optimization, and analytics reporting in
addition to the traditional services we already provide for them
including creative, production, media planning, printing and
distribution. As we move ahead, we will continue to strengthen our
integrated marketing platform to ensure our products and services
continue to help our clients and generate additional revenue across all
our businesses."

Summary Results

Net sales increased 5.4% during the second quarter 2018 to $1 billion,
reflecting the impact of the Ivie & Associates and Rise Interactive
investments as part of the Company's transformation to a marketing
solutions provider. Organic sales declined 2.2%, after excluding
acquisition sales impact of 6.2%, increased pass-through paper sales of
1.6% and a -0.2% foreign exchange impact. The results reflect ongoing
print industry volume and pricing pressures, and are consistent with the
Company's previous guidance. Net earnings increased 40% during the
second quarter 2018 to $9 million and diluted earnings per share
improved by $0.05 to $0.18 compared to $0.13 in 2017. Non-GAAP Adjusted
Diluted Earnings Per Share for the second quarter 2018 declined 4% to
$0.23 compared to $0.24 in the second quarter of 2017. Second quarter
2018 Non-GAAP Adjusted EBITDA was $90 million compared to $94 million in
second quarter 2017, and Adjusted EBITDA Margin was 8.8% compared to
9.7% in 2017.

Net sales increased 1.1% during the six months ended June 30, 2018.
Organic sales declined 3.7%, after excluding acquisition sales impact of
4.1% and increased pass-through paper sales of 0.7%, reflecting print
industry volume and pricing pressures. Net earnings for the six months
ended June 30, 2018, decreased $26 million to $6 million, or $0.11 per
share, and included a special non-cash charge of $22 million for an
employee stock ownership plan contribution as part of the benefit of tax
reform and $21 million in higher restructuring charges. Excluding the
special contribution and restructuring changes, Non-GAAP Adjusted
Diluted Earnings Per Share improved 5% to $0.80 during the six months
ended June 30, 2018, compared to $0.76 for 2017. Year-to-date Non-GAAP
Adjusted EBITDA was $200 million compared to $213 million for 2017, and
Adjusted EBITDA margin was 10.1% compared to 10.8% in 2017.

Net cash provided by operating activities was $41 million for the first
six months of 2018 compared to $112 million in 2017, and Free Cash Flow
was negative $13 million. The decline to 2017 was primarily due to
expected timing differences in 2018 versus 2017 for cash generated from
working capital, which will be weighted more toward the fourth quarter,
and includes an intentional build-up in paper inventories in
anticipation of supply constraints. As a reminder, the Company generates
the majority of its Free Cash Flow in the second half of the year.

"We delivered second quarter results in-line with our expectations and
we remain on track to deliver on our 2018 financial guidance," said Dave
Honan, Executive Vice President and Chief Financial Officer for
Quad/Graphics. "Our Debt Leverage Ratio of 2.34x remains well within our
long-term targeted range of 2.0x to 2.5x and includes the impacts from
$37 million of share repurchases in the quarter and $71 million in
strategic investments made for Ivie and Rise in 2018. We believe the
strength of our balance sheet gives us the ability to balance our use of
capital between investing back into our business and returning capital
to our shareholders, including our consistent dividend and our share
repurchases. We are pleased to announce our Board of Directors
authorized a new $100 million stock repurchase program to provide
sufficient capacity for us to repurchase shares in the future. We remain
stringently focused on transforming our business and driving shareholder
value as we move forward."

Quad/Graphics' next quarterly dividend of $0.30 per share will be
payable on September 7, 2018, to shareholders of record as of August 20,
2018.

Quarterly Conference Call

Quad/Graphics (NYSE:QUAD) will hold a conference call at 10 a.m. ET on
Wednesday, August 1, to discuss second quarter 2018 results. The call
will be hosted by Joel Quadracci, Quad/Graphics Chairman, President &
Chief Executive Officer, and Dave Honan, Quad/Graphics 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/10120920.
Participants will be given a unique PIN to gain immediate access to the
call on August 1, 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 shortly after the conference call
ends, accessible as follows:

  • U.S. Toll-Free: 1-877-344-7529
  • International Toll: 1-412-317-0088
  • Replay Access Code: 10120920

The playback will be available until September 1, 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 services 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) attributable to
Quad/Graphics common shareholders excluding interest expense, income tax
expense (benefit), depreciation and amortization, restructuring,
impairment and transaction-related charges, net pension income, employee
stock ownership plan contributions, 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
transaction-related charges, employee stock ownership plan
contributions, loss (gain) on debt extinguishment, equity in (earnings)
loss of unconsolidated entity, discrete income tax items and net
(earnings) loss attributable to noncontrolling interests, 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.

 

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2018 and 2017
(in millions, except per share data)
(UNAUDITED)
 
    Three Months Ended June 30,
2018     2017
Net sales $ 1,015.5 $ 963.2
 
Cost of sales 826.7 765.0
Selling, general and administrative expenses 99.2 104.3
Depreciation and amortization 58.3 58.5
Restructuring, impairment and transaction-related charges 10.4   5.3  
Total operating expenses 994.6 933.1
 
Operating income $ 20.9 $ 30.1
 
Interest expense 18.4 17.6
Pension income (3.1 ) (2.6 )
 
Earnings before income taxes and equity in (earnings) loss of
unconsolidated entity
5.6 15.1
 
Income tax (benefit) expense (3.7 ) 8.3  
 
Earnings before equity in (earnings) loss of unconsolidated entity 9.3 6.8
 
Equity in (earnings) loss of unconsolidated entity (0.2 ) 0.1  
 
Net earnings 9.5 6.7
 
Net earnings attributable to noncontrolling interests (0.1 )  
 
Net earnings attributable to Quad/Graphics common shareholders $ 9.4   $ 6.7  
 
Earnings per share attributable to Quad/Graphics common
shareholders
Basic $ 0.19   $ 0.14  
Diluted $ 0.18   $ 0.13  
 
Weighted average number of common shares outstanding
Basic 50.8   49.5  
Diluted 52.5   51.7  
 

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2018 and 2017
(in millions, except per share data)
(UNAUDITED)
 
    Six Months Ended June 30,
2018     2017
Net sales $ 1,983.0 $ 1,961.8
 
Cost of sales 1,619.1 1,546.1
Selling, general and administrative expenses 186.1 202.9
Depreciation and amortization 114.5 117.2
Restructuring, impairment and transaction-related charges 35.3   14.5  
Total operating expenses 1,955.0 1,880.7
 
Operating income $ 28.0 $ 81.1
 
Interest expense 35.7 35.8
Net pension income (6.2 ) (5.2 )
Loss on debt extinguishment   2.6  
 
Earnings (loss) before income taxes and equity in (earnings) loss of
unconsolidated entity
(1.5 ) 47.9
 
Income tax (benefit) expense (7.0 ) 15.0  
 
Earnings before equity in (earnings) loss of unconsolidated entity 5.5 32.9
 
Equity in (earnings) loss of unconsolidated entity (0.5 ) 0.8  
 
Net earnings 6.0 32.1
 
Net earnings attributable to noncontrolling interests (0.1 )  
 
Net earnings attributable to Quad/Graphics common shareholders $ 5.9   $ 32.1  
 
Earnings per share attributable to Quad/Graphics common
shareholders
Basic $ 0.12   $ 0.65  
Diluted $ 0.11   $ 0.62  
 
Weighted average number of common shares outstanding
Basic 50.5   49.3  
Diluted 52.3   51.6  
 

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2018 and December 31, 2017
(in millions)
(UNAUDITED)
 
    June 30,     December 31,
2018 2017
ASSETS
Cash and cash equivalents $ 8.9 $ 64.4
Receivables, less allowances for doubtful accounts 510.4 552.5
Inventories 290.7 246.5
Prepaid expenses and other current assets 68.1   45.1  
Total current assets 878.1 908.5
 
Property, plant and equipment—net 1,306.8 1,377.6
Goodwill 56.1
Other intangible assets—net 128.5 43.4
Equity method investment in unconsolidated entity 3.5 3.6
Other long-term assets 96.9   119.3  
Total assets $ 2,469.9   $ 2,452.4  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 396.1 $ 381.6
Accrued liabilities 272.1 316.7
Short-term debt and current portion of long-term debt 36.9 42.0
Current portion of capital lease obligations 5.4   5.6  
Total current liabilities 710.5 745.9
 
Long-term debt 993.2 903.5
Capital lease obligations 12.3 13.7
Deferred income taxes 44.9 41.9
Other long-term liabilities 205.7   225.0  
Total liabilities 1,966.6 1,930.0
 
Shareholders' equity
Preferred stock
Common stock 1.4 1.4
Additional paid-in capital 854.5 861.1
Treasury stock, at cost (55.0 ) (52.8 )
Accumulated deficit (182.7 ) (162.9 )
Accumulated other comprehensive loss (133.4 ) (124.4 )
Quad/Graphics' shareholders' equity 484.8 522.4
Noncontrolling interests 18.5    
Total shareholders' equity and noncontrolling interests 503.3   522.4  
Total liabilities and shareholders' equity $ 2,469.9   $ 2,452.4  
 

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2018 and 2017
(in millions)
(UNAUDITED)
 
    Six Months Ended June 30,
2018     2017
OPERATING ACTIVITIES
Net earnings $ 6.0 $ 32.1
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 114.5 117.2
Employee stock ownership plan contribution 22.3
Impairment charges 11.5 0.7
Loss on debt extinguishment 2.6
Stock-based compensation 9.1 9.7
Gain from property insurance claims (18.3 ) (5.0 )
Gain on the sale or disposal of property, plant and equipment (2.1 ) (7.1 )
Deferred income taxes 1.1 6.4
Other non-cash adjustments to net earnings 1.2 2.6
Changes in operating assets and liabilities—net of acquisitions (104.8 ) (47.0 )
Net cash provided by operating activities 40.5 112.2
 
INVESTING ACTIVITIES
Purchases of property, plant and equipment (53.8 ) (42.8 )
Proceeds from the sale of property, plant and equipment 8.9 21.8
Proceeds from property insurance claims 14.5 5.0
Loan to an unconsolidated entity (5.0 )
Acquisition of businesses—net of cash acquired (71.4 )  
Net cash used in investing activities (101.8 ) (21.0 )
 
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 375.0
Payments of long-term debt (21.5 ) (409.2 )
Payments of capital lease obligations (3.4 ) (4.2 )
Borrowings on revolving credit facilities 896.6 270.6
Payments on revolving credit facilities (791.9 ) (287.4 )
Payments of debt issuance costs and financing fees (4.7 )
Purchases of treasury stock (36.7 )
Proceeds from stock options exercised 4.0 2.4
Equity awards redeemed to pay employees' tax obligations (7.5 ) (5.9 )
Payment of cash dividends (32.2 ) (31.7 )
Other financing activities   (4.1 )
Net cash provided by (used in) financing activities 7.4 (99.2 )
 
Effect of exchange rates on cash and cash equivalents (1.6 ) (0.5 )
Net decrease in cash and cash equivalents (55.5 ) (8.5 )
Cash and cash equivalents at beginning of period 64.4   19.2  
Cash and cash equivalents at end of period $ 8.9   $ 10.7  
 

QUAD/GRAPHICS, INC.

SEGMENT FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2018 and 2017
(in millions)
(UNAUDITED)
 
            Restructuring,
Impairment and
Operating Transaction-Related
Net Sales Income (Loss)

Charges (1)

Three months ended June 30, 2018
United States Print and Related Services $ 919.5 $ 33.3 $ 8.1
International 96.0   1.6   2.0
Total operating segments 1,015.5 34.9 10.1
Corporate   (14.0 ) 0.3
Total $ 1,015.5   $ 20.9   $ 10.4
 
Three months ended June 30, 2017
United States Print and Related Services $ 872.3 $ 40.7 $ 2.8
International 90.9   3.3   1.8
Total operating segments 963.2 44.0 4.6
Corporate   (13.9 ) 0.7
Total $ 963.2   $ 30.1   $ 5.3
 
Six months ended June 30, 2018
United States Print and Related Services $ 1,787.3 $ 53.6 $ 28.5
International 195.7   7.3   3.0
Total operating segments 1,983.0 60.9 31.5
Corporate   (32.9 ) 3.8
Total $ 1,983.0   $ 28.0   $ 35.3
 
Six months ended June 30, 2017
United States Print and Related Services $ 1,774.5 $ 103.2 $ 9.9
International 187.3   8.1   2.8
Total operating segments 1,961.8 111.3 12.7
Corporate   (30.2 ) 1.8
Total $ 1,961.8   $ 81.1   $ 14.5
______________________________

(1)

  Restructuring, impairment and transaction-related charges are
included within operating income (loss).
 

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
For the Three Months Ended June 30, 2018 and 2017
(in millions, except margin data)
(UNAUDITED)
 
    Three Months Ended June 30,
2018     2017
Net earnings attributable to Quad/Graphics common shareholders $ 9.4 $ 6.7
Interest expense 18.4 17.6
Income tax (benefit) expense (3.7 ) 8.3
Depreciation and amortization 58.3   58.5  
EBITDA (Non-GAAP) $ 82.4 $ 91.1
EBITDA Margin (Non-GAAP) 8.1 % 9.5 %
 
Restructuring, impairment and transaction-related charges (1) 10.4 5.3
Net pension income (2) (3.1 ) (2.6 )
Equity in (earnings) loss of unconsolidated entity (3) (0.2 ) 0.1  
Adjusted EBITDA (Non-GAAP) $ 89.5   $ 93.9  
Adjusted EBITDA Margin (Non-GAAP) 8.8 % 9.7 %
______________________________

(1)

  Operating results for the three months ended June 30, 2018 and 2017,
were affected by the following restructuring, impairment and
transaction-related charges:
    Three Months Ended June 30,
2018     2017
Employee termination charges (a) $ 2.5 $ 3.0
Impairment charges (b) 3.6 0.3
Transaction-related charges (c) 0.1 0.4
Integration costs (d) 0.1
Other restructuring charges (e) 4.1   1.6
Restructuring, impairment and transaction-related charges $ 10.4   $ 5.3
______________________________
(a)   Employee termination charges were related to workforce reductions
through facility consolidations and announced separation programs.
(b) Impairment charges were for certain property, plant and equipment no
longer being utilized in production as a result of facility
consolidations.
(c) Transaction-related charges consisted of professional service fees
related to business acquisition and divestiture activities.
(d) Integration costs were primarily costs related to the integration of
acquired companies.
(e) Other restructuring charges were primarily from costs to maintain
and exit closed facilities, as well as lease exit charges, net of a
gain on the sale of facilities of $3.4 million during the three
months ended June 30, 2017.
(2)  

Due to a change in United States GAAP that requires pension income
to be excluded from operating income, the Company will report
Adjusted EBITDA excluding net pension income. This change is
reflected in all periods presented.

(3) The equity in (earnings) loss of unconsolidated entity includes the
results of operations for an investment in an entity where
Quad/Graphics has the ability to exert significant influence, but
not control, which is accounted for using the equity method of
accounting.
 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
For the Six Months Ended June 30, 2018 and 2017
(in millions, except margin data)
(UNAUDITED)
 
    Six Months Ended June 30,
2018     2017
Net earnings attributable to Quad/Graphics common shareholders $ 5.9 $ 32.1
Interest expense 35.7 35.8
Income tax (benefit) expense (7.0 ) 15.0
Depreciation and amortization 114.5   117.2  
EBITDA (Non-GAAP) $ 149.1 $ 200.1
EBITDA Margin (Non-GAAP) 7.5 % 10.2 %
 
Restructuring, impairment and transaction-related charges (1) 35.3 14.5
Net pension income (2) (6.2 ) (5.2 )
Employee stock ownership plan contribution (3) 22.3
Loss on debt extinguishment (4) 2.6
Equity in (earnings) loss of unconsolidated entity (5) (0.5 ) 0.8  
Adjusted EBITDA (Non-GAAP) $ 200.0   $ 212.8  
Adjusted EBITDA Margin (Non-GAAP) 10.1 % 10.8 %
______________________________
(1)   Operating results for the six months ended June 30, 2018 and 2017,
were affected by the following restructuring, impairment and
transaction-related charges:
    Six Months Ended June 30,
2018     2017
Employee termination charges (a) $ 13.1 $ 5.9
Impairment charges (b) 11.5 0.7
Transaction-related charges (c) 0.8 1.2
Integration costs (d) 0.2
Other restructuring charges (e) 9.7   6.7
Restructuring, impairment and transaction-related charges $ 35.3   $ 14.5

______________________________

(a)   Employee termination charges were related to workforce reductions
through facility consolidations and separation programs.
(b) Impairment charges were for certain property, plant and equipment no
longer being utilized in production as a result of facility
consolidations.
(c) Transaction-related charges consisted of professional service fees
related to business acquisition and divestiture activities.
(d) Integration costs were primarily costs related to the integration of
acquired companies.
(e) Other restructuring charges were primarily from costs to maintain
and exit closed facilities, as well as lease exit charges, net of
gains on the sale of facilities of $2.2 million and $7.1 million
during the six months ended June 30, 2018 and 2017, respectively.
(2)  

Due to a change in United States GAAP that requires pension income
to be excluded from operating income, the Company will report
Adjusted EBITDA excluding net pension income. This change is
reflected in all periods presented.

(3) The Company made a $22.3 million non-cash contribution to the
Company's employee stock ownership plan during the six months ended
June 30, 2018.
(4) The $2.6 million loss on debt extinguishment recorded during the six
months ended June 30, 2017, relates to the second amendment to the
Company's April 28, 2014 Senior Secured Credit Facility, completed
on February 10, 2017.
(5) The equity in (earnings) loss of unconsolidated entity includes the
results of operations for an investment in an entity where
Quad/Graphics has the ability to exert significant influence, but
not control, which is accounted for using the equity method of
accounting.
 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
FREE CASH FLOW
For the Six Months Ended June 30, 2018 and 2017
(in millions)
(UNAUDITED)
 
    Six Months Ended June 30,
2018     2017
Net cash provided by operating activities $ 40.5 $ 112.2
 
Less: purchases of property, plant and equipment (53.8 ) (42.8 )
 
Free Cash Flow (Non-GAAP) $ (13.3 ) $ 69.4  
 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
DEBT LEVERAGE RATIO
As of June 30, 2018 and December 31, 2017
(in millions, except ratio)
(UNAUDITED)
 
    June 30,     December 31,
2018 2017
Total debt and capital lease obligations on the condensed
consolidated balance sheets
$ 1,047.8 $ 964.8
 
Divided by:
Trailing twelve months Adjusted EBITDA for Quad/Graphics (Non-GAAP) (1) $ 435.4 $ 448.2
Pro forma Adjusted EBITDA for Ivie & Associates (Non-GAAP) (2) 12.1    
Trailing twelve months Adjusted EBITDA (Non-GAAP) $ 447.5   $ 448.2  
   
Debt Leverage Ratio (Non-GAAP) 2.34 x 2.15 x
______________________________
(1)   The calculation of Adjusted EBITDA for the trailing twelve months
ended June 30, 2018, and December 31, 2017, was as follows:
          Add       Subtract      

Trailing Twelve
Months Ended

Year Ended Six Months Ended
December 31, June 30, June 30, June 30,

2017 (a)

2018 2017 2018
Net earnings attributable to Quad/Graphics common shareholders $ 107.2 $ 5.9 $ 32.1 $ 81.0
Interest expense 71.1 35.7 35.8 71.0
Income tax (benefit) expense (16.0 ) (7.0 ) 15.0 (38.0 )
Depreciation and amortization 232.5   114.5   117.2   229.8  
EBITDA (Non-GAAP) $ 394.8 $ 149.1 $ 200.1 $ 343.8
Restructuring, impairment and transaction-related charges 60.4 35.3 14.5 81.2
Net pension income (b) (9.6 ) (6.2 ) (5.2 ) (10.6 )
Employee stock ownership plan contribution 22.3 22.3
Loss on debt extinguishment 2.6 2.6
Equity in (earnings) loss of unconsolidated entity   (0.5 ) 0.8   (1.3 )
Adjusted EBITDA (Non-GAAP) $ 448.2   $ 200.0   $ 212.8   $ 435.4  
______________________________
(a)   Financial information for the year ended December 31, 2017, is
included as reported in the Company's 2017 Annual Report on Form
10-K filed with the SEC on February 21, 2018.
(b)

Due to a change in United States GAAP that requires pension income
to be excluded from operating income, the Company will report
Adjusted EBITDA excluding net pension income. This change is
reflected in all periods presented.

(2)  

As permitted by the Company's senior secured credit facility,
certain pro forma financial information related to the acquisition
of Ivie & Associates ("Ivie") was included in calculating the Debt
Leverage Ratio as of June 30, 2018, and December 31, 2017. As the
acquisition of Ivie was completed on February 21, 2018, the $12.1
million pro forma Adjusted EBITDA represents the period from July
1, 2017, to February 20, 2018. Adjusted EBITDA for Ivie was
calculated in a consistent manner with the calculation above for
Quad/Graphics. Ivie's financial information has been consolidated
within Quad/Graphics' financial results since the date of
acquisition. If the eight months of pro forma Adjusted EBITDA for
Ivie was not included in the calculation, the Company's Debt
Leverage Ratio would have been 2.41x as of June 30, 2018.

 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE
For the Three Months Ended June 30, 2018 and 2017
(in millions, except per share data)
(UNAUDITED)
 
    Three Months Ended June 30,
2018     2017
Earnings before income taxes and equity in (earnings) loss of
unconsolidated entity
$ 5.6 $ 15.1
 
Restructuring, impairment and transaction-related charges 10.4   5.3  
16.0 20.4
 
Income tax expense at normalized tax rate (1) 4.0   8.2  
Adjusted net earnings (Non-GAAP) $ 12.0   $ 12.2  
 
Basic weighted average number of common shares outstanding 50.8 49.5
Plus: effect of dilutive equity incentive instruments 1.7   2.2  
Diluted weighted average number of common shares outstanding 52.5   51.7  
 
Adjusted diluted earnings per share (Non-GAAP) (2) $ 0.23   $ 0.24  
 
 
Diluted earnings per share attributable to Quad/Graphics common
shareholders (GAAP)
$ 0.18 $ 0.13
Restructuring, impairment and transaction-related charges per share 0.20 0.11
Income tax (benefit) expense from condensed consolidated statement
of operations per share
(0.07 ) 0.16
Income tax expense at normalized tax rate per share (1) (0.08 ) (0.16 )
Equity in (earnings) loss of unconsolidated entity from condensed
consolidated statement of operations per share
   
Adjusted diluted earnings per share (Non-GAAP) (2) $ 0.23   $ 0.24  
______________________________
(1)  

A normalized income tax rate of 25% was used for the three months
ended June 30, 2018, which reflects changes related to the Tax
Cuts and Jobs Act that was enacted in December 2017.  The Company
used a normalized income tax rate of 40% for the three months
ended June 30, 2017, consistent with the normalized rate used
prior to the enactment of the Tax Cuts and Jobs Act.

 
(2)

Adjusted diluted earnings per share excludes the following: (i)
restructuring, impairment and transaction-related charges; (ii)
discrete income tax items; (iii) equity in (earnings) loss of
unconsolidated entity; and (iv) net earnings attributable to
noncontrolling interests.

 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

QUAD/GRAPHICS, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE

For the Six Months Ended June 30, 2018 and 2017

(in millions, except per share data)
(UNAUDITED)
 
    Six Months Ended June 30,
2018     2017
Earnings (loss) before income taxes and equity in (earnings) loss of
unconsolidated entity
$ (1.5 ) $ 47.9
 
Restructuring, impairment and transaction-related charges 35.3 14.5
Employee stock ownership plan contribution 22.3
Loss on debt extinguishment   2.6  
56.1 65.0
 
Income tax expense at normalized tax rate (1) 14.0   26.0  
Adjusted net earnings (Non-GAAP) $ 42.1   $ 39.0  
 
Basic weighted average number of common shares outstanding 50.5 49.3
Plus: effect of dilutive equity incentive instruments 1.8   2.3  
Diluted weighted average number of common shares outstanding 52.3   51.6  
 
Adjusted diluted earnings per share (Non-GAAP) (2) $ 0.80   $ 0.76  
 
 
Diluted earnings (loss) per share attributable to Quad/Graphics
common shareholders (GAAP)
$ 0.11 $ 0.62
Restructuring, impairment and transaction-related charges per share 0.67 0.28
Employee stock ownership plan contribution per share 0.43
Loss on debt extinguishment per share 0.05
Income tax (benefit) expense from condensed consolidated statement
of operations per share
(0.13 ) 0.29
Income tax expense at normalized tax rate per share (1) (0.27 ) (0.50 )
Equity in (earnings) loss of unconsolidated entity from condensed
consolidated statement of operations per share
(0.01 ) 0.02  
Adjusted diluted earnings per share (Non-GAAP) (2) $ 0.80   $ 0.76  
______________________________
(1)  

A normalized income tax rate of 25% was used for the six months
ended June 30, 2018, which reflects changes related to the Tax
Cuts and Jobs Act that was enacted in December 2017. The Company
used a normalized income tax rate of 40% for the six months ended
June 30, 2017, consistent with the normalized rate used prior to
the enactment of the Tax Cuts and Jobs Act.

 
(2)

Adjusted diluted earnings per share excludes the following: (i)
restructuring, impairment and transaction-related charges; (ii)
employee stock ownership plan contribution; (iii) loss on debt
extinguishment; (iv) discrete income tax items; (v) equity in
(earnings) loss of unconsolidated entity; and (vi) net earnings
attributable to noncontrolling interests.

 

In addition to financial measures prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP),
this earnings announcement 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.

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