Quad/Graphics (QUAD) 2 Aug 232023 Q2 Earnings call transcript

Good morning, and welcome to Quad's second 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 the 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. [Operator Instructions] Please note, this event is being recorded.

to Relations conference Manager. like Krebsbach, to now Investor Quad's would turn over the Katie I Katie, go please ahead.

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

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

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

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

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

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

to hand I will the Joel. over now call

Thank everyone. and you, good Katie, morning,

in Slide were quarter our period quarter XXXX Argentina to XXXX, and paper same X, second to our of print were due with in lower XXXX primarily our as compared the Net results as sales the well in on lower divestiture expectations. Beginning sales line the print operations.

strengthen pay debt, cash the quarter, shareholders in down flow which to additional balance pleased are free return share used $XX have repurchases. to to have of We through sheet value further million generated we and our

guidance. full financial reaffirming our are We year XXXX

manage including continue increases, savings postage help uncertainty reduced our and some to industry to rate costs, due differentiating better solutions innovate have economic marketers While clients to we print volumes programs. postage

while piece combines content merged multiple maintaining delivering unique production personalization. savings postage mail mail our example, a single For run into direct marketers solution

to bypassing recipients and service delivering Our innovative directly direct to retail direct magazines, front catalogs, mail door and delivery the U.S. provides -- solution mailbox pieces the alternative front postal an doors. delivery

capabilities always our the clients print our seasonally we and on half year. performance, media we to the the of fulfill have on-time and as have quality expanded clients' enter needs back busier dependent Our and platform right marketing

brands and always, managing of opportunities. we including our our our variable easily revenue our unique disciplined offering and marketing as continue or aspects X. our time, current need growth frictionless long-standing clients' together in MX treating especially a economic As in as on cost to structure environment, Further, execution, all supports spend advance all that resources continue shifts same all business, approach marketing At to we results. costs platform Company marketing integrated the to aligning experience brings the Slide maximize shown the to for our and

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an with seamlessly provided we comprehensive and digital for including an look the media services We website engaging photo the studios, the packaging help and our the interactive own printed with and also services, digital in-store stood our up launch for social incorporated appealing a the designed and and and which of thrilled creative, client campaigns including marketing is channels speed and social promotional influencers. ease brand. them The efforts product,

told not In product months could of shelves times they that with worked in gotten fact, never the set us client launched had span store on our have numerous XX Quad. they the and promoted

performance Tracking. our expand to foods be the a trusted latest package using footprint such partner Heckova!, and The they package client of will for engage biometric direct-to-consumer as continue and additional also to begin fall. work We to technology as sales research insight team this brand super campaign efforts Mobile retail supporting Eye providing the our launch

XX. Slide to Turning

continues business expanded Even growing part marketing experience, areas traditional our core a from a of to differentiator clear printing of the and and agencies. be to as we competitive

print. that categories Our investments segment of production, over. enables -- automation share reputation the equipment our ongoing to relationship workforce all and age gain and information on-time well-trained to delivers for across us organization expanded advocacy with print quality, Recently, service people the continue in and skilled and AARP, XX to we

and the Magazine largest printer to United Under circulation one the of in a States. Bulletin new we now AARP AARP multiyear contract, publications are the exclusive of the

with AARP For years, Quad and mail our expertise. trusted truck advocacy its production posted co-mingling logistics of for services along saving, has program,

begin production will on X September, respectively. publications We in August and these

expedited Studio has for execution AARP AARP management proofing, including leverage and services, advertising. delivery. distribution Software-as-a-Service retouching the for our pre-press ad of received will us and AdShuttle Publisher's for processing workflow issue traffic facilities for and image coastal archiving, of in-home Additionally, mailing streamlining engaged U.S. management, processing mapping also page to proprietary solutions, list service and planning our X and

Our cemented this provider direct continuous campaigns, to marketing and commitment with strong client's expansion this a record innovation excellent our win. stable combined as client with our track industry standing

service I to commitment for for Before and of over employees clients our Tony, our regularly manage all aspects clients stability. the thank and the turn call appreciation I business like while who deep their our and work I would problem their levels receive to team highest providing feedback we solvers. hard to of daily strength of innovators for long-term share proactively from for our continued

our team. I with in forward growth move As we confidence great have our strategy,

marketing distinctive all to will maker best Quad the culture to for our continue on differentiate We the talent. as industry's capitalize of aspects workplace

We to attract also the we continue will talent. ways innovate

show For is is MKE the careers we sustaining as hub focused removing a example, by Central tools, XX. training especially consistent and an Quad to believing training community MKE values, to way to situation. and tangibly important transportation people. necessary Quad on and last City on new is to with in improve as shown month, our of to track looking their Milwaukee hub barriers individuals recruiting in commitment This family that known unveiled employment the Slide providing our

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

everyone. morning, good and Joel, Thanks,

we second [ a On revenue decline Slide XXXX. $XXX quarter a in X% million ] XXXX, show diverse to were quarter compared of XX, second sales Net mix. of the the

$X.X in catalog, the guidance lower paper XXXX, our of packaging growth of sales net half well operations. billion, Argentina from print December our to XXXX For the divestiture X% than more in as direct and by XXXX, first Mexico decline our and the mail, were first offerings half and well sales, in-store of our sales reduced offset with as primarily compared in sales within of a operations financial

$XX million was with to million of quarter productivity results. XXXX. our the Adjusted slightly of improved margin second Slide of cost to initiatives. from $XXX XXXX XXXX X.X% was adjusted financial quarter reduction first of In the was second lower XXXX to XX $XX from of a in long-term half XXXX compared in increasing second EBITDA XXXX second the million first consistent partially and and on in our to XXXX, compared as adjusted manufacturing provides offset snapshot focus EBITDA quarter second in X.X% the quarter in compared improved benefits and X.X% the savings quarter the of of to half declined decline profitability. million margin to EBITDA adjusted EBITDA X.X%, from due sales, $XXX by The

in decline repurchases. second $X.XX share was Adjusted XXXX net quarter XXXX. second $X.XX. quarter the in share earnings, the $X.XX impact lower the Year-to-date, due was partially share quarter of earnings to earnings second was diluted consistent it by to adjusted in at compared per The positive per of diluted the as from offset was adjusted primarily

again Beginning stock at weighted We quarter, approximately share and $X.XX were Class this our common X% $XX price purchase second B million. the active Class repurchased in quarter we repurchasing A for total in outstanding have price of shares. of market our of a XXXX, per A of a average the total

in of collections. Free half its continue first $XX of first receivables lower despite cash expenditures inventory primarily attributable was experienced flow to half invest the compared improved, million supply increase we and strong negative million as in initiatives. as improvement XXXX, achieved $XX needs to automation capital chain $XX improvement a challenges was in to the our million This we XXXX,

the the and fourth in free year majority quarter cash a flow flow free XXXX. of company expect the generates million and cash in the million reminder, its $XX of $XX of As historically

end by of first $XXX debt XX, net negative XX XXXX. basis increased the Slide primarily the debt the to XXXX. the due debt XX capital compared $XX in includes Increase structure. half million was million and of ratio ratio our to at the XX, $XXX as XXXX, quarter increased free cash points flow debt to in second X.XXx of at debt the a at leverage leverage $XX of to million December summary Net June million and XXXX,

to months the will collections in of reduction peak then that quarter reduced working higher the $XX capital However, October third in our XX through as seasonal the production with have over to August requirements will last and from we decline and receivables. debt we are it fourth of inventory pleased million by quarter increase enter due

of on targeted the Xx our are achieve X.Xx the XXXX. to end low end of by leverage track range long-term We of debt to

rate environment, collar credit including June rate availability maintained we with million is the the into which interest entered X.X% up well We to under interest debt liquidity XX, rate of a $XXX interest rate our of of X agreements As our was up blended hand. as ago. our and year To from our strong revolving X.X%, XXXX, on interest impact cash X, rising is effective of million floating fixed. mitigate swaps, $XX XX% XX% as agreement February

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

our Slide We shown guidance, on XXXX as have reaffirmed XX.

strategy progressing are We embrace as marketing and offering. our our on continue integrated growth clients innovative to

However, last we concerns during continue macroeconomic year. expect the we as ongoing the to -- increasing remainder quarter, lower of rates, expect we per discussed due to to postage and volumes

the capital half the of of be our from in business. second higher adjusted can of the due As this in investments of the half the compared the half Most first second expenditures to XXXX to in peak. a first year, reminder, EBITDA so flow seasonality the XXXX half cash year during free and occurred these we of our of already benefit seasonal will

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

augmented strong cash with with flow assets. debt from proceeds non-client selling generation free reduce will We

Xx strategically believe approximately with represent million our We an of the expect capital, XX% will of of or of parts the January X.Xx while leverage the low further financial billion. when in net to the returning our shareholder debt reduction industry-leading debt to a by business long-term our shareholders range was is that achieve to value. the to of end over million X, deploy we And end we XXXX, with provides including $XXX debt year. debt reduction, us scaling strengthen targeted $XXX foundation will This $X since significant what flexibility to capital growing drive the

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

with [Operator Instructions] The first Associates. Research question Steinke comes from Kevin Barrington

to and as share out? And of expect business wanted by second any to I then also off the sales just wins how might you your relates the about the seasonal segment second pattern new gains the the into start how year? quarter play it asking play outlook half of or for to half maybe second

out weeks that had Sure, about put significant was some Kevin. increase there for a that guidance as was And economic year, concerns. their forth think other year in volumes our earlier And definitely known impacted I the as postal couple the seen put thing budgets, somewhat just a we happened we of the trepidation customers ago.

volume about we and said, side Quite flat in trepidation and flat, And again, we share the some do that. declining I'd which the direct pullback. some as in by also really some -- oftentimes, offset our And encompasses that impacted share the closures mail offsetting some being was at also and of frankly, say catalogs, was large-scale then but pullback. catalogs, That that. print, some which packaging is of of publications look decline clients retail but targeted biggest gains the with segment by short and print, bit because talk publication wins little retail expect in-store, always segment is in year-to-date always -- area. inserts year-to-date, virtually insurance, certainly a we'll in so our term, about

say, the challenged. most that I'd And the was is one direct mail, probably

that's But the exposure had pulled to significant the year-to-date, it's as off well in client we and heavily due strongly that banking rates some fact consumer the in that XX%. was one increase client that business. banking interest vertical -- drastic financial out loan large impacted So the as about by of

continue to the in term long opportunity. a mail, growth direct great though expect to We be

being flat And that the year, to with with several the the in part XX% impacted as -- the with other lowest the future in quarter of AARP, second think some spoke we space, year bright gains is of half about but first I the everything to for vastly of of about up agency is X% point seasonality, things expect bottom in week, result -- important the the to economic we growing packaging year-to-date sort season. it's well to for publication starting a kick our actually happening continued And up this of the that then store, now concerns. But we a which our was remember, are share on busy us and is in relatively alluded which here becoming by the marketplace, side, segment your year that.

really I you we look And on the clients feel and how on at top -- we what year doing. will think that so play line given we our the again, full guidance and trends based those the have saw good about out,

missing Tony, am I anything?

No. No.

be, expand of volumes. or are ready positions of the just the want first I a actions as structure I be a think half a we of in year, if the all first volumes our CapEx to we where year in little do cost were us take we to actions get the the cash year, to the perspective, great for that half restructuring it increase, bit, from whether majority for it second for the on where those earnings those half we

should think And cost the you of And what the in of how And about Tony, year in to we half expenses first just Okay. trending you Great. the second very That's you've year? the speak accomplished half helpful. the there can maybe mentioned actions. here?

capacity some close first did in the we mean half. I

in our and side the remain we positions puts announced house needs. That as at the we're half we we us low-cost to of all sure right look a on-time as enter first We I of our year. we half. of X efficient the And provider. be think capacity that well be administrative think, always season the completed to that high to as second we make plant keep customer needed to can that, I the meet closures deliveries where busy for

the standpoint, of the been payments From year. in half of restructuring have the a the cash majority first

less cash you'll of see second half so help into free will as And go metric. we the flow that which

to when that, the a really everyone add to is in just and years, to massive hiring that a and that's which And the productivity because down been really previous year. able really training advanced achieve we've significant pretty platform, on to is the is doubled people, we side, up struggling huge on manufacturing this number people. of find training double on down And

trained And we than happened proud in economies percentage performed. And how leverage operating really on bring I you can't which productivity. we much that's equipment. were I some very significant when gives tell now -- the because ramp-up second they're had really you've of enough that wonderful past the resulted in the in some am while half, because of has and us sourced so on slowdown the reductions, people the to more sort to you're do the saw versus team trained as not to has trying how important And about complicated fully people is trained that got

that to the the fact in a leading pullback you spend. additional short-term usually you impact. to also rate factor alluded that's Great. an as postage did some print mention there Okay. increases And But

So well? to that gain going is mean something over would as U.S. Postal can And adjust time? Service. more that also that I the solution bypass clients to your mentioned you forward you traction to expect

Yes.

And do post tack, cost You it's to that wish different consumers' the like hands and really upon we In products programs helped has mail other work about to some would what the the it printer that. postage allows sharing our offset our discount, post words, get and XX% through post time, over that now. we of is the do a over office the but is. references skip clients the bigger office a is we more incumbent those increases try it into of to the take us the office, remember do. the And the lot of that

offset some they've will rolling In some concepts addition, of that out significantly help new the increased. further fairly postage costs we're

short And But much help we product. their term, while pull back the as have that on spend. the they So adjust can and they trying in as market typically, decline. for side to still do budgets and we to increased kick in the they're innovation offset try to

about a to clients. feel XX concern, And be continue what but to increases will our postage last due able so we're to that's in But nothing be do going we for good the years.

you of reduction You was just flow Can second speak $XX free the progress significant which on quarter inventory a Understood. over cash flow you Okay. made in to free really year Yes. the quarter, generation? cash uptick in ago the the million and quarter. had

speak that more, little just bit So a maybe to if could. you

were Yes. but has mean the we supply and I benefit shape, make year. that saw free levels. cash other focused the and $XX levels and We and in you won't in sure it's very right some, we to easy, conscious on chain cash has that having flow say Also, through free part very last in than coming able the we the collections eased Thanks, to portfolio with cash flow. happy inventory that easier quantities completely mentioned. environment great I positive The to what is is produced Kevin. our inventory with second reduce it paper we've us realize still that that we're were million is action allowed free receivables on been also flow. the a at and for levels quarter

jump But back speak your can just priorities with also you the to then I allocation. capital Okay. here I'll in last one one ask and queue.

and buy also of You leverage back to job you're starting reducing continue shares. to do a year-over-year, good

to continue have of you you mix? to know you well? repurchase shares opportunities the do the how the So end for year. I target leverage of think you'll by expect as about look a Do X.X

capital really And we've look, long-term Yes. of how paydown, with affecting on debt about I whole the pandemic allocation. focus since priority world. us really regardless that's XXXX being disciplined our work massively of the and a to we hitting done was strategy clearly, been mean, which

And while saw appropriately as in platform that of very did on side starting that comfortable print in But buybacks. still trajectory innovation. proud very because we this the year, the yes, well I so investing the we stock as felt with

Tony And sort as continue to we to X% at back which And since of estimation, every the relook some price, something at said, bought we we'll of company year-end, year. pretty for point, dividend year, some last will and cheap our at love about in but a the possibility look of at do those the opportunities. review sustainable we'd Board that's

think we're that opportunity a to focus look the where investment I see a doing the good we transformation that to but will continue continue continue there. what be be stock That good feel and arises. also of buying disciplined at so And it's this have, the in us to to what of with scaling back we you'll company

concludes our closing turn to This back over like would question-and-answer to Quadracci conference the for remarks. any Joel session. I

everyone, Great. and thank for operator, call. Thank you, joining you, today's

just strategy marketing a experience and I the our confidence to by our and close my future team as in company. want reiterating

creating the competitive value. shareholder for organic key marketing company's continues our times, integrated well the a driver as we'll and manage At continue growth. Our to differentiator both be time, financially and offering overall to behind as same a

speaking that, next forward And thank you day. a you Have quarter. again. to We'll again so to look with good

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

You disconnect. may now