All right, let's get started. My name is Greg Burns. I'm the analyst at Sidoti, hosting the Quad presentation here this morning. Really happy to have both Joel Quadracci, the company's Chairman and CEO, and Tony Staniak, the company's CFO, to present for us this morning. We're gonna let them go through the presentation, and then we'll get to some Q&A at the end. If you do have any questions, please just ask them through the Q&A function in Zoom, and we'll get to as many of those as possible. So with that, I'll hand it over to Joel and Tony.
Okay. Thank you. Thank you, Greg. Yeah, this is Joel Quadracci, I'm President and CEO. What we're gonna do is fly fairly quickly through this 'cause we got a lot to say in a little amount of time. You can read through the key investment highlights, but I would start on page 4, slide 4 here. Just our history, founded in 1971, we came from the print world. Originally, publication, catalog, retail inserts, all that stuff, grew to be one of the biggest printing companies in the country with the best platform. By 2008-2010, you know, the world had changed quite a bit.
Print got a big reset, you know, a lot of decline started, but we felt at that point, it was important for us to be the consolidator. So if you look at that time frame, we ended up consolidating our part of the printing industry to the point where today we're really number one in areas that we compete, and it drops down pretty far in terms of company size, when you look at our true competitors. At the same time, though, we talk about multi-channel solutions and the marketing experience on the right, we have been transforming the company to go much further upstream, both in content and in advisory services. So that's more like acting like an agency to help people with their marketing plan.
Today, we've really finalized all that over the last couple of years and are acting as a marketing experience company, which is really more of an agency slash, you know, advisory company to help people, brand their services, their products to the consumer. Today, we're about 2,700 clients across many verticals, kind of the who's who of retail and, and branding, with, quite a few manufacturing facilities. We're still very big in print, but we're acting in all of media today. Slide six kind of spells out what role we're playing. If you look at CPGs, anybody who's marketing to a consumer, you know, the CX experience is something that was coined many years ago about how the consumer interacts with your brand in whatever media channel that they have.
Everyone wants it to be concise, they want it to be integrated, and they want it to be a good experience. However, the ecosystem that the marketer, call it the CMO, plays in today is very fragmented, very challenging. They deal with a lot of different agencies to try and get their product to market, many times dealing with the big holding companies that are made up of hundreds of different agencies. It's not abnormal for a large retailer to use 15-20 different agencies just to get a campaign underway. And so that's where Quad comes in. We've gone upstream to what the agencies do. We create content, we deal with data, we deal with all the things that you need to do to go market your product.
And so when we say marketing experience, we're trying to make the marketing experience for the marketer much smoother, so that then they can be more integrated in their approach, deal with far fewer different agencies, as well as produce the content for them, because most agencies actually outsource that part of the work. And that allows for better time to market, more concise marketing, and better control of your data. And so slide seven is really the suite of marketing solutions that we have. Really, it's fairly straightforward. You start with the creative, the MX Creative Suite, which is really Betty, our agency. That does everything from brand strategy and design to content creation. We manage photo studios, so we do image capture as well, and for all different mediums, both online and offline.
MX Production is the hard part of, like, once you have the concept and you have the content, you actually got to produce this stuff. And I'd say that one of the places when I talk to CMOs, you know, they're never sort of spending a lot of time upset with the creative campaign that an agency came up with. Where they spend most of their time struggling is getting it done. It's the production aspect, because the world is very fragmented that they're dealing with this in, and trying to get that content across multiple media channels. And so because we come from production, we're very, very good at executing on all the different things that have to come about, as an agency to help you market.
And then our media platform, which is called Rise, started out as our Rise digital media channel, which is now online and offline media that we can for everybody. One of the big things that happens now, when media is placed by the big agencies, it's not transparent. A lot of times people are spending on media that they probably shouldn't be because it's not gonna work for them. But a lot of the agencies buy a lot of inventory of advertising that they have to sell no matter what. So oftentimes you get you end up buying media that may not work. And so the important two threads that kind of connect all this together, which really makes it powerful, is our MX Intelligence, which is data and analytics.
It allows for testing and measurement of whether or not each of these different media channels are working, and which way you should use them in conjunction with each other. We use a lot of data stacks, just like any other agency, like an Experian, but because we come from print, most of the print that we do in the catalog world goes through the post office. About 10% of the post office's volume originates in our plants, and we do all the work for the post office. So we make it very efficient to get into the household. But what that brings is a data set of the personality of everybody's household that people cannot get out there. It's one thing to know what Joel's interested in, it's another to know that his household is interested in quite a few other things.
And so that's a data set we're bringing to market right now, as part of the layer cake of data we use when we help customers try and find audience that's specific to the product they're selling. And the other part on the right side is that MX Technology, which is client technology. We've created a lot of different technology tool sets to manage complexity using AI for automatically changing versions based on different state regulations and rules, or different versions of different types of content that should be served up in different areas. So it's not a one-size-fits-all. So when you look at this whole thing together, it's really what Quad is doing.
We're trying to make it easy for the marketer to hit Joel Quadracci and his household in 360 degrees in any media channel by helping them design it based on the data, going after the audience based on the data, and, and streamlining it based on integration of all these services and products together to make it easy. When you look at page 8, you can see just a sampling of our diverse base of customers, over 27 clients. A lot of them very long-term. Contracts tend to be, in the print world, 3-5 years. But it's really allowed us to go upstream and really be full service for a lot of these different people, as well as bring in new brands that we never previously would have done business for. Slide 9 kind of shows how we've evolved.
You know, again, coming from print, you can see in the large-scale print, that's the place where we've seen the most decline. Not all print is created equally. So retail inserts are distributed through the newspaper. The newspaper circulation has dropped dramatically over the years. Magazines have declined a bit, but they're still gonna be a viable channel. Quad knows how to manage declining print channels. We also know how to manage heavily personalized and growing channels when you look up at the targeted print. Targeted print is all about that data string that we talked about, but how do you hit people with the product that they'll be interested in once you find out who that audience is?
When you look at the integrated solutions up, up, up on top, agency solutions, that's really that advisory area and the place where we create the content and then start to execute on it. The print side will always be a big number because those invoices on the print side are huge, and we're very efficient at it. The agency solutions are much smaller invoices, but much more impactful from how we work with a customer because it leads to a lot of the downstream revenue throughout the channel here. You can see how that's evolved. The large-scale print, that's been the one in decline, has declined, and that's been purposeful, and we know how to manage that. That's what we look like from 2018 to 2023 in terms of how it's evolved.
We've included a bunch of different examples in here, but I think the first one, In-Store Connect, is important because that's a whole new product launch. It's really about media networks, and if you look at, like, Amazon is a digital media network, Target has a media network. It's basically their online presence where they're trying to sell product, but in the process, selling product, they're also using it to serve up advertising to those who come in front of them. What's been very much talked about for a long time is, how do you activate brick-and-mortar? Because that's where the audience has the biggest intent to buy. They're in the store to get something, and you can influence them very well if you put the right content in front of them. And so we've launched In-Store Connect.
It was part of a recent acquisition of DART, which brings the hardware and some of the technology to serve up dynamic ads. But that goes in conjunction with the platform we've already built about being able to serve up content and serve it into the stores and sell that media across channels. So, when you think about Amazon or a Target or a Walmart, they're probably gonna do this on their own, but there's a whole slew of retailers in the big to medium to small size that can't create enough eyeballs that will interest a CPG to buy advertising on their own. And so our goal is to create a network of a lot of retail companies to be able to serve it as one big network. And Save Mart Companies has launched with us.
We've got several others who are starting to launch with us, and it's really a chase to see how many stores we can create. For example, if you could get into 750 stores, that's probably close to the audience that the Super Bowl brings. That's meaningful to an advertiser. And so that's what we're rolling out now as part of our whole media channel. Next is Betty. I mentioned this. That's our, our content side, our creative side, which is brand strategy, design, campaign ideation, pre-media, retail, and adaptive design, and content creation across all channels. That's a very important one that we've evolved aggressively over time and really works in conjunction with the whole media group when we're serving up things. Household Fusion is another interesting one. I mentioned that our customers in print go through the post office.
Well, the post office gives our... It's our biggest cost for our customers, is the postage. And as postage has increased, we've created ways to offset that cost for our clients by co-mailing them together. And if you came to our plants and you saw what we were creating, we were creating bundles of all different customers going out to one post office. It's already in the sortation. The postman walks down the street. Now we're putting everything that would go to one household into one bag... so that a whole bag of print comes in there, and that allows us now to use it further to advertise, where we're actually using a QR code on the front to get them to scan for different reasons, which now enhances the data we have about the household.
So, this is a really important thing for our customers, from a number of different fronts. And Rise, we talked about, that's our agency. So this is where we really talk about how do we radically, in a radical transparency way, help people spend the dollars in the right places? And so that's really the media agency, which is both online and offline, and very data-driven. Some of the recent campaign results you see on page on slide 14. We've used these, I think, in some of our conference calls, but we'd like to come back and just show some of the actual results that they've shared with us. You can see the results from Nielsen-Massey and CLR Brands. Certainly, a increase once we got involved in the activity that they were trying to achieve.
Raw Sugar, I'm not gonna go through all these, but they're here, so you can sort of see the different offering in action. And what's happening for us is, you know, there's some good word-of-mouth happening, like Raw Sugar was a word-of-mouth from another company, and now they have us into a health and wellness company that we're now pitching to. But we're able to do lots of different things for these brands in addition to just helping them, you know, find audience. We actually... This is an example of a pop-up store we did with Raw Sugar for their influencers to come in in New York City.
Our site in New York was designed with a big retail front so that we could use it as a testing place for our clients as we try and do different things with them. This is a great one, where they're really trying to influence the influencers to really understand the brand. And then, of course, we've got a couple more here with SpinLife. That's one where we're doing everything from paid search to SEO support. But when you look at any time we get a relationship with any kind of brand, I don't care how we get in there, but once we get in there, we really take this consultative service approach that allows us to create revenue throughout our whole chain of things. So with that, I'll turn it over to Tony to talk about the financials.
Thanks, Joel. So when we guided at the beginning of the year in the February earnings call to the street, we called out that the first quarter would be our toughest comparable year-over-year. The post office rates increasing in July last year led to some decrease in volume. That's why what Joel talked about with Household Fusion, that was a recent innovation we announced, is so important, because that, that postal cost is big enough to our customers that it can cause revenue changes for us. So what we saw in the first quarter was a 15% decline in revenue in our toughest comparable quarter of the year. You'll see that get closer as the year goes on. Our guidance for the year is -5% to -9%. When we think about the adjusted EBITDA, it was down $9 million in the first quarter.
Again, you'll see that become more closer together as the year goes on. At the midpoint of our guidance for the year, which is $225 million of adjusted EBITDA, that is $9 million below our actual results for full year 2023, which was $234 million. That $9 million has come through here in the first quarter. So what we're saying with our guidance is, for the rest of the year, while there might be some puts and small puts and takes by quarter, we're gonna be on equal with last year over the last nine months of 2024 for adjusted EBITDA.
Further to the point that Tony made on the postal increase that impacted last year, part of it was, it was such a significant increase that no one knew about, so it wasn't in their planning cycle. So the Household Fusion product that we just launched, to give you an idea, can save anywhere from 10%-30% additional cost on their biggest cost, which will help offset some of that postal rate.
Yeah. Very good, very good. And on the adjusted EBITDA margin, so with where our midpoint of our revenue guidance and our adjusted EBITDA guidance is, our margin is going up. We're gonna be in the 8% at the end of this year. So we feel good about increasing that profitability margin. And on free cash flow, I've got other slides that will talk about cash, both over the past few years, as well as seasonality, and that will explain the negative free cash flow in the first quarter. Let's go to the next slide. So we're a strong cash generator.
We've used this cash, $742 million of cash, that we will have generated from the beginning of COVID through the end of this year, to reduce our debt, which was, at the beginning of COVID, a little over $1 billion, and we'll be at $400 million of debt at the end of this year, so a $600 million reduction in debt. And we're generating the cash through two sources: free cash flow in the light blue, and then cash from asset sales in the dark blue. That can include selling investments. Earlier this year, we sold our a minority investment in an Indian-based printer called Manipal Technologies for $22 million. That's in our 2024 numbers.
We've sold other small pieces of the business that aren't core to where we're taking the business as a marketing experience company, and we've sold buildings that we've closed the plants on as we've continued to consolidate into our most automated and efficient plants. Let's go to the next slide. So this is showing our manufacturing platform. You know, we have over 17 million sq ft located throughout the world. 12.6 million of that is owned, so 70% of that square footage is owned. And so when you look at the map, you'll see the dots that have the diagonal blue lines through it, the biggest one being in Saratoga Springs, New York. That's a plant that's currently for sale. We announced the closure earlier this year.
We're in the process of selling that now, as well as two buildings in Effingham, Illinois, and Sacramento, California. This will generate cash that will help us to further reduce debt, plus meet our other capital allocation priorities. Let's go to the next slide. When we look at how we spend capital, it's on these three primary ways. One is growth investments, like Joel talking about the acquisition of Dart for our Quad In-Store Connect offering. We also do capital expenditures that are about 2% of revenues per year, for us to be able to continue to automate our plants and have the best platform in the print space. We've talked about debt reduction already. That's a primary source of capital. We'll talk about leverage in a future slide. And shareholder returns, we're happy to have reintroduced a dividend this year.
It's $0.05 per quarter per share, $0.20 per year. It's a little over 4% yield in the dividend. So happy to reintroduce that, and we'll continue to look at the share price to see if we should do some opportunistic share buybacks. We've bought back over $20 million of shares in the past 2 years, which has been a little more than 10% of Quad that the company has repurchased. So here's the seasonality slide. You can see, you know, if we look at each year going back, when you go from Q4 2022 or Q4 2021 or 2023, those are the low points of leverage. So if we just look at the Q4s, you see how it's going down from 2.4 to 2.2 to 2.0.
That's what we hit last year, and we're gonna be at 1.8 leverage at the end of this year, when we achieve our guidance. But we have seasonality of our cash flow because as the year is going on, we are building up inventories in preparation for our busy season, which is in the second half of the year, with back-to-school production and, most notably, holiday-related promotions. So we're adding inventory. We also spend more cash in the first quarter with capital expenditures. We wanna get all that new equipment in so that we can be even more efficient during the busy season. And so you'll see this year, yeah, we went...
You know, if you go from Q4 2023 on the right, we went from $470 million to $544 million of net debt, but that will be down at approximately $400 million by the end of the year when the strong fourth quarter free cash flow comes through. This is a picture of our debt. Main point to make on this slide is that we're 59% floating, 41% fixed. That is with underlying swaps that we have against our bank debt, a 7.6% blended rate at the end of the first quarter, and plenty of dry powder, with $239 million of unused capacity on the revolver, which doesn't mature until November of 2026. We made a payment earlier this year on our term loan A, $88 million term loan payment.
So other than that, it's just scheduled, kind of minimal amortization until we get to the November 2026 maturity. This is our guidance for the year. Again, I think we've covered this earlier, but continue to be a strong cash flow provider and very focused on that leverage ratio and continuing to reduce it. At the midpoint of the adjusted EBITDA range, again, $225 million, which is a $9 million decrease year-over-year. And then you can go to the next slide, Katie. Okay, and then the last slide before we turn it over for Q&A, these are the key investment highlights that you saw at the very beginning of the deck. But, you know, Joel covered these first three points really well. We believe we've got a unique platform that can handle all of the marketers' challenges.
That, in turn, allows us to go to not only our 2,700 existing clients and expand revenue with them, but we are winning new clients, such as CLR and Nielsen-Massey, that Joel talked about earlier. And lastly, with our cash generation, we'll continue to focus on debt leverage, and transforming the company with growth investments. So with that, I think we turn it over for questions.
All right. Great. Thanks. So I guess we could just kick it off maybe, talking about your outlook for the year. The decline of 5%-9% on the top line, could you just break that down into, you know, where the decline is coming from? 'Cause I'm assuming there's some growth being masked in that number. So can you just talk about the dynamics that get you to that down 5%-9%?
Yeah, so you know, the biggest area, Joel kind of hit on it in the pie chart, you know, the retail inserts decline is the biggest area as newspapers circulation continues to reduce. So we're continuing to manage that with the plant closures that we talked about. We're seeing then the other areas, the targeted print area and the agency and logistics area, those are stable to growing areas within the mix of it. So the other thing to point out on the revenue side this year is we did lose one large grocery client that we disclosed in our earnings call, which was 3% of our revenue.
So if you back that one kind of unique outlier loss off of our numbers, the guidance range would be more like -2 to -6, you know, for the year.
Okay. I guess with that being said, could you just talk about the competitive dynamic within the market? Like, is there typically shifts within these large customers? How sticky are they typically? And, you know, I guess you mentioned you're number one in the market after consolidation, but who are your primary competitors?
Yeah, I think on the print side, you still have an RR Donnelley out there, but they're in different sectors. The long-run print that they had spun off had gone through bankruptcy, and then more recently transacted again to another player. But really for the stuff we do, it drops down pretty quick to who the competitive set is, and we have a very stable. I think in this area, very stable. How should I say it? Very stable-
Mm
... client relationship portfolio because of it. Which also relies heavily on the other services we do in offsetting cost with the postage side. So we feel very good about the stability of our client relationships on the print side.
Okay, and then I guess in the case where you do lose a customer like this, is it a pricing, mainly a price decision, a cost, you know, a?
Yeah, I'd say-
or-
... in this case, it's complicated. It, probably pricing, because we do wanna get paid for what we, what we do, but they're also caught up in a very large combination with another company, and I think there's some dynamics that are playing out there as well.
Okay. Okay, there's a question in regards to the In-Store Connect solution. What's your expectations for that business, how it could possibly impact revenue and margins over the next midterm three to five years, or, you know?
Well, you know, right now we're trying to raise... We'd like to raise to, you know, as, many stores as we can. We have sort of filled out our capacity for the year in terms of bringing new stores up, to make sure that the model is working and all that with our partners that we're already working with. But, you know, our first goal is to get up to that, like, that 750 store range, because that really gets a lot of audience. And so I see that ramping pretty well from a revenue standpoint. You know, if we can get up there, you'll start to see an impact on our, on our media side, too.
Yeah, and I think, you know, not only exciting for how the revenue could grow, but from the EBITDA side, you know, we think this can be a profitable offering. This will require CapEx, because we'll be buying the screens that ultimately are in the stores. But from a margin perspective, will look pretty attractive.
Okay, can you just talk about maybe the-
Of-
...the competitive dynamic in that market? Because it... Is it like whoever gets to the store first and gets their equipment in there, like, then it becomes like a, kind of a s-
Yeah, because it's not-
a sticky relationship that way?
Yeah, you have to remember it's just not an equipment play. The screen is kind of the given. It's. But it's actually the underlying technology and the ability to serve up the content dynamically. So you could have, you know, a CPG say, "I wanna take my product and I only wanna buy this demographic. Which stores have that demographic?" Maybe it's the lower-end grocery stores or what have you. We'll be able to dynamically play that. So it's not as simple as tacking a screen on a wall. These are, by the way, well-designed screens, so you're not only hitting them as kiosks at the front of the store, but you can have well-designed ones, as I think you saw on the deck, that are in the actual aisle level.
As well as we can start, you know, tapping into sensor technology to understand the flow of traffic through the store, to guess, you know, what kind of eyeballs they're getting. And then if the store is able to share the transactional data, when people transact, you can start to correlate what ads are working. So you're providing a whole data feedback to the advertiser. So it's sort of not as simple as kind of doing a screen. So yeah, there's others who are trying it. I'd say we're kind of competing against the big guys who are doing it themselves, but again, you know, we're trying to do it for the ones who don't have the wherewithal to do it on their own.
And Greg, we've got, you know, if Joel showed you the clients that we have. We have relationships at the highest levels of these retailers from our legacy in print, which positions us really well now to be offering this solution to them as well. We have that advantage over maybe other up-and-coming technologies.
Okay.
And the fact that we're already rolling, we're going-
Yeah
... is important.
It's a revenue share model with the retailer? That's the-
Yeah, so there'll be-
Okay, then.
... there'll be a sort of a revenue sharing, 'cause their teams are selling it as well, 'cause they're already selling things like end caps and all that. We'll be partnering with others who are selling, you know, digital advertising, as well as ourselves. So-
Yeah, if you're a retailer, it makes all the sense in the world-
Yeah
... 'cause you can monetize the eyeballs that are in your grocery store. We're going to enable them to do that.
And if you're a CPG, you wanna buy it, because this is where people have intent to buy.
Yep.
Yep, no, it makes sense. There's a question about the election this year, whether or not you benefit from all the campaign mailers or print media that might be used during the election season.
We, we typically do. I don't... I wouldn't say it's a material, you know, opportunity, but it does definitely come over the transoms, especially in sort of the direct mail area. And so we'll start to see, you know, different, transactional opportunities come up in the fall here.
Okay. And then there's a question in regards to, I guess maybe what are investors missing? And I guess the point here was you've done a great job kind of transforming the business, reducing debt. You just reinstated the dividend. What do you think, next steps-
Well, we're sort of stuck because, you know, with all the work we've done, but also, you know, with the challenges of the print industry, you get knocked down in market cap, so you fall out of some of the buckets of where people used to invest. But they've missed that it's... this is not a printing story anymore. Even though we have a huge amount of print revenue, people miss that the industry has been shaken out. You know, so we're sort of looked at as a printing company with no peers trading in the public markets.
Yeah.
When, in fact, yes, we are, we do a lot of print, but it's not a printing story anymore, it's a media story.
Yeah.
And that's what people are really missing. And of course, not many people can say that they've managed a balance sheet like we have in an industry like this.
Yeah.
Everyone else, so.
All right, great. Looks like we're kind of at the end of our allotted time, so I just wanna thank everyone for listening in, and the Quad team for presenting here for us this afternoon, and we'll wrap it up there.
Thank you all for joining.
Thank you.
Thank you, everyone.
Have a good day, everyone. You enjoy, enjoy the conference.