Good morning, ladies and gentlemen, and welcome to Quad's First Quarter 2020 Conference Call. During today's call, all participants will be in a listen-only mode. [Operator Instructions]. A slide presentation accompanies today's webcast and participants are invited to follow along, advancing the slides themselves. To access the webcast, follow the instructions posted in this morning's earnings release. Alternatively, you can access the slide presentation on the Investors section of Quad's website under the Events & Recent Presentations link. Following today's presentation, the conference call will be open for questions. [Operator Instructions]. Please note this event is being recorded. I will now turn the conference over to Kyle Egan, Quad's Director of Investor Relations and Assistant Treasurer. Kyle, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, Quad's Chairman, President and Chief Executive Officer; and Dave Honan, Quad's Executive Vice President and Chief Financial Officer. Joel will lead off today’s call with a business update related to COVID-19 and Dave will follow with a summary of Quad's first quarter 2020 financial results, followed by Q&A. I would like to remind everyone that this call is being webcast and forward-looking statements are subject to Safe Harbor provisions as outlined in our quarterly news release and in today's slide presentation on Slide 2. Quad's financial results are prepared in accordance with Generally Accepted Accounting Principles. However, this presentation also contains non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margins, free cash flow and debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call and the slide presentation will be available on the Investors section of quad.com shortly after our call concludes today. I will now hand over the call to Joel.

Thank you, Kyle, and welcome everyone. The year 2020 will go down in history as unprecedented for our company, our nation and our world. We started the year with a strong first quarter building on the momentum of our solid fourth quarter performance. However we started seeing the initial signs of disruption from the COVID-19 pandemic during the last weeks of the quarter which required swift decisive action to fortify the business. Since then, we have seen a meaningful impact to our business in certain end markets particularly in retail. As we continue to manage through the pandemic, Quad's main priority is protecting our employees' health and well-being, while also protecting the company's financial health, thereby protecting our ability to perform well for our clients on into the future. Early in the quarter, our crisis management team, together with company leadership began executing on our business continuity plans with a strong sense of urgency. We follow guidance from the CDC and local health authorities as well as federal and state governments and best practices and recommendations from our healthcare subsidiary, QuadMed, which has proved to be a tremendous asset during this critical time. Early on, we shifted approximately 2,000 administrative employees to work-from-home within a very short timeframe to support social distancing while also testing our IT infrastructure. We then quickly ramped up our work-at-home staff and today we have well over 3,000 employees who work remotely on a consistent basis. In our manufacturing facilities, we launched our Safe-at-Work program to protect the health and safety of our production employees. Our program outlined on Slide 3 includes regular communication and education on how employees can stay healthy, protocols for cleaning and disinfecting equipment, tools and common areas, daily temperature checks which we are in the process of rolling out companywide…

Thank you, Joel. Good morning, everyone. As Joel mentioned, our first quarter performance was strong and better than expected up until mid-March when we began to feel the economic impacts of the pandemic. We were performing ahead of plan both operationally and financially and we're recognizing more and more incremental benefits of our Quad 3.0 strategy, helping to offset organic print decline. Our cost reduction programs and productivity improvement trend from the fourth quarter continue to favorably impact our first quarter results. The investments we made in 2019 to increase hourly production wages and increased investments in automation continues to drive productivity throughout our entire platform. Additionally, customer service performance was exceptionally strong with high quality and on time delivery metrics and great safety performance in our facilities. This operational performance was setting the stage to finish the quarter strong. In mid- March, customer demand substantially weakened due to the economic impacts of the pandemic. We estimate that certain print product lines decreased by approximately 30% on average, over the back half of March, almost our entire customer base has been impacted, but none more severely than brick-and-mortar retailers who closed stores in response to safe shelter at home orders. Given the sudden decline in print and print-related demand, the lack of visibility about future demand as well as the speed of reopening of the economy, we withdrew all financial guidance on April 2. We will evaluate providing guidance when we have more visibility into the economic recovery. As Joel shared, we acted with great care and agility to keep our employees safe during the pandemic and make tough decisions associated with protecting our financial flexibility through preserving cash and liquidity. We acted swiftly to align our cost structure to match lower demand for print. Slide 6 details the actions…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question today will come from James Clement. Please go ahead.

Hey, gentlemen, good morning. Can you hear me okay?

Yes, Jamie, how are you?

Yes, I'm doing okay. Thanks for asking. So Joel, first question for you. I think I looked this up, I think it was Winston Churchill who said, and I'm paraphrasing a little bit, never let a crisis go to waste. And obviously, you discussed adjustments to the capital spend and that kind of thing. But can you take us kind of through, with that said, some of the things strategically where you might have said, you know what maybe now's the right -- not the right time versus some other kind of strategic directions where you said, you know what, now we got to redouble our efforts. This is extra important right now. We're going to come out of this stronger than ever.

Yes, well, I think first of all, whenever we see a crisis coming, we've learned, I’ve been in this job since 2006. And you think about the first two years of fun, and then you had the Great Recession kick-in, and then you had all this stuff that's going on with the print environment. But, I'll kind of answer that in two ways, both internally and externally. But I think what happens in normal times is lots of good ideas get formulated and implemented, but it tends to be more incremental. And I'd say that in the past year, we've made some significant investments in our IT infrastructure, because I wanted to kind of make use of more video conferencing, being able to do video blogs without taking down the network. And we finished that, probably perfect timing last fall. So that now as we've pushed literally with a three-day notice 2,000 people who work from home to really test it before we go further. It's worked out remarkably well. And I think most of the world is figuring out that this, all the video technology has changed so much that you don't need to IT people standing over your shoulder to get a videoconference going. So internally, we're pushing that very hard. I'd also say that we end up making tough calls on cost reduction and capacity planning, when the crisis is here and we tend to find out that, wow, it worked better than we thought, or we can do more than we thought we could before. And so that will go into as we see the economy open up, not being bashful about in terms of how we manage that capacity on a go-forward basis. On the external side, what I'll tell you is the 3.0 strategy…

Okay, Joel, I appreciate that. And kind of just, can you kind of help us just understand a little bit more kind of the seasonality of the business lines that you provided, solutions that you provide brick-and-mortar retailers. And really what I'm getting at is kind of the first half versus the second half seasonality and I'm trying to kind of get a sense of like, if we make an assumption on when the economy starts to kind of reopen up again and people can go back to stores and that kind of thing. I mean sort of how much business was at stake in the first half of the year versus why I've always perceived as more of a stronger second half?

Yes, let me start and say that clearly the most impacted has been retail. I mean, one day you get a phone call from a huge retailer, so it's the next day every store in the country will be closed. Really there's it creates a rapid pullback. And so the first half, as you know, we're a second half seasonal company for retailers or catalogers, magazines tend to be a little bit more spread out through the year. But the reason, I kind of refer everyone over uses the new normal. That's why I threw in sort of the descriptor, I'm using with people with which is until you get to the new normal, we're in this new abnormal, where the economy is trying to open up, things are going to happen in fits and starts. We are already seeing some of the Big Box companies such as Kohl's and Dick's Sporting Goods as public information starting to open up their stores. But what we hear from our clients is kind of running the gamut of a little bit gun shy because there's concern about boy as this opens up, there's a spike happen. Therefore, did we aggressively market too much then be accused by our consumers of causing that spike? So I would say, there's trepidation, and again, it just feels like this new abnormal and once as we sort of people get comfort with how all the new safety procedures are being followed throughout the country, then you'll start to feel like okay, now we can get more visibility. But until then it's really tough to get visibility. We can't just say, well this store is opening all their stores -- this company is opening all their stores, therefore marketing comes back right away. That may be true with one but not the other. It's kind of all over the board.

Okay. Let me ask you quick Joel on the Inserts business. I've noticed here in New York, that most of the grocery stores while still open and lines out the door and that kind of thing on have largely suspended their circulars. And I've asked the Managers and they said, "the reason we're doing this because we don't want to promote products that we don't necessarily know we can keep on our shelves". So that's an area of the economy is seemingly healthy if not, even stronger. Yet they can't buy circulars because they're not confident they keep stuff on their shelves. So any sense, first of all, do you think that's an accurate statement? And second of all, any signs of kind of improvement there?

Yes. I mean, I think, like I said, it’s kind of all over the board, when you talk about the grocery sector, they really have had a hard time predicting what they can have on their shelves. I mean only now do you see the shelves full of toilet paper, the last month or so, it's been empty. And we have had a lot of that now the next phase is what we're hearing through multiple partners is the shortage of meat products. So there's certainly been a bunch of that. On the other hand, some of the big groceries who carry a lot of other goods like hard goods. A couple of weeks ago, when the $600 check started hitting People's Bank Accounts, they told us that they started seeing flat panel screens flying off the shelves. So there's some of the impacts of the financial incentives here or relief might be also helping things, but that will sort of play out over the long-term. So again, I think it's everyone's just trying to navigate a very blurry future. It's very hard to see for the next month, I would say, how people can predict what products they can count on, how fast their stores come back, but it will start happening. And my big concern on retail Inserts is just the pressure the newspaper industry is under as a result of all this. And so you worry about decreased circulation, which is the carrier for the retail Insert. But as we've said before, we've been dealing with that decline anyway, and we've been adjusting our platform but also growing our direct mail product for those people because ink on paper does matter to them. And oftentimes we hear from them that we need to find more print replacements because we can't do circulars in the certain market because the newspaper closed. And so the marketers still have a strong sense that there's offline and online has to come together. And yes, there's going to be shifts for different structural reasons. But we know how to manage that. And we continue to where we can pivot wherever value-add can help our clients market very effectively and efficiently to grow their business. That's what our whole 3.0 model is based on is, how do we help you grow, we happen to just be founded in print, where we have a lot of capability to execute, but we built out a whole platform here to help you on your spend elsewhere as well.

Okay. So just delving into that a little bit more, Joel. So, as part of the 3.0 strategy, let's say a grocery store chain in a city where a newspaper is closed. Can you give us a little bit more specific details in terms of like, what is that session with that customer? That strategy session sounds like; I mean is it direct mail that you've discussed -- like what are the kinds of things you've discussed? Can you just go into a little bit more detail how you --

Yes, it's a combination of things. As you know with our IV acquisition, they do a lot of media buying versus acquisition we had those capabilities and we've only strengthened them and it really comes down to what's the right mix of things. So if you have a fall-off in one place because it's not a nationwide situation, it happens in pockets where the shift and say hey, let's try and make up for this, it may not be the perfect mix of what you wanted, but at least we're making up and still driving traffic. So it's a combination of direct mail, shifting to other papers, shifting to things like our partnership that with a Valassis who does a lot of couponing through the mailbox. We print a lot of that for them and placed a lot of it through them. And so and then obviously digital, and so we work with them on okay, well how do we also then shifts to some digital spend or Radio, TV to kind of make up for that, because ultimately it's about one ROI. When I spend a $1 on marketing in a region does it proves $5 or $6 in revenue, what's the trajectory? And if it's going the wrong way, how do we adjust to make up for it? So it's sort of a whole portfolio of things, you have to work on with the client, and it's always evolving.

Okay. And then lastly, Joel, if I may, Dave, I don't know if you want to chime in here at all. What do you all need to see to think about reinstating the dividend?

Well, Dave really wants to chime in here. I'll turn it to Dave.

Thanks, Joel. We mentioned in our comments just about stabilization in the operating environment. And as we currently see our operating environment, there's a lot of uncertainty and as I walked through here in my prepared comments. But when you look at volume, and the comment I made about volume in the back half of March being down approximately 30%. We've seen a similar trend into April. We're closer in April, booked on April, but we saw similar trades there -- trend there. And really what's the most impacted of our customer base, as we've mentioned is the brick-and-mortar retailers who had to take stores offline. And those stores start to reopen. We believe the near-term impact on our demand should lessen. In the meantime, we'll just keep adjusting our cost structure, but that only partially offsets the impact of volume. And I think what you'll see from us is just an acute awareness of how to manage cash flow, and how to manage liquidity. So we can stabilize that operating environment quicker. And on free cash flow, I think there's a few points that investors should be aware of. Number one, you mentioned seasonality in our business. So when you think about seasonality of our cash flow, most of that comes into the fourth quarter. So when -- with the volume decline that's currently hitting us, it's a bit of a mixed blessing that it's during our low seasonal points. So hopefully, as the economy reopens and stores reopen gradually, we get to see that pressure come off of our cash flows. But in the meantime, we'll still be after those cost reductions. I mentioned on a run rate basis, on an annualized run basis, we've taken $250 million out of our cost structure. So the great work our…

Hey, Jamie, I also wanted to add in these fits and starts. When we say that we're making most cost variable, we really mean it. We've actually furloughed entire plants here during this COVID-19 problem. On the book side, we closed three book plants temporarily because of COVID-19 related issues that were going on in those states. We're since hoping those back up again. We've done it on the retail side. And having the relief for employees being furloughed as a result of that is helpful because we know that they're being taken care of with those weekly checks. So, we'll continue to manage the platform aggressively. And the ability, I think one of the things that we've really learned is how can you furlough a plant in a crisis situation as opposed to just people within it.

Okay. And Joel, last thing, you obviously through QuadMed, do you all have any kind of insight you'd like to share in terms of like observations on the spread of the virus and certainly seeing at least here in New York that I think there's some reason to be a little bit more optimistic over the last couple of weeks, particularly over the last week or two, is that consistent with what your doctors are kind of telling you?

Yes, look, my brother-in-law is the Head of Thoracic Surgery at Mount Sinai in New York. So he's front and center with all this. And my sister is a trained physician as well plus QuadMed. What's really important here and what we've seen and I can't tell you this enough is our team and how we're managing our own cases. We have 20,000 employees with big plants, we manage it right down to how we're tracking and tracing. We have four different categories of quarantine. We have confirmed positives, suspected positives, symptomatic, close contact. Then we have sick but non-COVID, we have people categories of interview, needs to be interviewed, in progress, return to work deceased. We've had one deceased employee unfortunately due to COVID but less than 20 positives and not in any one place. So I think the message is, is that companies are taking it upon themselves to track and trace. We've shared our whole plan with the Greater Milwaukee business community, with the Governor of Wisconsin as well. And what it shows you is that you can manage it, if you take the time to do it. Look at what's happened in some of the meat packing plants where they're working closely, if you had a tracking and tracing program, and they're acting quickly, I might get ahead of it. And so, I'd say that what we're hearing from QuadMed from other people in the medical community is it's a multi-layered approach to managing this. Take it all seriously, it's hand sanitizers, it’s masks, it's distancing. Not one of them is going to make it work; all of them together is what's going to make it work. And I believe much of the country is embracing that and we've got to get this economy going again.

Operator?

This will conclude today's question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

All right. Thank you, Sean. Well Quad had successfully faced this adversity before and at this time it's no different. We have the team and a time tested disciplined approach to navigate change and make certain we transition into a post-COVID-19 environment as a stronger company. As the economy starts to turn back on marketing and advertising investments will be reprioritized. As it happens, Quad stands to benefit, whether it's a gradual or fast recovery due to our impactful client relationships, leadership expertise, Quad 3.0 strategy, which is our unique integrated marketing platform and financial strength. In the meantime, we live in continued uncertainty and therefore, we will continue to create a better way every day for our employees and our clients. So thank you all for joining us. We'll see you next quarter.

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