Quad/Graphics (QUAD) 2 Nov 222022 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to Quad's Third Quarter Conference Call. [Operator Instructions] Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Claire Ho, Quad's Director of Corporate Communications. Claire, please go ahead.

Thank you, operator, and good morning, everyone. Joel Tony Chairman, Officer. Staniak, are Executive and today and Officer; Quad's me Quadracci, President Quad's Chief With Chief Financial will a call Tony today's followed by quarter lead business results, Joel and update, XXXX with financial will of summary a with Q&A. Quad's third follow off on is today's quarterly to X. would provisions safe Slide I call as to slide news forward-looking and outlined everyone remind webcast, like our release harbor in and statements presentation this in that being are subject Quad's financial accordance generally results are prepared with accepted in accounting principles.

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

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

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

and the of cost XX% print response Claire, was gains, you, for million, share good an sixth to increase. I'm we pleased reflects and inflationary Quad in sales growth $XXX increased segment net locations. pressures, quarter consecutive our quarter, to Thank and better-than-expected sales the increased in third pricing that of everyone. in sales This morning, continued international report delivered

ranges half guidance a also focus a the we narrowed sales raising X% result, in from share guidance as new are within company provided We've net marketing call. Tony wins. is experience client driving production XXXX X full to labor, Our are to our And as to XX% off high range X% and segment proactive previously first share we X% that gains our during growth. I growth other to year and made the will months now paying am through cover results year, our first seasonally to during reflect which equipment of inventory our investments period. of in the pleased the the later the

well. percentage due as As while and to in to quarter clients into how international print in a we adjusted year-over-year EBITDA in well. fourth net diversify our On year-over-year higher third segments, us inflationary basis. XX% decreased chain higher to price cost to print retail continue and a by increase grow divestiture. our supply America. and necessary that Notably, grew positioned as offsetting enhance and to result, segment basis, a we pressures are targeted take operations achieve declines, the the challenges total this revenue remain effective sales Net headwinds, while driven Slide organic ready a shows higher QuadExpress to X both large-scale we quarter primarily net sales an as Latin sequential monitor the impact stronger The sales helped ongoing serve XXXX. January in to Despite of Overall, sales the primarily including will constraints, inflationary increase on excluding continuing our to our value we from by in our higher-margin is macroeconomic achieved in mitigate continue expected when offerings. international and become of adjust year-to-date action inserts. earnings nimble and financial strength our we X,

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among and turn for management, Development who own from I over recognized large brands to with Path excellence Vice new for as Kelly in In-Store, and Excellence recognized I of want of and for Women creativity, including with our recognize call other Burt, President by growing market Tony, Sales Kelly to business leaders Albertsons. the PepsiCo business Before Institute. XXXX the lauded being share such and Purchase integrity Business was the along to very was

focused of to balanced a on proud in to businesses. review. representation financial organization, personal advancing Wisconsin October, I now over a community. of honored performance of congratulations, see was achieving leadership On the Milwaukee Boards Betty for Co-founder, recognized Wisconsin business note, Quad will In of Quadracci, turn role Betty and celebrated Directors. on for for legacy their women Tony I'm my in her lasting the Women inclusive late mother's I So mother Kelly. founding which is the to call maximize more Inc. my

results. financial Thanks, good XX morning, provides everyone. Slide Joel, XXXX of snapshot our a quarter and third

As continue the in we quarter Joel our X% and growth. and excluding the to of the growth XX% second quarter going in first consecutive Compared sales net back year-over-year of the pleased second third quarters to with we to sales XX% XXXX in highlighted, divestitures, This of be XXXX. represents net quarter. now X growth achieved consistent growth quarter growth XXXX,

In strong client operational performance, addition, first of year the effective the during deliveries EBITDA adjusted labor training the third on-time year. and proved half very the made prior high we with proactive driving during hiring satisfaction the and investments increased from in quarter,

adjusted expect growth quarter fourth also. EBITDA the We in

monitoring capital with will our closely remain are the disciplined We economy and allocation.

into primary quarter fourth heading remains debt Our reduction. focus the

quarter debt our we to point leverage audience of that fourth XX, the remind While working leverage projected, increased believe Thus, traditionally X.XXx approximately September flow our quarter is of our we as annual third high capital. for to free we achieve with cash will ratio guidance year-end strong have I seasonally XXXX, X.XXx. that the the debt want

than A shares We which outstanding shares year-to-date. of represents also $XX Quad's X.X million repurchased million for X% more of Class common stock,

period same increased growth in billion, repurchase share After QuadExpress times a locations. divestiture, We X-month pressures XXXX. to gains, in print future. net $XXX segment up Net sales were year-to-date XXXX. in and the million Net our sales in from basis, increased compared opportunities XX% XXXX. to the sales period pricing third XXXX will for from sales international sales the were XX% share the pursue to was inflationary to continue achieved with up response due the in XX% increased program $X.X On our excluding quarter, net at

million as seasonally first efficiency of first offset to continue increase negative compared in of productivity supply share We property quarter of disruption were This as in XXXX, year-to-date and recurring $X.XX to period. increased inflation. during which gain increased recent was earnings to the supply million production XXXX Free XXXX, and quarter $X.XX share in first $X.XX, the in stock second chain our earnings and and $XX third of mitigate in EBITDA to the with diluted million same investments of adjusted to net increases, pricing proactive Adjusted in basis, labor cost will inventory capital our third last sales from XXXX, nimble impact buybacks. was to adjusted to primarily of million months $XX impacts in the third increase year. earnings by was to cost production growth. disruptions equipment EBITDA due primarily cash chain also flow year, to of by be compared to supply half increase our XXXX $XX adjusted the was in disruption in continued by for XX% consistent the benefited during half increase of $XX XXXX sales was training was primarily XXXX EBITDA million excluding in the $XXX from insurance decreased and higher in million XXXX. $XX in the labor, higher of the negative period from diluted of decline per per quarter period X quarter XXXX. a The inflationary third compared sales. $XX a our was gain of was insurance claim investments when partially working in a made million the XX% million a growth over a driven XXXX, property earnings and the on due a net half year-to-date the $XXX made $X.XX in driven XXXX. On chain Adjusted cost by the hiring negative claim Year-to-date, with due higher The inflation, nonrecurring and

capital in automation $XX year-to-date with invested our million also consistent strategy. long-term We expenditures,

our business seize including our We our opportunities will in continue winning reducing to costs. to segment and/or invest additional accelerating growth, share

working of the generates million, reminder, the preparation production increased to XXXX. free compared $XX the at to The leverage ratio increase points months, the flow third XX ratio in net season. a When summary at to the cash primarily capital the year. X.XXx company as the debt the structure. As capital a increased debt. debt net our seasonality, in the of reduction million in Slide for quarter peak our September basis debt as to impact by net debt XX, removing its million and the was fourth end over of And XX, historically quarter. due XXXX, XX% debt $XXX debt majority decreased of over our investment representing Net XX leverage $XXX $XX in a of of XX million the of includes past December in

year. of believe fourth is the X Our X.XXx we to flow, with leverage range long-term quarter to target will expected the by the we end continue of midpoint seasonally and X.Xx, strong the achieve cash

quarter, cash credit up $XX $XXX with revolving agreement maintained and on third our the to million availability of under million we of our During liquidity hand. strong

maturity nearest not maturities debt the in significant XXXX, January due is late the vast and XXXX. majority occurring million Our debt until of are $XX

has XXXX Slide as XX. been Our updated on guidance shown

growth. Our projected annual sales XX% to growth X% was increase growth, to range, X% X% net to which now is to originally

our are other As guidance through year, we way the the narrowing X/X we are also now of ranges.

guidance at And leverage provided. million the All The $XX range X.XXx. ranges within adjusted guidance guidance is to following $XXX million. previously to $XXX flow of is range cash year-end approximately the updated guidance is million debt EBITDA Free million. unchanged is we $XX

value. company through will to dividends. maintaining growth, as a sheet cash and further allocation, sales buybacks management improvements, through debt of cost to sales net as like return our productivity our These business flexibility capital balanced company back approach questions. With for to with generation including or a include strong accelerate marketing sheet growth, objectives call strategy to financial as and that, experience balance profitability on and experience a efforts liquidity, free driving financial scale well accelerating while capital the the to pursuing to balance to primary I'd shareholders stock effective driving fuel a as shareholder through turn flow Our Claire enhancing strengthen our a marketing our opportunities focus strong reducing

of compiled call, you, in Thank questions a Tony. we everyone advance Because callers today's we queue. not ask Thank for question. will you enter submitted the to to who

We questions were have that submitted. X

segment provide you areas comment asks trends other the segments highlighted those industry international and relates sales and question industries on trends increased across seeing and print commentary you you're Can growth. to gains Our sales operate to also on some you X first and as and contributors additional share any strong segment in?

Yes, Again, in Thank sales, the spread we Yes, of operations, good into Asia. as strong was Mexican in the is for alternative great printed our America, out areas you Claire. contributor. I South and to in products typically lot of a we're that seeing script, we'll what a international it's other the were a question. said that especially, think supplied

come And the help which talk at retail were off of at dramatically But increase lines and us inserts is so that we growth, where is made as look where more that stable. in look publications. grocery. sort large-scale the down. you being bifurcate kind and the and retail product to shift to doing continue. in inserts sort bit our decline newspaper versus be and from about services other inserts a But retailers. for kind about we consistently market always then product about understand products print, seeing product really expect keep We've through that decline, But all up consumer to we're lot if been expected. decline distributed into print core newspapers can even you Retail has is of of XX%, people retail box so quarter has talked continued people we're But the we of change tends all, mix. of have in that, mind, big to a little as a in that expectation of circulation away as Grocery of for the

get the as need still in retail, of to they so see consumer. sort to the they And decline

mail that's grow. in lot doing with where a that direct have continues signage of we're or efforts to uptick so we And an sales in-store

in from expect important terms is to because who can And so seen sales. area it's services our of making and products and off the about are decline was an benefit it retail it. up made drive that clients a of in with their quarter. us really one sort in rejiggering portfolios was area due client the up XX% and to bulk of more of oftentimes, decline ones we've that's of that some about ownership, another there Publications change regular But the to X% of

and the InStyle saw with different have that us, continue Stewart for growth packaging publications, you grown that do, catalog gains in-store, to the is on titles had from are story, was of we've a for from also advertising will X%. like flip to customers throughout but up print, climate. but catalog of we pages manage up top it's of in quarter production. you to over direct our that play So long year. Martha number the mail that, long suddenly the books But time, and shape segment and actually role, who that the we some of on Much organic a When we pressure share in and parents a XX% which catalog, whereas some targeted believe, term, were ceased and know then how around And a it. we

the industry a could On sort economy. was be sometimes the for of direct a the mail about in which bellwether slowing XX% off a quarter, side,

direct volume the side, up more was but as Our was to as actually packaging of And cost from XX% we DM mix only sales X%, because the product mail. inflationary increased on about complicated we revenue most relationship an paper is which off from kits up COVID what expand that's that quarter, volume over on COVID targeted the value, -- interesting at pandemic. test disappear creating future we been as out that new of increases, were where soon. test doing -- is look best the and our XX% aimed story in whole sort the because products anytime to other platform towards can as for up we with can be boxes and produce that of where with the like at started happened and to our the add very started we into well higher-end And some the successful create holding an margin marketplaces. not capacity there, continue shouldn't and a of and expect when because we but in we've some other get we And -- used product lines value they're very we that that low are opportunity pasta really types well to

And the that the and share so in-store, final was And bringing in segment in wins area. from that's quarter. one, then XX% in up new client

it, a look scale So bit again, targeted little when we at and differently. you at look large print

clients that the decline side scale, new the relationships you the other on these agency through us. were clients offset agency print. same on to have that, the in but many we've targeted done that happens and for of top into the expanding we're at then in of look solutions And at bringing and solutions We relationships large side

the kind that saw rounds of quarter. in out we so And what

Thank you, Joel.

be are regarding the some is to of clients. may question impact of How is and to that current your comment the the you next see areas apparel asks, It starting economy on impact economic business noting customers retail that tied and downturn? from business can Our slowdowns? recent any retail its on much

too inventory noticeable the that. the wrong of on I supply that having Well, mixed ending the how with the retailers But debts short seen of lot all past chain, they We've sort lot in change in off year saw is inventory. one of much view because making of with wrong -- amount from it's just a typically I We think and of of a drives think seeing a time. retailers grappling things a a announced Black things a which we're bag. kind backing from up in volume fall, of at Friday, look

noticeable one But to a I that's so And onetime that watching see figure to trend we're of people sure a that and a trying lot we've not thing are thing. out. that's we're And seen. if still or think

everything we're quickly, at between think act But that share ability whatever prepared historically I that, and to throws we're have closely. been the segment watching So experiencing gains the and we really economy us. we've shown our for

next some peak you to regarding the Our quarter? fill during its supply it on necessary is labor chain supply demand? has constraints inventory positioned commentary has question constraints. It experienced How provide and Quad any ensure to asks, can you chain itself paper the

Yes.

supply parts So in and this the capacity that two other there. dealing One what issue And has been disruption the demand I with done. that's because of in ahead as is labor. also was on our industry is a working worked But to with print paper but and that's But manage of we and the capital, based it industry because to clients of were the biggest make buy or to pretty a to up the is navigating packaging with of that. of year mills has we is supply there's reasons sure well lot one questions some we and think this work had for shifted capacity customers. increased able shortages, it And chain on. had we to ended paper one shut chain available

other and seeing will it. but to not paper to in that world people that positioned been shape be say are a I that We so about. on with that it is as being what so we is much based hiring of advantage And well we supply managed. last the that bad started think for continue earlier but And year easy, we're -- good talking -- of sort where thing what And chain The at as all not was really we're low hard I'd the we to a that's as increases, for busy are very talked it's there. other high low have to And also in wage then that season with starting as rate. retaining could the that's actually did navigate But we're when unemployment at a were we season, was. our something busy have we happy need people are actually about down environment, Labor attracting unemployment approach looking are XXX to based short seeing an things the it And take stuff we lot that very be, I opposed we've working And also and time our typical but to time. are up you on. of important a success. hiring labor. labor place the last involved say note to think we this on and we frame turnover, as And at we well where we're year. in from were slowed holistic some gear because the out we've

year. which we like to get pleased allowed our based is has very delivery last busy hiccups. on where few those season expected it well with through And be very, to on-time So challenges I'll tell this from very you, us with that, above

Joel. you, Thank

your question continuing anticipate you're have last increasing in these provide the buybacks. Our on of It asks, and priorities insight levels you near how capital the do you share as done regarding late, stock thinking repurchases you going term? repurchases repurchase can allocation with activity forward? about Any is additional of

Yes. Thanks, Claire.

our future there good in price do the value we're dilution outstanding there, As a over recently share that opportunities the balanced last felt over to we look there it We years we opportunities for compelling We we and was on as of repurchased pursue capital. when of shares. use And we feel that the grants. compelling did based part where future will allocation, going when a the to X% that equity is the We place sense. was on repurchase of was. will had capital use We makes of it again, that quarter, said taken purchased capital. in And shares.

to like call. turn for portion This Tony. Thank today's remarks. call of concludes you, the to Q&A back And would I closing Joel the now

strategy Claire, you, for a for quarter. hard their by our you, impactful, helps experience more to close you marketing to with peak look team products everyone, our We our today's for thank our day. our remain and frictionless. brands to reimagine especially want during call. my a work, and be demand confident just as and next reiterating thank forward and flexible and in With in speaking have marketing streamlined, that I you Thank their continued thanks joining and services. again, I our company very to employees good that, future

gentlemen, Ladies We that joining. thank does conclude conference for you call. and today's do

You lines. may your now disconnect