Quad Graphics, Inc

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. Should you need assistance at any time, please signal a conference specialist by pressing the star key followed by zero. 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 Investor section of Quad's website under the Events and Recent Presentations link. Following today's presentation, the conference call will be opened for questions. To ask a question, when prompted, please press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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 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, 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'll now hand the call over 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 few weeks of the quarter, which required swift, decisive action to fortify the business. Since then, we have seen a meaningful impact to our business and 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 followed 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 three 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 company-wide, and guidelines for social distancing. Given the scale of our equipment and our extensive use of automation, Our production platform naturally lends itself to social distancing. However, our continuous improvement team modified processes and adapted workspaces where necessary. To complement these efforts, our in-store marketing group produced signage and floor graphics to remind employees how to work safely apart. Our Safe at Work program also includes a well-defined process for assessing each potential COVID-19 case using a rapid response team comprised of our Quad HR professionals. This team helps transition impacted employees to self-quarantine and performs rigorous contact tracing. The rapid response team also reports out daily metrics to our executive team so we understand the real-time impact of COVID-19 on our workforce. To date, the number of confirmed and suspected cases of COVID-19 remains relatively low among our employee base. As this pandemic evolves, we will continue to take care of our employees to the best of our ability while also taking swift action to mitigate risk and implement cost reductions that protect our balance sheet and preserve cash flow and liquidity. Our leadership team has a deep experience managing through industry and economic disruptions. Our disciplined approach includes treating almost all costs as variable to help offset the impact from volume fluctuations over both the short and long term. We made a number of tough cost reduction decisions that Dave will detail in his section. and we communicated those decisions to our employees and other stakeholders quickly and transparently. Now, more than ever, communications are important during this disruptive time and we are using technology to strengthen interconnectivity with each other, our culture and our values. I post regular updates from my home office to make sure all employees hear directly from me on my perspectives and insights into why we are making tough decisions, to remind everyone of the good news stories that are happening every day at Quad during this crisis, to encourage employees to use Quad's abundant resources for their physical, emotional, financial, and social wellbeing, and to provide the vision forward in a post-COVID-19 environment where we will be stronger than before the pandemic. Throughout all of this, I continue to be impressed with our employees' unwavering spirit of innovation, not only to help our clients solve problems, but also to help each other at this time of crisis. For example, as shown on slide four, Employees in our CRT Inc. manufacturing division began formulating hand sanitizer for use in our facilities across the country. Employees in our direct marketing group designed a disposable non-medical face mask that has been mass produced on our existing printing press equipment. We were able to outfit every employee throughout our nationwide network with a mask in our initial production run. Since then, we have continued to refine the design for easier production, self-assembly, and wearability and are now in our third version which is starting up production today and will be distributed throughout our network of facilities immediately. COVID-19 has impacted our clients in a variety of different ways depending on vertical market and product type. For example, department stores are having a particularly tough time right now given closure orders and subsequently have pulled back in media spend. Nevertheless, the pandemic has also provided new opportunities to leverage our platform and innovate new solutions to help clients maintain business continuity and consumer engagement during this period of uncertainty. This is where our Quad 3.0 strategy really differentiates us from other printers and marketing agencies. As a marketing solutions partner, we are focused on solving clients' marketing and process challenges. Our strategy is informed by listening to our clients' needs and developing solutions to help reduce complexity and cost, improve marketing spend effectiveness and profitability. Because we have always made it a priority to build relationships at all levels within a client's organization, we can better understand, anticipate, and solve their problems. On slide five, we show a prime example of our Quad 3.0 innovation in action. We created our COVID-19 in-store marketing toolkit to help brick-and-mortar retailers provide visual cues on social distancing to keep shoppers safe. The toolkit features standalone signage and displays, floor graphics, checkout protection shields, and cart wraps, among other products, and is packaged by our experts to be install ready. The toolkit has been an overwhelming success and is in use by retailers at thousands of locations throughout the country, including grocery, home improvement, convenience, and drugstores. I'm pleased to share that this effort alone has created in excess of $5 million of incremental revenue for our company. Through our Quad 3.0 strategy, we've also been able to help our clients be more efficient and effective at content creation and production at a time when they have had challenges staffing those critical functions. We were recently engaged by a major clothing and accessory retailer to help with studio photography for its multiple brands. This retailer was experiencing labor shortages due to the pandemic. We were immediately able to step in and start photographing 500 samples per week for the retailer's e-commerce sites. When the pandemic subsides and clients begin to rethink their operations in the new normal, including what functions should and should not remain staffed in-house, we will be ready in position to help offer them quicker path to success through the use of our content creation and production services. During the first quarter, we are pleased to be selected by the White House and CDC to print a direct mail piece promoting coronavirus guidelines for America. We printed 42 million postcards from U.S. households in record time. As we continue to manage day-to-day operations, we are also planning for the reopening of the economy under multiple scenarios based on our clients' evolving advertising and marketing plans. Our Quad 3.0 strategy will serve us well, especially as our clients rethink how to operate in a new normal post-COVID-19. However, between now and then, and as the economy begins its gradual recovery, We will continue to live in a new abnormal, where economic activity may still be heavily and unpredictably impacted by virus hotspots. In this new abnormal, forward-thinking, agile companies like Quad will have the advantage. Our Quad 3.0 strategy, which is focused on solving client challenges, combined with our ability to move quickly and decisively, will help clients successfully adjust to a new changing media consumption patterns and consumer buying habits. Until then, uncertainty continues. We will closely monitor the COVID-19 pandemic and its impact on our clients and the worldwide economy while protecting our employees' health and the company's financial strength, thereby serving our clients with high-quality on-time delivery. Before I turn the call over to Dave, I want to recognize and thank employees for going above and beyond during this challenging time when every aspect of their personal and professional lives has been disrupted. I regularly receive client letters and emails praising our employees and even received a video thank you from David Remnick, the editor of the New Yorker magazine, who said, I just want to thank all our friends at Quad who have done an amazing, amazing job at this very strange and difficult time. The idea that we could put out the New Yorker week after week in print moves me beyond measure, and I know that's the case with everybody at the staff. It means the world to us. All the issues of the New Yorker that have come out in the last several weeks are some of the best work we've ever done, but that would be only possible with you. I, too, thank our employees who continue to show our clients why we are a true partner in their business and how that they are Quad proud and dedicated to the success of our company. With that, I will now turn the call over to you, Dave.