Q1 2024 Quad/Graphics Inc Earnings Call

Operator: Good morning, and welcome to Quad's first quarter 2024 conference call. During today's call, all participants will be in listen-only mode.

Good morning, and welcome to Quad first quarter 'twenty 'twenty four conference call. During today's call all participants will be in listen only mode should you need assistance at any time. Please signal a conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance at any time, please signal a conference specialist by pressing the star key followed by zero. 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 in the Investors section of Quad's website under the Events and Presentations link. After today's presentation, there will be an opportunity to ask questions.

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

Alternatively, you can access the slide presentation on the investors section of Quad website under the events and presentations link after today's presentation, there will be an opportunity to ask questions to ask a question. Please press Star then one to withdraw your question. Please press Star then two.

Operator: To ask a question, please press star, then 1. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Katie Krebsbach, Quad's Investor Relations Manager. Katie, please go ahead.

Please note. This event is being recorded I would now like to turn the conference over to Katie Krebsbach Quads Investor Relations manager. Please Katy. Please go ahead.

Katie Krebsbach: Thank you, Operator, and good morning, everyone. With me today are Joel Quadracchi, Quad's Chairman, President, and Chief Executive Officer, and Tony Staniak, Quad's Chief Financial Officer. Joel will lead today's call with a business update, and Tony will follow with a summary of Quad's first quarter 2024 financial results, followed by Q&A. I would like to remind everyone that this call is being webcast and forward-looking statements are subject to Safe Harbor provisions as outlined in our quarterly news release and in today's slide presentation on slide 2.

Katie Krebsbach: Thank you operator, and good morning, everyone with me today are Joel QUADRA Qi, <unk>, Chairman, President and Chief Executive Officer, and Tony Scania quite Chief Financial Officer.

Katie Krebsbach: Quad's financial results are prepared in accordance with generally accepted accounting principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, free cash flow, net debt, and debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call and the slide presentation will be available on the investor section of quad.com shortly after our call concludes today. I will now hand over the call to Joel.

Speaker Change: Joel will lead today's call with a business update and Tony will follow with a summary of <unk> first quarter 'twenty 'twenty four financial results.

Anthony C. Staniak: Road by Q&A.

Speaker Change: I would like to remind everyone that this call is being webcast and forward looking statements are subject to safe Harbor provisions.

Anthony C. Staniak: As outlined in our quarterly news release and in today's slide presentation on slide two.

Anthony C. Staniak: <unk> financial results are prepared in accordance with generally accepted accounting principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA adjusted EBITDA margin adjusted diluted earnings per share free cash flow net debt and debt leverage ratio.

Anthony C. Staniak: We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call and the slide presentation will be available on the investors section of Quad Dot com. Shortly after our call concludes today I will now hand over the call to Joel.

Joel Quadracchi: Thank you, Katie, and good morning everyone. Our first quarter results were in line with our expectations, and we remain on track to achieve our full year 2024 financial guidance. As we communicated on our last earnings call, we anticipated the first quarter would have the most significant year-over-year decrease in net sales and adjusted EBITDA of any quarter in 2024. External factors impacting sales included significant postal rate increases and ongoing economic uncertainty, like elevated interest rates, which led to a decrease in financial services direct mailing. Sales were also negatively impacted by the recent loss of a large grocery client.

Joel: Thank you Katie and good morning, everyone. Our first quarter results were in line with our expectations and we remain on track to achieve our full year 2024 financial guidance.

Joel: As we communicated on our last earnings call. We anticipated the first quarter would have the most significant year over year decrease in net sales and adjusted EBITDA of any quarter in 2024.

Joel: External factors impacting sales included significant postal rate increases and ongoing economic uncertainty like elevated interest rates, which led to a decrease in financial services direct mailings.

Joel: Those were also negatively impacted by the recent loss of a large grocery client.

Joel Quadracchi: Free cash flow improved in the first quarter, and we will continue to use our strong free cash flow generation and cash from asset sales to fuel our diverse capital allocation strategy, which includes investing in and scaling our offerings, further reducing debt, and returning capital to shareholders, such as through our next quarterly dividend of $0.05 per share, payable on June 7th to shareholders of record as of May 22nd.

Joel: Free cash flow improved in the first quarter and we will continue to use our strong free cash flow generation and cash from asset sales to fuel our diverse capital allocation strategy.

Joel: This strategy includes investing in scaling our offerings.

Joel: Further reducing debt and returning capital to shareholders such as through our next quarterly dividend of <unk> per share payable on June seven to shareholders of record as of May 20 <unk>.

Joel Quadracchi: Despite revenue headwinds, we remain confident in our ability to manage all aspects of our business by treating all costs as variable, aligning our cost structure to revenue opportunities, and optimizing our print manufacturing platform by consolidating work into plants where we can achieve the greatest manufacturing efficiencies and, subsequently, selling assets no longer required for business operations. Turning to slide three, we continue to execute on our mission to deliver a better marketing experience so our clients can focus on delivering the best customer service.

Joel: Despite revenue headwinds, we remain confident in our ability to manage all aspects of our business by treating all costs as variable aligning our cost structure to revenue opportunities and optimizing print manufacturing platform by consulting work into plants, where we can achieve the greatest manufacturing efficiencies and subsequently selling assets no longer.

Joel: Wired for business operations.

Joel: Turning to slide three we continued to execute on our mission to deliver a better marketing experience. So our clients can focus on delivering the best customer service.

Joel Quadracchi: Our MX solutions are flexible, scalable, and connected, and span every facet of the marketing journey, from online to offline, across creative, production, and media, and are supported by data-driven intelligence and state-of-the-art technology, including AI-driven solutions. We tailor each of these solutions to client objectives to strengthen marketing effectiveness, improve speed to market, and drive cost efficiencies and deliver value on investment. Moving on to slide 4.

Joel: Our <unk> solutions are flexible scalable and connected and span every facet of the marketing journey from online to offline across creative production and media and supported by data driven intelligence and state of the art technology included AI driven solutions.

Joel: We tailor each of these solutions to client objectives to strengthen marketing effectiveness improve speed to market and drive cost efficiencies and deliver value on investments.

Joel Quadracchi: At Quad, we are continually innovating new solutions for our clients and in new spaces. During the quarter, we announced our entry into Retail Media Networks, or RMNs, which are the next big advertising channel. eMarketer predicts ad spend in omni-channel RMNs will grow to over $100 billion by 2027.

Moving on to slide four the Quad, we are continually innovating new solutions for our clients and the new spaces during the quarter, we announced our entry into retail media networks for our and which are the next big advertising channel E. Marketer predicts AD spend and Omnichannel arm ends will grow to over.

Joel: Our $100 billion by 2027.

Joel Quadracchi: Quad's focus is on advancing the in-store shopping experience by taking the best elements of digital commerce and bringing them into physical store environments. Our in-store Connect solutions build on our deep expertise with retailers and consumer packaged good companies, and it's fortified by our recent acquisition of Dart Innovation, an in-store digital media solutions provider. Through InStore Connect, we help brands deliver engaging messages and promotions right at the store shelf, the most critical moment in the purchasing decision. Earlier this week, we announced a new partnership with the Save Mart Companies, the largest private regional grocer on the West Coast, to launch its in-store RMN.

Joel: Quads focuses on advancing the in store shopping experience by taking the best elements of digital commerce and bring it into a physical store environments are.

Joel: Our in store connects solutions built on our deep expertise with retailers and consumer packaged good companies and its fortified by our recent acquisition of dark innovation and in store digital media solutions provider.

Joel: Through in store connect we help brands deliver engaging messages and promotions right at the store shelf. The most critical moment in the purchasing decision.

Joel: Earlier this week, we announced a new partnership with the save Mart companies, the largest private regional grocer onto the west coast to launch its in store Amen.

Joel Quadracchi: We are also in active talks with several other retailers and look forward to demonstrating how in-store connect can generate value for our clients as we strive to become the industry standard for in-store media networks. Given ongoing postal rate increases, we remain focused on advocating for postal reform and developing solutions to help our print clients save money and differentiate Quad as a market innovator. Our two-pronged approach to postal optimization maximizes savings based on individual mail type, volume, and region, while also increasing response through creative, data-driven formats across all media channels. During the quarter, we launched our latest postal optimization solution, Household Fusion.

Joel: We're also in active talks with several other retailers and look forward to demonstrating how in store connect could generate value for our clients as we strive to become the industry standard for in store retail media networks.

Joel: Given the ongoing postal rate increases we remain focused on advocating for postal reform and developing solutions to help our print clients save money and differentiate quad isn't market innovator, our two pronged approach to postal optimization maximizes savings based on individual male type volume in region. While also.

Joel: Increasing response through creative data driven formats across all media channels.

Joel Quadracchi: Turning to slide 5, this innovation combines various marketing mail from different brands, or separately, various magazines from different publishers, into a single package delivered to one address, creating significant postal savings for participating clients. Our clients are enthusiastic about Household Fusion, including PWX Solutions, a direct marketing and production partnership formed between Hearst and Condé Nast. PWX praised our pioneering innovation, saying Quad is always looking out for everyone's best interests, and the Household Fusion program is really paying off.

During the quarter, we launched our latest postal optimization solution household fusion.

Joel: Turning to slide five this innovation combines various marketing mail from different brands or separately various magazines from different publishers into a single package delivered to one address creating significant postal savings for participating clients.

Our clients are enthusiastic about household fusion, including PWM solutions are direct marketing and production partnership formed between Hearst and Condi Nast Pwm's praised our pioneering innovation sang quad is always looking out for everyone's best interests and the household fusion program is really paying off.

Joel Quadracchi: We will continue to evolve this MX production solution to drive value for our clients. During the quarter, we also introduced the next evolution of our media agency, RISE, which brings together our full range of media and own data services under one brand, so we're even better equipped to solve client pain points. Our offering, shown on slide six, is truly differentiated. Our modern integrated data stack has privacy at its core, and it is resilient to industry challenges like the deprecation of third-party cookies.

We will continue to evolve this amex production solution to drive value for our clients.

Joel: During the quarter. We also introduced the next evolution of our media agency rise, which brings together our full range of media and own data services under one brand. So we are even better equipped to solve client pain points are offering shown on slide six is truly differentiated.

Our modern integrated data stack is privacy at its core and it is resilient industry challenges like the deprecation of third party cookies.

Joel Quadracchi: Another key differentiator is radical transparency, something deeply ingrained in our culture and way of thinking at Quad but still quite uncommon across the media industry. Radical transparency means our clients see what we see. There are no hidden charges.

Joel: Another key differentiator is radical transparency something deeply ingrained in our culture and way of thinking a quad, but still quite uncommon across the media industry radical.

Joel: Radical transparency means our clients see what we see no hidden charges.

Joel Quadracchi: Our approach minimizes the text tax typically paid to data onboarding platforms that connect, control, and activate data, enabling us to maximize our clients' dollars in working media. We are confident that our enhanced media offering will drive revenue growth. Today's marketers compete in an ultra-competitive landscape and are required to do more with less to resonate with their target audience. When it comes to creative services, marketers are often faced with having to choose between high quality creative and consent or speed and scale.

Joel: Our approach Minimises. The text act tax typically paid to data on boarding platforms that connect control and activate data, enabling us to maximize our clients' dollars in working media.

Joel: We are confident that our enhanced video offering will drive revenue growth.

Joel: Today's marketers compete in an ultra competitive landscape and are required to do more with less to resonate with their target audiences.

When it comes to creative services marketers are often faced with having to choose between high quality creative and consent or speed and scale.

Joel Quadracchi: We are answering the market need for smart, scalable, and creative with an integrated and flexible new solution launching this month. Our solution integrates all our creative business lines, from brand strategy and design to campaign ideation, pre-media and adaptive design, and content creation, and backs them with our 24-7 global production capabilities. We believe this combination will redefine creative excellence, putting quality first regardless of project size, scope, timeline, or budget. On slide 7, we are proud to provide an update on campaign results for two clients, Nielsen Massey Vanillas and CLR Brands, with whom we announced new partnerships in a previous earnings poll.

Joel: We're answering the market need for smart scalable creative with an integrated and flexible new solution launching this month.

Joel: Our solution integrates all our creative business lines from brand strategy and design to campaign ideation pre media, an adaptive design and content creation and backs them with our 24 seven global production capabilities.

Joel: We believe this combination will redefine creative excellence, putting quality first regardless of project size scope timeline or budget.

Joel: On slide seven we are proud to provide an update on campaign results for two clients Nielsen mass, even ella's and see a lot of brands with whom we announced new partnerships on our previous earnings call.

Joel Quadracchi: During the 2023 holiday baking season, our Taste Vanilla as It Should Be campaign for Nielsen Massey Vanillas propelled it to be the fastest growing extract in the market, outperforming consumer packaged goods benchmarks by generating a 13% increase in loyalty and 1.8 million website visits, according to our client.

Joel: During the 2023 holiday baking season, our taste vanilla as vanilla should be campaign for Nielsen Massey Vanilla has propelled it to be the fastest growing extracting the market are outperforming consumer package goods benchmarks by generating a 13% increase in loyalty and 1.8 million Webster.

Joel: Visits according to our client.

Joel Quadracchi: Since our Been There, Outdone That campaign for CLR brands entered the market last October, the Cleaning Products Leader reports a 124% increase in store late locator visits and an 18% increase in sales. In both of these examples, we connected high-impact creative with expert media and data analytics to ensure the right message was delivered to the right audience at the right place and time. Turn it to slide 8.

Since our been there done that campaign for CLR brands entered the market last October the cleaning products leader reports, it's realized 124% increase in store late locator visits and an 18% increase in sales.

Joel: And both of these examples we've connected high impact creative with expert media and data analytics to ensure the right message was delivered to the right audience at the right place and time.

Joel: Turning to slide eight.

Joel Quadracchi: We share an example of how Quad is helping a lifestyle and personal care brand increase its marketing effectiveness through our integrated offering. Raw Sugar Living, a disruptor in the clean beauty and personal care space, was seeking a partner to help facilitate the next phase of its brand growth, following a rapid expansion into retail stores. They chose to partner with Quad due to our great reputation for delivering breakthrough creative and brand growth in CPPG categories, coupled with our robust data insights and media capabilities.

Joel: We share an example, how quad is helping our lifestyle and personal care brand increased its marketing effectiveness through our integrated offering.

Joel: We're all sugar living a disruptor in the premium beauty and personal care space, we're seeking a partner to help facilitate the next phase of its brand growth.

Joel: A rapid expansion into retail stores.

Joel: They chose to partner with Quad due to our great reputation for delivering breakthrough creative and brand growth in CPG categories, coupled with our robust data insights and media capabilities.

Joel Quadracchi: As Raw Sugar's first creative agency of record, we are now providing brand strategy, integrated campaign development, and content production. We are also providing media strategy, including connections planning, as well as omni-channel media execution and optimization. Our first direct-to-consumer campaign for Raw Sugar launched this summer, but already, our team has been hard at work helping promote the brand.

Joel: As Ross sugars first creative agency of record, we're now providing brand strategy integrated campaign development and content production.

We are also providing media strategy, including connections planning as well as omni channel media is execution and optimization.

Joel: Our first direct to consumer campaign for wall Sugar wash this summer, but already our team has been hard at work, helping promote the brand and April we hope the client launch product in Costco stores for the first time ever.

Joel Quadracchi: In April, we helped the client launch product in Costco stores for the first time ever. We also supported its 2024 product rollout by hosting a pop-up market for 60 social media influencers and media representatives at our New York City office and event space, as shown on slide 9. The client is thrilled with our partnership, so much so that it recommended us to a large health and wellness company, for which we are now providing creative and media work. On slide 10, we show another example of how the services within our MX Solution Suite work together to provide a better marketing experience.

Joel: We also supported its 2024 product rollout by hosting a pop up market for 60, social media Influencers and media Representatives at our New York City Office and event space as shown on slide nine.

The client is thrilled with our partnership so much so with recommended us to a large health and wellness company for which we are now providing creative and media work.

Joel: On Slide 10, we show. Another example of how the services within our <unk> solution suite worked together to provide a better marketing experience.

Joel Quadracchi: For our clients, Spinlite, the nation's largest direct-to-consumer retailer of durable medical equipment, recently engaged us to help it strengthen consumer connections to drive increased response rates and revenue. Our work at SpinLife's new marketing agency of record includes high-impact creative delivered at speed and scale across online and offline channels, including print, web, and digital, fast, flexible catalog printing and distribution, and data-backed media solutions to activate campaigns with ease, including an expanded digital presence through paid search, paid social, marketplace, and affiliate media, and SEO support.

Joel: For our clients spin life, the nation's largest direct to consumer retailer of durable medical equipment recently engaged us to help it strengthened consumer connections to drive increased response rates and revenue.

Joel: Our work has been lives new marketing agency of record includes high impact creative delivered at speed and scale across online and offline channels, including print web and digital fast flexible catalog printing and distribution.

Joel: And data backed media solutions to activate campaigns with ease, including an expanded digital presence through paid search paid social marketplace and affiliate media and SCO support.

Joel: Spin life praised our integrated approach to account management, which enabled us to stand up the account within three short months.

Joel Quadracchi: SpinLive praised our integrated approach to account management, which enabled us to stand up the account within three short months. They shared it with the smoothest and fastest onboarding they had ever experienced and said, "We are excited to see the work coming together and the teams finding an efficient and effective way to drive our business." Already, we've activated two digital campaigns, and catalog work will enter the market next month. Now, we are in the process of establishing a client-dedicated team integrated with SpinLife's marketing operations to provide further support and through which we can introduce additional value-added quad solutions. SpinLife is extremely pleased with its ability to address its creative, production, and media needs all in one place, decreasing the complexity of working with multiple agency partners and vendors and streamlining processes for greater efficiency.

They shared it was the smoothest and fastest onboarding they have ever experienced and said we are excited to see the work coming together and the team's finding the efficient and effective way to drive our business already we've activated to digital campaigns and catalog work will enter the market next month.

Joel: Now we are in the process of establishing a client dedicated team integrated with spin life marketing operations to provide further support and through which we can introduce additional value added quad solutions spin.

Joel: It's been life is extremely pleased with our ability to address its accretive production and media needs. All in one place decreasing the complexity of working with multiple agency partners and vendors and streamlining processes for greater efficiencies.

Joel Quadracchi: We look forward to continuing to partner with SpinLife on new initiatives to further ignite its brand and drive demand. Before I turn the call over to Tony, I want to acknowledge that May is Mental Health Awareness Month, and in keeping with our long-standing commitment to taking better care of our employees, we are launching a new mental health liaison program in partnership with the National Council for Mental Well-Being. This program, part of our existing Robust Wellness Benefits for employees, will help educate employee volunteers to act as advocates for mental health, removing the stigma and connecting co-workers in need to quasi-emotional support resources.

Joel: We look forward to continuing to partner with spend life on new initiatives to further ignite it's brand and drive demand.

Speaker Change: Before I turn the call over to Tony I want to acknowledge that May is mental health awareness month and in keeping with our long standing commitment to taking better care of our employees. We are launching a new mental health liaison program in partnership with the National Council for mental wellbeing.

This program part of our existing robust wellness benefits for employees will help educate employee volunteers to act as advocates for mental health, removing the stigma and connecting co workers, who need to quads emotional support resources.

Joel Quadracchi: This type of program reflects our strategy as an employer of choice in the workplace for the marketing industry's best talent, a key driver of growth. With that, I'd like to turn the call over to Tony for the financial review. Thanks, Shaul, and good morning, everyone.

Anthony C. Staniak: This type of program reflects our strategy as an employer of choice in the workplace for the marketing industry's best talent.

Anthony C. Staniak: Key driver for growth with that I'd like to turn the call over to Tony for the financial review.

Anthony C. Staniak: On slide 11, we show our diverse revenue mix. During the first quarter of 2024, our net sales were $655 million, a 15% decline compared to the first quarter of 2023 due to lower paper, print, and agency solution sales. Our print volumes were negatively impacted by ongoing external headwinds, including significant postal rate increases and economic uncertainty, as well as the loss of a large grocery client.

Anthony C. Staniak: Thanks, Joel and good morning, everyone.

Anthony C. Staniak: On slide 11, we show our diverse revenue mix during the first quarter of 2024, our net sales were $655 million, a 15% decline compared to the first quarter of 2023 due to lower paper print and agency solution sales.

Anthony C. Staniak: <unk> were negatively impacted by ongoing external headwinds, including significant postal rate increases and economic uncertainty as well as the loss of a large grocery client.

Anthony C. Staniak: Additional trends that impacted our revenue mix in the first quarter included a 2% increase in magazines due to segment share wins, such as AARP, as well as a 2% decrease in Latin America primarily from lower educational book volume exported to the United States. Slide 12 provides a snapshot of our first quarter 2024 financial results. Adjusted EBITDA was $51 million in the first quarter of 2024 as compared to $60 million in the first quarter of 2023, and the adjusted EBITDA margin declined from 7.9% to 7.7%. The decrease was primarily due to lower sales, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.

Anthony C. Staniak: Additional trends that impacted our revenue mix in the first quarter included a 2% increase in magazines do the segment share wins, such as AARP as well as a 2% decrease in Latin America, primarily from lower educational book volumes exported to the United States.

Anthony C. Staniak: Slide 12 provides a snapshot of our first quarter 2024 financial results adjusted.

Anthony C. Staniak: Adjusted EBITDA was $51 million in the first quarter of 2024 as compared to $60 million in the first quarter of 2023, and adjusted EBITA margin declined from seven 9% to seven 7%.

Anthony C. Staniak: The decrease was primarily due to lower sales, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives. This is consistent with what we had communicated on last quarter's earnings call during which we anticipated the largest year over year adjusted EBITDA decrease to be during the first quarter, while the FERC.

Anthony C. Staniak: This is consistent with what we had communicated on last quarter's earnings call, during which we anticipated the largest year-over-year adjusted EBITDA decrease to be during the first quarter, while the full cost savings of our recent restructuring actions were ramping up. In response to lower sales beginning last year and ending in the first quarter with the announcements of the Saratoga Springs, New York, and Bolingbrook, Illinois plant closures, we completed restructuring actions that we expect will generate $60 million of cost savings in 2024.

Anthony C. Staniak: While the full cost savings of our recent restructuring actions were ramping up in.

In response to lower sales, beginning last year and ending in the first quarter with the announcements of the Saratoga Springs, New York and Bolingbrook, Illinois plant closures, we completed restructuring actions that we expect will generate $60 million of cost savings in 2024.

Anthony C. Staniak: Adjusted diluted earnings per share was $0.10 in the first quarter of 2024 as compared to $0.15 in the first quarter of 2023, primarily due to lower adjusted net earnings partially offset by the impact of a lower share count due to stock buybacks.

Anthony C. Staniak: Adjusted diluted earnings per share was <unk> 10 in the first quarter of 2020 bar as compared to 15 cents in the first quarter of 2023, primarily due to lower adjusted net earnings partially offset by the impact of a lower share count due to stock buybacks since the second quarter of 2022, we have repurchased.

Anthony C. Staniak: Since the second quarter of 2022, we have repurchased approximately 11% of our total outstanding common stock. Free cash flow was negative $70 million in the first quarter of 2024, a $9 million improvement compared to 2023, primarily due to reduced capital expenditures. We continue to target annual capital expenditures of approximately 2% of our net sales.

Anthony C. Staniak: Absolutely, 11% of our total outstanding common stock.

Anthony C. Staniak: Free cash flow was negative $70 million in the first quarter of 2024 $9 million improvement compared to 2023, primarily due to reduced capital expenditures.

Anthony C. Staniak: We continue to target annual capital expenditures of approximately 2% of our net sales.

Anthony C. Staniak: As we shared last quarter, we will continue to generate strong free cash flow in addition to proceeds from asset sales, as shown on slide 13. In the five-year period from 2020 to 2024, we expect to generate over $740 million of free cash flow and proceeds from asset sales. These sales include divestitures of certain non-core portions of our business as well as sales of property, plant, and equipment from closed facilities.

Anthony C. Staniak: As we shared last quarter, we will continue to generate strong free cash flow. In addition of proceeds from asset sales as shown on slide 13.

Anthony C. Staniak: Five year period from 2020 to 2024, we expect to generate over $740 million of free cash flow and proceeds from asset sales the.

Anthony C. Staniak: These sales include divestitures of certain noncore portions of our business as well as sales of property plant and equipment from close facilities in April we sold our minority investment in menopause technologies, a leading print services and end to end business solutions provider headquartered in India for total proceeds of $22 million.

Anthony C. Staniak: In April, we sold our minority investment in Manipal Technologies, a leading print services and end-to-end business solutions provider headquartered in India, for total proceeds of $22 million, of which we have already received $17 million in April 2024, with the balance due by the end of the third quarter. We also continue to make progress on the previously announced sales of four owned facilities from which we will generate further proceeds. Slide 14 includes a summary of our debt capital structure.

Anthony C. Staniak: Of which we have already received $17 million in April 2024, with the balance due by the end of the third quarter.

Anthony C. Staniak: We also continue to make progress on the previously announced sales of four owned facilities from which we will generate further proceeds.

Anthony C. Staniak: Slide 14 includes a summary of our debt capital structure.

Anthony C. Staniak: At the end of the first quarter, our net debt was $544 million. On April 30th, we entered into an interest rate swap converting $50 million of our variable rate debt to fixed rate. With that interest rate swap, in addition to our interest rate collar insurance, our pro forma debt at the end of the first quarter was 59% floating and 41% fixed at a reduced blended interest rate of 7.6% compared to 7.8% if we had not executed the swap.

Anthony C. Staniak: At the end of the first quarter, our net debt was $544 million effective April 30th we entered into an interest rate swap converting $50 million of our variable rate debt to fixed rate with that interest rate swap. In addition to what interest rate collar instruments, our pro forma debt at the end of the first quarter was for.

Anthony C. Staniak: 59% floating and 41% fixed at a reduced blended interest rate of seven 6% compared to seven 8%. If we had not executed the swap.

Anthony C. Staniak: As a reminder, during the first quarter, we generated $53 million by successfully increasing the commitment with one of our banks to add $25 million to our term loan and also by entering into $28 million of financing arrangements for two large printing presses. We then used our revolving credit facility and cash on hand to repay an $88 million term loan immaturity. At the same time, the total capacity under our revolving credit facility decreased by $90 million to $343 million.

Anthony C. Staniak: As a reminder, during the first quarter, we generated $53 million by successfully increasing the commitment with one of our banks to add $25 million to our term loan and also by entering into $28 million of financing arrangements for two large printing presses.

Anthony C. Staniak: We then used our revolving credit facility and cash on hand to repay and $88 million term loan a maturity and at the same time, the total capacity under our revolving credit facility decreased by $90 million to $343 million.

Anthony C. Staniak: Our next year's significant debt maturity is now November 2026. We show the seasonality of our free cash flow and debt leverage, as well as our long-term commitment to debt reduction, on slide 15. Our seasonal production peak, which occurs in the late 3rd quarter and early 4th quarter of the year due to the timing of holiday-related advertising and promotions, leads to inventory buildup prior to that time, and results in higher collections from clients in the 4th quarter.

Anthony C. Staniak: Our next nearest significant significant debt maturity is now in November 2026.

Anthony C. Staniak: We show the seasonality of our free cash flow and debt leverage as well as our long term commitment to debt reduction on slide 15.

Anthony C. Staniak: Our seasonal production peak, which occurs in the late third quarter and early fourth quarter of the year due to the timing of holiday related advertising and promotions leading to inventory build prior to that time and results in higher collections from clients in the fourth quarter. For example in the fourth quarter of 2023, we generated 90.

Anthony C. Staniak: For example, in the 4th quarter of 2023, we generated $95 million of free cash flow and used it to reduce 2.0 times debt lexicon. In 2024, we anticipate a similar seasonal pattern and intend to further reduce debt leverage to approximately 1.8 times at the end of this year, near the low end of our targeted debt leverage range of 1.75 to 2.25 times. From 2020 to 2024, we expect to reduce net debt by over $600 million, or more than 60%.

Anthony C. Staniak: $5 million of free cash flow and used it to reduce to point all times debt leverage in.

Anthony C. Staniak: In 2024, we anticipate a similar seasonal pattern and intend to further reduce debt leverage to approximately one eight times at the end of this year near the low end of our targeted debt leverage range of $1 75 to 2.25 times.

Anthony C. Staniak: From 2020 to 2024, we expect to reduce net debt by over $600 million or more than 60% and we are pleased that our strong balance sheet and commitment to debt reduction was recognized by Fitch ratings, who recently revised our corporate credit rating outlook to positive from stable.

Anthony C. Staniak: And we are pleased that our strong balance sheet and commitment to debt reduction was recognized by Fitch Ratings, who recently revised our corporate credit rating outlook to positive from Sable, indicating a potential future upgrade from our current B-plus rating. We reaffirm our full year guidance as shown on slide 16. Annual net sales are expected to decline 5-9% compared to the prior year due to ongoing headwinds, as previously mentioned.

Anthony C. Staniak: <unk> a potential future upgrade from our current B plus rating.

Anthony C. Staniak: We reaffirm our full year guidance as shown on slide 16.

Anthony C. Staniak: Annual net sales are expected to decline, 5% to 9% compared to the prior year due to ongoing headwinds as previously mentioned full year 2024, adjusted EBITDA is expected to be between 205 and $245 million with $225 million at the midpoint of that range, representing a 28 basis points.

Anthony C. Staniak: Full-year 2024 Adjusted EBITDA is expected to be between $205 and $245 million, with $225 million at the midpoint of that range, representing a 28 basis point improvement in Adjusted EBITDA margin to 8.2%. As we shared last quarter, adjusted EBITDA will be lower in the first half of the year as benefits from cost reduction actions will reach their full annualized amount late in the second quarter of 2024. We then expect sequentially higher adjusted EBITDA in the second half of 2024 compared to the first half of the year due to the full benefit of the restructuring actions combined with increased sales during our seasonal production peak.

Anthony C. Staniak: <unk> and adjusted EBITDA margin to eight 2%.

Anthony C. Staniak: As we shared last quarter adjusted EBITDA will be lower in the first half of the year as benefits from cost reduction actions will reach their full annualized amount late in the second quarter of 2024.

Anthony C. Staniak: We then expect sequentially higher adjusted EBITDA in the second half of 2024 compared to the first half of the year due to the full benefit of the restructuring actions combined with increased sales during our seasonal production peak.

Anthony C. Staniak: We expect 2024 free cash flow to be in the range of $50 to $70 million, with $60 million at the midpoint of that. This year, free cash flow will be most impacted by higher restructuring payments in the first half of the year, partially offset by reduced capital expenditures, with capital expenditures expected to be in the range of $60 to $70 million.

Anthony C. Staniak: We expect 2020 for free cash flow to be in the range of $50 million to $70 million with $60 million at the midpoint of that range.

Anthony C. Staniak: This year free cash flow will be most impacted by higher restructuring payments in the first half of the year, partially offset by reduced capital expenditures with capital expenditures expected to be in the range of $60 million to $70 million. The primary use of free cash flow and cash proceeds from asset sales will continue to be debt reduction.

Anthony C. Staniak: The primary use of free cash flow and cash proceeds from asset sales will continue to be debt-reductive, and we reaffirm our net debt leverage ratio to be approximately 1.8 times at the end of 2024. Slide 17 includes our key investment highlights as we continue to build our momentum as a marketing experience company. We believe that Quad is a compelling long-term investment, and we remain focused on growing net sales and driving higher profitability through continued diversification of our revenue and clients.

Anthony C. Staniak: And we reaffirm our net debt leverage ratio to be approximately one eight times at the end of 2024.

Anthony C. Staniak: Slide 17 includes our key investment highlights as we continue to build on our momentum as a marketing experience company.

Anthony C. Staniak: We believe the cloud is a compelling long term investment and we remain focused on growing net sales and driving higher profitability through continued diversification of our revenue and clients. Our expanded offerings include the recent editions of in store connects and household fusion and there is a significant addressable revenue opportunity.

Anthony C. Staniak: Our expanded offerings include the recent additions of In-Store Connect and Household Fusion, and there is a significant addressable revenue opportunity with both our large base of existing clients as well as new clients. In addition, our strong cash generation will continue to fuel our capital allocation priorities, which include investing and scaling offerings, further reducing debt, and returning capital to shareholders, such as our next quarterly dividend of five cents payable on June 7th, and we also expect to continue to be opportunistic in terms of our future share repurchase. With that, I'd like to turn the call back to our operator for questions. We will now begin the question and answer session. To ask a question, you may press the star, then 1 on your keyboard.

Anthony C. Staniak: With both our large base of existing clients as well as new clients.

Anthony C. Staniak: In addition, our strong cash generation will continue to view our capital allocation priorities. These include investing in scaling offerings further reducing debt and returning capital to shareholders such as our next quarterly dividend of five cents payable on June 7th.

Anthony C. Staniak: And we also expect to continue to be opportunistic in terms of our future share repurchases.

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

Speaker Change: Okay.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-toned phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Kevin Steinke with Barrington Research. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset.

Speaker Change: Before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Kevin Spanky with Barrington Research.

Kevin Mark Steinke: Please go ahead.

Kevin Mark Steinke: Alright, good morning, gentlemen.

Kevin Mark Steinke: It's great to see the ongoing innovation in terms of your service offerings, both in-store connect and household fusion. I want to start out by delving into the in-store connect offering a little bit more, you know, maybe how that Save Mart relationship came about, and then just the overall market opportunity you see there with that new offering.

Kevin Mark Steinke: It's great to see the ongoing innovation in terms of your service offerings in store connect as well as our houseware.

Kevin Mark Steinke: Household fusion I wanted to start out by delving into the in store connect offering a little bit more.

Kevin Mark Steinke: You know, maybe how that save Mart relationship.

Kevin Mark Steinke: Came about.

Kevin Mark Steinke: And then just the overall market opportunity.

Kevin Mark Steinke: See there with that new offering.

Joel Quadracchi: Yeah, you know, it's an important new offering because this is really something that is heavily talked about in the retail environment these days. It's not a new concept, but it's one that hasn't quite taken off yet. And that's where we, you know, when you look at your typical retail media network, it's like Amazon, you know, digital, where they're serving up ads as you search for products, and they get paid for those ads, which is when your intent is highest to buy something by walking through a retail store.

Speaker Change: Yeah, you know, it's an important new offering because this is really something that is heavily talked about in the retail environment. These days its not a new concept, but it's one that never quite took off yet and that's where we you know when you look at your typical retail media network with like Amazon, you know digital where they're serving up.

Speaker Change: Ads as you search for product and they get paid for those ads.

Speaker Change: What's missing in the whole digital experiences that in store experience are being connected to digital and so that's where we're going to we were putting in we are rolling out right now where you have nicely designed I am screen's not just screens tacked on a wall, but that are strategically placed throughout the store where we can.

Speaker Change: Work with them the CPG clients to serve up ads for their product as the most important part of the journey is happening which is when your intent is highest to buy something by walking through a retail store and so the goal is is that we're going to create a very large network of a lot of stores, so that collectively across a lot of our clients.

Joel Quadracchi: And so the goal is that we're going to create a very large network of a lot of stores so that collectively, across a lot of our clients, not just one or two, we create enough eyeballs that it makes it very interesting for those who are buying advertising. Furthermore, our ability to manage that content is really important because now we can start to use the underlying data of the specific region or store, as well as the type of audience, to serve specific ads to specific stores.

Speaker Change: It's not just one or two that we create enough eyeballs that it makes it very interesting for those who are buying advertising.

Speaker Change: Furthermore, our ability to manage that content is really important because now we can start to use the underlying data of the specific region or store.

Speaker Change: As well as into the type of audience to serve specific ads to specific stores and as we go down that sort of change or building on the data, which is so important market today, we will be able to expand that as as things change by linking to things such as mobile et cetera, and so really this is a game where.

Joel Quadracchi: And as we go down that sort of chain of building on data, which is so important in marketing today, we'll be able to expand that as things change by linking to things such as mobile, etc. And so really, this is a game where the more, the merrier, and Quad's been working on this concept for some time, and Dart was the final piece in it to kind of create some infrastructure to be able to do it. And so back to Save Mart. We've had a great relationship with them.

Speaker Change: Or the merrier.

Speaker Change: <unk> been working on this concept for some time and dark was the final piece in it to kind of create some infrastructure to be able to do it and so back to save Mart, We've had a great relationship with them that team is a seasoned group of executives who had been at other places throughout their careers.

Joel Quadracchi: That team is a seasoned group of executives who have been in other places throughout their careers, and because of the relationship we've had for a number of years, we were able to talk to the top and outline our vision, and they very quickly said, "We want to be a part of that." Let's go, let's get going, and let's start building it. And so we're in the process of rolling that out right now.

Speaker Change: And because of the relationship we've had for a number of years.

Speaker Change: We were able to talk to the top and outline our vision and they very quickly said, we want to be a part of that let's go let's get going and let's start building it and so we're in the process of rolling It out right. Now in addition, because it's such a hot topic.

Joel Quadracchi: In addition, because it's such a hot topic, we have quite a few other retailers we're talking to right now that we're not ready to say more about, but that it will lead to a growing number of stores. And so what we're excited about is that we did so much work up front on this that when we were ready, we were able to kind of leap and go and start executing right away and now get to scale for those clients. Does that make sense?

Speaker Change: We have quite a few other retailers, we're talking to right now that we're not ready to say more about but that it will lead to a growing number of stores and so what we're excited about it and we've done so much work upfront on this that when we're ready we're able to kind of leap and go and start executing right away and now get to scale for those clients.

Speaker Change: Is that makes sense.

Kevin Mark Steinke: Yes, absolutely. That's helpful. And if I just wanted to follow up again on in-store connect.

Speaker Change: Yes, absolutely that's helpful.

Speaker Change: And if I just wanted to follow up again on in store connect.

Speaker Change: Maybe just.

Kevin Mark Steinke: I'd appreciate it if you could give any detail on the mechanics of how you get paid or generate revenue from the offering. Is it from the deployment, or is there a performance-based element or, you know, a subscription-based element? I'm just trying to get a sense as to the revenue model there.

Speaker Change: If you could give any detail on the mechanics of how you get.

Speaker Change: Paid or generate revenue from the offering is it from the deployment or is there a performance based element or you know the.

Speaker Change: And based on all of them and I'm, just trying to get a sense as to the.

Speaker Change: Revenue model there.

Joel Quadracchi: Yeah, it's really based on, you know, a lot of it, the CPMs. So we get, we get a nice cut of the action that happens as the number of eyeballs come through the store. And there are lots of ways we can really start measuring what that traffic is doing using beacons and things like that.

Speaker Change: And that's really based on you know like a lot of it.

Speaker Change: So we get we get a nice.

Speaker Change: Cut off of the.

Speaker Change: The action that happens as the number of eyeballs come through the store and there's lots of ways. We can really start measuring what that traffic is doing and using beacons and things like that and so yes, it's a pretty straightforward model in terms of how we get paid.

Anthony C. Staniak: And so yeah, it's, it's a pretty straightforward model in terms of how we get paid. And it's, you know, it's short of sharing; it's a revenue share between the different parties, basically. We do, you know, there's different models for deployment, and there will be, but you know, we're helping with installing it from a CapEx standpoint, which for us makes a lot of sense, because we get paid back for that CapEx over a period of time while making it quickly deployed with our clients because we make that part of their budgeting easy.

Speaker Change: And it's you know it's short assura its a revenue share between the different parties basically.

Speaker Change: We do.

Speaker Change: There's different models in deployment.

Speaker Change: It will be but we're helping with installing it from a capex standpoint, which for US is makes a lot of sense, because we get paid back for that capex over a period of time, while making it.

Speaker Change: Quickly deployed with our clients because we make that part in their budgeting easy yes. Kevin. This is Tony I'd add to that so the deployment that you asked about Joel talked about there is revenue involved as we're putting up these screens and stars and then there can be the CPM market or a CPM charge.

Anthony C. Staniak: Yeah, Kevin is Tony. I'd add to that, you know, so the deployment that you asked about and Joel talked about, there is revenue involved as we're putting up these screens and stars, and then there can be either CPM market or CPM charging, or even package costs, depending on, you know, the number of screens and kind of the level of service provided. So we're really excited about the space. And, you know, Joel talked about our relationships with retailers for many years of printing at the very top of the house on large dollar invoices, and that, you know, gives us the opportunity to bring new technologies like this to those same interested parties.

Anthony C. Staniak: Our evening package costs, depending on the number of screens and kind of the level of service provided so we're really excited about the space and Joel talked about our relationships with retailers for many years on printing or at the very top of the house on large dollar invoices and that gives us opportunity to bring new technology.

Anthony C. Staniak: Like this to those same interested parties.

Kevin Mark Steinke: All right, that's great. It sounds exciting. I wanted to, uh.., move on to the new Household Fusion offering, which you talked about saving clients 10 to 20 percent on postage costs. You know, maybe just what's been the reception of your client base to that offering, and do you think this is something that can, you know, spur more advertising mailings and some of the areas that have been cut back due to higher postal rates?

Speaker Change: Alright, that's great.

Speaker Change: Sounds exciting.

Speaker Change: I wanted to.

Speaker Change: Move on to the new household fusion offering, which you talked about.

Speaker Change: Saving clients, 10% to 20%.

Speaker Change: Postage costs.

Speaker Change: You know maybe just what's been the reception of your.

Speaker Change: Your client base to that offering and do you think this is something that can.

Speaker Change: You know spur more.

Speaker Change: Advertising mailings and some of the areas that have been cut back to higher postal rates I know, it's not going to completely offset.

Speaker Change: The rate increases that have gone into place, but I do think it's.

Kevin Mark Steinke: I know it's not going to completely offset the rate increases that have gone into place, but, you know, do you think it's something that can kind of jumpstart perhaps some of the spending from your clients coming back? Yeah, I mean...

Speaker Change: Something that can kind of jumpstart.

Speaker Change: Perhaps.

Speaker Change: Some of the spending from your clients coming back.

Joel Quadracchi: Yeah, I mean, first of all, it's been very well received. You know, again, when our customers are under cost pressure, they're very open to trying whatever it takes to kind of make a medium that is very effective, something that's manageable. It's these significant increases that the post office has done that is the real challenge. And by the way, the post office is hearing pressure from all corners of the earth right now, A, because of the performance of how they're being mailed through the network right now, and also because of the big rate increases. The Postmaster General was hauled in front of Congress just a couple of weeks ago to answer questions and hasn't given a lot of great answers.

Speaker Change: Yeah, I mean first of all it was it's been very well received you know again when our customers are under cost pressure.

Speaker Change: They are very open to trying whatever it takes to kind of make a medium that is very effective.

Speaker Change: Something that's manageable. It's these significant increases at the post office that has done that as a real challenge and by the way. The post office is hearing pressure from all corners of the Earth right now.

Speaker Change: Because of the performance of.

Speaker Change: Although the email through the network right now and also now the big rate increases.

Speaker Change: The postmaster General was hauled in front of Congress, just a couple of weeks ago to answer to it and it hasnt given a lot of great answers, so theres a lot of pressure.

Joel Quadracchi: So there's a lot of pressure to bear. So that's one strategy we have. But Postal Fusion is using the same equipment that we use for co-mailing, so we already have a huge installed base to ramp this up. And it's like we said, instead of making bundles that are in this rotation that the postman walks down your street, and him stopping at your store and dropping each one singularly to you, in that bundle, you may have multiple titles. And so we're wrapping those.

Speaker Change: To bear so that's one strategy, we have a postal fusion is using the same equipment that we use for coal mailing. So we already have a huge installed base to ramp those and it's like we said, it's instead of making bundles that are in the in the sortation that the postman walks down your street and him stopping it you're storing dropping each one singularly.

Speaker Change: To you in that although you may have multiple titles and so we're wrapping dollars mm.

Joel Quadracchi: And so, yeah, it's been very well-received, and it's being rolled out. The first rollout has been with publications, and then we'll migrate to catalogs. And one day, we're working with the post office on this, we will be able to merge catalog and publication together in one package, including potentially direct mail. And so this is another story of the more the merrier creating even more savings. So 10 to 20 is sort of the starting point, but offsetting that postal increase is really important.

Speaker Change: So yes, it's been very well received and it's rolled out the first rollout has been with publications and then we'll migrate to catalogs and one day, we're working with the post office on this be able to merge catalog and publication together in one package.

Speaker Change: Including potentially direct mail and so the base is another story of the more the merrier creates even more savings through September 20 years like the sort of the starting point, but offsetting that postal increase is really important now the other strategy, though keep in mind and that's why I like being able to bring back examples of Av.

Joel Quadracchi: Now, the other strategy, though, keep in mind, and that's why I liked being able to bring back examples of accounts we won, because it's one thing to win them; it's another to show that our approach is not just producing content for them; it's making the content more responsive. And so cost is always offset best by having an increase in response rate for the marketing spend. And so while I'm providing a mechanical sort of direct cost offset in getting mail into the post office, we're also using our data stack and all our analytics to work with our clients to increase response rates.

Speaker Change: 'twenty one because it's one thing to win it its another good show that our approach is not just producing the content for them, it's making the content more responsive and so cost is always offset the best by having an increase in response rate for your marketing spend.

Speaker Change: And so while I'm, providing a mechanical sort of direct cost offset in getting mail into the post office will also using our data stack and all of our analytics to work with our clients to increase response rate you don't have to increase response rate of mail that much to offset the.

Joel Quadracchi: You don't have to increase the response rate of mail that much to offset the increase. And so that's why I was excited. And we will continue to share not only examples of winning but also examples of what winning did. Because again, our whole approach at Quad is yes, to produce content efficiently and distribute it no matter what channel. But the bigger strategy is to help our clients win by using data at the center of the whole conversation to drive the responsiveness of those media assets.

Speaker Change: And so that's why I was excited and we will continue where our clients allow us to share. The data. We will we will continue to share not only examples of winning but then examples of what winning did because again our whole approach of quad is yes to proof to produce content efficiently and distribute it no matter what.

Speaker Change: Hanel, but the bigger strategy is to help our clients win by using data at the center of the whole conversation to drive responsiveness of those media assets.

Kevin Mark Steinke: Okay, great. That's helpful.

Speaker Change: Okay great.

Speaker Change: That's helpful. You you've mentioned.

Speaker Change: The pressure being applied the post to the postmaster General and.

Speaker Change: You know.

Speaker Change: From all different angles, there, but.

Kevin Mark Steinke: You mentioned the pressure being applied to the Postmaster General from all different angles there. But at this point, I think you had talked about previously the Postal Service planning another rate increase for July. Is that still on the table, as far as you know, or any update there, I guess?

Speaker Change: At this point I think you had talked about previously the postal service planning another rate increase for July I believe it was still on the table for you.

Speaker Change: As far as you know or what.

Speaker Change: Any update there I guess.

Joel Quadracchi: Yeah, yes, it's still on, and we're assuming it goes through. There are a lot of questions around it about whether or not, you know, it's appropriate or it should be delayed, but right now, they have the authority to do so. And so we're planning for that. So the rollout of our household fusion is really well timed. And I think, unlike last year, this is really important because if you look at our year over year first quarter revenue being down, remember a big chunk of that is because in the first quarter last year, we hadn't hit that second increase they did in July.

Speaker Change: Yes, it's still on and we're assuming it goes through there are a lot of questions around it on whether or not you know.

Speaker Change: It's appropriate or it should be delayed but right now they have the authority to do it and so we're planning for that so the rollout of our E. R. Puzzled fusion is really well timed.

Speaker Change: And I think different than last year. This is really important because if you look at our year over year first quarter revenue being down remember a big chunk of that is because in the first quarter of last year. We had hit that second increase they did in July and no. One really had that in their budget at the time, So that's where we saw a pullback because of their postal volume.

Joel Quadracchi: And no one really had that in their budget at the time, so that's where we saw a pullback because of that postal volume. If you don't have it in your budget, it's your biggest cost; you got to, you got to nail a little bit less for a while.

Speaker Change: We don't have any in your budget. It's your biggest cost you've got a you've got a smile a little bit less for a while and so what's different. This year is people are aware of it and therefore, they've been contemplating it through budget season.

Joel Quadracchi: And so what's different this year is that people are aware of it. Therefore, they've been contemplating it through the budget season. You know, so far, we're keeping very close contact with our clients to see what they're going to do. But we are, you know, I say cautiously optimistic that people are managing through it. But we will stay close. And so, you know, again, as you get closer to the increase, there's lots of factors that come into how our customers decide how much to mail. It's not just the post office, it's also what's the economy doing. And so we're in, and how is the consumer responding? But, but that's the big difference between this postal increase and the one last year.

Speaker Change: Well, so far and we're keeping a very close contact with our clients to see what theyre going to do.

Operator: Transcribed by https://otter.ai

Speaker Change: But we are.

Speaker Change: I'd say cautiously optimistic that people are managing through it but.

Speaker Change: But we will stay close and so that's you know again as you get closer to the increase there's lots of factors that come into <unk>.

Speaker Change: How are customers decide how much to mail, it's not just boastful. It's also what's the economy doing and so we're in and how is the consumer responding, but but that's the big difference between this postal increase and the one last year.

Kevin Mark Steinke: Okay, great understood. I believe last quarter, the fourth quarter conference call, you had mentioned... Perhaps some signs of increased demand coming back from your financial services clients. I know there's been an impact there from the higher interest rates, but maybe any update on, you know, spending trends you're seeing there from your clients in the financial services space. Yeah.

Speaker Change: Okay, great understood.

Speaker Change: I do believe glass.

Speaker Change: Last quarter, the fourth quarter Conference call you had mentioned.

Speaker Change: Perhaps some signs of increased demand coming back in from your financial services clients I know theres been an impact there from the higher interest rates, but.

Speaker Change: Maybe any update on.

Speaker Change: You know spending trends, you're seeing there from your clients in the financial services space.

Joel Quadracchi: Yeah, I think there's, it's kind of a mixed story, I'd say, you know, if you're associated with personal lending and things like that, at least a little bit slow, but we're seeing others start to put their toes back in, because ultimately, you still have to market, right? And you can, you can, you can stop for a while. But realistically, I think, depending on how, you know, the markets evolve here, people will start sticking their toes back in. And so we're seeing activity from that standpoint, which is a good sign.

Speaker Change: Yeah, I think there's there's a it's kind of a mixed story I would say you know a theater associated with personal lending and things like that are we still a little bit slow, but we're seeing others start to.

Speaker Change: Put their toes back in because ultimately you still have to market right and you can you can you can stop for a while but realistically I think depending on how you know.

Speaker Change: The markets evolve here people will start sticking their toes back yet and so we're seeing activity from that standpoint, which is a good sign.

Kevin Mark Steinke: Okay, great. I also wanted to ask about... rise and Just, you know, maybe delve into, you talked about it on the call, but what differentiates that agency offering and what you expect to gain from it in the marketplace.

Speaker Change: Okay, Great I also wanted to ask you about.

Speaker Change: Rise and.

Speaker Change: Just maybe delve into you talked about on their call, but what what differentiates.

Speaker Change: That agency offering in and what you expect.

Speaker Change: To gain from it.

Speaker Change: In the marketplace.

Joel Quadracchi: Yeah, so RISE Interactive was previously, you know, our digital agency which worked with our clients for, you know, placement of digital media. But at Quad, we also have media in other areas. So traditional media; we buy a lot of media on behalf of our clients in traditional media.

Speaker Change: Yeah. So rises aren't rise interactive previously you know is our digital agency, which we are with our clients for placement of digital media, but at Quad. We also have BD and other areas. So traditional media, we buy a lot of media on behalf of our clients in traditional media and then separately.

Joel Quadracchi: And then separately, you know, first of all, RISE Interactive also uses a ton of analytics and data to help with that digital offering. But we also have a ton of data analytics and data stacks in other places of the company. And so ultimately, you know, we're an integrated company. And as we've developed these things, each one is kind of matured. The next step is that data needs to be in the center of all media because it's about making sure you're sending the right message to the right person at the right time, but also in the right sequence across the media landscape.

Speaker Change: Well first of all rise interactive also uses a ton of analytics and data to help with that digital offering, but we also have a ton of data analytics and data stacks and other places of the company and so ultimately.

Speaker Change: We are an integrated company and as we develop these things each one is kind of matured the <unk>.

Speaker Change: Next step is that data needs to be in the center of all media because it's about making sure you're sending the right message to the right person at the right product at the right time, but also in the right sequence across the media landscape and so we've combined all of that together not only rise, but the other assets we had.

Joel Quadracchi: And so we've combined all that together, not only RISE but the other assets we had as part of that total media offering. So think of it as RISE now is the umbrella for all those things with data at the center to drive what we do for our clients on the media side to get more bang for their buck and increase responsiveness out of that media spec.

Speaker Change: As part of that total media offerings. So think of it is right. Now is the is the umbrella for all of those things with me day.

Speaker Change: At the center to drive what we do for our clients on the media side to get more bang for their Buck and increase responsiveness out of that media spec.

Speaker Change: Okay makes sense.

Kevin Mark Steinke: Okay, makes sense. And I guess lastly here, I wanted to ask about asset sales. So the asset sales, I think it was Yeah, 23.9 million on the slide for 2024. That's just what's occurred thus far, and you would expect more this year. Is that the way to read that? that it's

Speaker Change: And I guess lastly, here I wanted to ask about.

Speaker Change: Tony the asset sales so the asset sales I think it was.

Speaker Change: We had $23 9 million.

Speaker Change: Near Slide for 2024, that's just what's occurred thus far and you would expect more this year is that is that the way to read that.

Anthony C. Staniak: That's correct, Kevin. We're going to update that as we go along. The timing of asset sales, such as selling a building, is sometimes hard to predict. So we'll just update that as we go along. And then in the first quarter, we sold about $22 million of equipment. So that's what that number is made up of.

Anthony C. Staniak: That's correct, Kevin and you know, we're going to update that as we go along you know the timing of asset sales such as selling a building is sometimes hard to predict so we'll just update that as we go along it includes that $22 million from the sale of manner. Paul in that number and then in the first quarter, we sold about $2 million of each.

Anthony C. Staniak: <unk>. So that's what that number is made up of.

Kevin Mark Steinke: Okay, thank you. I will turn it back over.

Speaker Change: Okay. Thank you I will turn it back over thanks.

Speaker Change: Thanks Scott.

Barton Crockett: The next question comes from Barton Crockett with Rosenblatt Securities. Please go ahead.

Speaker Change: Operator. The next question comes from Barton Crockett with Rosenblatt Securities. Please go ahead.

Barton Crockett: Good morning. Thanks for taking the time to answer the question. I guess one of the things about the asset sales I was kind of curious about, you know, you guys have announced some closures of some facilities here, right? So, you've got the Saratoga Springs plant, I think, over 1 million square feet, closing in January. You did Effingham, Illinois, in October, which I think was another 564,000 kind of square feet. So, you know, so you're looking at a good, you know, a million and a half plus kind of square foot reduction, which seems kind of comparable to the square foot reduction you guys had prior, like, 2020 until, like, early 2023.

Speaker Change: Great.

Barton Crockett: Good morning, good morning, Thanks for taking the question.

Barton Crockett: And yes.

Barton Crockett: I guess one of the things on the.

Barton Crockett: The asset sales that was kind of curious about.

Barton Crockett: You guys have.

Barton Crockett: <unk> come out of closures of some facilities here right. So you've got.

Barton Crockett: Saratoga Springs, I think are over 1 million square feet.

Barton Crockett: Hosing in January you did Ethingham, Illinois in October.

Barton Crockett: Which I think was another 564000 square feet.

Barton Crockett: So yeah. So youre looking at are good.

Barton Crockett: And a half plus kind of square feet reduction.

Barton Crockett: Which seems kind of comparable to the square feet production you guys had.

Barton Crockett: Prior like 2020 until like early 2023, close a couple of facilities, which were comparable.

Barton Crockett: Close a couple of facilities which were comparable. Those earlier closures, I think, played a role in your ability to generate, I think, about 170 million or so in property sales. And I'm just wondering if, in fact, that 170 million was correlated to those closures and if there's a possibility that what you've got on deck here could be, at some level, kind of comparable in terms of its ability to generate property sales.

Barton Crockett: Those seem to those earlier closures I think played a role in your ability to generate I think are about $170 million or so of <unk>.

Barton Crockett: Property sales.

Barton Crockett: And I'm just wondering.

Barton Crockett: In fact.

Barton Crockett: That $170 million was correlated to those closures.

Barton Crockett: And if there is a possibility that what you've got on deck here could be at some level kind of comparable in terms of its ability to generate property sales for you guys.

Barton Crockett: Hi, Brian This is Tony.

Anthony C. Staniak: This is Tony. So, the $170,000 that you're referencing, I know we had one year, 2021, that was high in particular, and that was made up of a few items that were there. The sales of buildings were part of that. That year, we also sold a small part of our logistics business called Quad Express for $40 million. That was part of that.

Anthony C. Staniak: The 170 that you're rapidly and saying I know we had one year of 2021 that was high in particular and that was made up of a of a few items that were in there the sales of buildings, where part of that that year. We also sold a small part of our logistics, our logistics business called quiet expressed for 40.

Barton Crockett: That was part of that we did a couple of sale leasebacks of plants in that year with less Dallas and shop on also part of that number.

Anthony C. Staniak: We did a couple of sale leasebacks of plants in that year, with West Allis and Shelfont also part of that number. When we look back historically, just to maybe give you kind of a little bit of a rule of thumb, when we've got these 1 million square foot plants, they do go for pretty good value, right? It's a noticeable component of that $166,000. It's hard to tell case by case where it will be for each one, but it does have the potential to move the needle towards then putting that towards paying down debt, which is historically what we've done and continues to be our top capital allocation priority.

Speaker Change: When we look back historically, just maybe give you a kind of a little bit of a rule of thumb when we've got these.

Speaker Change: 1 million square foot plants, they they do golf are pretty good value right.

Speaker Change: It's a notice of a component of that 160, <unk> hard to tell a case by case, where it will be for each one.

Speaker Change: But it does have the potential to move the needle towards that and putting that to pay down debt, which is historically, what we've done and continues to be our top capital allocation priority.

Anthony C. Staniak: Let me just add, too, some of the background on this. When you look at Saratoga, a large plant in the Northeast, we had Merced out in California. Part of this is the changing need from the clients where some of the stuff, like Saratoga, was for weekly magazines when they were a big deal. That's why we were able to do that. Some of the investment, like those two big presses we talked about, was making that possible at the core of it. There's some methodology behind it besides just some of the decline that we've seen.

Speaker Change: Let me just add to some of the background on this so like when you look at Saratoga large plant in the northeast we had set out in California.

Speaker Change: Part of this is the changing need from our clients, where some of the stuff like originally Saratoga was for weekly magazines when they were a big deal.

Speaker Change: We augmented that with catalog work, but now as we look at the rollout of pulse.

Speaker Change: Fusion mill product.

Speaker Change: It's hard to have those those regional a plant like that so we we really wanted to concentrate that work back into a central location to feed the ability to get as much together as possible. So that's why we were able to do that in some of the investment like those two big breadth as we talked about was making that possible in the core of it.

Speaker Change: So theres some methodology behind it. Besides just you know some of the decline that we've seen.

Joel Quadracchi: Okay, and, you know, the more recent... or the late October, the October 23 kind of closure in Illinois, Effingham. Have you reaped meaningful proceeds from that in the... Figures already reported for, you know, all of 2023, or would that be largely to come in 2024 and beyond?

Speaker Change: Okay and.

Speaker Change: The more recent.

Speaker Change: Are the late October.

Speaker Change: October 23 kind of closer in Illinois Effingham.

Speaker Change:

Speaker Change: Have you reached a meaningful kind of proceeds from that and.

Speaker Change: Figures already reported for all of 2023 or would that be largely to cod in 2024 and beyond.

Barton Crockett: Yeah, the Eppingham facility is still for sale at this point, Barton, so it is not yet included in previous profits. The same would go for Saratoga and our Sacramento location.

Speaker Change: Yeah. The Epping facility is for sale still at this point Barton so not yet in previous proceeds same result for Saratoga.

Speaker Change: And our Sacramento location.

Anthony C. Staniak: The question is just when.

Speaker Change: The question is just when right.

Barton Crockett: Okay, all right, that's helpful. Now, I wanted to switch gears a little bit. You know, the economic environment, interest rates seem to be staying higher for longer. You guys touched on this a little bit before, but I wanted to drill on it in a little bit more detail. Is this having a meaningful impact on your financial services?

Speaker Change: Okay, Alright, that's helpful now.

Speaker Change: I wanted to switch gears a little bit.

Speaker Change: Uh huh.

Speaker Change: Economic environment.

Speaker Change: Interest rates seem to be staying higher for longer.

Speaker Change: You guys.

Speaker Change: Touched on this a little bit before but I wanted to drill on that a little bit more detail that.

Speaker Change: Is this having a meaningful impact this kind of higher interest rate environment on your financial services.

Speaker Change: We're trying to get better.

Speaker Change: A point of some difficulty earlier and.

Speaker Change: Mortgages auto loans I would think would be impacted that affect you guys potentially but you seem to indicate some optimism. There. So I was wonder if you could talk about what youre seeing there.

Joel Quadracchi: Yeah and I think I was hitting on this before but you know also keep in mind in that was a was a big loss of a piece of work because of a large bank exiting going into consumer banking and so that one was a little bit different in that but it was meaningful to us because we did a lot of work for them and so that was just a change but I'd say that yeah like the you know the lending club type of work the car loan stuff is probably lagging a bit whereas just marketing for you know other parts of financial services and another place of interest is you know I think the insurance industries where there's a fair amount of activity for us as we think forward on the direct mail side yeah yeah I was going to get a good ad there on direct mail at the end I was going to say the same you know that's pardon if you look at our revenue pie chart direct mail is 12 percent of our revenue mix and that's you know to give you some scale that's primarily where this pressure is concentrated

Speaker Change: Yeah, and I think I was hitting on this before but also keep in mind in that was it was a big.

Speaker Change: Loss of a piece of work because of the large bank exiting going into consumer banking.

Speaker Change: And so that one was a little bit different in that but it was meaningful to us because we did a lot of work for them.

Speaker Change: And so that was just a change, but I'd say that yes, the lending club type of work.

Speaker Change: The car loan stuff is probably lagging a bit.

Speaker Change: As just marketing for other parts of financial services and the other place of interest as you know I think the insurance industries.

Speaker Change: There's a fair amount of activity for us as we think forward on the direct mail side, Yeah got it got it got it could add that directly, albeit I was going to say the same bye.

Speaker Change: And if you look at our revenue Pie chart direct mail is 12% of our revenue mix and that's to give you. Some scale, that's primarily where this pressure is concentrated.

Anthony C. Staniak: Okay, that's helpful. And then, you know, taking a look at your guidance for the year, so you guys are reiterating the guidance for net sales down 5 to 9 percent, adjusted EBITDA at the low end, kind of, I think, down 12 percent, and at the high end, up 5 percent. You know, that obviously suggests what you said, which is that the first quarter is the worst quarter, and things will improve over the balance of the year.

Speaker Change: Okay. That's helpful and then you know.

Speaker Change: Taking a look at your guidance for the year. So you guys are reiterating.

Speaker Change: The guidance.

Speaker Change: For net sales down 5% to 9% adjusted EBITDA.

Speaker Change: At the low end kind of I think down 12% at the high end up 5%.

Speaker Change: On that one.

Speaker Change: Obviously suggests what you said, which is the first quarter is the worst quarter. It makes a lot prove over the balance of the year.

Speaker Change: But I wanted to get a.

Anthony C. Staniak: But I wanted to get a little bit more, kind of, finer point on the improvement that you're seeing. Do you see positivity in your outlook for the balance of the year and any of these quarters to come in revenue or EBITDA, do we see growth in this outlook that you're giving for the year?

Speaker Change: Little bit more kind of finer point on the improvement that you're seeing do you.

Speaker Change: Do you see.

Speaker Change: Positivity in your kind of outlook for the balance of the year in any of these quarters to come in revenue or EBITDA do we see growth in this outlook that you're giving for the year.

Anthony C. Staniak: I'll say, Martin, that implicit in our guidance or the midpoint of the guidance is $225 million of adjusted EBITDA. It's down $9 million from 2023. Our first quarter was down $9 million in EBITDA from 2023, right? So what we're inherently saying there is that the rest of the year will have flat adjusted EBITDA. In some of those quarters, I think you could see year-over-year increases, but when you look across the remaining nine months, you're going to see, we think you're going to see stable adjusted EBITDA.

Speaker Change: Yeah, I'll save Martin that.

Speaker Change: Implicit in our guidance or the midpoint of the guidance is $225 million of adjusted EBITDA. It's down 9 million from 2023, our first quarter was down 9 million EBITDA from 2023, right. So what we're an inherently saying there is that the rest of the year, we will have flat adjusted EBITDA and some of them.

Speaker Change: Quarters, I think you did see a year over year increases, but when you look across the remaining nine months, you're going to see we think you're willing to see stable adjusted EBITDA.

Barton Crockett: Okay, all right, that's helpful. And then just, I guess, one final thing. You guys were talking about the in-store network opportunity. Is that a CapEx? Do you guys...

Speaker Change: Okay, Alright, that's helpful and then.

Speaker Change: Just I guess one final thing you guys were talking about the in store.

Speaker Change: Network opportunity.

Speaker Change: It's not a capex do you guys put those screens in and fund that through your Capex or are your partners.

Barton Crockett: Put those screens in and fund that through your CapEx or your partner's. Paying for that, essentially, and this is maybe a pass-through cost. And who actually owns those screens? Does the store own them, or do you own them?

Speaker Change: For that essentially and this is maybe a pass through cost and who actually owns the screens as the store on them or do you own them.

Joel Quadracchi: to understand a little bit better the type of out-of-home network you're looking to create here.

Speaker Change: Just trying to understand little bit better the type of out of home network you are looking to create here.

Joel Quadracchi: Yeah, there's probably going to be a couple models, so a mix of that, and we will be fronting some of the CapEx and owning the screens for some of them, but we get paid for that. And so it's stuff that the revenue itself helps offset. In other cases, they want to control it, and they want to do it.

Speaker Change: Yes, there there's going to be probably a couple of models or a mix of that.

Speaker Change: And you know.

Speaker Change: We will be fronting some of the capex and owning the screens for some of them, but get paid for that and so its stuff that the revenue itself helps helps.

Speaker Change: To offset in other cases, they want to control it and they want to do it we have an existing customer who is fronting the capex for that and has for some time through our acquisition of Dart.

Joel Quadracchi: We have an existing customer who is fronting the CapEx for that and has for some time through our acquisition of DART. But it's not, it's not, this is not, you know, like buying a printing press. It's not that as significant as some of the CapEx we do elsewhere.

Barton Crockett: Okay. All right.

Speaker Change: But it's not it's not this is not like buying a printing press its not that as significant as some of the capex, we do elsewhere.

Barton Crockett: Glad to hear that on the screens. And great. Thank you very much. I appreciate it.

Speaker Change: Okay Alright.

Speaker Change: I'm glad to hear that all the screens and a great. Thank you very much I appreciate it.

Operator: Thank you, Barton. Thank you, Barton.

Speaker Change: Thank you Barton Thanks Barton.

Speaker Change: Operator.

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

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Joel Quadracchi: Well, thank you everyone for joining today's call. We look forward to seeing you in future quarters. Have a good day.

Speaker Change: Well. Thank you everyone for joining today's call. We look forward to seeing you in future quarters have a good day.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.