Quad Graphics, Inc

Good morning and welcome to the Quad second quarter 2021 earnings conference call for analysts and investors. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to the Quad management team. 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, and Dave will follow with a summary of Quad's second quarter and year-to-date 2021 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 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 investor 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. We are very pleased with our second quarter operating and financial performance, which exceeded our expectations. Net sales increased 19% driven by higher print, logistics, and agency solution sales, which rebounded compared to the pandemic period in Q2 of 2020. Our services offerings alone were up 33% in the quarter and 15% year-to-date. These positive trends, which included organic growth as well as print segment share gains from new clients, reflect our employees' hard work and agility, the strength of our business strategy, and the success our integrated marketing offering is having in the marketplace. Thanks to the strong performance and higher cash flows, we were able to significantly reduce net debt by approximately 25% over the past 12 months. We will continue to focus on maintaining a healthy balance sheet while simultaneously making strategic investments in talent, technology, products, and services to accelerate our position as a marketing solutions partner. On slide three, we highlight key competitive advantages that distinguish Quad as a leading marketing solutions partner and create more value for our clients. These advantages reflect our commitment to innovation, integrated marketing platform excellence, and culture and social purpose. I will spend some time today discussing these advantages, starting with how we are driving innovation and growth through new talent we're bringing on board. Turning to slide four, in July, we welcome Josh Golden, former president and publisher of AdAge, as our chief marketing officer. Josh has incredible insight into what is important and relevant to marketers and is an advocate for our uncomplicated approach to addressing those challenges. The energy and expertise he brings to Quad is key to highlighting our singular place in the market, where we offer through-the-line marketing solutions with the ease of engagement of a specialized agency. Josh will work closely with me, Eric Ashworth, our Executive Vice President of Product and Market Strategy and President of Agency Solutions, and Julie Curry, our Chief Revenue Officer, to accelerate our visibility and drive growth across our entire solutions portfolio. This includes continuing to position Quad as a strategic industry partner with deep expertise in helping brands and marketers create big ideas along with reducing complexity, increasing efficiency, and improving marketing spend effectiveness. We are excited about the future with Josh as part of our team. Turning to slide five, we continue to invest in our long-term growth platform, which includes MarTech solutions that help clients optimize their marketing efforts. Rise Interactive, our tech-enabled performance marketing agency, just won Product of the Year for its innovation, Connects, at the prestigious Sales and Marketing Awards, or SAMIs. Connects is a cross-channel media optimization platform that helps marketers know where to allocate their digital marketing budget to achieve their business goals. This type of MarTech solution has become increasingly important as the number of marketing channels expands each with its own ROI measurement, leaving brands with siloed technology and without a solution that informs where to spend their next dollar based on which investments are driving the performance. With the sheer volume of data, marketers need to know which opportunities to focus on and be able to take immediate action. Connects brings cross-channel media management to life at scale with performance transparency unavailable anywhere else. This innovation eliminates the noise of disparate data sets and helps marketers identify the specific value-driving actions they need to take in real time to drive revenue and grow their business. As an example of the power of this platform, Rise recently helped a national retail chain secure more co-op budget from its brand partners by identifying real-time opportunities to capitalize on strong sales performance. By focusing digital ad spend on times when demand for particular brands and their products are performing well, we helped the retailer drive incremental sales while also positioning it as a proactive partner. This was a win-win-win. Brands won by getting proactively notified when their products were selling well, information that was historically more challenging to get from their retail partners. The retailer won because it could do more advertising with co-op dollars. and we won by demonstrating our value as a true partner for integrated marketing solutions. Turning to slide six, the retail and e-com spaces have evolved dramatically in recent years, exposing significant workflow challenges for marketers. Additionally, the pandemic and work-from-home requirements have forever shifted how marketing teams collaborate on a daily basis. In light of these disruptions, clients are increasingly demanding a more automated approach to managing their marketing efforts. This is where Quad's client technology team excels. Our team of software developers and UX experts help our clients optimize their processes with highly configurable and scalable workflow solutions designed to address their unique challenges. Currently, more than 200 clients leverage our technology with more than 150,000 users. Our client technology experts are presently helping a leading global retail and e-commerce company, optimize and deploy highly regionalized advertising and in-store promotion signage as it expands its grocery footprint over the next year. We deployed our content management workflow solution to centralize and organize all of this client's in-store marketing efforts and simplify regional complexity. Our team is also assisting with the business process implementation and change management. As a result of our integrated solution, the client is transitioning its in-store signage production to our platform. We also introduced this client to our analytics solutions to dynamically track the effectiveness of each campaign. It is through these types of innovations that we are able to extend and grow client relationships beyond limited engagements and create additional revenue for our clients and our company. We also continue to strengthen our commitment to platform excellence to align with our holistic strategy as a marketing solutions partner. At the end of June, we divested our 3PL brokered freight business, Quad Express, for a total consideration of $40 million to the Mullen Group, a leading Canadian logistics provider. This divestiture, which represented a small portion of our global logistics business, supports our established strategy to optimize our product and service portfolio and invest in those parts of our business that accelerate our position as a marketing solutions partner and create more value for our clients and other stakeholders. We are pleased to have found a great home for the QuadExpress team. Given recent nationwide labor shortages combined with increased volumes at our print manufacturing facilities, We have intensified our focus on attracting and retaining employees through a holistic approach designed to ensure we have the talent needed to support our platform and offering and growth objectives. While I continue to be concerned about labor shortages, I am pleased with the traction we are getting with our recent hiring efforts, especially as we continue to ramp up for the historically busier back half of the year. These hiring initiatives complement robust retention efforts that include our accelerated career training program and the expansion of Quad's business resource groups, which connect employees with shared backgrounds, interests, and issues and create a more inclusive environment. We continue to be a strong and dependable employer and are well regarded in the industry and among our clients for our operating stability, reliability, and agile performance. Turning to slide seven, through our commitment to innovation and platform excellence, we continue to attract new clients from existing verticals while simultaneously growing our presence in critical expansion categories like technology, consumer packaged goods, and direct-to-consumer. These brands, admired for the excellence and the loyalty they have built with their customers, have placed their trust in us to help solve their most urgent marketing challenges. As the ad market and broader economy continue to recover and return to growth, we will continue to focus on attracting new clients as well as growing share through our expanded marketing services offering. On slide eight, we address our commitment to culture and social purpose, a commitment that goes back to our company's founding 50 years ago. Our strong culture and values include an enduring focus on environmental, social, and governance matters. For example, in the social space, we are building a more comprehensive and sustainable DEI strategy, which not only benefits our employees, but also our industry and the communities we call home. When it comes to the environment, we have always sought to minimize the impacts of our business operations by conserving raw materials, minimizing waste, and recycling and reusing whenever possible. In 2020, we recycled nearly 300,000 tons of paper along with 3,000 tons of metals, and 500 tons of plastics. Currently, we recycle 98% of all material byproducts from our manufacturing processes and have multiple initiatives in place to increase that amount to 99.5%. We take seriously our role in creating a better way through our social, environmental, and economic contributions. Before I turn the call over to Dave, I want to thank our employees for the continued hard work and dedication. and congratulate them on our 50-year milestone anniversary, which we marked on July 13th. The team has been resilient in the face of a truly dynamic environment and unprecedented challenges, and I thank them for supporting each other and managing through disruption in its many forms to continue to serve our clients well. I am proud of how we have been navigating the pandemic, and with ad spending and the wider economy now recovering, we are focused on growth. As always, we will remain nimble so that we can adapt to changes in the demand landscape. With that, I'll now turn the call over to Dave.