Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quad/Graphics Inc (QUAD, Financial) achieved improvements in both adjusted EBITDA and adjusted EBITDA margin, with adjusted EBITDA margin increasing by 100 basis points to 8.2%.
- The company continues to expand its presence in retail media networks, a fast-growing media channel, with new partnerships and ongoing conversations with multiple supermarket chains and big-box retailers.
- Quad/Graphics Inc (QUAD) introduced 3D Commerce by Quad, an automated and scalable 3D scanning solution, enhancing its MX creative offering and driving higher sales activity for retailers.
- The company has been recognized with several awards and recognitions, including being featured on the Ad Age World's Largest Agency Companies list and receiving The SAMMY Award for its proprietary media optimization platform, Connex.
- Quad/Graphics Inc (QUAD) has a strong pipeline for new business, driven by its MX solution suite, and continues to prioritize growth in verticals and product lines with the greatest expansion opportunities.
Negative Points
- Net sales declined by 10% in the second quarter of 2024 compared to the same period in 2023, primarily due to lower paper, print, and agency solution sales.
- Print volumes were negatively impacted by ongoing external headwinds, including significant postal rate increases and elevated interest rates.
- Free cash flow was negative $82 million in the first half of 2024, compared to negative $45 million in the first half of 2023.
- The company experienced a 12% decline in net sales in the first half of 2024 compared to the first half of 2023, with lower educational book volume exported to the United States contributing to the decline.
- Quad/Graphics Inc (QUAD) expects ongoing macroeconomic headwinds, including postal rate increases and elevated interest rates, to continue impacting its financial performance, leading to a forecasted decline in annual net sales for 2024.
Q & A Highlights
Q: Can you discuss the pipeline for your retail media networks (RMN) offering and the larger opportunity beyond what you currently have in the pipeline?
A: Joel Quadracci, Chairman, President and CEO: The RMN offering is developing quickly, with significant interest from retailers who want to compete with digital retail media networks like Amazon. We are currently rolling out our solution with Save Mart and Homeland Stores and are in discussions with over a dozen other retailers. The opportunity is substantial, and we are making it easy for retailers to adopt by providing a full-service offering, including digital screens and content creation.
Q: How do you position yourself competitively in the RMN landscape, given the emerging nature of this opportunity?
A: Joel Quadracci, Chairman, President and CEO: While there is competition, our offering is unique because it is comprehensive, including digital screens, content creation, and full-service support. We are better capitalized than our competitors, allowing us to invest in this opportunity. Our partnership with Swiftly also enhances our ability to sell inventory and manage transactions.
Q: Can you provide an update on the postal rate landscape and how you are addressing the challenges it presents?
A: Joel Quadracci, Chairman, President and CEO: The recent 10% postal rate increase has been challenging, but we have not seen the same significant pullback in volume as last year. We are actively engaging with the Postal Rate Commission and Congress to address these issues. Additionally, we are helping clients offset costs through solutions like Fusion Mail, which offers significant savings.
Q: What are the sales trends in your key product categories, and how do you expect them to perform in the second half of the year?
A: Joel Quadracci, Chairman, President and CEO: We saw high-single to low double-digit declines across categories in the first half due to postal rate increases and economic factors. However, we expect a ramp-up in the second half, driven by segment share gains in publications and catalogs and the annualization of postal rate impacts.
Q: Given the high end of the revenue decline guidance, what can you say about the EBITDA and free cash flow guidance ranges?
A: Tony Staniak, Chief Financial Officer: Despite revenue pressures, we expect higher profitability due to cost reduction and productivity improvements. We did not feel the need to guide to the lower end of the EBITDA and free cash flow ranges.
Q: Can you update us on the progress of asset sales, particularly the larger facilities in Saratoga and Effingham?
A: Joel Quadracci, Chairman, President and CEO: We have four properties for sale, including two in Effingham, one in Sacramento, and one in Saratoga Springs. While some sales may extend into 2025, we do not need these sales to achieve our debt leverage target of 1.8 times.
Q: How would you describe the competitive environment in the printing industry, and what are your expectations?
A: Joel Quadracci, Chairman, President and CEO: We have gained significant segment share, which speaks to our competitive position. The ongoing postal rate increases make it difficult for smaller competitors to offset costs. Our scale and solutions like Fusion Mail help us remain competitive.
Q: How is your agency side performing, and how does it fit into your overall strategy?
A: Tony Staniak, Chief Financial Officer: Our agency side is gaining momentum, offering integrated solutions that meet marketers' needs. We combine data analytics, client tech, and multiple media channels, including print, to provide a comprehensive service.
Q: What are your closing remarks?
A: Joel Quadracci, Chairman, President and CEO: Our integrated marketing offering is a key differentiator and driver of our evolution as a marketing experience company. We remain focused on enhancing financial strength and creating shareholder value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
