Quad/Graphics, Inc. Q1 FY2025 earnings call

• Quad's first - quarter results were in line with expectations, and it remains on track to achieve 2025 guidance. It is a marketing experience company with a suite of solutions that seamlessly integrate creative production and media across digital and physical channels. - It is committed to growing its offerings, including strategic investments in innovative solutions and superior talent while managing economic uncertainties. - It closely monitors the potential impacts of tariffs and recessionary pressures on clients. Quad imports paper from Canada and manufactures books in Mexico, which are currently exempt from USMCA - related tariffs. Procurement teams are evaluating or reallocating sourcing options for the remaining items in the supply chain affected by tariffs, which accounted for less than 11% of 2024 procurement spend. - The US Postal Service announced a major rate increase in July, but it has a promotion for catalogers. Quad deploys a two - pronged approach to help clients mitigate postal rate increases, such as launching Household Fusion, a postal optimization program, and acquiring Enru's co - mail assets. - It invests in solutions to drive marketing effectiveness, having a superior household - based data stack and partnering with Google Cloud for AI. - Tim Maleeny expanded his role to President of Agency Solutions. - There is an update on In - Store Connect by Quad, with expansion in mid - market grocery clients and work with other retailers. - It completed the sale of its European operations and a Sacramento, California building, and closed the Greenville, Michigan facility.

In the first quarter of 2025, net sales amounted to $629 million, a 2% decrease compared to the first quarter of 2024 when excluding the divestiture of European operations. Regarding revenue contribution, Latin America's revenue percentage of total sales increased by 3% due to growth in Mexico, and targeted print offerings driven by catalogs and direct marketing saw a 2% increase. This was offset by a 4% decrease in large - scale print offerings because of organic declines in retail inserts and magazines. Adjusted EBITDA in the first quarter of 2025 was $46 million, down from $51 million in the first quarter of 2024, with the adjusted EBITDA margin dropping from 7.7% to 7.2%. Adjusted diluted earnings per share doubled to $0.20 per share. Free cash flow was - $100 million in the first quarter of 2025, compared to - $70 million in the first quarter of 2024. When seasonality is removed, net debt decreased by $81 million from March 31, 2024, to March 31, 2025.

• It continues to expect organic net sales to decline by 2% to 6% compared to 2024, excluding the divested European operations. - Full - year 2025 adjusted EBITDA is expected to be between $180 million and $220 million, with $200 million at the midpoint. It anticipates lower adjusted EBITDA in the second quarter of 2025 and sequentially higher adjusted EBITDA in the third and fourth quarters of 2025. - 2025 free cash flow is expected to be in the range of $40 million to $60 million, with capital expenditures in the range of $65 million to $75 million. - The net debt leverage ratio is expected to decrease to approximately 1.5 times by the end of 2025. - The next quarterly dividend of $0.075 is payable on June 6.

• Tariffs could impact clients' businesses, with some clients adjusting marketing plans due to tariff - related dislocations. - The US Postal Service rate increase in July may drive away the volume needed for a healthy postal service. - Uncertainty regarding interest rates affects debt expense. - Seasonality of the business can impact free cash flow and debt leverage, and potential supply constraints in the holiday season due to tariffs are a concern.

Q: Talked about the external environment and organic decline. Have you seen a notable change in the demand outlook early in the second quarter?

A: There is still some organic decline in catalog and publications as expected. Some indications of dislocation have been seen, such as catalogers and retailers adjusting marketing plans due to tariffs, but it is not enough to be called a trend.

Q: Talked about the postal service testing price elasticity for catalogs. Any view on the postal service's change in views on pricing and volumes?

A: There is an acting Postmaster General, and a new Postmaster General is expected to be announced soon. Postal leaders admit that catalog is sensitive to cost changes, and the promotion is in place, but it is still uncertain how the postal service's views on pricing and volumes will change.

Q: Thoughts on the acquisition of Enru's co - mailing assets?

A: Enru brings a different type of capability in the high - density approach. Combining capabilities through the acquisition enhances it for customers and the industry, and it also brings equipment to upgrade the platform.

Q: Comments on In - Store Connect new relationships and the number of stores?

A: It started with 15 stores and now has over 45 stores, with 30 more coming from new customers. It is racing to build out geography and increase the number of stores, as CPGs are interested in the exposure.

Q: Cadence of the second quarter and the impact of tariffs?

A: The second quarter's revenue and EBITDA will be lower than the first quarter, which is more attributed to seasonal impacts between years rather than direct tariff impact in the second quarter.

Q: Lead time for clients to reset due to supply constraints in the holiday season?

A: It is hard to answer as it is an uncharted situation with no playbook, and everyone is in the same boat.

Q: Work with Google on AI and its impact on direct marketing performance?

A: There is the rollout of Audience Builder 2.0 which taps into the big data stack. They are seeing strong performance in case studies from a responsiveness standpoint.