QUAD — Quad/Graphics, Inc.

Summary of QUAD Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Sales: $581 million, a decrease of 4.3% year-over-year, primarily due to lower print volumes and agency solutions sales.
• Adjusted EBITDA: $45 million, down from $46 million in Q1 2025; however, adjusted EBITDA margin improved from 7.2% to 7.7%.
• Adjusted Diluted EPS: Increased 25% to $0.25 from $0.20 in Q1 2025, driven by lower interest expenses and reduced share count.
• Free Cash Flow: Negative $107 million, compared to negative $100 million in Q1 2025, attributed to higher inventories and increased capital expenditures.
• Share Repurchase: $1 million in share repurchases year-to-date; total repurchased shares since 2022 amount to 7.6 million.

2. Strategic Updates and Business Highlights

• Shareholder Returns: $7 million returned to shareholders in Q1, including a 33% increase in quarterly dividends to $0.10 per share.
• Investment in Marketing Solutions: Continued focus on expanding marketing solutions, particularly in audience strategy services leveraging Quad's proprietary data stack.
• Postal Optimization: Quad's postal optimization solutions are helping clients reduce mailing costs significantly, with a case study showing a 27% reduction in postage costs for a client.
• Innovation: Launched At-Home Direct, a self-service direct mail automation platform, which has streamlined workflows for clients and improved operational efficiency.

3. Forward Guidance and Outlook

• 2026 Guidance: Net sales expected to decline by 1% to 5% compared to 2025, with a projected adjusted EBITDA of $175 million to $215 million.
• Seasonality: Anticipated seasonal pattern with Q2 expected to be the lowest quarter for net sales, followed by increases in Q3 and Q4.
• Long-Term Goals: Targeting an adjusted EBITDA margin increase to 9.4% by 2028, with an aim for net sales growth by that year.

4. Bad News, Challenges, or Points of Concern

• Declining Sales: Notable decline in agency solutions sales by 18% year-over-year due to client spending pullbacks and a shift from project-based work to agency of record engagements.
• Cost Pressures: Increased distribution costs due to rising oil and gas prices, leading to a temporary surcharge on ink. Ongoing postal rate increases are also a significant concern for clients.
• Delayed Payment: A $6 million note receivable from the divestiture of European operations is past due, impacting net debt levels.
• Macroeconomic Headwinds: Persistent inflation, geopolitical tensions, and cautious business spending are expected to affect marketing spend and overall demand.

5. Notable Q&A Insights

• Macroeconomic Impact: Joel Quadracci noted that while there are pressures from inflation and postal rate hikes, clients have generally anticipated these increases and are not significantly adjusting their marketing plans for 2026.
• Agency Solutions Outlook: Tony Staniak expressed optimism for growth in agency solutions, despite a decline in Q1, attributing it to the transition to longer sales cycles.
• Postal Service Flexibility: There is cautious optimism regarding the USPS under new leadership, with expectations for less aggressive rate hikes and potential structural changes to support its financial health.
• Client Engagement: Discussions revealed that some clients are increasing their engagement with Quad’s optimization programs in response to rising postal costs, indicating a willingness to adapt to challenges.

Overall, Quad's Q1 2026 results reflect a mix of steady profitability and strategic investments amid significant macroeconomic challenges and evolving client needs. The company remains focused on innovation and optimizing client costs while navigating a complex market environment.