Quad Graphics, Inc

Good morning, ladies and gentlemen, and welcome to Quad's third quarter 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 the earnings release. Alternatively, You can access the slide presentation on the Investors section of Quad's website under the Events and Recent Presentations link. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Claire Ho, Quad's Director of Corporate Communications. Claire, 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 off today's call with a business update, and Tony will follow with a summary of Quad's third quarter 2022 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, 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 and the slide presentation 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, Claire, and good morning, everyone. I'm pleased to report that in the third quarter, we delivered better than expected net sales of $830 million, an 18% increase. This was the sixth consecutive quarter of sales growth for Quad and reflects continued print segment share gains, increased pricing in response to inflationary cost pressures, and increased sales in our international locations. Our focus as a marketing experience company is driving segment share gains and new client wins. And as a result, we are raising our full year net sales guidance range from 3% to 7% growth to 8% to 10% growth. We've also narrowed our other guidance within the previously provided ranges to reflect our results through the first nine months of the year, which Tony will cover later in the call. I am pleased to share that the proactive investments we made in labor, inventory, and equipment during the first half of 2022 are paying off now during our seasonally high production period. As a result, we achieved higher adjusted EBITDA in the third quarter on both a year-over-year and sequential basis. Notably, we are positioned to achieve higher year-over-year earnings in the fourth quarter as well. Despite ongoing challenges from macroeconomic headwinds, we continue to monitor and take action to mitigate inflationary cost pressures and supply chain constraints, including an inflationary offsetting price increase that will become effective January 1, 2023. Overall, we remain nimble and ready to adjust our operations as necessary to enhance our financial strength while continuing to serve our clients well. Slide 4 shows how we continue to diversify our revenue into higher value and higher margin offerings. On a year-to-date basis, this helped us grow net sales by 14% when excluding the impact of the Quad Express divestiture. Net sales grew in our targeted print and international segments, while large-scale print decreased as a percentage of total net sales due to expected organic declines, primarily in retail inserts. The increase in our international segment is primarily driven by stronger sales in Latin America. For example, Mexico sales have been bolstered by higher exports into the U.S., and Mexico has proven to be a high-quality, low-cost alternative to Asia. Turning to slide five, we are proud of the effectiveness of our business strategy to sustain our leadership in commercial printing while also transforming it into a marketing experience or MX company. The world's best brands increasingly recognize the unique value we provide through our holistic, multi-channel, through-the-line marketing solutions. As an MX company, we guide brands through every effort intended to drive an action, from consumer awareness and trust to brand preference and purchase. We will continue to give our clients a more streamlined, flexible, and frictionless way to go to market and reach consumers, while enhancing our competitive position to drive profitable growth. On slide six, we highlighted our three key competitive advantages, integrated marketing platform excellence, innovation, and culture and social purpose. We continue to strategically invest in our platform, including creative, analytic print, and production capabilities. Recent investments include advancements in data signals, insights, and analytics, and next-gen printing capabilities with 100% variable print. We also continue to invest our talent, bringing aboard experienced professional support, our integrated offering, and accelerate sales growth. In addition, we just opened a new location at 30 Irving Place in New York City, right in the heart of Union Square District. The location is a strategic investment in our brand and will not only serve our local talent, but provide a space to boost clients' marketing experience through conversation, collaboration, and sales interaction. As a marketing experience company, we are making investments in brand marketing, including introducing Qua to new and expanded audiences, as shown on slide 7. In October, we participated in Advertising Week in New York and the Masters of Marketing Annual Conference in Orlando to strengthen existing client relationships and uncover new partnership opportunities for applying our unique technology and scalable solutions. During the quarter, we also facilitated thought leadership discussions among senior brand marketers from Fortune 500 and other leading companies within the brand innovators community. This week, our Chief Marketing Officer, Josh Golden, is speaking at the annual Forbes CMO Summit in Miami, where he will provide insights about the marketing industry's need for a differentiated, through-the-line offering to help us close the persistent gap between creative and production. Next week, we will host our Quad Packaging Sustainability Symposium for clients where we will address sustainability trends, new legislation about greenwashing and product recyclability, and perspectives from Quad clients, including CVS Health Corporation and the Kodiak Cakes brand. As part of the symposium, attendees will be able to tour our Packaging Insight location in Greenville, South Carolina, and learn how we test brand packaging performance, consumer attention, and shelf impact in a simulated shopping environment using advanced biometric technologies. Turning to slide eight, we are growing our presence with brands in the critical expansion categories of finance, healthcare, retail, consumer packaged goods, and direct-to-consumer. For example, a large and complex legacy brand insurance and financial services company chose to expand our relationship to include integrated creative and media solutions. The company was looking for fresh ideas to creatively bring its brand story to life across all business lines as it transforms from an institutional agent-first model to a digitally savvy direct-to-consumer model. The company also wanted to make better use of the data in order to connect more effectively and authentically with consumers. We were already exceptionally familiar with the company, having successfully partnered with it on direct mail production for more than 15 years. We presented an integrated strategy propelled by audience insights and consumer connections planning for driving peak performance through data-driven orchestration of the right brand actions in the right moments for the right audiences. We also introduced the client to our solutions for advanced measurement and accountability to quantify and predict the impact of its marketing efforts. While our work for this client is only just getting underway, we are proud to be the digital agency for three of its most important business lines. We successfully competed against some of the largest agency holding companies for this work. On slide nine, we show how we drive business results for our clients through a relentless focus on innovation, even on things as standard as mailing envelopes. Knowing that marketers face a new set of challenges with the cookie-less future, we spearheaded a campaign for SiriusXM that fully integrated both digital marketing with traditional mail and data capture in a focused target market. One-to-one flow codes on a highly designed and engaging outer envelope increased customer interactions by 30% and delivered first-party user scan data for the client to better identify audiences and their passions. This innovation is just one more way we are helping our network of brands, publishers, and direct marketers monetize their offline and online media more effectively. On slide 10, we highlighted our third competitive advantage, commitment to culture and social purpose. We continuously create a better way through our approach to environmental, social, and governance matters. In fact, Quad's ESG strategy has been validated by trusted third parties, such as Ecovitus, which recently awarded Quad a bronze medal for the quality of our ESG strategy, and the Wisconsin Sustainable Business Council, which just awarded us Green Master status for our sustainable business actions. We also just released our 2022 ESG update, which details progress on our commitments to create positive, sustainable change. The update is available for viewing and download on quad.com. or you can scan the flow code shown on slide 10 of today's presentation. When it comes to the environment, we have multiple initiatives in place to reduce our environmental impact. We are also committed to environmental education and are pleased to share we are featured in a new episode of the Emmy award-winning video series, Into the Outdoors, which regularly airs on PBS. We were selected to be part of the programming for our commitment to environmentalism, sustainability, and stewardship, including our work to galvanize the next generation of environmental stewards. To see the episode, scan the other flow code on slide 10. In the social space, we are advancing on our goal to build a more comprehensive and sustainable DEI strategy that not only benefits our employees, but also our industry and the communities we call home. Our DEI task force is taking action, implementing projects that foster a culture of inclusion with measurement and monitoring to hold ourselves accountable. While we still have work to do, Quad has advanced on several social commitments, including improving the representation of women and people of color among our U.S. employee base and U.S. management team. In particular, our agency solutions group has made gains in attracting more diverse talents and implementing more inclusive hiring practices. We also just opened a new recruiting and training hub based in Milwaukee Central City. We are working with the community to remove barriers to employment, such as training and transportation, and create greater awareness around career opportunities with growth trajectories. This location builds on the momentum established with trusted community partners such as Running Rebels and the Brand Lab. Turning to slide 11, before I turn the call over to Tony, I want to recognize our very own Kelly Burke, Vice President of Sales and Business Development for InStore, for being recognized among the 2022 Women of Excellence by the Path to Purchase Institute. Kelly, who was lauded for excellence in business management, including growing new business and market share with integrity and creativity, was recognized along with leaders from other large brands, such as PepsiCo and Albertsons. So congratulations, Kelly. On a more personal note, I was honored to see my late mother and Quad co-founder, Betty Quadracchi, recognized for advancing inclusive leadership in the Wisconsin business community. In October, Milwaukee Women, Inc. celebrated Betty for her role in founding their organization, which is focused on achieving balanced representation of women on boards of directors. I'm proud of my mother's lasting legacy to maximize the performance of Wisconsin businesses. I will now turn over the call to Tony for a financial review.