Good morning, everyone, and welcome to Quad's Fourth Quarter and Full Year 2024 Conference Call. During today's call, all participants will be in a listen-only mode. If you need assistance, please say to a conference specialist by pressing the star key followed by zero. A slide presentation accompanies today's webcast and you are invited to follow along, advancing the slides yourselves. To access the webcast, follow the instructions posted in the earnings release. Alternatively, you can access the slide presentation on the investors section of Quad's website under the Events and Presentations link. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Katie Krebsbach, Quad's investor relations manager. Katie, 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 Tony Staniak, Quad's Chief Financial Officer. Joel will lead today's call with a business update and Tony will follow with a summary of Quad's fourth quarter and full year 2024 financial results followed by Q&A. I would like to remind everyone that this call is being webcast. 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. Quad's financial results are prepared in accordance with generally accepted accounting principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, free cash flow, net debt, and debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call 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, Katie, and good morning, everyone. I'm pleased to share how we are continuing to build momentum as a marketing experience or MX company that solves complex marketing challenges for our clients. Beginning on slide three, I'm proud of the strategic and financial progress we made in 2024, as we continue to advance on our revenue diversification strategy, and return to net growth net sales growth we estimate will happen between 2027 and 2028. Our full year results reflect our disciplined operating performance, including increased profitability margins, and continued strong cash flow generation that we use to further reduce debt despite the expected decrease in net sales. Specifically, adjusted EBITDA margin increased by 48 basis points to 8.4% in 2024, compared to 7.9% in 2023. 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. Since January 1, 2020, we have decreased net debt by $684 million representing a 66% reduction as part of our multiyear debt reduction strategy. In 2024, we also continued to return capital to shareholders through a dividend. As announced last week, we increased our quarterly dividend by 50% to $0.075 per share or $0.30 per share on an annualized basis. We will also continue to be opportunistic in terms of future share repurchases. Turning to slide four, we show our progress on our revenue higher margin offerings. Between 2018 and 2024, integrated solutions and targeted print increased as a portion of total net sales representing 65% of net sales in 2024 compared to 54% of net sales in 2018. Our integrated solutions include agency offerings through our RISE Media agency and Betty Creative agency while targeted print comprises catalogs, direct…

Thanks, Joel, and good morning, everyone. Slide twelve provides a snapshot of our fourth quarter and full year 2024 financial results. 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 2024, a 9.7% decline compared to 2023. The net sales decrease in both periods was primarily due to lower paper sales and lower print volumes including the impact from client mix and increased scrubber volume that has a lower unit price with a higher profit margin. As well as lower agency solution sales including the loss of a large grocery client. Print 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. 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 8.3% to 8.8%. For the whole year, adjusted EBITDA was $224 million in 2024 compared to $234 million in 2023 driven by lower net sales and $11 million of unfavorable foreign exchange impacts in our SG&A expenses. However, full year adjusted EBITDA margin improved by 48 basis points from 7.9% to 8.4%. The margin increase in both periods was primarily due to benefits from improving manufacturing productivity, and savings from cost reduction initiatives. Adjusted diluted earnings per share was $0.36 in the fourth quarter of 2024 increased from $0.23 in the fourth quarter of 2023, due to higher adjusted net earnings. For the full year, adjusted diluted earnings per share was $0.85 in 2024 increased from…

Ladies and gentlemen, at this time, we'll begin the question and answer session. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys. To ensure the best sound quality. Our first question today comes from Kevin Steinke from Barrington Research. Please go ahead with your question.

Good morning, Kevin. Good morning. Hey. I wanted to start out by asking about your shifting capital allocation priorities and you mentioned increasing growth investments in 2025. Can you maybe just update us on the plans for growth investments and the types of investments you're thinking about as 2025 progresses?

Hey, Kevin. This is Tony. I'll start out on that. And Joel may weigh in a little bit on this one too. But 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 technology such as AI that we talked about during the call, as well as our In Store Connect offering as we're installing screens that we own into the grocery store and other retail environments. So that's increases in capex. And then in addition, when you look at our operating expenses, there's also increased investments in labor as we scale our offerings that, you know, that comes through the, you know, EBITDA line as compared to CapEx. So I think when you look at the data stack, At Home Connect, In Store Connect, all of those offerings were putting money behind to generate future revenue growth.

Okay. Sounds great. And maybe walk us through the organic outlook for 2025 as you noted 4% to 6% decline at the midpoint would represent sequential improvements versus 2024. You mentioned you expect higher growth in agency solutions, targeted prints. I might be missing something else, but maybe talk about the better growth you expect in those categories and just maybe an overall flavor for the demand environment in terms of postal rates, interest rates, etcetera.

Okay, Kevin. I'm glad you asked that question. I mean, going from 2023 to 2024 was a 9.7% 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 progress on that front. 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 the growth here from. We're already seeing strong printing volumes coming from Mexico in the educational books that we export into the US. 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. 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 face organic decline that, you know, we have to offset.

Yeah. And I'd also add on to 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 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, as we get into the print area, those invoices are much larger than the agency side. So it 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 GOAT brands with licorice.com. Just reflecting a little bit back on the decline, you mentioned postal. Because you have important event just happened. As you'll recall, in 2023 when we had a significant decline, it's because the post office had two significant postal increases that year with the unexpected one in July of that year that triggered a lot of the decline we saw. The postmaster general just tendered his resignation on Monday. His "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, you know, from 2021, until today, CPI increased about 16.4%. In that same period, the post office increased postal rates between 50% and 80%. 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. So furthermore,…

No. Absolutely. That's really helpful insight. I appreciate that. So you know, obviously, there's ongoing innovation at Quad here. You talked about At Home Connect. And the strong interest you're seeing there. Can you talk about maybe how you monetize that? Is that just a tool to help you drive more direct mail volume from your clients or is that kind of a service they would pay for? I'm just trying to see how the economics of that works for your business.

Yes, it's all of the above. I mean, it's like to our technology tools, but also to our data stack because it's really allowing them as they see things happen with people that they're reaching out to, the audience that they're hitting in any channel, where we can automatically get those signals and target direct mail pieces automatically very personalized. And, you know, 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. We think about, like, the direct mail we do for Kroger company, it's like every piece is completely personalized. And so 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, it's part of a greater omnichannel approach as we're helping them manage across all channels, and this one just helps you activate it more. So we do get revenue on all of the stack including the higher revenue bucket of direct mail.

Okay. Great. And you talked about tariffs there and analyzing the potential impact. Can you just review maybe the exposure there? You know, it sounds like you still expecting good growth out of Mexico, but any thoughts on potential impact there and you know, having to pass on price increase or pricing, etcetera.

Yes, I'd say that if you think about where would be the biggest impact of the tariff in North America, meaning Mexico or Canada, it actually would be a 25% tax on Canada if that were to happen. Because as print has consolidated, so is the paper industry. And now much of the paper that we use for a lot of our mark clients you can only get mostly in Canada and can no longer get in the United States. And so there is no replacement opportunity for that. So if there were to be a big tariff that was put on, it would impact paper. Now I will remind you that paper is a pass-through. To our clients, so we don't incur that risk. However, you know, if you were to incur that, you would maybe see some indirect on further pressure on volume. Now what we have done for many of our clients is we've bought forward 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. If it were longer term and they stuck to a significant tax, you know, then we would, you know, look to further help our clients, you know, mitigate that through more clever uses of marketing 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 exposure to China. Not directly. Maybe, you know, this is how some of our clients source product, but not for us. And then Mexico, our biggest exposure is that we do export some books from Mexico into the United States that ultimately we probably could find a solution for in the United States if that happened in the short term.

Okay. Right. So 2024, was a good year in terms of improved manufacturing productivity and cost savings? Are there any meaningful buckets of savings we should think about in 2025? Just there's a just kinda ongoing, you know, diligence with regard to costs. Just trying to think through the expense side. As we move throughout 2025.

Yeah. I think as you've seen, we're always on a continual cost management cycle, especially as we've learned to deal with the 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't figure more stuff out, they do. And that's from things like how we manage the labor, how we rethink how we adjust very quickly, and how we manage labor when the peaks and valleys that the sort of the trends that happen year over year keep changing because it's a dynamic marketing environment. So they've become just very, very flexible on how they do this. And, obviously, 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, you know, anything significant in the coming year in that place. But I would also tell you that when we invest in things like AI, I know we use we specifically talk about AI as it relates to the data stack. We've also doing have a lot of projects using AI to decrease the amount of labor being required in things like content creation or things that were typically done manually can be more automated. We've done more shift of 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 hands-on. And so I think as a lean enterprise company for a long time who's in a tough industry, you know, we've become very good at continually defining cost takeout, and we will continue on that path.

And Kevin, 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.

Okay. Sounds good. I will turn it back over. Thanks for taking the questions.

Thanks, Kevin.

Our next question comes from Barton Crockett from Rosenblatt. Please go ahead with your question.

Good morning. Thanks for taking the question. I was, wanting to to get a little bit kind of just a clear sense of what you're seeing for revenue trend as we start the year. She had some volatility. I mean, the fourth quarter was down 10% year over year. The third quarter was down, you know, like, 3.6% year over year. You're guiding for this improved trend over the course of 2025, but how should we think about the revenue trends here and the beginning of 2025 here in the first quarter?

Yeah. Barton, this is Tony. But if I started from your comments on the third quarter versus the fourth quarter last year, we had commented at one point that 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. The 10% decline in the fourth quarter pretty close to what we expected. And now as we go into 2025, you know, we still have, as pointed out in the call, the headwind of two more months of the large grocer loss. And then as you'll go throughout the year, especially in the second half of the year with our seasonal production peak, you'll see increases in our volumes as well as, you know, back-ended increases in our agency sales for the year. Right? So, you know, start lighter and it'll pick up throughout the year.

Okay. So but you can't tell us, like, a pacing number at this point. Is it down double digit or single digit, anything of that specificity? Or not really at this point?

I mean, first quarter, again, going to be lighter. I think comparable is something like a high single digit and then improving from there.

Okay. Right. Thank you. Now in terms of asset sales, just want to make sure I kind of understand. So can you give us any sense of the asset sales that are inked but not yet booked. I mean, I know you've inked the Europe sale. I think inked the Saratoga Springs sale. I'm not sure if that's been booked or not. Where do we stand on that on what you can say about cash proceeds that should come in from asset sales that you've named? But haven't yet received.

Yep. Yep. So 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, you know, in paying down debt, you know, during 2024. For the Europe sale, that is inked. We continue to work closely with Capmont on getting the close. We expect that in early 2025. And then on the four building sales that we still have for sale, one in Sacramento, one in Waukee, Iowa, and two in Effingham, Illinois. We have modeled all four of those to take place in 2025. Real estate, you know, it always depends on the market at the particular time. So we continue to make progress on those sales at actively being marketed and included in our 2025 guidance in terms of where we're going to bring net debt leverage to 1.5 by the end of the year.

Okay. But, you know, also just to understand that, I mean, your net debt part of the net debt leverage calculation is down $50 million. The, you know, you're gonna get, let's say, $50 million of free cash. Maybe $15 million of that goes out for dividend. And so at least $35 million plus the asset sales. And as I understand, your Europe sale was for over $40 million of cash to come in. With the at least the announced kind of sales price, it seemed like you could do better than this net debt that you've spoken about with the asset sales fully realized. Is that reasonable?

Yeah. I mean, I'll just add to that. I mean, our intention, we have a long-term debt leverage range of 1.5 to 2. That not that long ago was 2 to 2.5 but we've done a great job at reducing debt. Now that we're at that, basically, low end of the guidance range or that we expect to be at by the end of this year. You know, we're maintaining, you know, 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. Right? We can adjust accordingly. So we feel comfortable given those levers that we can say, $100 million of debt at the end of the year 1.5 leverage.

Okay. And then, in terms of your revenue guide for the year, does that assume that the tariff issue in Canada would could drive a cost that might flow client demand kinda like postage has. Is your assumption that that is not a factor? So that could be a negative bias if that actually is permanent.

You know, I think we look at it as we feel good in the short term. Right? And who knows how these things play out? I mean, it's, I think, everybody's guess right now. But if there was, you know, sort of a leveraging event where he kicks in a 25% tariff on Canada to get more of what he wants. We've already bought forward on paper for that. You know, if it becomes permanent, then that becomes another impact that we have to think about. But we hope that does not happen.

Okay. Alright. And then just the final thing, Joel. On the postmaster general, any early thoughts about who's gonna get into that seat? Have you heard anything, any suggestion that the successor would have a different policy or approach?

Yeah. You know, I'm not volunteering, to be clear. But it's I it it all happened just two days ago. I've already talked to one of our senators just to make sure that they, you know, know the lay of the land because there's several Florida governors' seats that are named new new new seats that are named but are not yet confirmed. And those have been sitting there. Now Trump is in office. We don't know if he will decide to change any of those. But if they are confirmed, we're just trying to arm them with data they should use as they vet out a new postmaster general, you know, specific to, like, the numbers I shared and what negative impact that had on the post office. I mean, you know, in the normal course of organic decline, you know, the overall the per piece decline was about a billion six per year. Pieces. From the time he started his increase, it's gone until today. It's 13.6 billion pieces. And so, obviously, a direct correlation to a 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 vetting the candidate understand and make sure that that's, you know, that vetting is done with those perspectives in mind. This will play out for a while, I suspect. So we do not know how long it will take at this point in time.

But there's probably just the timing you such as not gonna really have an impact on expectations for maybe a 13% rate hike midyear.

Yeah. No. I would say that you probably that we are counting that that will probably go forward, whatever it is, whether it's 10% or 13%. We're clearly making efforts to minimize that impact.

Okay.

I would expect that to be to go through. Unfortunately.

Yeah. I guess, I could see, unfortunate that that can't be averted, I guess. But thanks a lot for the help here. I really appreciate it.

Thanks, Barton.

And ladies and gentlemen, that will conclude today's question and answer session. I would like to turn the floor back over to Joel Quadracci for closing remarks.

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 as an MX company. 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.

And ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.