Q1 2025 Quad/Graphics Inc Earnings Call
Good morning, and welcome to Quad first quarter 2025 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.
A slide presentation accompanies today's webcast and participants are invited to follow along advancing the slides themselves.
To access the webcast followed the 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 todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Katie crabs, Buck Quads Investor Relations manager Katie. Please go ahead.
Katie Crabs: Thank you operator, and good morning, everyone with me today are Joel Condracky quite as chairman, President and Chief Executive Officer, and Tony Scania quite Chief Financial Officer.
Joel Condracky: Joel will lead today's call with a business update and Tony will follow with a summary of quiet first quarter financial results followed by Q&A.
Joel Condracky: 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 two.
Joel Condracky: <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.
Joel Condracky: 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.
Joel Condracky: I will now hand over the call to Joel.
Joel Condracky: 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 2025 guidance.
Joel Condracky: We continue to build momentum as a marketing experience or Amex company with a distinctive suite of solutions that seamlessly integrates creative production and media across digital and physical channels as shown on slide three.
Joel Condracky: We are committed to growing our offerings, including strategic investments in innovative solutions and superior talent, while managing for economic uncertainties.
Joel Condracky: We continue continue to closely monitor the potential impacts of tariffs and recessionary pressures on our clients businesses Quad.
Quad imports paper from Canada, as well as books, we manufacture in our own facilities in Mexico for our U S clients.
Joel Condracky: Currently these products are both compliant under the the U S. M C. A and therefore are exempt from tariffs.
Joel Condracky: Our prepared procurement teams are in various stages of evaluating a reallocating sourcing options for the remaining items in our supply chain that are affected by tariffs, which represented less than 11% of our 2020 for procurement spend including 1% of spend with China.
Joel Condracky: While pod supply chain currently has limited direct exposure to tariffs, we recognize our clients may be impacted to varying degrees. We are staying informed of our clients' supply chains for potential disruptions as well as fluctuations it's consumer demand to see how they may affect clients mission critical marketing plans.
In addition to terrorists postage continues to impact many of our clients as it represents the single largest marketing costs for mailers.
Joel Condracky: Earlier this month the U S Postal service announced details behind its next page or postal rate increase expected to take effect on July 13th.
Joel Condracky: We estimate many of our mailing clients will experience an average of 10% increase in postage costs.
Joel Condracky: Data shows that massive rate increase drive away the very volume needed to support a healthy postal service. However, the U S. P. S has agreed to test volume elasticity.
Joel Condracky: <unk>, specifically with catalogers.
Joel Condracky: Through a special nine month promotion beginning October 1st.
Joel Condracky: This promotion will provide catalogers with a 10% discount with additional U S. P. S add on promotion catalogers could realize up to 12% off published rates during the promotional period.
Speaker Change: Turning to slide four quad continues to deploy our strategic two pronged approach to help our clients mitigate the impacts of ongoing postal rate increases.
Joel Condracky: Our innovative approach focuses on maximizing savings, while increasing response rate.
Joel Condracky: In 2024, we launched household fusion a first of its kind postal optimization program that bundles multiple magazines from various publishers or catalogs from different brands destined for the same household into a single package.
Joel Condracky: We continue to see strong interest in growing participation among magazine publishers and marketing mailers and this cost reducing solution.
Joel Condracky: In addition, quad recently acquired the coal mill assets are Andrew.
Joel Condracky: Third party co mail and logistics solutions provider the acquisition benefits mailers by expanding our co mail postal Optum optimization solutions and increasing our co mail volumes, which drives additional postage savings opportunities through economies of scales for us and for the whole industry.
Joel Condracky: Moving to slide five beyond mailing efficiencies, we continue to invest in solutions that drive marketing effectiveness, which is another way to offset cost by increasing response.
Joel Condracky: To do this we have built a superior household base data stack, representing 92% of all U S households to help all marketers, including mailers create smarter audience segments that ultimately yield a higher return on investment.
Joel Condracky: We also have made investments to ensure that our data stack as future focused in AI ready, including our partnership with Google cloud to leverage its yeah, I optimization capabilities and large language models among with others.
Joel Condracky: We are creating 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: QUADRA expanded focus on generative AI is built upon decades of leveraging AI, driven robotic process automation and cognizable insights for improving everything from administrative processes to scale content creation smart planning and more.
Speaker Change: Our powerful data capability helps our clients connect the right message with the right audience at the right time, whether in the home in store or online for example, our innovative at home codec solution drives consumer engagement by modernizing the direct mail channel with an intelligent automated platform that connects online.
Speaker Change: Engagement with offline impact our solution makes it easy for marketers to trigger personalized direct mail based on online consumer interactions or life events, all with the scale automation and efficiency of digital marketing.
Speaker Change: Advancing to slide six talent continues to be a strategic differentiator for quad.
Speaker Change: We recently announced that Tim Malini, Chief client strategy and integration officer will expand his role to include President of agency solutions Tim.
Speaker Change: Tim is a well known and respected leader in the advertising and marketing services industry. He succeeds Eric Ashworth, who is moving onto another career opportunity after playing an instrumental role in quads transformation over the past 10 years, we thank Eric for his many contributions to quad.
Speaker Change: Tim is well suited to lead the next evolution of our agency solutions offering before joining Quad last November Tim served as Chief strategy and innovation Officer for Havas North America.
Speaker Change: He also has held brand strategy and executive leadership roles at all Gooey RGA and Deloitte.
Speaker Change: <unk> ability to think across agency disciplines and simplified the complexities of marketing of digital and physical media channels will further strengthen and grow our integrated data media creative and marketing services business.
Speaker Change: Moving on to slide seven we provide an update on in store connect by Quad, Our Omnichannel retail media network, which generates direct consumer connections for retailers and brands in brick and mortar stores or approximately 80% of all retail sales still occur.
Over the past year Quad is focused on building out a nationwide network for mid market grocery clients.
Speaker Change: Expanding on our strong base of regional grocers, we already have in place we added two new retailers in the west and Midwest during the quarter.
Speaker Change: Further the save Mart companies, the largest private regional gross around the West coast, which launched in store connect and 15 stores last year intends to expand to an additional stores. This spring.
Speaker Change: B our grocers, we are also helping other retailers create their own internal store in store retail media ecosystems as shown on slide eight.
Speaker Change: For instance, one of the nation's largest home improvement retailers installed more than 550 of our digital screens and approximately 100 of its stores with our support the client is elevating the shopper experience by deploying targeted engaging content directly in aisle. The most critical moment in the purchasing experience.
Speaker Change: This client exemplifies how our extensive marketing expertise positions us as a highly effective strategic adviser.
Speaker Change: For more than 20 years waters manufactured print AD circulars for this home improvement retailer.
Speaker Change: Over time, we have steadily expanded our scope of work for instance, a dedicated near site team of 18 Quad employees provide strategic marketing support directly alongside the clients own marketing group.
Speaker Change: This includes premier pre media production for various physical and digital assets.
Speaker Change: We also leverage our advanced variable imaging technology to personalize our clients in store promotional signage at the store level, a differentiated quad service offering.
Speaker Change: Our reward for this lead trailer is a clear example of the stickiness quad creates through its relationships. It also demonstrates the way our integrated solutions function as a value multiplier when used together.
Speaker Change: Transitioning to slide nine we share how our integrated agency approach is driving better business outcomes for valvoline instant oil change.
Speaker Change: The company has been a long standing Quadrex mail client and our trusted relationship has led to additional work that now includes creative and media services with quads, Betty and rise agencies.
Speaker Change: Earlier this year Valvoline instant oil change hired Betty as one of its creative agency partners already our creative group has generated external signage for the clients new stores and is actively supporting multiple business units with content across social digital E Mail and point to purchase media channels.
Speaker Change: That he's fresh approach to creative is also helping our client breakthrough in market clutter to stand apart from its competitors a business imperative as we near summer and the peak driving season.
Amanda: Amanda will lead our clients' senior brand marketing manager assured her enthusiasm, stating we've kicked off a lot of work in the Betty team has gone to every assignment with enthusiasm thoughtfulness and clear communication on project plans, it's refreshing to have new perspective, and creative work for our company while also meeting those.
Amanda: Where are where are where they are as a brand and elevating it.
Amanda: Meanwhile, our rise media agency has begun managing valvoline as paid search using insights from an audit of the clients past paid search strategy rises further optimizing the channel to drive consumer engagement.
Amanda: Our integrated service teams collaborative approach continues to elbow they'd both the efficiency and effectiveness of this client's marketing efforts for instance, our Betty agency will produce new creative assets for search banners that are rising agency will deploy in early may we look forward to creating additional cross channel synergies as our integrated.
Amanda: Working with our client grows.
Speaker Change: Before I turn the call over to Tony I would like to acknowledge that we completed the sale of our European operations in the quarter I think our former employees for their many years of dedicated service you are knowledgeable experienced and appreciated and I look forward to seeing where you grow from here.
Speaker Change: I would also recognize I'd like to recognize all of our current employees and thank them for their continued hard work and commitment to relentlessly innovating for our clients through your efforts. We are simplifying the complexities of marketing and driving better business outcomes for our clients with that I will now turn the call over to Tony for the financial reviews.
Tony: Thanks, Joel and good morning, everyone.
Tony: On slide 10, we show our diverse revenue mix during the first quarter of 2025 net sales were $629 million a decrease of 2% compared to the first quarter of 2024, when excluding the February 28, 2025 divestiture of our European operations the decline in organic net sales.
Tony: It was primarily due to lower paper logistics and agency solution sales, including the loss of a large grocery client, which annualized at the beginning of March 2025.
Tony: Comparing our net sales breakdown between first quarter 2024, and 2025, our revenue as a percentage of total sales increased 3% in Latin America with growth in Mexico, a strategic extension of our U S print platform and 2% in our targeted print offerings driven by catalogs and direct marketing these inner.
Tony: Creases were primarily offset by an expected revenue mix decrease of 4% and our large scale print offerings due to organic declines in retail inserts and magazines.
Tony: Slide 11 provides a snapshot of our first quarter 2025 financial results adjusted EBITDA was $46 million in the first quarter of 2025 as compared to $51 million in the first quarter of 2024, and adjusted EBITDA margin declined from seven 7% to seven 2% the decrease.
Tony: And adjusted EBITDA was primarily due to the impact of lower sales increased investments in innovative offerings and drive future revenue growth and the divestiture of our European operations, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.
Tony: Adjusted diluted earnings per share doubled in the first quarter of 2025 to <unk> 20 per share as compared to 10 cents per share in the first quarter of 'twenty 'twenty four primarily due to higher net earnings, including lower depreciation and amortization as well as lower interest expense due to reduced debt.
Tony: Free cash flow was negative $100 million in the first quarter of 2025 compared to negative $70 million in the first quarter of 2024 the decline in free cash flow was primarily due to the timing of working capital, including proactive inventory purchases of paper and other materials made in advance of potential tariffs partially offset.
Tony: By a 7 million dollar decrease in capital expenditures.
Tony: We show the seasonality of our free cash flow and debt leverage on slide 12 due.
Tony: Due to the seasonality of our business, we typically generate negative free cash flow in the first nine months of the year, followed by large positive free cash flow in the fourth quarter. Our seasonal production peak occurs in the late third quarter and early fourth quarter of each year due to the timing of holiday related advertising and promotions.
Tony: This leaves the inventory build prior to that time, and then results in higher collections from clients in the fourth quarter.
Tony: In 2025, we anticipate a similar seasonal pattern for our free cash flow and debt leverage when removing the impact of seasonality. Our net debt has decreased by $81 million from March 31, 2024 to March 31 2025.
Tony: Our free cash flow. In addition of proceeds from asset sales fuels, our capital allocation strategy as shown on slide 13.
Tony: As previously mentioned, we completed the divestiture of our European operations to cat market for a total potential value of 41 million euros or approximately $42 million based on February 28, 2025 exchange rates.
Tony: We also continue to make progress on a sale of property plant and equipment from closed facilities on April 21, we completed the sale of our 65000 square foot sacramental, California building for approximately $5 million and in response to lower expected demand for retail inserts earlier this month, we announced the closure.
Tony: Of our 145000 square foot Greenville, Michigan facility, we expect to generate future cash proceeds from the sale of the Greenville building as well as three additional owned facilities that are currently for sale.
Tony: With our strong cash generation, we will continue to increase our growth investments as a marketing experience company such as our recent acquisition of onerous co mailing assets maintained low debt balances and return capital to shareholders through our quarterly dividend and share repurchases. This year, we increased the dividend by 50% from 2024.
Tony: And year to date in 2025, we repurchased one 2 million shares of class a common stock for $6 $7 million. This brings our total repurchases to $7 2 million shares since we commenced buybacks in 2022, representing approximately 13% of Quads March 31, 2022 outstanding shares.
Tony: We believe this represents strong value and we will remain opportunistic in terms of our future share repurchases.
Tony: Slide 14 includes a summary of our debt capital structure at the end of the first quarter, our debt had a blended interest rate of seven 1% and our total available liquidity, including cash on hand was $209 million with our next significant maturity of $193 million not due until October 2029.
Tony: As a reminder, given uncertainty regarding interest rates, we entered into two interest rate collar agreements for $150 million notional value during 2023.
Tony: The interest rate collars cap our exposure if we were to return to a rising rate environment and with the collar instruments. We also benefit from all interest rate reductions down to approximately 2% sulfur.
Tony: Including these interest rate collars, we would pay lower interest expense on approximately 87% of our March 31st dead, if the fed decreases rates.
Tony: We reaffirm our 2025 guidance as shown on slide 15, we continue to expect organic net sales declined 2% to 6% compared to 2024, excluding 2025 net sales of $23 million and 2024 net sales of $153 million from our divested European operations.
Our 2025 net sales guidance represents sequential improvement from the nine 7% net sales decline in 2024 compared to 2023 as we continue to execute on our long term financial goals, including returning to net sales growth.
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, we anticipate lower adjusted EBITDA in the second quarter of 2025 compared to the first quarter of 2025, and then we expect sequentially higher adjusted EBITDA in the third.
Tony: And fourth quarters of 2025 during our seasonal production peak.
Speaker Change: As Joe previously discussed we are closely monitoring the potential impacts of tariffs and recessionary pressures on our clients, which could affect advertising and marketing spend including print volumes as we have always done in times of economic disruption, we will remain nimble and adapt to the changing demand environment, while maintaining our disciplined approach to how we.
Speaker Change: All aspects of our business. This includes events such as the recent Greenville plant closure to rationalize our platform to match demand.
Speaker Change: We expect 2025 free cash flow to be in the range of $40 million to $60 million, including capital expenditures that are expected to be in the range of 65 million to $75 million and finally, our net debt leverage ratio is expected to decrease to approximately one five times by the end of 2025.
Speaker Change: Achieving the low end of our long term targeted net debt leverage range of one five times to 2.0 times as a reminder, we may operate above this range at certain times of the year, primarily due to the seasonality of our business.
Speaker Change: Slide 16 includes our key investment highlights as we continue to build on our momentum as a marketing experience company. We believe in our Quad is a compelling long term investment and we remained focused on growing net sales and driving higher profitability through continued diversification of our revenue and clients with our expanded offerings such.
Speaker Change: As household fusion at home connect in Star connect and our proprietary household based data stack discussed earlier, there's a significant addressable revenue opportunity with both our large base of 2100 existing clients as well as new clients.
Speaker Change: In addition, our strong cash generation will continue to fuel our capital allocation priorities. These include investing in innovative offerings to drive future revenue growth, maintaining low debt leverage and increasing returns to shareholders through our next quarterly dividend of seven and a half cents payable on June 6th we also expect to continue to be opportunistic.
Speaker Change: 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: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star and then two are.
Speaker Change: First question comes from Kevin Spanky with Barrington Research Associates. Please go ahead.
Speaker Change: Good morning, Kevin.
Kevin Spanky: Thank you and good morning.
Kevin Spanky: Wanted to start out by just.
Kevin Spanky: Talking about the external environment I thought it was a.
Kevin Spanky: Very solid start to the year.
Kevin Spanky: You know first quarter coming in at least ahead of external expectations. I know you said they were in line with your expectations, but.
Kevin Spanky: The organic decline of minus 2% on the top line was it the most favorable end of year minus two to minus 6%.
Kevin Spanky: Look organically for the full year.
Kevin Spanky: But you know I guess, obviously some of the more disruptive headlines related to tariffs and the macro.
Kevin Spanky: You came at the beginning of April so it.
Kevin Spanky: It sounds like your buyer.
Kevin Spanky: Mostly but have you seen any notable change in the demand outlook.
Kevin Spanky: Here.
Kevin Spanky: Early in the AR in the second quarter.
Speaker Change: Yeah, I mean, I think it's still some of the organic decline that we see like in catalog and maybe Paul locations. You know again they knew they know that this 10% price increase happens in July so.
Speaker Change: We're kind of as expected, but when I think about on the marketing side and what clients are doing.
Speaker Change: We're not you know so they baked in some of that into their plans already but we haven't been seeing like a lot of adjustments right now I'd say, we're seeing some indications of dislocation and what I mean by that is we've seen a few catalogers and a few retailers actually adjust marketing plans based on the tariffs.
Speaker Change: Meaning that in one case, they're not sure they can get the product out of Vietnam in time for the season, So why marketed.
Speaker Change: He had already produced product in Vietnam, but now with everybody trying to get in there and it's an underdeveloped stolen underdeveloped our platform. They just worry about the availability of capacity in other cases, we've seen people.
Speaker Change: Not know how to price products that are coming and so we've seen some adjustments there, but it's not enough to call. It a trend and so I think that a lot of our customers are very anxiously awaiting what develops in the tariff world.
Speaker Change: And my concern is obviously the same as everyone else's does this does this lead to a rapid slowdown in the economy.
Speaker Change: But also it's really about what are the unintended dislocations that clause changes in how our customers Act and so I think you know as as much visibility as we have.
Speaker Change: We haven't seen the pullback that you.
Speaker Change: You know that that maybe some people would think would happen now again my Crystal ball is probably as called us as yours, but I think everyone's waiting for more direction on what's going to happen here.
Speaker Change: Right, Okay, well that makes sense. Thank you for that.
Speaker Change: And.
Speaker Change: So obviously you've talked about the.
Speaker Change: The coming postal rate increase in July.
Speaker Change: But you also talked about.
Speaker Change: The postal service doing some testing of place the elasticity.
Speaker Change: For catalogs.
Speaker Change: We'll just see how volume I guess reacts to that I think you talked about.
Speaker Change: There's been a leadership change at the postal service.
Speaker Change: I'm wondering if you're taking that are.
Speaker Change: Testing is some sort of you know maybe acknowledgment or change in the <unk>.
Speaker Change: Views at the postal service, where you know maybe.
Speaker Change: There'll be some some future.
Speaker Change: More favorable.
Speaker Change: No policy in terms of just pricing and how they look at pricing in the tradeoff versus volumes.
Speaker Change: Yeah, you know I think you know there are obviously hard to understand sometimes and how they come up with what they come up with but I just came back.
Speaker Change: Sunday Monday I was at the National Postal Forum in Nashville, where all the postal leaders were.
Speaker Change: We have an acting postmaster general because to joy had stepped down.
Speaker Change: We're waiting any day now for the announcement of a new postmaster general our understanding is that the white house's weighing and hopefully yesterday or today and who the board of governors is picking as their candidate.
Speaker Change: So that will be telling in terms of do they rethink a flawed plan that was put in place by the previous postmaster General where they felt that they would with volumes down which is to make it up in pricing and that's really hurt our industry I was able to talk to some of the executives here are the day before yesterday, including the head of.
Speaker Change: Of pricing.
Speaker Change: And you know they admit that in the catalog side because catalog could be much more variable and much more sensitive to.
Speaker Change: Cost changes because people just pull back on prospecting, if they get a big head and ultimately that hurts the whole category and so that's why they're putting in this so that the rates increased by 10 or so percent in July they go into effect and then you can qualify for basically off.
Speaker Change: Setting that increase if your catalog, but not till October so it's going to be a little bit wonky, but that's a big deal because like I said before I think people built in that 10% for the entire year plan. So suddenly there is an opportunity to kind of.
Speaker Change: Do something to get ahead of it we hope that that creates opportunity as long as we don't get more noise in the economy in the second half.
Speaker Change: The other thing I'd I'd also take note of in first quarter.
Speaker Change: As well I made the comment that some of the organic decline with catalog and maybe publication is still impacted by that knowing that increases coming on we're still winning great new clients and one really great place to highlight is our direct mail group, which volume wise was up 14% in the quarter or.
Speaker Change: 6% and sales and that was somewhat skewed towards some of the financial sector, which if you recall a couple of years ago, we were way down in direct mail when interest rates went crazy in the financial sector pullback so it.
Speaker Change: So some great signs of winning work based on the IMAX experience because almost all the direct mail wins, we have are not single product or service wins, there across multiple <unk> offerings, which is just you know it's it's sort of speaks to what we've been talking about for years in the amex experience.
Speaker Change: Alright, Yeah, that's that's great to hear.
Speaker Change: Good color there.
Speaker Change: So.
Speaker Change: You made it looks like you know very small acquisition, Andrew and their co mailing assets, but you.
Speaker Change: You've obviously been very good at developing or your own co mailing solutions internally, but just kind of curious what.
Speaker Change: Uh huh.
Speaker Change: That acquisition might have brought you that you didn't have before that you know maybe it made more sense to acquire versus a building.
Speaker Change: Building internal yeah yeah.
Speaker Change: Andrew was previously originally owned by LSC and they did cool millwork, we do they also do third party coal mill for other printers, which we do as well.
Speaker Change: We'll continue to do because it's very important that.
Speaker Change: The industry as a whole keep making sure that this medium is viable for our customers and cold mill in and working to be the most efficient for the customer base is at the heart they.
Speaker Change: They bring a little bit more Cape a different type of capability in what is called you know.
Speaker Change: More of a high density approach, where you can play with mail lists and merge things together to get a different discount rate in certain places where you can have a high density factor and so by us, bringing that and we're not only bringing more volume together for the industry that's important to keep the discounts.
Speaker Change: Up.
Speaker Change: But we're also combining.
Speaker Change: Different capabilities together to further enhance it for everybody and so I see the combination of the high density and then more of a five digit that we do have to really work together to enhance it for our customers.
Speaker Change: And collectively the industries customers and then also it comes with some equipment that we've been able to upgrade parts of our platform with but yes, it's a small acquisition, but important to our clients.
Speaker Change: Okay.
Speaker Change: That's helpful and.
Speaker Change: You mentioned a couple of new.
Speaker Change: Relationships for in store connect with with some grocers.
Speaker Change: Just any comment on.
Speaker Change: The size of those those change.
Speaker Change: The opportunity to.
Speaker Change: Expand with them and just Relatedly yeah, how many stores are you in that.
Speaker Change: Ross all your in store connect clients now.
Speaker Change: Is that.
Speaker Change: Offering continues to rollout.
Speaker Change: Yeah, Yeah, I've always said you know the this space is it's a race for eyeballs. So the more eyeballs you can get exposed to by being in more stores, but also in the mid market grocery space by tying a lot of them together. So they collectively have more eyeballs to offer to the Cpg's, that's what's really important.
Speaker Change: We started out with 15 stores and now we're at over 45 stores with.
Speaker Change: 30, more coming from the two new.
Speaker Change: Customers that we just added.
Speaker Change: And I will say that one of them is really interesting well. They are both interesting, but one on one of them is fairly large on the west coast and is heavily focused on the Hispanic population, which is really important to cpg's and then another one is a different category of grocer and a smaller phase size, but theyre all trying to figure out how to play in.
Speaker Change: This and they all all these smaller size grocery network are they like to coordinate with each other to look for opportunities for things like how do we market better or is it small grocer to come together and so our races is to build out the geography across the country and to get further up in number of stores as we've said in the past.
Speaker Change: As an example, if you can get to 800 stores. That's the equivalent of a Monday night football audience, which is really important so we feel good about it.
Speaker Change: I think that every grocer is talking about it who doesn't Abbott cpg's are talking about they're all just trying to figure out how to get there and they're all going through that process.
Kevin Spanky: And Kevin is as exciting as well that the save Mart companies is expanding beyond their initial proof of concept into a second phase.
Speaker Change: Yeah. Thanks, Thanks for that that's encouraging.
Kevin Spanky: I appreciate all.
Speaker Change: The the good answers I'll turn it back over.
Kevin Spanky: Okay. Thanks, Kevin operator.
Barton Crockett: And the next question comes from Barton Crockett with Rosenblatt. Please go ahead.
Speaker Change: Harman bargaining.
Speaker Change: Good morning.
Kevin Spanky: Morning, guys.
Kevin Spanky: So I wanted to drill in a little bit more into.
Kevin Spanky: The cadence just given.
Kevin Spanky: You know all of the balls up in here with the tariff situation and everything.
Kevin Spanky: So you guys start to lap that headwind from loss of our gross our client in the second quarter.
Kevin Spanky: That would suggest that all else equal that you could see an improving kind of revenue trajectory in the second quarter.
Kevin Spanky: I'm not sure that's consistent with what you were saying in terms of quarterly cadence, but I was wondering if you can address the puts and takes around that for the second quarter.
Kevin Spanky: Yeah, Brian This is Tony so as we look out to the second quarter, we think that both revenue and EBITDA will be lower than the first quarter.
Kevin Spanky: To your point as despite the lapsing of that grocery that we've been talking about for the past year.
Kevin Spanky: The second quarter for us the early summer is typically a pretty low seasonal point for us and then.
Kevin Spanky: Starting around August things really start to kick in for our busy season. So that kind of gives you more of the cadence for the year.
Kevin Spanky: Okay.
Kevin Spanky: Uh huh.
Kevin Spanky: Is that a deceleration in the second quarter I mean, the seasonal thing happens every year. So does that suggest that.
Kevin Spanky: Theres just been some kind of.
Kevin Spanky: Impact on demand from the tariffs, perhaps in the second corner or anything you can point to that would explain.
Kevin Spanky: That.
Speaker Change: Yes, I think Joel as earlier point, we've seen some early.
Speaker Change: Related impacts from tariffs, but I would attribute this more to.
Speaker Change: Seasonal impacts between years.
Speaker Change: Okay.
Speaker Change: And in terms of.
Speaker Change: The the holiday season, which is the you said the most important for your cash on your business.
Speaker Change: You know theres a lot of talk about supply constraints potentially being an issue in the Christmas season.
Speaker Change: When do you when would your clients tell you. If you know if they need to be in a big reset because they don't have the product.
Speaker Change: Is that something that would just come.
Speaker Change: Very close to them before you send the mailings out or how much lead time, how much visibility do you get from your clients.
Speaker Change: You know, it's hard to answer that because no. One has really been in this situation before it's kind of like you know you come into Covid and everyone's like we don't have a playbook for this.
Speaker Change: Think people have a playbook for massive tariffs across the whole world potentially hitting them.
Speaker Change: As well as the uncertainty of what's real and what's not.
Speaker Change: What's going to be pulled back what will what will stay in place. So you know I'd love to have a smarter answer, but I think everyone's in the same boat here Oh. This is an experience that people are it's like they need more cars to be turned over to understand how to answer that question I mean, I certainly think the administration.
Speaker Change: <unk> is an interested in totally killing the economy.
Speaker Change: But they are also very interested in getting to what they would.
Speaker Change: What is good deals for the United States. The rest of US are just waiting to see what that says and so it's a little bit hard to predict.
Speaker Change: Client by client because they're all in very different boats. Some are extremely exposed to China for instance, a lot of them have already moved stuff to other places and a lot of them may not be impacted the same way. So it's no. It's.
Speaker Change: Not going to be a one size fits all answer because our client base is so broad based in different categories.
Speaker Change: Okay, and then just one other question on the.
Speaker Change: Now the one category that's been flagged by the digital marketers.
Speaker Change: Are these.
Speaker Change: Retailers that use the de Minimis shipping an exemption.
Speaker Change: Yeah, presumably people are chemo and Sheehan do you guys have much exposure to that.
Speaker Change: We do not we do not and I do think that that that's that's one that's going to be one to watch.
Speaker Change: Because obviously that's changed the dynamics there.
Speaker Change: Okay and then.
Speaker Change: You know one kind of final thing the I'm just wondering if you could.
Speaker Change: Talk a little bit more about the.
Speaker Change: Our work with Google on artificial intelligence.
Speaker Change: And.
Speaker Change: Just in terms of of a description of how impactful. This is I mean, it's <unk>.
Speaker Change: Certainly AI and it's driven some transformative kinds of improvements in direct marketing performance for some of the digital guys thinking like matter, maybe arguably apple oven.
Speaker Change: You guys are kind of.
Speaker Change: A different type of model to a direct marketer.
Speaker Change: I know you're using it for <unk>, but are you seeing any improvements in terms of your ability to kind of target and get a return on AD spend is tied to this.
Speaker Change: Yes, I mean, you think about it is there's kind of layers to how we use the data stack and the most important thing that we've done which is happening as we speak is the rollout of what we call audience builder 2.0, and it's literally the tool set for you to be able to tap into the big data stack, which is you know not just transactional.
Speaker Change: Data like other people out, but it's our passion scores that are made up of knowing the content that's going into the mailbox and so.
Speaker Change: The data sits in Google cloud, we've used other people like Snowflake. So you take the AI.
Speaker Change: Sort of a.
Speaker Change: Large language models and they sit above the data stack, but the important thing is as you have a tool set to.
Speaker Change: To be able to.
Speaker Change: Effectuate it to be able to pick audience and that's built by us in conjunction with having those AI language models available to turbocharge it and so I'm very pleased at the rollout that we have going right now because that's actually what allows us to sell it out into the marketplace and so we will see an acceleration of the use of our data.
Assets because that was we had a previous tool that wasn't as sophisticated to be able to handle the amount of attributes that we have now and so now audience build a 2.0 is that interface that allows us to completely access for our clients a very complicated dataset.
Speaker Change: And to your point, yes, we are seeing.
Speaker Change: In the case studies, we are developing we are seeing a strong performance by the data from our responsiveness standpoint.
Speaker Change: Okay.
Alright, that's helpful.
Speaker Change: Okay. That's it for me Thank you guys.
Barton Crockett: Alright, Thank you Bart.
Speaker Change: Operator.
Joel Condracky: This concludes our question and answer session I would like to turn the conference back over to Joel QUADRA Archie for any closing remarks.
Speaker Change: Okay. Thank you everybody for joining today's call 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 as we set new standards for the industry.
Speaker Change: Not only do we remove friction from whatever it occurs in the marking journey, but we optimize media and marketing performance through integration with that thank you again and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.