Good morning, and welcome to Quad’s First Quarter 2025 Conference Call. During today’s call, all participants will be in 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 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. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Krebsbach, Quad’s Investor Relations Manager. Katie, please go ahead.

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 to Business Update and Tony will follow with a summary of Quad’s first quarter 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 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. Our first quarter results were in line with our expectations and we remain on track to achieve our 2025 guidance. We continue to build momentum as a marketing experience or MX company with a distinctive suite of solutions that seamlessly integrates creative production and media across digital and physical channels as shown on Slide 3. We are committed to growing our offerings including strategic investments in innovative solutions and superior talent while managing for economic uncertainties. We continue to closely monitor the potential impacts of tariffs and recessionary pressures on our clients businesses. Quad imports paper from Canada as well as books we manufacture in our own facilities in Mexico for our U.S. clients. Currently, these products are both compliant under the USMCA and therefore are exempt from tariffs. Our procurement teams are in various stages of evaluating or reallocating sourcing options for the remaining items in our supply chain that are affected by tariffs, which represented less than 11% of our 2024 procurement spend including 1% of spent with China. While Quad 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 in consumer demand to see how they may affect clients’ mission critical marketing plans. In addition to tariffs, postage continues to impact many of our clients as it represents the single largest marketing cost for mailers. Earlier this month, the U.S. Postal Service announced details behind its next major postal rate increase, expected to take effect on July 13. We estimate many of our mailing clients will experience an average of 10% increase in postage costs. Data shows that massive rate increase drive away the…

Thanks, Joel, and good morning, everyone. 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 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. 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 increases were primarily offset by an expected revenue mix decrease of 4% in our large scale print offerings due to organic declines in retail inserts and magazines. 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 7.7% to 7.2%. The decrease in adjusted EBITDA was primarily due to the impact of lower sales, increased investments in innovative offerings to 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. Adjusted diluted earnings per share doubled in the first quarter of 2025 to $0.20 per share as compared to $0.10 per share in the first quarter of 2024, primarily due to higher net earnings including lower depreciation and amortization as well as lower interest expense due to reduced debt. Free cash flow was negative…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kevin Steinke with Barrington Research Associates. Please go ahead.

Good morning, Kevin.

Thank you and good morning. Wanted to start out by just talking about the external environment. I thought it was a very solid start to the year, first quarter coming in at least ahead of external expectations. I know you said they were in line with your expectations, but the organic decline of minus 2% on the top line was at the most favorable end of your minus 2% to minus 6% outlook organically for the full year. But I guess obviously some of the more disruptive headlines related to tariffs in the macro came at the beginning of April. So it sounds like you’re monitoring that closely. But have you seen any notable change in the demand outlook here early in the second quarter?

Yes. I mean, I think still some of the organic decline that we see like in catalog and maybe publications, again, they knew – they know that this 10% price increase happens in July. So we were kind of as expected. But when I think about on the marketing side and what clients are doing, we’re not – so they’ve 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, meaning in one case, they’re not sure they can get the product out of Vietnam in time for the season. So why market it? They had already produced product in Vietnam, but now with everybody trying to get in there, and it’s an underdeveloped – still an underdeveloped platform, they just worry about the availability of capacity. In other cases, we’ve seen people 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. And my concern is obviously the same as everyone else is, does this lead to a rapid slowdown in the economy? But also it’s really about what are the unintended dislocations that cause changes in how our customers act. And so I think as much visibility as we have, we haven’t seen the pullback that, that maybe some people would think would happen. Now, again, my crystal ball is probably as cloudy as is yours, but I think everyone’s waiting for more direction on what’s going to happen here.

Right. Okay. Well, that makes sense. Thank you for that. And so obviously you talked about the coming postal rate increase in July, but you also talked about the postal service doing some testing of price elasticity for catalogs, and to see how volume, I guess, reacts to that. I think you talked about that there’s been a leadership change at the postal service. So I’m wondering if you’re taking that testing as some sort of maybe acknowledgement or change in the views at the postal service, where maybe there’ll be some future more favorable policy in terms of just pricing and how they look at pricing and the trade-off versus volumes?

Yes. I think, they’re obviously hard to understand sometimes and how they come up with what they come up with. But I just came back Sunday, Monday, I was at the National Postal Forum in Nashville where all the postal leaders were. We have an acting Postmaster General because DeJoy had stepped down. We’re waiting any day now for the announcement of a new Postmaster General. Our understanding is that the White House is weighing in hopefully yesterday or today on who the Board of Governor is picking as their candidate. 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 – with volumes down, let’s just make it up in pricing. And that’s really hurt our industry. I was able to talk to some of the executives the day before yesterday, including the head of pricing. And they admit that in the catalog side because catalog could be much more variable and much more sensitive to cost changes because people just pull back on prospecting if they get a big hit. And ultimately that hurts the whole category. And so that’s why they’re putting in this. So the rates increase by 10 or so percent in July, they go into effect and then you can qualify for basically offsetting that increase if you’re a catalog, but not until 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 have built in the 10% for the entire year plan. So suddenly there’s an opportunity to kind of 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. The other thing, I’d also take note of in first quarter is while, I made the comment that some of the organic decline with catalog and maybe publication is still impacted by that knowing that increase is coming. 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 6% in 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 and the financial sector pulled back. So with – some great signs of winning work based on the MX experience because almost all the direct mail wins we have are not single product or service wins. They’re across multiple of Quad’s offerings, which is just it sort of speaks to what we’ve been talking about for years in the MX experience.

All right. Yes. That’s great to hear. Good color there. So you made – looks like very small acquisition of Enru and their co-mailing assets. But you’ve obviously been very good at developing your own co-mailing solutions internally. But just kind of curious what that acquisition might have brought to you that you didn’t have before that maybe it made more sense to acquire versus building internally?

Yes. Yes. Enru was previously originally owned by LSC and they did co-mail like we do. They also do third party co-mail for other printers, which we do as well and will continue to do because it’s very important that the industry as a whole keep making sure that this medium is viable for our customers. And co-mail and working to be the most efficient for the customer base is at the heart. They bring a little bit more – a different type of capability in what is called 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 in, we’re not only bringing more volume together for the industry, that’s important to keep the discounts up, but we’re also combining different capabilities together to further enhance it for everybody. And so I see the combination of the high density and then more the five digit that we do to really work together to enhance it for our customers and collectively the industry’s 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.

Okay. That’s helpful. And you mentioned a couple new relationships for In-Store Connect with some grocers. Just any comments on maybe the size of those chains and the opportunity to expand with them. And just relatedly, how many stores are you in across all your In-Store Connect clients now as that offering continues to roll out?

Yes. I’ve always said that 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 CPGs, That’s what’s really important. We started out with 15 stores and now we’re at over 45 stores with 30 more coming from the two new customers that we just added. And I’ll say that one of them is really interesting. Well, they’re both interesting, but one of them is fairly large on the West Coast and is heavily focused Hispanic population, which is really important to CPGs. And then another one is a different category of grocer in the smaller size, but they’re all trying to figure out how to play in this and they all – all these smaller sized grocery network, they like to coordinate with each other to look for opportunities for things like how do we market better as a small grocer to come together. And so our race is, 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, 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. I think that every grocer is talking about it who doesn’t have it. CPGs are talking about. They’re all just trying to figure out how to get there and they’re all going through that process.

Yes. And Kevin, it’s exciting as well that the Save Mart companies is expanding beyond their initial proof of concept into a second phase.

Yes. Thanks for that. That’s encouraging. I appreciate all the good answers. I’ll turn it back over.

Okay. Thanks, Kevin. Operator?

And the next question comes from Barton Crockett with Rosenblatt. Please go ahead.

Good morning, Barton.

Good morning, guys. So I wanted to drill in a little bit more into the cadence, just given all of the balls up in the air with the tariff situation and everything. So you guys start to lap the headwind from loss of the grocer client in the second quarter. That would suggest that all else equal that you could see an improving kind of revenue trajectory in the second quarter. I’m not sure that’s consistent with what you were saying in terms of quarterly cadence, but I was wondering if you could address the puts and takes around that for the second quarter?

Yes. Barton, 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. And that to your point is despite the lapsing of that grocery that we’ve been talking about for the past year. The second quarter for us, the early summer is typically a pretty low seasonal point for us. And then 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.

Okay. And is that deceleration in the second quarter, I mean, the seasonal thing happens every year. So does that suggest that there’s just been some kind of impact on demand from the tariffs perhaps in the second quarter or anything you can point to that would explain that?

Yes. I think to Joel’s earlier point, we’ve seen some early related impacts from tariffs, but I would attribute this more to seasonal impacts between years.

Okay. And in terms of the holiday season, which is the, you said the most important for your cash flow of your business. There’s a lot of talk about supply constraints potentially being an issue in the Christmas season. When do you – when would your clients tell you if they need to be in a big reset because they don’t have the product? Is that something that would just come very close to before you’d send the mailings out? Or how much lead time, how much visibility do you get from your clients?

It’s hard to answer that because no one’s really been in this situation before. It’s kind of like you come into COVID and everyone’s like, we don’t have a playbook for this. I don’t think people have a playbook for massive tariffs across the whole world potentially hitting them, as well as the uncertainty of what’s real and what’s not. What’s going to be pulled back? What will stay in place? So, I’d love to have a smarter answer, but I think everyone’s in the same boat here of this is an experience that would, people are it’s like they need more cars to be turned over to understand to how to answer that question. I mean, I certainly think the administration isn’t interested in totally killing the economy, but they are also very interested in getting to what they would quote as 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 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. It’s not going to be a one-size fits all answer because our client base is so broad based in different categories.

Okay. And then just one other question on this. The one category that’s been flagged by the digital marketers are these retailers that use the de minimis shipping exemption, presumably people like Temu and Shein. Do you guys have much exposure to that?

We do not. We do not. And I do think that that’s one that’s going to be one to watch, because obviously that’s going to change the dynamics there.

Okay. And then one kind of final thing. I’m just wondering if you could talk a little bit more about the work with Google on artificial intelligence. And just in terms of a description of how impactful this is, I mean, it’s certainly AI has driven some transformative kind of improvements in direct marketing performance for some of the digital guys thinking like Meta, maybe arguably AppLovin. You guys are kind of a different type of model, but the direct marketer. I know you’re using it for GenAI, but are you seeing any improvements in terms of your ability to kind of target and get a return on ad spend that’s tied to this?

Yes. I mean, you think about it as 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 not just transactional data like other people have, but it’s our passion scores that are made up of knowing the content that’s going into the mailbox, and so the data sits in Google Cloud. We’ve used other people like Snowflake. So you take the AI, sort of, large language models and they sit above the data stack. But the important thing is, is you have a tool set to be able to 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’ll 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 Builder 2.0 is that interface that allows us to completely access for our clients a very complicated data set.

Okay. And to your point, yes, we are seeing in the case studies we are developing, we are seeing a strong performance by the data from a responsiveness standpoint.

Okay. All right. That’s helpful. Okay. That’s it for me. Thank you, guys.

All right. Thank you, Bart. Operator?

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

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 as an MX company as we set new standards for the industry. Not only do we remove friction from whatever it occurs in the marketing journey, but we optimize media and marketing performance through integration. With that, thank you again and have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.