QUAD - Earnings call 3 2023 | Quad/Graphics, Inc.

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Operator

Good morning, and welcome to the Quad's third quarter conference call. [Operator Instructions]

A slide presentation accompanies today's webcast and participants are invited to follow along, advancing the slides themselves. To access the webcast, follow instructions posted in the earnings release.

Alternatively, you can access the slide presentation on the Investors section of Quad's website under the Events and Presentations link. Instructions]. [Operator this recorded. that is event note, being Please

I'd Krebsbach, please Quad's turn the go to Katie conference over Investor like to ahead. Relation Manager. Katie,

Katie Krebsbach

financial today and today's Chairman, follow of Thank followed Joel Quad's Officer; Tony results, Chief operator, and will Joel morning, with year-to-date a Staniak, With you, Quad's will business Officer. lead and good and Tony summary Quadracci, with Q&A. third and President me Quad's XXXX Financial Chief call quarter Executive a by everyone. are update,

would that slide I today's are this is being quarterly provisions like safe as our in to and presentation statements forward-looking on call news to remind release in outlined Slide everyone webcast X. subject harbor and

principles. Quad's financial results are prepared in accounting accordance accepted with generally

financial net debt debt However, adjusted diluted contains including adjusted margin, presentation EBITDA, and flow, per EBITDA also share, cash earnings non-GAAP measures, leverage ratio. free adjusted this

presentation to these in included of non-GAAP reconciliations have measures financial the We measures. financial slide GAAP

of the quad.com shortly replay call of call today. concludes a and our section will slide be on Investors after the Finally, available the presentation

over now I hand will to call the Joel.

J. Joel Quadracci

well challenging in deliver as as to print, cash Katie, year-over-year $XX the everyone. revenue and good to Slide our XXXX, margins on In EBITDA divestiture third print flow free despite you, quarter, compared logistics environment. operations. a period were paper XXXX Net million the pleased Beginning primarily of the and sales we same Thank sales X. declined lower due to Argentinian morning, of consistent

additional strengthen share capital pay and shareholders to through return debt, down sheet balance continue We our repurchases. to

January and of leverage. EBITDA, XXXX. full by we year have the And $XXX reduced XX% free track by to cash guidance XXXX We since end or achieve for million are over will X, debt year, the adjusted debt flow on

rates, of volume rising increases industry-wide are clients. response financial due most specific impact direct have full postal and and including reductions we greatest mail, to interest such uncertainty, continued as rate net At our print the impact insurance year sales categories seen interest economic services, We to loans. the lowering ongoing in cards, Quad, on XXXX guidance rising to rates sensitive credit to

detail guidance sales year-to-date share net on shortly. our and financial more breakdown will Tony

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Turning to Slide XX.

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as For Quad, imperative is business strategy. it ESG underpins a our growth

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for call review. I financial that, turn the With now over the Tony to will

Anthony Staniak

XXXX, $XXX sales XXXX. Net our morning, compared decline XX% a net to Joel, billion XX, were compared On the we quarter good a of XXXX, Thanks, of show and $X.X million decline the third everyone. mix. Slide of were basis, quarter in year-to-date On a diverse XXXX. in third X% revenue to sales

in Our the specific increases net industry-wide rising economic reductions uncertainty, impact volume of sales continued impacted on rate rates interest response were to clients. by print postal and

revenues direct of For to example, a year-to-date our total on decreased from temporarily has XX% XX%. mail basis,

magazines of multiyear in in revenue direct team. in-store due volumes we sales year-to-date growth our share offering, segment exported have United and the education increased [Technical catalogs, high to Difficulty] continuing expect our seen to these our for Despite a in mail We gains in-store future headwinds, growth and increases product mix in States trend net years. signage from in Mexico

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quarter was third of share Adjusted On basis, diluted due of share XXXX. compared lower XXXX third was earnings share in per The a was decline in year-to-date compared XXXX. per the net partially earnings was the $X.XX earnings positive in quarter and $X.XX impact the to diluted from adjusted by primarily $X.XX $X.XX repurchases. offset as adjusted XXXX to to in

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supply the quarters seasonality. flow The increase We are in of attributable and initiatives. challenges typically automation free as a primarily have quarters and was XXXX, This to yields negative inventory invest receivables despite positive continue in $XX was both chain flow as million in second generated lower strong we free capital which cash experienced due to during achieved cash increase free collections. now flow we improved, to improvement cash expenditures third our

company As fourth of historically free quarter the majority in flow a reminder, generates year. cash the the the of its

a debt our capital summary includes XX Slide structure. of

months XX pleased reduced debt million flow. last We $XXX by cash are strong over free with to have the

debt production year-to-date a net of the on $XXX to increase the and X.XXx to debt However, during increased million basis million third due Quad increased debt leverage at of quarter capital to to million primarily The debt our working and million season, XX peak ratio free of months net September the at XXXX. the build XX, the the due X by leverage $XX points cash buybacks in in of was end and basis, $XX first ratio the XXXX, negative flow share $XX XXXX.

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interest a swaps, environment, of from fixed. interest we year rate which mitigate our interest rate rate XX% impact As the ago. up X.X% September agreements XX, Including our X.X%, debt entered rising floating X, collar To and blended rate effective X February XX% of interest into was is is XXXX. the

Our up of liquidity availability as $XX credit of cash on includes million $XXX well revolving under to as our hand. agreement million

in due hand. debt will maturity credit of The majority November until fund cash January are revolving significant debt nearest agreement we occurring XXXX, with Our XXXX. which $XX on is million maturities not the and our

of X% net flat X%. compared guidance XX. Slide decline We XXXX net have sales declining to sales expected updated are X% our on now previous shown to annual to remaining to as guidance Annual

margin for print in due guidance, continued postage interest model our projections ranges. and plan of volumes disciplined of net decline, decline our specific previously in midpoints enabling EBITDA is clients as impact rates, and on cost increase our further at original fell rates to the points the than by management organic rising discussed. our expected flexible we the us to and on economic we productivity Although higher labor basis our guidance updated uncertainty to sales XX Despite focus print addition adjusted

debt midpoint driving at $XX finally, by approximately of of supply automate combined flow flow cash to And strong reduced which further million requirements in $XX leverage million expenditures of X.Xx includes That the to we guidance capital to chain and least be investment free profitability reaffirm expect be marketing with end from performance, our the integrated in continue XXXX, unparalleled cash free working capital platform. is improved our to we XXXX.

Quad build key diversification long-term as our we compelling believe remain our we our opportunity clients. of as of company. investment and and growing investment revenue Slide With continue existing significant sales highlights is our driving continued experience includes net We there as XX profitability with that new marketing to well momentum on a offerings, revenue on focused clients. through a both expanded with as large clients higher is base addressable our a

debt year, cash from XXXX, multiyear leverage expect by end As billion a selling of from end low we strategy, of on part of range $X reduce of the proceeds debt to $XXX generation, our reduction debt current over XXXX to this augmented X, with We representing long-term by further X.Xx. the million noncore in reduce intend over target debt flow our strong assets. with free January

is scaling our And us efficiencies, reduction, business, provides the deploy capital with production what shareholders. greater to the an further flexibility of industry-leading to parts will debt growing we including while offerings believe that capital, for foundation strengthen we the significant automating further returning strategically financial and our print

operator questions. back to for like the I'd to our call that, With turn

Operator

Steinke, Instructions] Kevin Research Associates. [Operator First from question Barrington is

Kevin Steinke

really out midpoint you of is XXXX guidance, were adjusted calculate X%, the flexibility sales me of start to down as model, of guidance. noted. able your your midpoint maintain EBITDA business it with the I wanted that The to but about came here the to by I something for stood you off as

to what about on things to just So maybe side? despite the the that you in the productivity maybe maintain the actions you and to sales a talk and and adjust little cost talked outlook you're management cost that. about do to bit took any lower like But quarter outlook labor profitability able quickly

J. Joel Quadracci

like say to We then take I'll that Quad Yes, a yes, at has Kevin, print same I'll on side. industry could mean be But Joel. a fill Tony disruptor come from very actually to I ambidextrous. can that on side, case is that in. we're I'd and take the at -- and the this a disruptive stab the time, building a marketing be

to had thrown us. printing the things being so at adjusting blessed industry, with at get good And that in very being we've to be

costs we and a have -- mentality so do try that are And keep variable. all

decline of as platform over value closing realizing -- plants inserts to down selling by areas to of of estate some some help or unfortunately real been debt. then down scale so like And able by the the expected plants we've we've publications, the adjust it, the for to in seen the time, but retail those we've pay

ago say I'd a this quite mentioned, productivity too for we Furthermore, one on really of about the a work was the accelerating environment because when year training. approach you floor lot putting up people bit done And year. of that up where tough the labor, our big only drivers really significant world on Tony the holistic a the a great is getting so or ended think was and by with

due the more And in so a into the saw what's on as lot before. as core group going than up much come full-time of of trained this year softness this market we economy, we're a equivalents, to the part

way it. that's another so that done we've And

that really move a that was we mean been, And we pandemic we I down. I and and on happened and continue quickly those, take got and mode employee the the of of we weeks quick could you out very group, cost we're panic storms have very decisions within so running enterprise that that why focused we're which lean guess by advantage when think when business. hit, tough adjust always always I that spring, out. been And making so And squeezing being quickly. to weather is able to look, able we have

very times. to Tony, disciplined we our sure kind we've And for am because come group missing I in I also any? these but we when where adjust DNA, a built from, maybe making it's comes partially it of of got so think because

Anthony Staniak

we've our sure when on focused EBITDA, Kevin, we to and just that about is value would I get the pricing provide add, think customers. been we that thing One making we

coming you're able times a inflationary increases. we've to been come benefit So seeing focus in the bottom line the through price some from on

J. Joel Quadracci

also, we I for help for is the that analysis. And we content value paid the and think us. lot because they because kind can more and out actually getting the that one any value through greater provide client, than pull to us, cost really, are willing them look time we can to the service to products a we're are Well, savings as expose our we than thing people, multiple waste of do of of of their that at can out they people kind much the is more for pay and figure that more where workflow paying

Kevin Steinke

Okay. That's great commentary.

you're So change in that through us the piece Maybe in have as the that? you walk Or maybe just when you maybe it what's I think product categories? it Was the sales on sales broad-based changed more there? trends highlighted? primarily the mail seeing various the previous touch just across than about outlook, direct calls, is

J. Joel Quadracci

softness. client, came towards Even people overarching And though on the we seeing that out fall. retail say inflation. summer got for as looking an there's numbers are that started Sure. is which recently, from thing top, weren't as at I'd We our really adjusted economic those

sort actually world So it's and down. CPG if you units look in at of absolute retail,

factor. that's So overriding an

We targeted break of do with But where print print. expected we large-scale integrated that's try to large-scale and that in out the and show kind is, print, decline solutions. and

keep expect say that to because faster just side, the little declined pull but interest bit we declining. so a be retail as back of expected. I'd And may that economic

us different experience MX the has problems of here targeted print, consumers from because company catalogs, engage tough area our their tend the upstream, channels. to these in-store, one And they really been benefit through the packaging, is want direct this that brand where some we're the mail. these working tend also you mail, of direct when then strategy for In to engaging solving to mentioned,

and mail, we down percent year, when year declining. on And at focus sales personalized, because materialize it's starting interest double-digit we one this that the important this went crazy. in we last to end point don't data-driven as rates really going of but that were to the keep to saw out direct look highly that at that's We

deep were in we lending, personal like financial. things So

had big Banking, Consumer exiting We which outfit was player. one a that significant was

that's see I certainly brings. we as so in sales, blip we all the that to direct mail, value continue And overhang. here reversible But some sell mail that in the add direct have economic

look there that up because fast-growing was our In-store what would catalogs hitting XX% be print, other And that's The this. office of the one places us by the place is affected flat. one most relatively post is on targeted I is at packaging that in that one is doing. in revenue hung when

problem increases with bit office just to post pulling accelerated a increasing prices cost X can our this who that have a X fix they thinks and year. getting by as they've their customers year opposed We that out, in

they they on could And so -- quickly back pull of in catalogs that affected get their catalogs. because prospecting

we and so I economic there. And to -- the that as see an that's saw there category the not one piece people that that understand for decline. see say mail direct pullback some tends continue to that is is pullback I'd manageable But about that overall marketing And a to or seen would we point we've first. to it

Kevin Steinke

That's helpful. Okay.

And still the I would you're updated at imply still so when seasonal quarter -- sales ramp in it nice the sales. in a fourth guidance, look

holidays, just, base? fairly sequential guess, normal a seeing to expecting a of you but lower I I ramp-up related are or So off guess,

J. Joel Quadracci

maybe year, But is the in of good Yes. about between stuff, that materializes in our pretty for at feel and a the months, rest some I loaded. locked the kind where December it, is point later There and that of but are and mean, of specifically, things year. lot flow sort customers we game, this of sometimes. the are at one in very ebb

Kevin Steinke

continue the given pent-up it's some doing back? you from spend volumes -- next starts dependent it's but is of to I what beyond industry. financial follow to in on the think, the in environment? think economy, there's do headwind come rates you you but react suppose just experience, in the consumer think going I you to the on you continue services volumes do be or marketing just year, how might know trend just guidance year, to this any expect Or like industry I I trend end haven't mean, Okay. to or how a will -- area, Any thoughts might but -- interest for guess this thoughts do that your

J. Joel Quadracci

Well, you But lot even I interest of like a this ball if it it a ultimately, to rates, give me have I their how think think, economic out. could market that glimpse your crystal I community, do mean, better. you right? they of yes, to got with but plays I answer that has in the still to financial shock customers,

So they it. back quickly, have freeze up really to get ultimately, you doing but to

being So to some out I'd return see probably there. relative

volume now just one the in we unfortunately, of -- terms not that we're waiting around, that strategically future. how we've an mail plant, which and strategy operating with direct going grow to strategy. for predict shore allows shortfall but closed the hard really mail, lot economic type just kind given hope point, of and And create like up of Even the of we're more this In opportunity in at direct the a to future. the to but volumes, helps of a headwinds, in is we sell had of us

those side, we've bland and And to studies yes, when make softness it's a much manage So a our lot can ultimately, get keep are, feel we at a on revenue I and dealing those agency the case because all sales think trying experience create mean is maybe record, is print we brands. we stuff like will about a good a any why always out we believe, major here, that of brand integrated of lot sure don't that but you, and there's that And into down these to we show that, you categories bigger that's really invoices. things more we through wait it. show remember, But from wins these time solutions, targeted the look of wins I lot that's because happening we these proven marketing Titleist ramp-up a are got way. of category. downstream normally you're not on

lot at So in we've of talent. a been good good bringing very really

on side a Lowcock, and up analytics. gear side about helping going knew to who's quickly of we're talked the media But to who the never new go brands I after very Josh Quad. and lot data

So feeding with new economically despite seeing we in to XXXX, it what seeds. our normal expect customers are keep

Anthony Staniak

a we And X.X uncertain leverage you've about participated sheet, our below on debt debt focus economic in the decreases reduction, getting to during Kevin, out talked of know I that of further we're We calls, few going you balance now times, strength to into -- mean look reduction. on going continue as XXXX.

of So we'll to yes, going because strong all as continue free in do we're flow the has shareholders. we Joel can continue said, to that as growth support invest cash to We that provide.

Kevin Steinke

Yes, absolutely. That's a great point, Tony.

ask deck. your is environment. your maybe overall economic unique messaging around the nice end-to-end you new there, how But about couple for mention so received -- solutions I in -- just highlighted current the the the this, agency of and your pipeline slide in to planning wins but and about did was solutions wanted you talk -- marketing and And I a integrated being

J. Joel Quadracci

being it's Yes, well. actually received

and a with in more how they ecosystem broken. mentioned, within in to process, interact big it it integrate they those I their a processes, holding help how goes walls. their one not go company, answers they would integrated. but very there I we look to allows think is, how us also that the Like at content, to producing for versus can market, just it's more the my X their in own that's say, market client the us it before of out fairly it's we brands And always not

the can takeout. squeeze them helping at good very happen We're out cost because that of cost that,

It's of are find takeout. received I been environment to pressure because them also marketers waste our under a I'd but and always that find under customers, well. under it's very soft cost more pressure. say more try believe when lot that's pressure more convert So a never to And that audience, to

team marketing never a done in to so job us want has to making to of of outstanding before. whole And listen group X tend clients known over a who lot us past the a our quicker but they downturn, years an knew

types very And we're the feel and so the fact pipeline about to of playing services out. do we integration of is the the that part good growth and being the asked

And so down little each with when do cascade or when for from the while they into start see it to them. being in-store a sometimes But then us an you for revenue someone but start again, AOR, that, pop packaging accounts. doing that's to of takes the

I'm on on a we're looking Yes, pullback, what because reign but very some the it's to [ experience side, the marketing true little super we for. I ambidextrous. I'm are print ] So -- to have side for disappointed really people excited like like said manage that

Kevin Steinke

I that's lower you eventually adjust expenses. to side? situation resolves? But your couple -- you to just about increases you you postage maybe out to help think or talk trying already the they when catalog a But you that rates postage that I the called terms you specifically something ask that, in of or and that work how out their with in clients plays reacted Great. how more here. Okay. think piece. Do know do have to do out them them on ultimately

J. Joel Quadracci

you adjust think get I in twofold. get can reaction quick it. When until increase a Yes, cost, biggest your rapid you you it's a for

have and data to piece more a all and to. can they smarter though, them. focus see you So what's mailing to they're on you to you're what And who audience about better sending increases to to see right? you're still quick the post lends start we then response They people how better. historically, make outsized, really that per understanding market, do who get going office adjust, that That and pullback. your your when of they ultimately, are So

our clients rolling significantly that's on. plays things -- to which -- costs of then co-mailing the And a we're new postal will, into lot doing more over the might, operational We of do. helping significantly we the figuring the now stuff postal increase analytically that all might about time. lot the best offset product we're excited people offset really do offset this all help And we dollar. But of office we're of a going with because not current post through on right what's out side, that a use their out whole

to need on It with as right takes now, it, into rolling get well. we but expect out some up to ramp and as to -- to test people publications possible the time as catalogers fast it because we're task

to the do most we the we point the So -- we innovative. sortation, that's is post-office I work. your where post the almost really offices remember, do be and it to key of drop think us the pushes house, combine we have to all office We the people to picks closest it customers, and to the Because up. post

it. And really to where offset we so push them help process innovation that's

little bit of of So both terms in it's question. a your

Anthony Staniak

right? Yes, and big this So someone pays the to postal, print majority is of a is cost that item.

end destinations. getting So things delivered all gives scale the about Joel in solutions and they an the most can we us businesses helping that be to talked in that that be efficient advantage the bring,

Kevin Steinke

All right. Yes. Understood.

what's headwinds in highlight on just your is and as Saw seeing of in that more So Anything experiencing X the the international decline to markets I same kind here. you're guess? U.S., year-over-year. But there? going

J. Joel Quadracci

ahead softness Well, organically. big because you Europe the successful quite that for that and challenges Mexico, But look us, if we continuing being it. grow actually we're where now frankly, to obviously has is and at see be would tremendously Europe of in

new so February up and schedule. large actually great product into it's We've upset, signed And a got or But story. in of be Mexico, very running to a be up on that's adding a clients press we've but lot some by new new will has customers. our lines. We're

a very offset some in is the highlight Mexico Europe. good softnesses by of So

Kevin Steinke

the third fourth impairment had up as and lead in bit quarter. higher sequentially here? in about line, they a than from a taken quarter? previously expecting you that restructuring that Tony, just we lastly, think second about then charge were charges been the think the would we And quarter actions how bit Or Okay. additional Have to you the trending should

Anthony Staniak

Sure.

start line third the come if nature. of I quarter related, was with portion saw the about through half impairment-related that, So a expense it, that noncash that on impairment you in of

So quarter third cash restructuring perspective, from was thus the actually lowest quarter a far.

in out some are restructuring fourth expenses. quarter, the anticipating we look we As

our needs that will address capacity cost lead production platform continue to We to in there.

J. Joel Quadracci

Operator?

Operator

turn conference to Joel concludes question-and-answer our Mr. the back I'd to session. This closing like remarks. over for

J. Joel Quadracci

today's to thank in I reiterating marketing our call. want company. and by as you, for our experience confidence you, joining a everyone, close Thank my strategy and in operator, role

for proactively offering marketing forward. all integrated momentum stability long-term Our remain a time, key competitive business managing value continues to differentiator going same and the our we and be a and driver aspects of strength creation. our shareholder focused overall behind At on company's

have you next thank you a and to look We day. speaking quarter. again, forward that, again good with With

Operator

Thank concluded. now presentation. today's for attending has Conference you

You disconnect. now may

Quad/Graphics (QUAD) 1 Nov 232023 Q3 Earnings call transcript