Quad/Graphics(US:QUAD)2022-05-04 18:57Financial Data and Key Metrics Changes - The company achieved a 9% increase in net sales, excluding divestitures, marking the fourth consecutive quarter of sales growth [8][27] - Net sales for Q1 2022 were $744 million, up 5% from 2021, with a 9% increase when excluding the June 2021 divestiture [28] - Adjusted EBITDA decreased to $49 million in Q1 2022 from $70 million in Q1 2021, primarily due to supply chain disruptions and cost inflation [30] - Adjusted diluted earnings per share fell to $0.04 in Q1 2022 from $0.19 in Q1 2021 [31] - Free cash flow was negative $36 million in Q1 2022, a decrease of $92 million compared to 2021 [32] - Net debt increased by $40 million to $664 million as of March 31, 2022, with a debt leverage ratio of 2.77 times [33] Business Line Data and Key Metrics Changes - The targeted print segment saw a 3% increase in catalog business for the quarter and a 20% increase over the trailing 12 months [42] - Direct mail increased over 21% in the quarter, while packaging grew by about 4% [42] - Large scale print, including retail inserts and magazines, experienced declines of about 20% and 7% respectively [40] Market Data and Key Metrics Changes - The company faced macroeconomic headwinds such as inflationary cost pressures and supply chain constraints, impacting net earnings and adjusted EBITDA [9] - The company implemented a price increase effective May 15, 2022, in response to rising costs [9][30] Company Strategy and Development Direction - The company is transforming into a marketing experience company, focusing on integrated marketing solutions that streamline and enhance client engagement [11][12] - Investments are being made in talent acquisition, technology solutions, and next-gen printing capabilities to strengthen competitive positioning [13][14] - The company aims to diversify revenue into higher value and higher-margin offerings while managing expected declines in large scale print [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges from inflation and supply chain issues but expressed confidence in the company's strategy and future as a marketing experience company [56] - The company plans to remain nimble with pricing to mitigate negative impacts from supply chain disruptions and cost inflation [36] Other Important Information - The Postal Service Reform Act was signed into law, which is expected to save the Postal Service approximately $50 billion over the next 10 years [17] - The company is committed to sustainability and has been recognized for its efforts in this area, which is a core part of its ESG strategy [21][23] Q&A Session Summary Question: Insights on industry and segment trends - Management noted that large scale print is expected to continue its organic decline, with retail inserts down about 20% and magazines down about 7% [40] - Targeted print segments performed well, with catalog business up 3% and direct mail up over 21% [42] Question: Unique position as a marketing experience company - The company differentiates itself by offering a one-stop shop that integrates both planning and execution in marketing [44][46] Question: Impact of paper constraints - Paper constraints affected net sales, which were guided to increase by 3% to 7%, but the company managed to achieve a 9% increase despite these challenges [48] Question: Growth investments to distinguish marketing platform - The company invested $19 million in capital expenditures in Q1 2022, focusing on automation and faster printing presses [51] - Additional investments in labor and talent acquisition were highlighted to prepare for peak season [52][54]