Q4 2024 Quad/Graphics Inc Earnings Call
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May press star and one to withdraw your question you May Press Star two.
Speaker Change: Please also note today's event is being recorded.
Speaker Change: At this time I'd like to turn the floor over to Katy Krebsbach.
Speaker Change: QUADRA Investor Relations manager Katie. Please go ahead.
Speaker Change: Thank you operator, and good morning, everyone with me today are Joel QUADRA cheap <unk>, Chairman, President and Chief Executive Officer, and Tony <unk>, Chief Financial Officer.
Speaker Change: Joel will lead today's call as the business update and Tony will follow with a summary of quad fourth quarter and full year 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.
Speaker Change: And in today's slide presentation on slide two quad 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.
Speaker Change: 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 will be available on the investors section of Quad Com. Shortly after our call concludes today I will now hand over the call to Joe.
Joe: Thank you Katie and good morning, everyone I'm pleased to share how we are continuing to build momentum as a marketing experience or amex company that solves complex marketing challenges for our clients.
Speaker Change: Beginning on slide three I'm proud of the strategic and financial progress. We made in 2024 as we continued to advance on our revenue diversification strategy and return to net net.
Speaker Change: Net sales growth, which we estimate will happen between 2027 and 2028.
Speaker Change: Our full year results reflect our disciplined operating performance, including increased profitability building margins and continued strong cash flow generation that we used to further reduce debt. Despite the expected decrease in net sales.
Speaker Change: Specifically adjusted EBITDA margin increased by 48 basis points to eight 4% in 2024 compared to seven 9% in 2023.
Speaker Change: We also generated $56 million of free cash flow as well as $71 million of cash from asset sales to further strengthen our balance sheet, including reducing our net debt leverage to 1.6 times.
Speaker Change: Since January one 2020, we have decreased net debt by $684 million, representing a 66% reduction as part of our multiyear debt reduction strategy.
Speaker Change: In 2024, we also continued to return capital to shareholders through our quarterly dividend.
Speaker Change: As announced last week, we increased our quarterly dividend by 50% to seven and a half cents per share or <unk> 30 per share on an annualized basis.
Speaker Change: We will also continue to be opportunistic in terms of future share repurchases.
Speaker Change: Turning to slide four we show our progress on our revenue diversification strategy into higher value higher margin offerings between 2018, and 2020 for integrated solutions and targeted print increased as a portion of total net sales representing 65% of net sales in 2024 compared to 54.
Speaker Change: Percent of net sales in 2018.
Speaker Change: Our integrated solutions include agency offerings through our rise media agency and Betty Creative agency well targeted print comprises catalogs direct marketing packaging in store signage and displays and special interest publications.
Speaker Change: By 2028, we expect integrated solutions and targeted print will represent 78% of total net sales as we further diversify our revenue and clients into higher margin offerings.
Speaker Change: We will also continue to manage organic declines in large scale print, specifically retail inserts magazines and directories.
Speaker Change: Finally for four international print, we expect continued growth in Latin America, especially in Mexico, which is a strategic extension of our U S platform, partially offset by the expected early 'twenty 'twenty five divestiture of our European operations.
Speaker Change: As we shared at our November Investor day, with our revenue diversification strategy, we estimate in our mid term outlook. It returned to net sales growth between 2027 and 2028, what we're calling the net sales inflection point.
Speaker Change: We also project that with a net sales shift to higher margin offerings combined with continued disciplined cost management. Our 2028, adjusted EBITA margin will be at least 100 basis points higher than the eight 4% adjusted EBITDA margin, we achieved in 2024.
Speaker Change: Turning to slide five as a company founded on creating a better way we continue to use every tool at our disposal to improve the markers experience.
Speaker Change: Our <unk> solution suite features a comprehensive range of marketing and print services that seamlessly integrate creative production and media solutions across online and offline channels.
Speaker Change: Supported by data driven intelligence and state of the art technology, we tailor our solutions to each client's objectives with a results driven approach that is flexible scalable and connected.
Speaker Change: Not only are we able to remove friction from whatever wherever it occurs and the marketing journey, we also optimize media and marketing performance through integration.
Speaker Change: Our approach improves outcomes for our clients as they move across all channels.
Speaker Change: It also sets a new industry standard.
Unlike competitors, who focus on the performance of individual channels and agency capabilities very much a siloed approach. We ensure all parts worked together seamlessly to maximize results.
Speaker Change: On slide six I'm proud to share how we are continuing to enhance our solutions through the power of our proprietary household base data stack.
Speaker Change: For the modern Merck her nothing matters more than audience data is.
Speaker Change: It's core to doing business and we have built a superior data stack for smarter audience intelligence and activation across all media channels, both online and offline.
Speaker Change: What makes our data stack different and we believe better is it's anchored in physical household centric data.
Speaker Change: This is a more accurate and resilient data source and digital alternatives like cookies or device, Ids, which cookie and frequently change will become obsolete or may not even be attached to a real person.
Speaker Change: Our data stack, which is built on transparency trust and respect her privacy represents 250 million consumers or 97% of the adult U S. Population. It's comprised of more than 3 billion data points that are rebuilt it weekly and the bodies more than 20000 attributes including demographic trends.
Speaker Change: Actional attitudinal and behavioral characteristics.
Speaker Change: Most significantly it also includes proprietary identifiers related to consumer interest or as we like to call them passions that helped to drive deeper more meaningful consumer engagement and improved business outcomes.
Speaker Change: These passions are unique to quad and are linked to our mail stream data. So we know exactly what is being requested in home and therefore of interest and value to the recipient.
Speaker Change: What's more we can link household data with all media channels for even smarter audience intelligence activation and integration.
Speaker Change: We continue to invest in our data stack to ensure it meets our clients' ever evolving needs and to maintain our competitive differentiation, notably.
Speaker Change: Notably our data stack features an open architecture, meaning we can easily ingest supplemental data from clients and vendor partners and add new capabilities and functionality. For example, we just added transactional data for more than 1000 brands, which provides valuable insights on customer behaviors trends and.
Speaker Change: Patterns.
Speaker Change: We also have made investment to ensure our data stack as future focused and are you ready.
Speaker Change: As we shared at our November Investor Day, we have entered into a partnership with Google cloud to leverage AI optimization capabilities in large language models we.
Speaker Change: We intend to create new AI, driven solutions that tap into our data stack and seamlessly connected with clients creative and media assets to further enable personalization at scale.
Speaker Change: Our AI solutions will also include streamlined access to clubs audience targeting capabilities.
Through these efforts, we are creating multiple monetization opportunities such as a sales tool that acts as a point of entry for our entire IMAX solution suite of self service tool for clients, who are looking for audience intelligence.
Speaker Change: And leveraging our capabilities with our agency partners.
Speaker Change: When it comes to activating our data we've been very purposeful to eliminate the hidden fees markers, often incur including the tech tax typically paid to data onboarding platforms that connect control and activate data.
Speaker Change: In this way, we are able to maximize our clients' dollars in working media.
Speaker Change: Our transparent approach is also channel agnostic, meaning we activate our data in any media channel online or offline based on what is best for achieving our clients' business objectives.
Speaker Change: Not only are we able to help our clients expertly leverage and all addressable channels, such as search social video display email direct mail and catalogs, but we also have improved the addressable witty of traditional mass channels, such as TV radio and out of home through precise geographic and other audience targeting capabilities.
Speaker Change: In 2025 and beyond we will continue to invest in our data stack and related media capabilities to drive new revenue streams.
Speaker Change: Turning to slide seven our powerful data capability is at the core of our <unk> solution suite and enabled by technology to help our clients connect the right message with the right audience at the right time, whether in the home in store or online.
Speaker Change: Put simply we connect brands and marketers with audiences and distinctive ways that drive engagement and results.
Speaker Change: We recently launched at home connect which modernizes, the direct mail channel with an intelligent automated platform that connects online engagement and offline impact.
Speaker Change: Our platform makes it easy for marketers to create meaningful audience connections through a trigger based personalization personalized direct mail that is informed by online consumer interactions or special life of bets all with the scale automation and efficiency of digital marketing.
Speaker Change: We built at home connect seamlessly interface with a wide range of client marketing automation platforms, like Salesforce and hub spot and manage everything from personalization to printing mail sorting and in home delivery.
Speaker Change: When used as part of an Omnichannel campaign, our platform helps marketers drive consumers further a longer purchasing journeys converting abandon online shopping cards into completed sales winning back lapsed customers encouraging the purchase of additional or upgraded items and more.
Speaker Change: Our solution also addresses digital fatigue with consumers and counter the upwards of 10000 digital ads and emails everyday it is increasingly difficult for marketers to cut through the media clutter and create meaningful audience connections.
Speaker Change: At home connect solves for this challenge.
Speaker Change: We are pleased by the strong interest we are already seeing among our clients for this innovation.
Speaker Change: While at home could exports timely connections in the home or in store connect solution drives consumer engagement and brick and mortar stores or approximately 80% of all retail sales still happen.
Speaker Change: Turning to slide eight in store connect taps into the boom of retail media networks or our mens which are heralded as the next big advertising channel in fact E marketer predicts AD spend and Omnichannel arm ends will grow to nearly $100 billion by 2028.
Speaker Change: In store connect is an important and growing subset of omni channel, our mens and builds on our deep expertise with retailers and consumer packaged goods companies.
Speaker Change: To remind you in store connect delivers engaging messages and promotions across the shopper journey, including the store aisle. The most critical moment in the purchasing experience over the past year Quad is focused on building out a nationwide network of mid market grocery clients, including the save Mark companies the largest private regional gross around the west coast.
Speaker Change: Which launched in 15 stores in Q3 of 2024 and intends to expand to additional stores. This spring and Oklahoma based homeland stores, which launched in 15 stores in Q4 of 'twenty 'twenty four and it's delivering promising initial results.
Speaker Change: In addition, we are currently in the process of Onboarding, Our first Midwest base Grocer banner bragging in store connect to three of our targeted six markets within a year of launch.
Speaker Change: We look forward to building on that sales momentum already in place.
On slide nine we are pleased to provide an update on our brand design work for title list the golf industry, leading performance brand.
Speaker Change: Title list engaged favorite child, the brand design arm of a Betty creative agency to redesigned the packaging for its flagship probie, one and pro V. One ex golf balls, which debuted in market last month.
Speaker Change: The bold new packaging features a singular tactile mono line inspired by the excellence and rigor that title is places into developing its golf balls.
Speaker Change: The model I also translates nicely into the launch campaign is a tracing line for the balls flight path.
Speaker Change: As part of the design process, we utilize quasi proprietary accelerated marketing insights platform to pre market test creative messaging and packaging.
Speaker Change: Our research included conducting consumer interviews and surveys to understand design preferences and analyzing shopper behavior in March retail setting to validate the final designs effectiveness on store shelves.
Speaker Change: Feedback from a crowd from a cross section of dedicated golfers was positive with several noting that the packaging is refined design really set it apart from the busyness of other brands.
Speaker Change: On slide 10, we share a landmark win for a rise media agency with Gallo's spirit of Gallo the fourth largest spirits supplier by volume in the United States.
Speaker Change: The company, which owns iconic brands such as high noon, new Amsterdam, and rum charter with searching for a strategic partner to advance brand awareness through media strategies tailored to local markets needs.
Speaker Change: Our data stack was foundational in securing this new work.
Speaker Change: During the pitch process, we created a customized dashboard that identified targeted audiences at bolt.
Speaker Change: Household and ZIP code level.
Speaker Change: We identified the best target audience based on a combination of demographic and transactional data as well as the insights gleaned from consumer surveys.
Speaker Change: Our media planned future the individual and collective strength of three channels out of home social and connected TV.
Speaker Change: This approach helped our clients stand out among its competitors.
Speaker Change: As a family run business spirit of Gallo seatbelt vendors, who reflect its company values quads.
Speaker Change: Quads culture, and long held value of do the right thing really resonate with the client as demonstrated by our commitment to radical media transparency and accountability Spa.
Speaker Change: Spirit of Gallo knows that it spend is being invested directly into working media and not in excess production in processed foods.
Speaker Change: We are excited to be under a multi year contract with this premier brand and look forward to sharing updates with you on future calls.
Speaker Change: Turning to slide 11, we share. Another example of Quad is leveraging our data stack to help clients make more informed impactful marketing decisions.
Speaker Change: <unk> foods is a fast growing direct to consumer company specializing in gourmet snack brands.
Speaker Change: Historically, the company relied on a mix of digital and broadcast media to drive engagement and sales on its e-commerce sites like licorice dotcom and chocolate dotcom.
Speaker Change: It approached quad looking to understand how it might use print media to improve its customer acquisition and sales efforts.
Speaker Change: Our expertise in the audience intelligence, coupled with print manufacturing and activation positioned us as goats ideal strategic partner.
Speaker Change: Leveraging the power of quads data capabilities, including our proprietary household base data and go its own first party data, we determined the optimal mix of households, and prospecting names to send the clients first ever holiday catalog in 2024.
Speaker Change: At our recommendation to catalog featured flow codes are privacy for QR technology for instantly driving engagement, capturing data and delivering results are.
Speaker Change: Our audience targeting capability and offline to online approach was extremely effective with the first two mailings delivering a 9.5 times return on spend.
Speaker Change: We are further bridging offline and online media channels for gold foods by sending targeted direct mail postcards to individuals who have shown purchasing interest online, but have not yet completed a purchase.
Speaker Change: So it is extremely pleased with our partnership in his initial catalog results. We look forward to applying findings from our most recent work to further enhance the clients' omnichannel strategy in 2025.
Tony: Before I turn over the call to Tony.
I'd like to take a moment to thank our employees for their continued hard work and commitment to innovating for our clients.
Tony: Through their efforts, we are simplifying the complexities of marketing and driving better business outcomes in other words, we optimize media and marketing performance through our integrated approach I am proud of our team and our futures and Amex company with that I will now turn the call over to Tony for the financial review.
Tony: Thanks, Joel and good morning, everyone. Slide 12 provides a snapshot of our fourth quarter and full year 2024 financial results.
Tony: Net sales were $708 million in the fourth quarter of 2024, a decline of 10, 1% compared to the same period in 2023 for the full year net sales were $2 $7 billion in 2020, a nine 7% decline compared to 2023.
Tony: The net sales decrease in both periods was primarily due to lower paper sales and lower volumes, including the impact from client mix and increased script volume that has a lower unit price with a higher profit margin.
Tony: As well as lower agency solution sales, including the loss of a large grocery client.
Tony: Volumes in the first half of 2024 compared to the first half of 2023 were also adversely impacted by postal rate increases as well as elevated interest rates, which led to a decrease in financial services direct mailings.
Tony: Adjusted EBITDA was $63 million in the fourth quarter of 2024 as compared to $66 million in the fourth quarter of 2023, and adjusted EBITDA margin increased 50 basis points from eight 3% to eight 8% for the full year adjusted EBITDA was $224 million in 2020.
Tony: Compared to $234 million in 2023, driven by lower net sales and $11 million of unfavorable foreign exchange impacts and our SG&A expenses. However, full year adjusted EBITDA margin improved by 48 basis points from seven 9% to eight 4% the margin.
The increase in both periods was primarily due to benefits from improved manufacturing productivity and savings from cost reduction initiatives.
Tony: Adjusted diluted earnings per share was 36 cents in the fourth quarter of 2024 increased from 23 cents in the fourth quarter of 2023 due to higher adjusted net earnings for the full year adjusted diluted earnings per share was <unk> 85 cents in 2024 increased from 52 cents in 2023, primarily due to higher.
Tony: Adjusted net earnings as well as the beneficial impact of a lower share count due to stock buybacks.
Tony: During 2022, and 2023, we repurchased approximately 11% of our total outstanding common stack quad.
Tony: <unk> Board of directors authorized a share repurchase program of up to $100 million of our outstanding class a common stock in 2018.
Tony: As of December 31, 2024, there were $77 $5 million of authorized repurchases remaining under that program.
Tony: We resumed share repurchases in 2025 buying back 28000 shares thus far and we expect to continue to be opportunistic in terms of our future share repurchases.
Tony: Free cash flow was $56 million in 2024 as compared to $77 million in 2023, the decline in free cash flow was primarily due to a $35 million decrease in net cash provided by operating activities, mainly driven by reduced working capital benefits.
Tony: Partially offset by a $14 million decrease in capital expenditures.
Tony: As we have previously shared we will continue to generate proceeds from asset sales. In addition to the strong free cash flow generated by our large printing operations as shown on slide 13, we.
Tony: We generated over $780 million of free cash flow and proceeds from asset sales from 2020 to 2024.
Tony: Asset sales include divestitures of certain noncore portions of our business as well as sales of property plant and equipment from closed facilities. We continue to make progress on the sale of our European operations to Cat Mone, and we expect to complete the sale in early 2025, we also expect to generate further cash proceeds in 2025 from the sale of four one to me.
Tony: Any manufacturing facilities, we closed in 2024.
Tony: This strong cash generation fuels, our capital allocation strategy as shown on slide 14, with a net debt leverage at a low one six times as of December 31, 2020 Boy, we are shifting our capital allocation priorities.
Tony: 2020 through 2024, our top capital allocation priority was reducing debt in.
Tony: In 2025, we are increasing our investments in innovation and capital expenditures, which we expect will be our largest use of cash.
Tony: We are also increasing our quarterly dividend and maintaining low debt leverage as announced last week on February 13, with our board of directors approved a 50% increase in our regular quarterly cash dividend from <unk> <unk> per share or <unk> 20 per share on an annualized basis to seven and a half cents per share or <unk> 30 per share on an annualized basis.
Tony: Representing a sustainable $5 million increase in expected cash dividend payments in 2025 compared to 2024.
Tony: We are pleased to return capital to shareholders through the quarterly dividend and opportunistic share repurchases.
Tony: We show the results of our multiyear debt reduction strategy on slide 15. During 2024, we reduced net debt by $120 million and from 2020 to 2024, we reduced debt by $684 million or 66% reduction from over $1 billion of debt. We had on January one two.
Tony: <unk> 'twenty, we intend to further reduce debt leverage to approximately one five times by the end of 2025.
Tony: Slide 16 includes a summary of our debt capital structure at the end of 2024, our debt had a blended interest rate of seven 7% of total available liquidity, including cash on hand was $328 million.
Tony: Given uncertainty regarding interest rates, we entered into two interest rate collar agreements for $150 million notional value effective February one 2023, the interest rate collars cap our exposure if we were to return to a rising rate environment.
Tony: And with the collar instruments, we also benefit from all interest rate reductions down to approximately 2% sulfur.
Including these interest rate collars.
Tony: Lower interest expense on 83% of our year end 2024 dead, if the fed decreases race.
Tony: Finally, as a reminder, during the fourth quarter, we extended our $690 million term loan and revolving credit agreement with the ongoing long term support and partnership of our Premier Bank good.
Tony: Our next significant maturity of $193 million is now not due until October 2029.
Tony: We share our 2025 guidance as shown on slide 17, we expect organic net sales declined 2% to 6% compared to 2024, excluding $153 million up 2024 net sales from the express expected divestiture of our European operations, the 4% decline at the midpoint of the.
Tony: Guidance range represents sequential improvement from the nine 7% net sales decline from 2023 to 2024 as we expect a higher growth rate in our agency solutions targeted print and international print offerings compared to 2024.
Tony: Looking at the first quarter of 2025 net sales in January and February will be impacted by the 'twenty 'twenty four loss of a large grocery client, which will annualize beginning in March 2025.
Tony: Full year 2025, adjusted EBITDA is expected to be between $180 million and $220 million with $200 million at the midpoint of that range, representing a $24 million decline from 2024 and adjusted EBITDA.
Tony: The expected decline in adjusted EBITDA in 2025 compared to 2024 is due to one the divestiture of our European operations to lower net sales and three increased investments in innovation and our offerings to drive future revenue growth.
Tony: Despite lower adjusted EBITDA, we expect our adjusted EBITDA margin to be similar to 2024 levels due to increased net sales in our higher margin offerings and continued disciplined cost management, resulting in a projected 2025 adjusted EBITDA margin of eight 3% at the midpoint of our guidance ranges compared to $8 four.
Tony: Adjusted EBITDA margin in 2024.
Tony: Within 2025, we anticipate lower adjusted EBITDA in the first half of the year due to seasonality and the impact on January and February from the loss of a large grocery client and then we expect higher adjusted EBITDA in the second half of the year during our seasonal production peak.
Tony: We expect 2025 free cash flow to be in the range of $40 million to $60 million with $50 million at the midpoint of that range, representing a $6 million decline compared to 2020 for free.
Tony: Free cash flow will decrease from 2024 due to higher capital expenditures the divestiture of our European operations and the impact of lower sales, partially offset by lower interest payments from reduced debt balances and lower restructuring payments due to four plant closures that occurred from November 2023, eight to January 2024.
Tony: In 2025 free cash flow will be weakest in the first quarter due to the timing of investments in our people in the form of annual bonuses embolic matching payments as well as the timing of working capital, which this year includes proactive inventory purchases of paper and other materials made in advance of potential tariffs. We are closely monitoring the potential.
Tony: Impacts of tariffs on our business and on behalf of our clients and we will continue to review alternative sourcing options to help mitigate future risks.
Tony: As a reminder, the company historically generates the majority of its free cash flow in the fourth quarter of the year.
Tony: With this strong cash generation, we will increase our growth investments and maintained low debt leverage capital expenditures are expected to be in the range of $65 million to $75 million approximately $13 million higher than 2024 at the midpoint of our 2025 guidance range. In addition, our net debt net.
Tony: Net leverage ratio is expected to decrease from one six times at the end of 2020 bar to approximately one five times by the end of 2025, achieving the low end of our long term targeted net debt leverage range of one five times to two point all jobs. As a reminder, we may operate above this range at certain times of the year due to the season.
Tony: <unk> of our business.
Tony: Slide 18 includes our key investment highlights as we continue to build on our momentum as a market with an experienced company as we shared at our November Investor Day, 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 in clients.
Tony: Our expanded offerings such as at home connect in store connects and our proprietary household base data staff discussed earlier, there was a significant addressable revenue opportunity with both our large base of 2005 hundred existing clients as well as new clients.
Tony: In addition, our strong cash generation will continue to fuel our capital allocation priorities include investing in innovation and scaling our offerings to drive future revenue growth, maintaining low debt leverage and increasing returns to our shareholders through our next quarterly dividend of $7.05 per share payable on March 14th we also expect to continue to.
Tony: The opportunistic in terms of our future share repurchases with that I'd like to turn the call back to our operator for questions.
Speaker Change: Ladies and gentlemen at this time I'll begin that question and answer session to ask a question you May press star and one to withdraw your question you May press Star and two.
Tony: If you are using a speakerphone.
Please pick up the handset prior to pressing the keys to ensure the sound quality.
Tony: Once again that is star and then one to join the question queue.
Speaker Change: Our first question today comes from Kevin <unk> from Barrington Research. Please go ahead with your question.
Tony: Good morning, Kevin.
Kevin: Good morning.
Tony: I wanted to start out by asking about.
Tony: You're shifting capital allocation priorities and.
Tony: You mentioned.
Tony: Increasing growth investments.
Tony: In 2025.
Tony: Can you maybe just update us on the plans are for growth investments and the types of investments you're thinking about is is 2025 progresses.
Tony: Hey, Kevin This is Tony I'll start out on that and Joel may weigh in a little bit on this one too but you know when we first think about our capital expenditures last year $57 million. This year at the midpoint of the guidance range $70 million that includes expanded investments in technologies, such as AI that we talked about during the call.
Tony: <unk> as well as our in store connect offering as we're installing screens that we own into the grocery store and other retail environment. So.
Tony: That is increases in Capex and then in addition, when you look at our operating expenses. There is also increased investments in labor as we scale our offerings.
Tony: That it comes through the EBITDA line as compared to Capex. So I think when you look at the data stack.
Tony: Add on connect in Star connect all of those offerings, we're putting money behind to generate future revenue growth.
Tony: Okay sounds great.
Tony: And maybe.
Tony: Walk us through.
Tony: The you.
Tony: The organic outlook for 2025 and as you noted.
Tony: Four 2% decline at the mid point would.
Tony: Represent sequential improvement versus our 2024.
Tony: You mentioned, you expect higher growth in agency solutions targeted print I might be missing something else, but.
Tony: Maybe talk about.
The better growth you expect in those categories and just maybe an overall flavor for the demand environment in terms of.
Tony: Postal rates interest rates et cetera.
Tony: Okay, Kevin and I'm glad you asked that question I mean going from 23 to 24 was a nine 7% decline in revenue. This next year minus 4% decline in 2025 part of the path that we talk about getting to the inflection point in 2028, right. So from a revenue standpoint showing good.
Tony: I guess on that front.
Tony: We are looking for increases in revenue and expecting increases in revenue in our agency solutions business. Our international print business you didn't mention that one but Mexico, we expect a good growth year from we're already seeing strong printing volumes coming from Mexico and in the educational books that we export into the U.
Tony: Yes.
Tony: And as well with targeted print we've got good momentum in direct mail and expecting big years also in our in store and packaging units.
Tony: So we think all of those have good success and then you know as we talk about on the other side of the coin. We've got the large scale print units, primarily retail inserts that basis organic decline.
That we have to offset yeah, and I would also add onto that that remember things like our data stack. It's not just that we get revenue from the data stack itself, which we do every time those.
Tony: Did that data those names are used we get we charge for that but it also drives growth into the other areas of our offering direct mail is a great example, as we use our data stack to find audience for people and then translate that into helping them use direct mail to get to them as part of that mix remember.
Tony: As we get into the French area, those invoices are much larger than the.
Tony: Agency side, so what drives good revenue and we see more of that happening in direct marketing as we go forward also as evidenced by what we did with golf brands with Liquorice Dot com.
Tony: Just reflecting a little bit back on the decline you mentioned postal.
Tony: Because.
Tony: Important event just happened.
Tony: As you'll recall in 2023, when we had a significant decline it's because the post office had two significant postal increases that you are with the unexpected one in July of that year that triggered a lot of the decline we saw.
Tony: This the postmaster General just test tendered his resignation on Monday.
Tony: He is.
Speaker Change: What does it deliver for America plan really has not worked they continue to lose money and if you look at what's happened to our customers and why we've had to manage some of this recent higher decline than we had typically seen.
Tony: From 2021 until today.
Tony: CPI increased about 16, 4% in that same period, the post office increased postal rates between 50 and 80%.
Tony: Far outpacing anything that inflation did and that has a direct impact on our customers' ability because that's the largest cost that they have.
Tony: Furthermore, we do see what was supposed to be a 9% to 10% increase in July now, they're calling it may be closer to 13% and we're doing work to fight against that at least it's a known entity.
Tony: People's planning, Unlike 2023, and so just some commentary here.
Speaker Change: He's resigned asking for the board of governors to find a new replacement.
Tony: A lot of damage has been done.
Tony: So we look forward, though to see who comes on board and how they reflect on some of the the past practices and how that should be adjusted but I think that whenever people are under pressure on the postage thing it actually increases our ability to help them on the data side to increase that.
Tony: Sponsors in this footprint.
Tony: So we have a lot of effort right now, especially with the launch of the data stack to hit all of our existing customers that we typically in our history hasnt been involved in helping them find audience, usually they're supplying the audience to us using another agency to help them with that now we are actually aggressively going after them to help them.
Tony: Increased response, because if we can increase responsiveness of those names that audience, just a little bit we can offset the impact of those costs and so a little bit more of an answer than you wanted but some breaking news that happened Monday regarding the post office.
Tony: No absolutely that's that's really helpful insight I appreciate that.
Tony: So.
Tony: You know obviously, there is ongoing and innovation at Quad here, you talked about at home connect.
Tony:
Tony: And the strong interest you're seeing there.
Tony: Can you talk about maybe you know how you monetize that is that just a tool to help you drive.
Tony: War direct mail volume from your clients or is that kind of a service they would they would pay for them just try to.
Tony: See how the economics work for your business.
Tony: Yeah, it's all of the above I mean, it's linked to two or.
Tony: Our tech technology tools, but also to our data stack, because it's really allowing them as they see things happened with people that they are reaching out to the audience that they are hitting in any channel, where we can automatically get those signals and targeted direct.
Tony: Direct mail pieces automatically very personalized and some of the past investment we've done a lot of investment we've done is in being able to do highly personalized direct mail. So when we think about traditional direct mail. It's like same thing to everybody. When we think about like the direct mail, we do for Kroger company.
Tony: Every piece is completely personalized and some of the same holds true with the trigger based program, where you can almost automatically as those signals come in trigger an offer based on what that signal was for that specific consumer and so obviously, we it's part of a greater omni channel approach as we're helping them manage across.
Tony: All channels and this one just helps you activated more so we do get revenue on all of the stack, including the higher.
Tony: Revenue bucket of direct mail.
Tony: Okay great.
Tony: You talked about tariffs there in analyzing the potential impact can you just.
Tony: Review, maybe your exposure there.
Tony: It sounds like you're still expecting.
Tony: Good growth out of Mexico, but any any thoughts on potential.
Tony: The impact there and.
Tony: Having to pass on price increase or.
Tony: Pricing et cetera.
Speaker Change: Yeah, I'd say that if you think about where would be the biggest impacts of a tariff in North America meeting mix, Mexico, or Canada, It's actually would be a 25% tax on Canada, if that were to happen.
Speaker Change: Because as Brent has consolidated so as the paper industry.
Speaker Change: And now much of the paper that we use for a lot of our marketing clients you can only get mostly in Canada and can no longer get in United States and so there is no replacement opportunity for that so if there were to be a big tariff that was put on.
Speaker Change: It would impact paper now I'll remind you that paper is a pass through to our clients. So we don't incur that risk. However, if you were to incur that you would maybe see some indirect further pressure on volume.
Speaker Change: Now what we have done for many of our clients as we bought forward.
Speaker Change: Canadian paper that we believe will allow us to weather, what we think would be more of a short term storm as the North America tariff game plays out.
Speaker Change: It were longer term and they stuck to a significant tax then we would look to further help our clients.
Speaker Change: To mitigate that through more clever uses of.
Speaker Change: Marketing too to offset that big increase, but we feel in the short term we've been able to mitigate that we really don't have much.
Speaker Change: Exposure to China.
Speaker Change: Not directly but maybe just curious how some of our clients source product, but not not not for US and then Mexico. Our biggest exposures that we do export some books from Mexico into the United States.
Speaker Change: That ultimately, we probably could find a solution for in the United States if that happened in the short term.
Speaker Change: [laughter].
Speaker Change: Okay great.
Speaker Change: So.
Speaker Change: 'twenty 'twenty four was.
Speaker Change: It was a good year in terms of improve.
Speaker Change: Improved manufacturing productivity and cost savings are there any you.
Speaker Change: You know meaningful buckets of savings, we should think about in 2025.
Speaker Change:
Speaker Change: Just or is it just kind of ongoing you know diligence with regard to costs.
Speaker Change: Just just try to think through.
Speaker Change: The expense side.
Speaker Change: As we move throughout 2025.
Speaker Change: Yeah, I think as you've seen we're always on a continual cost management cycle, especially as we've learned to deal with declining volumes, what our manufacturing group, who has a significant amount of the revenue have done is truly amazing every time I think that they can figure more stuff out they do.
Speaker Change: And thats from things like how we manage labor how do we rethink how we adjust very quickly and how we manage labor when the peaks and valleys that are sort of the trends that happen year over year keeps changing because it's a dynamic marketing environment. So they become just very very flexible in how they do this and obviously.
Speaker Change: We've had to close plants over time to adjust for volume, which we don't like to do but we've been able to do in the past we don't foresee.
Speaker Change: Anything significant in the coming year and that that place.
Speaker Change: But.
Speaker Change: I would also tell you that.
Speaker Change: <unk>.
Speaker Change: We invest in things like AI and always we specifically talked about AI as it relates to the data stack. We are also doing a lot of projects using AI to decrease the amount of labor being required in things like content creation were things that were typically done manually can be more automated.
Speaker Change: We've done more shifting sort of some services into India, where we have a wonderful wonderful talented group of people, who can do content that does have to be done at a hands on and so I think as a as a lean enterprise company for a long time he was in a tough industry.
Speaker Change: We've become very good at continually defined cost take out and we will continue on that path.
Kevin: And Kevin We think we continue to challenge ourselves as well to streamline administrative operations through AI and technology, what can we do from a systems perspective to make things smoother.
Kevin: Okay sounds good I'll turn it back over thanks for taking the questions.
Speaker Change: Thanks, Kevin.
Kevin: Operator.
Speaker Change: Our next question comes from Barton Crockett from Rosenblatt. Please go ahead with your question.
Barton Crockett: Thanks Scott.
Barton Crockett: Good morning, Thanks for taking the question.
Barton Crockett: I was wanting to ask to get a little bit kind of.
Barton Crockett: A clear sense of what Youre seeing for revenue trend as we start the year.
Barton Crockett: Got some volatility I mean, the fourth quarter was down 10% year over year in the third quarter was down.
Barton Crockett: Three 6% year over year.
Barton Crockett: You're guiding for this improved trend over the course of 2025.
Barton Crockett:
Barton Crockett: How should we think about the revenue trends here in the beginning of 2025 here in the first quarter.
Tony: Yeah. If I. This is Tony by made by started from the your comment on the third quarter versus the fourth quarter last year, we had comment that at one point that.
Tony: In the third quarter of 2023 July in particular was a weak month for US gave us a good comparable in the third quarter, which led to a lower revenue decline.
Tony: The 10% decline in the fourth quarter a.
Tony: Pretty close to what we expected and now as we go into 2025.
Tony: We still have as pointed out in the call that a headwind of two more months of the large grocer loss.
Tony: And then as Youll go throughout the year, especially in the second half of the year with a seasonal production be youll see increases in our volumes as well as you know.
Tony: Back end it increases in our agency sales for the year. So.
Tony: Art lighter and it will pick up throughout the year.
Tony: Okay. So.
Speaker Change: You can't tell us like a pacing number at this point is it down double digit or single digit.
Tony: Anything of that specificity.
Tony: Not really at this point.
Tony: I mean first quarter again going to be a lighter I think <unk>.
Tony: Comparable is something like a high single digit and then improving from there.
Tony: Okay Alright. Thank you now in terms of asset sales.
Tony:
Just wanted to.
Tony: Sure I kind of understand so.
Tony: Can you give us any sense of the.
Tony: Asset sales that are inked, but not yet booked I mean, I know you've inked the Europe sale.
Tony: Thank God you.
Speaker Change: <unk> anchor Saratoga Springs, So I'm not sure if that's been booked or not where do we stand on that on.
Tony: What you can say about cash proceeds that should come in from asset sales that you've inked, but haven't yet received.
Speaker Change: Yeah. So.
Speaker Change: I'll start off with the Saratoga Springs facility that was inked and sold completed in the late third quarter of 2024 cash received and helped out and paying down debt.
Speaker Change: During 2024.
Speaker Change: For the Europe sale that is Inc. We continue to work closely with Cat Mont.
Speaker Change: I'm getting to close we expect that in early 2025.
Speaker Change: And then on the four bill.
Speaker Change: Building sales that we still have for sale.
Speaker Change: One in Sacramento, one in walk key IOR in Chew in Effingham, Illinois.
Speaker Change: We have modeled all four of those to take place in 2025.
Speaker Change: Real estate it always depends on the market at the particular time. So we continue to make progress on those sales actively being marketed.
Speaker Change: And included in our 2025 guidance in terms of where we're going to bring net debt leverage to one and a half by the end of the year.
Speaker Change: Yeah.
But you know also just to understand that I mean, you're you're not that part of the net debt leverage calculation is down $50 million.
Speaker Change: The Uh huh.
Speaker Change: Get let's say $50 million of free cash flow, maybe $15 million of that goes out for dividend.
Speaker Change: And so at least 35 million plus the asset sales and as I understand.
Speaker Change: Your Europe sale list for over $40 million of cash to come in.
Speaker Change: We certainly see announced kind of sales price. So it seem like you could do better than this now that you've spoken about with the asset sales fully realized.
Speaker Change: Is that reasonable.
Speaker Change: Yeah.
Speaker Change: I'll just add to that I mean, our intention and we have a long term debt leverage range of one and a half to do.
Speaker Change: That not that long ago long ago was two to two and a half, but we've done a great job at reducing debt now that we're at that basically low end of the guidance range that we expect to be at by the end of this year.
Speaker Change: Maintaining dry powder for things like opportunistic share buybacks, even potentially smaller M&A that could be uses of cash. It also gives us some flex depending on how these asset sales come in and what year, they're in rate, we can adjust accordingly, so we feel comfortable giving those levers.
Speaker Change: Or is that we can say $300 million of debt at the end of the year and one and a half leverage.
Speaker Change: Okay.
Speaker Change: And then in terms of your revenue guide for the year does that.
Speaker Change: Assume that the tariff issue in Canada, which could drive up cost that my phone client demand kind of like postage has.
Speaker Change: Is your assumption that that is not a factor so that could be a negative bias if actually as it becomes permanent.
Speaker Change: I think we look at it is we feel good in the short term right and who knows how these things play out I mean, it's I think everybody's gas right now, but if if there was sort of a leveraging event, where he kicks in the 25% tariff on Canada to get more of what he wants we've already bought forward them on paper for that.
Speaker Change: If it becomes permanent.
Speaker Change: It becomes another impact that we have to think about but we hope that does not happen.
Okay, Alright, and then just.
Joel: The final thing Joel.
Joel: The postmaster general.
Any early thoughts about who's kind of get into that seat and have you heard anything any suggestion that the successor would have a different policy or approach.
Joel: Yes.
Speaker Change: First of all I'm not volunteering to be clear.
Joel: If it's at.
Joel: All happened just two days ago I've already talked to one of our senators just to make sure that they.
Joel: No the lay of the land because there are several Florida governor seats.
Joel: That are named new seats that our name, but not yet confirmed.
Joel: And those had been sitting there now Trump is in office, we don't know what people will decide to change any of those but if they are confirmed we're just trying to arm them with with database should use as they got out a new postmaster general specific to like the numbers I shared an negative impact that's had on the old office I mean.
Joel: In the normal course of organic decline.
Joel: The overall.
Joel: The per piece decline was about $1 billion six per year pieces.
Joel: From the time he started his increase its gone until today is $13 6 billion pieces.
Joel: And so obviously, a direct correlation to 80, 50% to 80% increase in price. So it's that type of perspective that we're making sure that the people who are gonna be betting the candidate understand and make sure that that's <unk>.
Joel: <unk> has done with those perspectives in mind.
Joel: This will play out for a while I suspect.
Joel: So we do not know how long it will take at this point in time.
Joel: But there is probably just the timing effects, it's not going to really have an impact on expectations for maybe a 13% rate hike mid year.
Joel: Yes, no I would say that we are proud that we are counting that that will probably go forward whatever it is whether it's 10 or 13%, where we're clearly making efforts to minimize that impact.
Joel: Okay, but I would expect I would expect that to be to go through.
Joel: Unfortunately.
Joel: Yeah, I guess I could see unfortunate that.
Joel: That can't be I've heard it I guess, but the but thanks a lot for that.
Joel: And I really appreciate it.
Barton Crockett: Thanks Barton.
Joel: Operator.
Joel: Yeah.
Joe Cudrajeev: And ladies and gentlemen that will conclude today's question and answer session I would like to turn the floor back over to Joe could rajeev for closing remarks.
Joe Cudrajeev: Thank you for joining the call today I want to close by reiterating that our integrated marketing offering continues to be a competitive differentiator and a key driver behind the momentum. We are seeing is an amex company.
Joe Cudrajeev: By providing a better marketing experience our clients can focus on delivering the best customer experience at the same time, we remain focused on enhancing our financial strength and creating shareholder value with that thank you again and have a good day.
Speaker Change: And ladies and gentlemen that will conclude today's conference call and presentation. We do thank you for joining.
Speaker Change: You may now disconnect your lines.
Joe Cudrajeev: Yes.
Joe Cudrajeev: [noise].