Quad Graphics, Inc

Good morning, and welcome to Quad's second quarter 2024 conference call. During today's call, all participants will be in 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 Presentations link. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star, then 1. To withdraw your question, please press star, then 2. Please note this event is being recorded. I will now turn the conference over to Katie Krebsbach, Quad's Investor Relations Manager. Katie, 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 today's call with a business update, and Tony will follow with a summary of Quad's second quarter and year-to-date 2024 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 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, everyone. Our second quarter results were in line with our expectations. Net sales declined versus prior year due to lower paper print and agency solution sales. Print volumes continued to be negatively impacted by ongoing external headwinds, such as significant postal rate increases and elevated interest rates. However, during the second quarter, we achieved improvements in both adjusted EBITDA and adjusted EBITDA margin, with adjusted EBITDA margin increasing by 100 basis points to 8.2%. We continue to manage all aspects of our business by treating all costs as variable, aligning our cost structure to revenue opportunities, and optimizing our manufacturing platform by consolidating work into plants where we can achieve the greatest manufacturing efficiencies, and subsequently selling assets no longer required for business operations. Turning to slide three, our MX solution suite spans every facet of the marketing journey, from offline to online, across creative, production, and media, supported by data-driven intelligence and state-of-the-art technology. Our focus as a marketing experience company includes delivering integrated service excellence, which we achieved by removing pain points and sources of friction from the marketing process and providing transparency on clients' marketing expenditures. accelerating market penetration in key verticals and product lines with the greatest expansion opportunities, and continuing to leverage our unique company culture, which is based on honesty and transparency, to grow as an MX company. On slide four, we continue to expand our presence in retail media networks, one of the fastest-growing media channels today. As I shared on last quarter's call, eMarketer predicts ad spend in omnichannel retail media networks will grow to more than $100 billion by 2027. Our solution called In-Store Connect by Quad elevates the shopping experience by taking the best elements of digital commerce and bringing them into physical store environments where purchase intent is highest. Our ability to help CPG brands create engaging and inspiring messages right at the store shelf drives consumers beyond awareness and deep into the purchase funnel. InStore Connect is backed by a robust content management system featuring content developed by Quad. As previously announced, we are partnering with the Savemar Companies, the largest private regional grocer on the West Coast, to launch InStore Connect, which is happening now. We also just announced our next partnership with Homeland Stores, a large Oklahoma-based grocery chain, which is scheduled to debut our solution in October. Additionally, we are in conversations with more than a dozen other supermarket chains and big box retailers and are already actively selling inventory to CPG companies. To enhance our in-store retail media network, we have also partnered with tech companies swiftly to further integrate online and in-store advertising, creating a richer, more engaging omni-channel shopping experience. For today's brands and brick-and-mortar retailers, This type of integrated experience is crucial to retaining a loyal customer base and attracting new shoppers. Retailers are enthusiastic about our in-store connect solution. Homeland stores told us this is a breakthrough for retailers like us because it allows us to stack up against the big e-commerce players while enhancing our in-store experience and providing our customers with relevant and engaging digital content. Moving on to slide five, During the quarter, we joined all of our creative business lines under a single agency, Betty. This answers the market need for fully integrated, flexible, creative solutions that put quality first regardless of project size, scope, timeline, or budget. Through Betty, we help marketers do more with less in today's ultra-competitive landscape with brand strategy and design, data-driven campaign ideation, Pre-media, retail, and adaptive design powered by innovative AI technology to automate and scale with ease. Content creation, including in-store and on-location services. Our creative solutions are backed by our 24-7 global production platform to offer highly scalable, breakthrough creative at elevated speeds without sacrificing brand consistency or quality. We're confident Betty will redefine creative excellence and drive growth for our company. I'm moved that our team chose to name the agency for my mother, the late Betty Quadracchi. She was a fearless business trailblazer who helped my father establish Quad. She also started our first creative division, Quad Creative. The name Betty aligns with everything our creative services brand stand for, boldness, inclusiveness, creativity, and tenacity, and is an incredible way to honor her legacy. We continue to enhance Betty's ability to provide scale without sacrifice through our robust video and photography studio capabilities as shown on slide six. During the quarter, we introduced 3D Commerce by Quad, the first commercially available automated and scalable 3D scanning solution in North America market. This solution creates photorealistic 3D assets, capturing a brand's product in 360 degrees with intricate surface level detail. Assets are used for a range of photo and video applications, including virtual try-ons and augmented reality experiences for websites and mobile apps. This solution is a key part of our MX creative offering. It makes the marketer's job easier by efficiently creating high-quality assets at scale and enhances the consumer shopping experience, ultimately driving higher sales activity for the retailer. We are pleased to bring this game-changing solution to market through our partnership with CoVision Media, a cutting-edge AI tech company specializing in high-performance 3D scanning. CoVision is well-established in Europe, serving companies like Zara, Adidas, and Meta, and reports that its clients have experienced up to 200% to 300% increase in add-to-cart rates while significantly reducing return rates. The solution also generates significant time and cost savings for clients. Quad will continue to work to find ways to integrate it into other uses in the future. We are already using the technology for client work, helping a global sportswear brand launch a new athletic apparel line. I'm confident that bringing this innovative offering to the U.S. will further position Betty as a market-leading content producer. Our leadership as an MX company continues to be validated through awards and recognitions as showed on slide seven. Once again, we are featured on the Ad Age World's Largest Agency Companies list. For the second time, Arise Media Agency received the SAMI Award for Connects, our cutting-edge proprietary media optimization platform. Quad's expertise in healthcare marketing was recognized with our first-ever listing on the MM&M Agency 100. an annual ranking of the industry's top healthcare marketing firms. And for its creative campaign work for Summit Brewing Company and Hecova, our Betty agency was shortlisted for a design competition award by Communication Arts, the largest creative magazine in the world. Turning to slide eight, in June, we returned to the Cannes Lions International Festival of Creativity, the largest gathering of the global advertising and creative communications industry. While there, We shared our innovative innovation story and strengthened relationships with marketing decision makers from around the world who are looking for scalable solutions to help drive their brands growth. We gained insights on marketers, most pressing challenges and shared how we can sell them through our MX solution suite. Since relaunching our brand last year, many more attendees have come to recognize us and our ability to deliver on our promise of make a better marketing is built on one on slide nine. we show how our MX Solutions suite has driven business results for two of our many clients. Our strategic rebranding and print packaging work for Summit Brewing Company increased sales of its Twin Pills beer by 3.5 times in the 12-month period after launch. The client told us, Quad is a highly trusted partner from creative all the way to printing. We helped Stanley Steamer, a U.S. leader in floor cleaning, raise brand awareness through the power of engaging online videos. We created three targeted YouTube ads for a week-long brand list study. Our efforts led to a 108% increase in searches while lowering cost per thousand impressions by 28%. On slide 10, we share how Favorite Child, the brand design arm of our betting agency, uses the power of strategic design to help brands realize their fullest potential and become favorites in their category. Launched in 2022, Favorite Child is growing rapidly. Revenue in its client portfolio has more than doubled in the first four months of 2024, representing work for clients like Target, Walgreens, Dole, and Bernatello Foods. Recently, Favorite Child won a multimillion-dollar contract supporting one of America's fastest-growing grocery retailers, whose platform includes over 2,000 U.S. stores. Our work includes helping launch a new flagship-owned brand, which will be applied across a majority of its product lines, redesigning the existing organic private brand, and performing design execution and photography for all of the client's own brand products. Turning to slide 11, we further demonstrate our expertise in the grocery vertical through our 15-year relationship with one of the nation's leading supermarket chains. Our relationship began with traditional large-scale print, but has since grown into personalized direct marketing, tech and media solutions focused on enhancing consumer connections, driving sales and revenue and streamlining processes. For example, with our proprietary retail media content management solution, the retailer is able to dynamically create personalized ads for millions of loyalty members delivered in their preferred media channel. The process of creating the ads is frictionless. The retailer's CPG partners enter their product information and offers into one central location, Then, using its robust loyalty member data, the retailer scores products and channels against consumer preferences to craft hand-picked offers. This solution drives incremental revenue for the grocer while providing first-party data insights to CPGs. Additionally, we are helping the retailer take a more data-driven approach to in-store circulars, using the variable data printing capabilities of our digital press platform to create deals and savings by geography. We also support the retailer's in-store shopping experience by producing a large portion of its in-store signage, printing 750,000 pieces across 2,500 kits each week. These kits are highly complex and segmented by region. Before I turn the call over to Tony, I would like to reiterate my confidence in our team, our strategy, and our future as a marketing experience company. Our pipeline for new business remains strong thanks to our MX Solutions suite. We will continue to prioritize prioritize growth in verticals and product lines with the greatest expansion opportunities while managing all aspects of our business for long-term strength and stability and shareholder value creation. With that, I would like to turn over the call to Tony for the financial review.