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Quad/Graphics, Inc. Sidoti 2014 Annual Institutional Investor Forum
March 17 - 18, 2014
John Fowler Vice Chairman & Executive Vice President
Dave Honan Vice President & Chief Financial Officer
Kelly Vanderboom Vice President & Treasurer
| 2
Quad/Graphics Overview
| 3
A Printer & Media Channel Integrator
0
1,000
2,000
3,000
4,000
5,000
2009 2010 2011 2012 2013
Sales (in Millions)
• NYSE: QUAD
• Global provider of print and related
multichannel solutions
• Approximately 24,000 employees
• 70 plants in 8 countries
Description
Publishing Retail Financial
Services Telecom Healthcare Non-Profit Automotive
| 4
Diverse Product & Geographic Offering
2009 2013
$4.8 billion Net Sales $1.8 billion Net Sales
Catalogs34%
Magazine23%
Europe12%
Retail Inserts8%
Logistics7%
Direct Mail6%
Media Solutions
5%
Commercial & Specialty
3%
Latin America2%
Retail Inserts26%
Catalogs17%
Magazines16%
Logistics9%
Direct Mail8%
Latin America6%
Books4%
Europe4%
Directory3%
Media Solutions
3%
Commercial &Specialty
3%
Other 1%
| 5
Our Global Platform
North America • 58 facilities
• 20,000 employees
• 90% of revenue
Asia • Strategic Partnership
with India’s ManipalTech
Europe • 2 facilities
• 1,450 employees
• 4% of revenue
Latin America • 10 facilities
• 2,850 employees
• 6% of revenue
| 6
• Quad/Graphics operates primarily in
the commercial print portion of the
printing industry:
> Total US print advertising spending will
approximate $41 billion in 2013(1)
> Print represents 24% of total U.S. advertising
spending(1)
• Highly fragmented and competitive:
> Largest 400 printers represent approximately
55% of the overall U.S. and Canadian
market(2)
> Excess Manufacturing Capacity
Industry Dynamics
(1) Source: ZenithOptimedia Advertising Expenditure Forecast, Dec 2013
(2) Source: PIA/GATF 2012 Print Market Atlas; 2013 PI 400
Overview Pressures
• Cyclical > Economy
> Consumer Confidence
> Retail Environment
> Disposable Income
• Structural > Online Content
> Mobile Devices
> E-marketing
> Changing Business
Needs
| 7 | 7
• Acquired and successfully integrated Worldcolor
• Listed on NYSE
• Acquired Transcon – Mexico
• Divested Canadian Ops
• Expanded Commercial & Specialty platform
• Acquired Vertis
• Issued first dividend in 2011 and consistently paid out
• Paid out special $2 dividend
• Significant reorganization of management structure to drive future growth and value creation
Our Accomplishments
• Slow economic recovery
and transformational time in
industry
• Paid down $388mm thru
2013 (which is post-Vertis
acquisition in Jan 2013)
• Reduced $360 million of
pension, OPEB, and MEPP
underfunding thru 2013
• Continue to target leverage
range of 2.0x – 2.5x
| 8
Our Strategic Goals
Transform
the
Industry
Maximize
Operational and
Technological
Excellence
Empower,
Engage and
Develop
Employees
Enhance
Financial
Strength &
Create
Shareholder
Value
Strengthen the Core
| 9
How We Create Client Value
| 10
Understand Clients’ Pain Points
• Postal rate increases
• Economic conditions
• Paper and ink price
fluctuations
• Fierce competition
• Do more with less
resources
Our Clients’ Challenges Create an
Opportunity to Create Value
• Consumer has control
• Media channel
integration
• Content is king
• Privacy legislation
• Environment
| 11 | 11
Our Client Value Philosophy
Our strategy is tailored
by product line and
service area but driven
by the common purpose
to create client value in
two ways…
When combined
with our low-cost
producer status, we
believe this strategy
will allow us to gain
market share
Low-Cost Producer
| 12
Media Continues to Evolve
TV Radio Display Print Direct Mail Telephone
IM eMail Website Search Online Display TV Radio Display Print Direct Mail Telephone
Paid Search Landing Pages Microsites Online Video Webinars Affiliate Marketing IM eMail Website Search Online Display TV Radio Display Print Direct Mail Telephone
Mobile eMail SMS Text PURLs Blogs RSS Feeds Podcasts Wikis Social Networks Mobile Web Paid Search Landing Pages Microsites Online Video Webinars Affiliate Marketing IM eMail Website Search Online Display TV Radio Display Print Direct Mail Telephone
Addressable Voice IR, NFC Virtual Worlds Widgets Twitter Facebook Mobile eMail SMS Text PURLs Blogs RSS Feeds Podcasts Wikis Social Networks Mobile Web Paid Search Landing Pages Microsites Online Video Webinars Affiliate Marketing IM eMail Website Search Online Display TV Radio Display Print Direct Mail Telephone
<1990
Early
1990s
Late
1990s
2000s
2010+
| 13
In An Omni-Channel World
CONTENT
| 15
• Extensive co-mail program reduces postage expense for our
U.S. customers
• Approximately 5.0 billion magazines, catalogs and direct mail
pieces co-mailed in 2013
• Advanced finishing capabilities combined with unique software
that merges mailstreams on a large scale and leverages the
mailing platform to provide even greater co-mailing cost and
efficiency benefits to our customers
• In-house transportation and logistics services enable rapid
deployment of products
• Leading postal consultation services help our customers
navigate the waters of USPS change
• Robust distribution network provides national deliveries to
more than 1,400 newspaper and shared-mail facilities
The Power of Logistics
| 16 | 16
Maximize Operational & Technological Excellence
| 17
Scale Offers Significant Advantages
Critical mass to dilute fixed costs, volume for postal discounts and automation
| 18
Acquisition Strategy
| 19 | 19
• Our disciplined approach ensures the following
criteria are met:
Strategic Acquisition Criteria
Good Strategic
Fit
Economics Make Sense
The Integration
Plan Is Executable
Balance Sheet
Integrity Is Maintained
| 20 | 20
• There are four key elements in our formula for how
we measure integration success:
Holistic Approach to Measure Our Success
Financial Metrics
Customer Retention
Employee Integration
IT & Platform
Integration
| 21
Enhance Financial Strength
| 22 | 22
• Stabilize core revenues and EBITDA in our mature
industry
• Maximize Free Cash Flow to provide capital
allocation flexibility
• Maintain a strong Balance Sheet to confidently
address economic and industry challenges and
provide flexibility to act on opportunities
• Execute on consolidating and growth acquisitions
that are strategically and financially compelling
• Create long-term value to be our own best
investment
Our Strategic Financial Objectives
| 23 | 23
______________________________
(1) Adjusted EBITDA is defined as net earnings plus interest expense, income tax expense, depreciation and amortization, restructuring, impairment and
transaction-related charges, and loss from discontinued operations, net of tax, and less income tax benefit and gain on disposal of discontinued
operations, net of tax. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.
Financial Overview – Year-To-Date
US Millions $
2013 2012
Net Sales 4,796$ 4,094$
Cost of Sales 3,802 3,184
SG&A 416 347
Depreciation Expense 270 272
Amortization Expense 71 67
Restructuring, Impairment and Transaction-Related Charges — Cash 75 108
Restructuring, Impairment and Transaction-Related Charges — Non-Cash 20 10
Interest Expense 86 84
Adjusted EBITDA (1) 577 566
Adjusted EBITDA Margin (1) 12.0% 13.8%
For the year ended December 31,
| 24 | 24
Strong Cash Flow Generation
______________________________
(1) Includes 2013 and 2012 contributions for single employer pension, postretirement and MEPPs of $55 million and $61 million, respectively.
(2) Recurring Free Cash Flow is defined as net cash provided by operating activities plus non-recurring payments less purchases of property, plant
and equipment. Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment.
(3) Estimated $90 million of increased accounts payable and accrued liabilities from the restoration of normalized working capital levels after the
acquisition of Vertis (which was acquired without a normalized level of trade accounts payable and certain liabilities).
US Millions $ December 31,
2013Recurring Free Cash Flow (1) (2) 380$
Less: Restructuring payments (80)
Less: Worldcolor bankruptcy payments (8)
Free Cash Flow (2) 292$
Less: Vertis w orking capital adjustment (3) (90)
Free Cash Flow on a comparable year-over-year basis 202$
US Millions $ December 31, December 31,
2013 2012
Recurring Free Cash Flow (1) (2) 380$ 375$
Unrestricted Cash & Cash Equivalents 13 17
| 25 | 25
______________________________
All amounts are as of December 31, 2013 and December 31, 2012 or for the trailing 12 months ended December 31, 2013 and December 31, 2012.
(1) Includes capital lease obligations and excludes Worldcolor pension, MEPPs and postretirement liabilities.
(2) Last Twelve Months (“LTM”) Adjusted EBITDA (a non-GAAP measure) is based on consolidated results.
(3) Interest coverage defined as LTM Adjusted EBITDA from (2) divided by LTM interest expense.
(4) Debt Leverage Ratio is defined as total debt and capital lease obligations divided by LTM Adjusted EBITDA from (2).
Flexible Balance Sheet
Debt increased $56 million primarily due to the January 2013 Vertis
acquisition, however, since the July 2010 Worldcolor acquisition, debt has
decreased $388 million.
Pension and postretirement underfunded liabilities have decreased $360
million from the $547 million acquired during the July 2010 Worldcolor
acquisition to $187 million.
US Millions $ December 31, December 31,
2013 2012
Debt (1) 1,407$ 1,351$
LTM Adjusted EBITDA (2) 577 566
Interest Coverage (3) 6.7X 6.7X
Debt Leverage Ratio (4)2.44X 2.39X
| 26 | 26
$210 million of borrowings under $850 million revolver
Floating rate debt average interest rate of 3.1%
Long-term fixed rate debt primarily consists of private
placement bonds
> Weighted average interest rate of 7.4%
> Weighted average maturity of 10 years, weighted average life
of 6 years
Blended interest rate of our total debt is 4.7%
Outstanding principal is 63% floating and 37% fixed
No significant maturity until July 2017
Debt Summary – As of December 31, 2013
| 27 | 27
2014 Guidance
______________________________
(1) Adjusted EBITDA is defined as net earnings plus interest expense, income tax expense, depreciation and amortization, restructuring, impairment
and transaction-related charges, and loss from discontinued operations, net of tax, and less income tax benefit and gain on disposal of
discontinued operations, net of tax.
Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment.
(2) Includes single employer pension and postretirement plans and MEPPs.
US $ 2014
Net Sales $4.6 billion to $4.8 billion
Adjusted EBITDA (1) $520 million to $550 million
Free Cash Flow (1) $155 million to $165 million
Depreciation and Amortization $330 million to $340 million
Interest Expense $80 million to $85 million
Restructuring and Transaction-Related Cash Expenses $35 million to $55 million
Capital Expenditures $150 million to $175 million
Cash Taxes $40 million to $45 million
Pension Cash Contributions (2) Approximately $60 million
| 28
Maintain normalized leverage of 2.0-2.5X granted 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
Continued, Consistent Financial Policies
| 29
• Substantial Free Cash Flow generation
• Strong Balance Sheet
• Consistent dividend
• Efficient, flexible and modern manufacturing and
distribution platform
• Strategy to transform the industry to create
client value in an omni-channel World
Why Invest in Quad?
| 31
Appendix
| 32
Sunday and Daily Print Circulation
32
N. American Circulation of Printed Newspapers
30
35
40
45
50
55
60
65
19
82
1
98
3
19
84
1
98
5
19
86
1
98
7
19
88
1989
1
99
0
19
91
1
99
2
19
93
1
99
4
19
95
1
99
6
19
97
1
99
8
19
99
2
00
0
20
01
2
00
2
20
03
2
00
4
20
05
2006
2
00
7
20
08
2
00
9
20
10
20
11
20
12
2
01
3
Daily
Sunday
Weekly
Source: Editor & Publisher, AAM, RISI
| 33
Source: PIB Ad Pages Report; The Association of Magazine Media (AMM)
Quarterly Date Range: Jan. 2009 – Dec 2013
•PIB = Ad pages for 204 magazine titles (monthlies and weeklies) representing roughly 85 percent of U.S. consumer magazine advertising volume.
Q4 2013 Ad Pages Declined 4.9% Which Was Somewhat Less Than the Q4 2012 Ad Page Decline of 7.2%.
Food, fashion and home furnishings were up: Eating Well (78%), Bon Appetit (20%), In Style (7%), Harper’s Bazaar (7%), Veranda (24%) and Arch Digest (8%). Sports/athletic and Newsweeklies were down : Sports Illustrated (-18%), Bicycling (-12%), Flex (-12%), Time (-12%) and The Week (-29%).
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
PIB Pages YOY % Chg. -26.0 -28.7 -26.2 -21.6 -9.4% 0.8% 3.6% 3.5% 2.5% 0.3% -5.6% -8.0% -8.2% -8.6% -8.0% -7.2% -4.8% -4.5% -1.8% -4.9%
PIB Full Year -25.6 -0.1% -3.1% -8.2% -4.1%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0% PIB Ad Pages % Chg. YOY Quarter (print only)
| 34
Source: Alliance for Audited Media Snapshot Report Date Range: July 2009 – December 2013
Paid Subscriber Copies Shifted From Positive Territory in December 2012 (.7%) to Negative Territory in December 2013 (-1.2%)
Dec Jun Dec Jun Dec Jun Dec Jun Dec
2009 2010 2010 2011 2011 2012 2012 2013 2013
Subscriber Copies Y/Y Chg. -1.1% -2.0% -1.2% -0.3% 0.7% 1.1% 0.7% -0.1% -1.2%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
Magazine Paid Subscriber Copies Includes Digital
Subscriber Copies Y/Y Chg.
| 35
-5.7%
3.4%
280,000,000
290,000,000
300,000,000
310,000,000
320,000,000
330,000,000
340,000,000
350,000,000
Jun-12 Dec-12 Jun-13 Dec-13
-15%
-10%
-5%
0%
5%
10%
15%
20%
Magazine Circulation - Print Only
Y/Y Chg Prev period Chg Print Only
Print Circ (left axis)
Print-only Magazine Circulation Was Down -5.7% Compared to December 2012 But Ticked Up 3.4% vs. June 2013
Source: Alliance for Audited Media Snapshot Report Date Range: Jan. 2012– Dec. 2013
Includes Paid, Verified and Analyzed Non-paid Circulation • Paid Circulation incudes individual subscription and newsstand
• Verified circulation copies are distributed in public places or free to individual recipients, either by request or from a list, which are likely to have a strong affinity for the content of the magazine. Examples include physician and hair salon waiting room, airline and hotel copies.
• Analyzed Nonpaid circulation copies are mailed to individual addresses from a list or directory source, copies delivered as an insert into another publication, or copies distributed to unknown recipients.
| 36
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
RISI YOY -14.1% -14.7% -5.6% -2.2% -1.4% 2.5% -1.1% -6.3% -5.7% -8.5% -3.9% 2.0% 0.5% -1.0% -1.7% -3.1% -3.9% -2.2%
Cat Mail RISI 3,571 3,481 3,472 3,532 3,519 3,570 3,440 3,304 3,314 3,268 3,307 3,369 3,331 3,235 3,251 3,266 3,202 3,160
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
2,900
3,000
3,100
3,200
3,300
3,400
3,500
3,600
3,700
RISI Catalogs Mailed
RISI YOY Cat Mail RISI
Source: RISI Date Range: 2009 – 2013
Millions
Q4 RISI Forecast
The Catalogs Mailed Forecast Decreased -2.2% for Q4 2013 Which Was a Larger Decline Than the Q4 2012 Figure of -1%
