Quad/Graphics, Inc. Class A Stock

Good morning, and welcome to Quad's Second Quarter 2026 Conference Call.

[Operator Instructions] A slide presentation accompanies today's webcast. and participants are invited to follow along, advancing the 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. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Julie Fraundorf, Quad's Executive Director of Corporate Development and Investor Relations. Julie, please go ahead.

Thank you, operator, and good morning, everyone.

With me today are Joel Quadracci, Quad's Chairman and Chief Executive Officer; and Tony Staniak, Quad's Chief Financial Officer and Treasurer. 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 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 2. 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 net debt leverage ratio. We've 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 Investors section of quad.com shortly after our call concludes today.

I will now hand over the call to Joel.

Thank you, Julie, and good morning, everyone.

I'll begin with key highlights as shown on Slide 3. Quad's second quarter results were in line with our expectations, and we remain on track to achieve our full year 2026 guidance. During the quarter, net sales increased compared to the second quarter of 2025, representing progress toward our 2028 projected full year revenue growth. We also generated strong free cash flow in the second quarter. Our strong balance sheet continues to provide financial flexibility, enabling us to return $13 million to shareholders in the first half of 2026, including $10 million in regular cash dividends and $3 million in share repurchases.

We continue to make strategic investments in growth areas across agency solutions and targeted print categories that support our revenue diversification strategy. One example is the expansion of our packaging business into Salt Lake City, which we have highlighted on Slide 4. Our packaging business continues to scale, delivering year-over-year growth in 2025 and expected growth for full year 2026. To build on that momentum, we're rounding out our national packaging footprint with a new facility in the Western U.S. Joining existing operations in Franklin, Wisconsin and Spartanburg, South Carolina, the Salt Lake City facility enhances our ability to serve clients across the country and pursue additional packaging opportunities with both existing and new clients. For our clients, the expansion will help reduce lead times, improve logistics efficiency and support packaging programs across multiple regions while maintaining the quality, consistency, and partnership our clients expect from us. The 100,000 square foot facility is expected to be operational in the fourth quarter of this year. Its location provides direct access to major transportation routes in key markets across the Western United States. Additionally, Salt Lake City is an established hub for high-growth consumer packaged goods companies and is dear co-manufacturers that work with producers like Quad to print, fill, and package goods on behalf of CPG brands. As we grow our national presence, we continue to invest in our global packaging operations, which serve clients through our facility in Santo Domingo, Dominican Republic, alongside strategic packaging partnerships in Central America and across Asia.

Transitioning to Slide 5. Quad's MX offering features a suite of integrated solutions across creative production and media that are supported by cutting-edge intelligence and technology. Our unified marketing platform helps clients simplify complex workflows and improve their marketing effectiveness across physical and digital channels. As more clients adopt Quad's creative media and marketing solutions, we continue to deepen existing account relationships with long-time partners. A recent example is Wakefern Food Corp, which is highlighted on Slide 6. We have significantly expanded our work with Wakefern, the nation's largest retailer-owned grocery cooperative. As Wakefern pursues a more banner-driven marketing strategy, it selected Quad for our ability to deliver integrated solutions at scale. Building on our long-standing work supporting Wakefern's print retail circulars, we now provide paid media strategy, content creation, and in-store retail media services. These solutions are designed to strengthen each of Wakefern's eight supermarket banners while preserving the local identity of their 400 member-owned stores.

A key component of this expansion is Rise, which now serves as Wakefern's media agency of record. Powered by our proprietary data capabilities, Rise leads the client's media strategy, planning and buying and is enabling more precise shopper targeting, localized media execution and improved media effectiveness. Wakefern will also deploy In-Store Connect by Quad in 30 ShopRite locations later this year. ShopRite is Wakefern's flagship banner with 298 locations across the Northeast, making it the largest retailer to date to adopt our in-store retail media solution. This deployment is significant as it expands opportunities for consumer packaged goods to scale their campaigns right at the point of purchase. Examples like Wakefern demonstrate how we can expand existing print relationships into broader, higher-value marketing partnerships. These engagements typically increase share of wallet, diversify revenue streams, and create opportunities for more recurring client relationships.

We continue to expand our in-store retail media network with regional grocers as shown on Slide 7. I'm pleased to share that we will be increasing our In-Store Connect footprint with Vallarta, a fast-growing grocery chain in California, known for providing high-quality, authentic Latin American ingredients to its customers. Following successful CPG adoption across the client's initial test stores, Vallarta has decided to more than double its in-store count. Once we complete the rollout later this year, the majority of Vallarta stores will leverage our in-store media network.

Additionally, we just signed a leading grocer on the West Coast that plans to deploy In-Store Connect across an initial 25 stores. This partnership will further extend our reach in California, one of the nation's largest grocery markets, alongside our existing partnerships with Vallarta and The Save Mart Companies. Combined with the 30 new Wakefern stores, this represents meaningful progress in scaling our in-store retail media offering. By adding new retailers and stores to the network, we increased the offering's value to consumer brands seeking broader reach. Growing advertising interest in turn, attracts new retail partners, creating a powerful flywheel that supports continued expansion of revenue generated from our retail media network.

Moving to Slide 8. We spotlight our work for Jelmar and its CLR brands as an example of how our integrated agency model is helping heritage brands drive measurable business results by connecting with a new generation of consumers. Since 2023, Rise and Betty has served as Jelmar's media and creative agencies of record, working together to reposition the appeal of CLR brands. Rather than focusing solely on product performance, our strategy is centered on building stronger emotional connections through culturally relevant creative and more effective media activation. Most recently, the agencies collaborate on So Clean So Hot, a campaign that combined creative storytelling, influencer partnerships and cross-channel media activation to drive brand awareness, engagement and sales. Betty developed a creative platform and messaging while Rise activated the campaign across influencer marketing, addressable TV, paid social and programmatic media.

Following the campaign's launch, CLR brands experienced notable sales growth along with significant gains in consumer engagement, including a 106% increase in Instagram reach, strong TikTok audience growth and video completion rates exceeding 50%. Through continuous optimization of audiences, channel mix and creative assets, we improved the efficiency of the client's media throughout the campaign, significantly decreasing its cost per thousand impressions across quarters. These outcomes earn Betty and Rise an Effie Award, one of the advertising industry's most respected awards for marketing effectiveness. This success demonstrates the value of Quad's integrated approach. By combining creative media, data and analytics connected with execution, we're helping clients deliver strong business outcomes while expanding opportunities for long-term agency growth.

Turning to Slide 9. Quad also received notable industry recognitions during the second quarter, providing independent acknowledgment of our integrated marketing model. Quad was named Ad Age's Agency Report for the seventh consecutive year, placing us among the world's largest agency companies. We were also included in MM+M Agency 100 for the third straight year, reflecting our expertise and continued momentum in health care marketing. Additionally, Rise was recognized as one of 35 notable vendors in Forrester's report the Media Management Services Landscape Q2 2026. We believe this kind of independent recognition is an acknowledgment of the agency's full-service omnichannel offering, including strength across audience development and insights, media activation and measurement. This increases awareness of our capabilities among prospective clients at a time when many brands are evaluating agency partners. As a result, it helps strengthen visibility in the marketplace and supports continued growth of our media and agency pipeline.

While we remain focused on accelerating our transformation as a merchant experience company, we continue to navigate a dynamic macroeconomic environment with disciplined operational execution, as shown on Slide 10. As a result of the renewed conflict and continued geopolitical instability in the Middle East, certain petrochemical-based supply chains remain under pressure. Volatility in energy markets persist, particularly for diesel and other transportation-related costs. Ongoing security concerns continue to create uncertainty for global shipping routes, including traffic through the Strait of Hormuz contributing to longer lead times and elevated logistics costs in some markets. As a result, we continue to experience cost pressures in certain areas of our business, most notably, ink. We are actively managing these challenges by diversifying our supplier base, optimizing inventory planning and implementing targeted price actions where appropriate.

In addition to supply chain volatility, postage remains a significant macroeconomic challenge for many of our clients as it represents the single largest marketing expense for mailers. On July 12, the United States Postal Service implemented its most recent increase, which we estimate will result in an average postage increase of up to 10% for many of our mailing clients. While the USPS continues to rely on price increases as one of its primary levers to address its financial challenges, Postmaster General, David Steiner is pursuing solutions to address what he calls a broken USPS business model.

Among other changes, the Postmaster General is advocating for the return of the public service reimbursement that once compensated USPS for its universal service obligations. Quad supports the PMG's proposal in its entirety as we believe it will provide the USPS with the necessary financial flexibility to pursue growth through avenues beyond price increases. As always, Quad's Postal Affairs team remains actively engaged with policymakers in Washington as well as the Postal Service working on behalf of our clients and the broader mailing ecosystem.

In addition to our postal affairs work, we continue to help mitigate ongoing rate increases by deploying the same two-pronged approach we've done for decades, which focuses on maximizing postal cost savings while improving response rates. Our layered postal optimization model combines various co-mail sortation and bundling solutions to generate substantial client savings. Meanwhile, audience identification services and innovative mail solutions like At-Home Connect, our self-service direct mail automation platform are designed to improve the efficiency and effectiveness of the mail clients' spend. By generating stronger mail response rates, clients are often able to more than offset increased mailing costs.

On Slide 11, we show how Quad is embedding AI across our agency operations, manufacturing processes and workflows to create lasting cost efficiencies while improving client outcomes. We view AI as an integral part of each business unit's infrastructure that we deploy to improve efficiency, reduce manual processes, accelerate speed to market and drive better business outcomes for both Quad and our clients. At Betty, the agency supports clients by using a blend of AI technology and traditional studio capabilities, creating scalable high-quality assets at fast speeds and low cost. For example, the team can use AI to create realistic models, apply actual product images to those models and generate set imagery. At Rise, the agency has embedded AI interconnects, our proprietary agency platform.

Connex analyzes campaign performance in real time across any online and offline physical media investment and provides a suite of custom AI agents to help support media analysis and optimization. That reduces manual work while allowing our media experts to spend more time strategically advising clients. In manufacturing, we're applying AI and automation to optimize production schedules, anticipate maintenance needs before equipment failures occur and reduce manual intervention, helping improve throughput and reduce downtime.

Before I turn the call over to Tony, I would like to thank our employees for their continued dedication and hard work. Earlier this month, we celebrated Quad's 55th anniversary. Each employee has played a role in building the business we are today and their continued commitment to urgent innovation and obsessive collaboration are the key to achieving Quad's long-term goals.

With that, I'll turn the call over to Tony.

Thanks, Joel, and good morning, everyone.

On Slide 12, we show our diverse revenue mix. Net sales were $578 million in the second quarter of 2026, an increase of 1% compared to the second quarter of 2025. The increase in net sales was primarily due to higher paper sales from an increase in Quad supplied paper and higher logistics sales. Net sales were $1.2 billion in the first half of 2026, a 2% decline compared to the first half of 2025 when excluding the 2% impact of the February 28, 2025 divestiture of our European operations. On a year-to-date basis, the decline in net sales was primarily due to lower large-scale print volumes and agency solutions sales, partially offset by higher paper sales.

Consistent with first quarter performance, our agency solutions sales were impacted by pullback in spend from certain existing clients and our continued evolution from project-based work toward omnichannel agency of record engagements. Comparing our net sales breakdown between the first half of 2025 and 2026, our revenue mix as a percentage of total net sales increased 2% in our targeted print offerings driven by direct mail, packaging and in-store and also increased 1% in our logistics business due to fuel surcharges during 2026 and increased volume and additional list services provided through our enhanced co-mail operations. These increases were offset by a 2% expected organic decline in the large-scale print product lines due to magazines and retail inserts and also a 1% decrease in agency solutions.

Slide 13 provides a snapshot of our second quarter 2026 financial results. Adjusted EBITDA was $42 million in the second quarter of 2026 as compared to $43 million in the second quarter of 2025, and adjusted EBITDA margin declined from 7.6% to 7.3%. The decrease in adjusted EBITDA margin in the second quarter was primarily due to the mix of net sales, including higher paper revenue from an increase in Quad supplied paper. On a year-to-date basis, adjusted EBITDA was $87 million in 2026 compared to $89 million in 2025, while adjusted EBITDA margin increased from 7.4% to 7.5%. Adjusted diluted earnings per share was $0.24 in the second quarter of 2026 as compared to $0.14 in the second quarter of 2025, an increase of $0.10 or 71%. Year-to-date, adjusted diluted earnings per share was $0.48 in 2026 compared to $0.34 in 2025, an increase of $0.14 or 41%. The increases are primarily due to higher net earnings, including lower interest expense due to reduced debt and lower depreciation and amortization and on a year-to-date basis, also from the beneficial impact of share buybacks.

Beginning in 2022, we have repurchased 7.9 million Quad shares at an average price of $4.27 per share, representing 14.1% of our total outstanding common stock as of that time. This includes 445,000 shares repurchased year-to-date for approximately $3 million. Quad's Board of Directors authorized a share repurchase program of up to $100 million of our outstanding Class A common stock in 2018. As of June 30, 2026, there were $66.3 million of authorized repurchases remaining under the program. Year-to-date free cash flow was consistent with last year at negative $66 million in the six months ended June 30, 2026. This included $41 million of free cash flow generation in the second quarter of 2026, an improvement of approximately $7 million from the second quarter of 2025. During the first quarter of 2026, we saw a $7 million decline in free cash flow year-over-year, mainly from higher inventories that were then utilized during the second quarter.

We show the seasonality of our free cash flow and debt leverage on Slide 14. We typically generate negative free cash flow in the first nine months of the year, followed by large positive free cash flow in the fourth quarter with higher collections after our production peak. In 2026, we anticipate a similar seasonal pattern for our free cash flow and debt leverage. When removing the impact of seasonality, we have reduced our net debt by $54 million or 12% from June 30, 2025 to June 30, 2026.

As previously reported, we completed the divestiture of our European operations at Capmont in February 2025. The total sales price included a three-year note receivable. As of June 30, 2026, we had not received payment of principal and interest for the first annual installment of the note receivable totaling approximately $6 million. And as a result, our net debt balance was $6 million higher than we expected. We are working with Capmont on this past due payment and received limited payments in the second quarter. We expect to continue receiving limited payments in the third quarter as Capmont pursues various alternatives to meet their obligation under the note receivable.

Slide 15 presents our balanced capital allocation strategy, which is fueled by our free cash flow and our ability to generate proceeds from asset sales. We expect to generate future cash proceeds from buildings we currently have for sale in Waukee, Iowa, Thomaston, Georgia and Lima, Peru. We began the process of closing our Peruvian operations and selling our building in Lima in the second quarter of 2026. With this strong cash generation, we intend to continue investing to drive growth as a marketing experience company, maintain low debt balances and return capital to shareholders through our quarterly dividend and share repurchases. In the first quarter of this year, we increased our quarterly dividend by 33% to $0.10 per share or $0.40 per share on an annual basis. Our next quarterly dividend is payable on September 4. We are pleased to return capital to shareholders through the quarterly dividend and opportunistic share repurchases.

Slide 16 includes a summary of our debt capital structure. At the end of the second quarter, our debt had a blended interest rate of 6.6% and our total available liquidity, including cash on hand under our most restrictive debt covenant was $208 million. Our next significant debt maturity of $205 million is not due until October of 2029. As a reminder, given uncertainty regarding interest rates, we hold four interest rate swaps with notional value of $130 million and interest rate collar agreement with notional value of $75 million. Including all interest derivatives, we have 53% of our interest rate exposure capped if interest rates rise. And with the interest rate collar, we would pay lower interest expense on 66% of our debt if interest rates decline.

We reaffirm our 2026 guidance despite winding down operations in Peru, as shown on Slide 17, and are pleased that our guidance represents another step on our way to our 2028 outlook for revenue growth. We continue to expect 2026 net sales to decline 1% to 5% compared to 2025, excluding $23 million of 2025 net sales from the divestiture of our European operations. The 3% sales decline at the midpoint of the guidance range reflects the ongoing improvement trend from a 10% net sales decrease from 2023 to 2024 and a 5% decrease from 2024 to 2025, excluding the European divestiture.

Consistent with the trend from last year, net sales achieved in the second quarter of $578 million are expected to be the lowest of the year, followed by increasing net sales in the third and fourth quarters during our production peak. Full year 2026 adjusted EBITDA is expected to be between $175 million and $215 million, with $195 million at the midpoint of that range being essentially equal with the 2025 adjusted EBITDA of $196 million. As expected, adjusted EBITDA of $42 million in the second quarter of 2026 was lower compared to the first quarter, and now we expect higher adjusted EBITDA in the third and fourth quarters, consistent with the projected net sales trend.

We expect 2026 free cash flow to be in the range of $40 million to $60 million, with $50 million at the midpoint of that range also essentially equal with the 2025 free cash flow of $51 million. We expect increased net cash from operating activities due to higher cash earnings and timing of working capital despite an additional week of payroll payments for 53 Thursday pay days falling in the 2026 calendar year. We will have a year-over-year benefit of approximately $9 million as we return to 52 weekly payrolls in 2027. And the next time we will pay 53 payrolls in a calendar year will not occur until 2032.

The projected higher net cash from operating activities is expected to be offset by higher capital expenditures, which are expected to be in the range of $55 million to $65 million. Over many years, we have invested in robotics and automation on the plant floor and across our postal optimization solutions to have what we believe is one of the most technologically advanced platforms in the industry. We intend to continue investing in growth and automation, both in our print platform, such as digital presses and direct mail as well as in our service lines, including In-Store Connect by Quad.

During the quarter ended June 30, 2026, the company received an adverse income tax and value-added tax litigation ruling related to a 2011 audit assessment of our Mexican subsidiary obtained through the Worldcolor acquisition. There are a range of outcomes on the final settlement amount as well as uncertainty regarding the timing of payments. We have accrued $17 million as of June 30, 2026, which will be adjusted in subsequent periods when a final settlement is reached. As mentioned earlier, we expect to generate net proceeds from the sale of our Lima, Peru building in addition to smaller proceeds from selling equipment and other assets.

From a net debt standpoint, while timing is uncertain, we believe that for these second quarter 2026 events, the cash proceeds received from the sale of assets in Peru will substantially offset the cash payments for the Mexico tax settlement. Our net debt leverage ratio is expected to decrease to approximately 1.5x by the end of 2026, achieving the low end of our long-term targeted net debt leverage range of 1.5x to 2.0x. As a reminder, we may operate above this range at certain times of the year due to the seasonality of our business, investments or acquisitions, the timing of proceeds from asset sales or the Mexico tax settlement payments. We continue to closely monitor the ever-changing business climate, driven by factors including ongoing inflationary pressures, evolving global trade dynamics, geopolitical tensions and cautious business spending. These factors, in addition to postal rate increases, could affect print and marketing spend. We will remain agile and adapt to the shifting environment as needed to preserve profitability.

Slide 18 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build on our momentum as a marketing experience company. We continue to expect the rate of net sales decline to improve as it has since 2024 and then reach an inflection point of net sales growth for full year 2028 with a sales mix of higher targeted print, multi-mail and paper sales. In addition, by 2028, we continue to expect to see increased adjusted EBITDA margin over our current margin. As our sales mix changes, the size of the adjusted EBITDA margin increase will depend on the components of our sales growth.

Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 26% in 2025 to 35% by 2028, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments. Finally, we expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy.

As we look ahead, we believe the combination of improving revenue trends, resilient cash generation, low debt leverage and targeted investments in higher growth offerings positions Quad well to create long-term shareholder value.

With that, I'd like to turn the call back to our operator for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mark Zgutowicz from Benchmark.

Nice to see the improvement in targeted print, but good to be with you this morning. Just a question on the revenue upside. Did you witness any growth outside of paper and logistics? And perhaps, Tony, you could discuss the gross profit dynamics that came with that revenue upside. And also curious why you didn't perhaps tighten the annual revenue guidance with that upside. Is that just for conservative reasons? Or is there anything in the second half we should be aware of? That's the first question.

Yes, I'll start there. So this is Tony. We had revenue growth in direct mail in the second quarter as well as in our in-store print operations. That's in addition to the paper sales, the impact of ink surcharges that we're doing right now due to how petrochemical rates have increased. And we also saw volume and fuel surcharges in logistics.

From a gross margin perspective, paper ink surcharges, fuel surcharges more like pass-through at lower rates of profit. So that's going to impact the gross margin, which you even saw fall through to our EBITDA margin being, I think, 30 basis points lower than prior year. As you look out to the second half of the year, Mark, we typically don't narrow the revenue guidance until we get through the third quarter with being a seasonal production business, we like to see how that third quarter and early fourth quarter are shaping up because customers can add or subtract volumes even in quarter as we go along. Especially in sort of the retail space, as they see the health of the economy, you'll definitely see them sort of adjust fire. That's just additional color on why we wait.

Got it. That's helpful. And then on Wakefern, the new business there, curious if you could talk a little bit more about that in terms of any In-Store Connect revenue margin, advertising specifics there and how you may scale that from the starting point at 30 ShopRite stores? And then maybe throw my last one in here, just on the same point, if you combine that with Vallarta and the West Coast customer, Joel, that you mentioned, do you feel like you're starting to see some synergies in your retail media go-to-market strategy, or is it too early to make that assessment?

Sure. So starting with the first one. Wakefern, I refer to sort of the thing that we've assembled here of services and products working together as one big flywheel. And so Wakefern is a great example where we've been doing business with them. We had a relationship, but now they're looking to shift gears and also looking at the landscape and trying to do it in a much more effective way. And so that resulted in sort of creating all this revenue into the other agency spaces. In addition, they've been watching how do you activate the in-store traffic, which is where people have intent to buy. And so we've been talking to them about In-Store Connect. And we're really excited that they're going to go with a full test of 30 stores relative to their size because the stores that they're going into in the Northeast tend to be a little bit smaller footprint than the big guys, but have significantly more traffic.

And so when I think about Wakefern and what they're doing and us sort of winning the In-Store Connect, the Northeast is a really important geography for us for the CPGs as we build out this platform. And I'll remind you that we're assembling a network of lots of medium-sized to lower-sized grocers who can't do it on their own relative to someone like a Walmart who are doing it on their own. And so the more the merrier for all of them and then for the CPGs, the more we can round out the geography and get more eyeballs by adding more stores, the more they can start to commit more national budget to us versus maybe some local budget and maybe some, call it, test budget.

And so that kind of leads to your second question of what I like about Vallarta is, they're doubling the size. And this is after doing -- they were pretty early on doing a test. And they've seen it's not just the media that's come in. It's the fact that we're consistently proving we're moving cases. So if I'm a CPG, yes, of course, I want media exposure, but they get a lot of requests from retailers to spend money on in-store media, but not necessarily drawing a direct conclusion to moving product. In our case, we're able to prove that we're actually increasing spend on moving cases and even having category lift as opposed to individual brand lift. And so all these wins kind of work together to help round out sort of this national footprint and get us up into a store count and really population exposure that creates those eyeballs that creates that flywheel, well, now we can get CPGs more and more interested. And I'll remind you that they are watching this.

In fact, we were at path to purchase earlier this summer or late spring down in Chicago on a panel with Nestle and talking about the results that we've seen, and they confirm that this has been a good thing for them that they really look at the combination of the media exposure, but really the fact that they've seen movement of product. The other thing about one of the new stores that we just signed who, at some point, hopefully, we can share their name, they're not only in California, but they also have brands that go into Arizona and Texas. And so the goal there is how quick can we be testing with them. And I'll tell you that they already had a test store up with our latest formats, which was really just a quick test, which resulted in this new 25-store expansion of their test.

Did I answer all your questions there?

Yes, you did, Joel. That's great. Maybe just one final one, and I'll hop back in the queue. Just as you mentioned like Nestle and some of your other stronger CPG partners, is it a stretch to think that you can possibly use them as some leverage to get into some other stores? Or is it really just your feet on the ground and just kind of continuing to press the success you're having there?

I think it's all of the above. And again, one of the things -- I mean, I wish it goes faster, but one of the things that happens with retailers is, it's a complex experience that they have in the stores. And we have just about every part of their company involved in the decisions. In some cases, the cleaning staff get involved in, gee, is the kiosk going to cause problems as they keep the stores tidy. So when it comes to new products like this that impact the in-store experience, it just takes longer for them to navigate and get everybody on the same page. And so I think there will be a flywheel effect.

As you see known brands that are well respected like Wakefern come to the table, there are people who are leaders in adopting technology and others who purposely want to be fast followers. And so I think you'll see as retailers like Wakefern come on and Vallarta ends up having the majority of their stores on it, you will start to see the people wanting to jump on. That's our hope. But also, I think as you see CPGs respond to it by bringing bigger budget to it rather than just local budget or test budget, that will prove to people that this is something they should be a part of.

And the next question comes from Kevin Steinke with Barrington Research Associates.

I just wanted to start out by asking about some of the price increases you've implemented to offset some of the cost pressures related to the macro environment. Just kind of how meaningful those maybe were in the quarter in terms of contributing to sales and how we should think about that trending in the second half as well as it relates to sales?

Yes. I'll start and Tony can kind of expand. When we think about like for logistics, the big cost variable there is diesel fuel. And Quad has had to put in a weekly surcharge to the base rate that we charge several years ago as volatility was around. And so that's adjusted sort of weekly based on what happens with diesel. And so you'll see as diesel prices ebb and flow, that makes its way pretty quickly. On the ink side, a lot of the products we use are petroleum-based, but also market-based based on things like pigments that compete with other industries. And again, as petroleum changes, that changes the cost, and we've had to increase that not on a weekly basis, usually on time. But remember, some of those costs take a while to filter through the supply chain. So even though you may have had a decrease in diesel at a point in time, it may take significantly longer for that to reflect in the cost that we have to incur.

And Tony, maybe you could reflect on sort of the meaningfulness of it.

Yes. I'd say, Kevin, in the first half of the year, you're talking like a low double-digit millions impact from fuel surcharges and then ink surcharges linked to petrochemical. I think the good news there is we're holding on to bottom line profit dollars. We're not benefiting from it certainly, but we're holding on to our adjusted EBITDA dollars on that, which were roughly flat year-over-year. And then looking out into the second half, I would expect some of these trends to continue. We'll continue to see on a daily basis, how things move with Iran and other issues.

All right. Great. That's helpful. You talked about how you expect to be within your guidance despite some of the macro uncertainty and I just want to get a sense of maybe how your clients are feeling at this point in time. I noticed or I know that on your last call, you had said maybe some agency solutions clients took a brief pause, but any more thoughts on how your clients are reacting to this volatile environment?

Yes. I mean I guess it's a little bit of it depends who you ask and what category. I mean I think the grocery space is under tremendous pressure, a lot from sort of changing trends in people choosing healthy food and you have the GLP-1 effect. So lots of pressure there are for our customers. But I think we can still continue to see investment in driving traffic, which they need to do. Again, across a lot of different retailers, I think you still have a lot of pressure on the lower half of the income scale with inflationary costs. But again, I think we're feeling like we're in a fairly good place with our clients. We do worry about the follow-on effects on postage. We've gone through a significant time frame of significant increase over the past five years. And while the 10% that just rolled out was a known factor when they were budgeting last year, which is good, what is the net effect, we still see pressure on volumes because of those postal increases. So again, I think that it's sort of nothing significant to report on a pullback here or there other than it depends who you ask right now.

Makes sense. I wanted to ask a little bit more about the packaging plants that you're launching in Salt Lake City. It's certainly an encouraging development there. But when you think about capacity utilization, how quickly does that ramp up, or how much excess capacity will you have to -- I think you mentioned pursuing new opportunities. Just kind of wondering how you see that dynamic playing out.

Yes. I'll remind you, we entered the packaging through a series of acquisitions because we weren't in the space. But if you look back in history before we started consolidating the print industry, most of Quad's growth came from greenfield growth. And the good news in greenfield growth is you put in the technology that you need for the time as opposed to maybe technology that may have been outdated. And the other thing is sort of the cultural fit. You're building upon a culture, you're not integrating, having to integrate things. The downside is the revenue comes later. But we feel very good about our regional strategy because a lot of the product that we print does have a regional sort of impact in terms of deliverability and cost and time frame and all that stuff. And we've been looking at this for a while. And obviously, since it's going to be operational in the fourth quarter, we've actually been working on this specific one for a while.

We feel very good about it because we're able to start it up with existing work. It's hard to start a plant when you don't have anything to put on the machines. But we have customers who have existing work with us that wants to be delivered in that region, plus we have a lot of stuff in the pipeline because I think people are looking for our solution, not just from the standpoint of the traditional packaging. But again, the flywheel effect as they're looking for more help in how their brand appears in packaging, the analytics around making it more responsive to creative content that we can help them with, et cetera, everything that the flywheel has. And so I'm feeling pretty good that we will come on fairly quickly with that plant having fairly decent capacity. And the sales force understands that I always want to grow faster. So I think we've made the appropriate investments in personnel and talent and making sure that we are supporting this every which way to make sure we grow this. My goal is to have to add more equipment in the short term.

And Kevin, I would just add, when you think about 2026 versus 2027 numbers, as Joel said, starting up in the fourth quarter of 2026. So not a ton of impact here in 2026, more skewed towards 2027.

Okay. Great. That makes sense. I mean, is that something we should think of as meaningful? I know it's a new plant, but it's not, I guess, materially large relative to the rest of your footprint. But is that something that you think will kind of have a meaningful impact as you look to 2027?

I do think it will add top line. And I would call it lower double-digit millions as it ramps up. Our packaging plants at full scale are like $45 million to $50 million plants, right? So this is still in the ramp-up stage. So low double-digit revenue there in 2027 and EBITDA margins in packaging have been roughly like 10%.

Okay. That's helpful. Okay. Great. Yes. So I guess, lastly, just on this topic, and then I'll turn it over. But obviously, it's encouraging that you're seeing demand here and on the packaging side and looking to expand in that category. But can you just kind of again refresh us on the dynamics you see in that market that are driving the growth and motivating you to build more capacity in that area?

Yes. One of the things that's happening, we're in folding carton. And so one of the things that's happening is environmental push to get out of plastics. And so the space, I think, is growing somewhere around 5% per year, which is healthy growth. And we're in the right area. Our knowledge base is in the right area. And I sort of reflect on one of the examples I think we shared in the past where we redesigned an Energizer battery pack to get rid of the plastic and use an entirely folding carton solution. They ended up spending tens of millions, if not $100 million on reoutfitting their plants that take our packaging to be able to fill the batteries into it based on that design. So it's a good example of how a lot of the CPGs that the retailers are pushing as well to get people out of plastic packaging.

The markets that we like to go after are ones that have higher value things that are being packaged, whether it's pharmaceuticals or higher-end things that need more decorative and things like that, that have a better margin because we don't want to play in sort of the integrated space where it's like pasta boxes where you have to have a paper plant attached to it to make any money. And so all those dynamics make us feel very good about our investment in this and where we'll go from here.

And the next question comes from Barton Crockett with Rosenblatt.

I was kind of intrigued by the packaging discussion because this was really -- I don't recall this being a particular focus of your '24 Investor Day with your long-term projections -- intermediate-term projections for '28 that you've reiterated here. Is this kind of an area that's really inflected that you weren't really thinking as much about partly, I guess, maybe because of just the recognition of this environmental-driven opportunity? And can you give us a sense of the CapEx that goes into this plant and kind of the revenue contribution from packaging right now in your income stream?

Yes. It's not that we weren't sort of looking at it and thinking well of it. I think we actually have reflected on it over time that the approach in packaging is not just because it has better growth space than the other areas of print that we're in, but because it's a part of that marketing flywheel, right? It's still -- it's a brand awareness thing. It's an advertising piece in addition to a practical product to be able to sell -- to be able to encase product that moves on the shelves. And so as we sort of built the packaging platform through the different acquisitions we did, the thing that we're really focused on is how do you include packaging in the flywheel of marketing services that we have, where we can supply something integrated to our marketing clients because a lot of times, if you're just playing in packaging, you're playing with one part of the company that you're dealing with.

When you're dealing with the marketing aspect, you're dealing with a whole bunch of other parts that intertwine. And so suddenly, we're doing the -- like we've talked about with Pura and some of the other CPGs that are trying to get in store where we're doing the end caps and doing the creative and they're suddenly putting product in the end cap that is packaged, suddenly now we can offer a very integrated solution where we can do it all. And so as we've seen that speed up and people really like the integrated aspect, which has allowed us to win work without just being a singular product coming to the table, that was sort of the signal to us that, okay, now let's go further and faster on packaging because we're not just coming to table as a packaging company. So again, this has been part of the plan, but you have to finish a few steps before you can make that integration work. And we've seen that sort of accelerate over the past year or so.

And Barton, I'd add that when you look at the packaging space, acquisitions in that space, multiples on those are like 8x to 9x, right? And so looking at greenfield, where we have existing clients that want to go out there, brings us this West Coast presence that will get logistics benefits it was better for us to do it in a greenfield fashion and expand that way on a lower capital amount.

Yes. We still look at M&A. But again, I think that the pace of being able to adapt this plant without all the distraction that comes with integrating acquisitions is a benefit to how we're doing this.

I mean can you give us a sense of how much CapEx this project is? I mean, some ballpark and some sense of packaging size?

Under $10 million. And so in this case, we're leasing a plant as opposed to building it, which in our early stages of the company was usually owned. But there's lots of good facilities that we found, and we picked one that fits our bill. And so then it's about putting in the right equipment, which, again, versus spending 8x to 9x on an acquisition, we're getting this for a much more efficient use of our capital.

Yes. So CapEx part, we've talked before about this, but it's roughly 2% of our revenue every year we put into it. More than half of that goes to growth in automation. So this was within our CapEx guidance here for 2026.

And just packaging overall in your revenue stream, I mean, you talked about what this plant will do in success, but what it is?

It's like around $135 million of revenue, roughly speaking.

Okay. All right. That's interesting. So you were talking a lot about In-Store Connect. Can you just give us an update like how many stores total are you in? I know you've got these new deals, expansions. But how large is the network right now? And just how big are the revenues in your mix, would you say?

Well, I think the number of stores is important, and not all stores are created equally. So I'd probably put a weighting on Wakefern stores because they have such a significant store traffic that they have relative to the normal store. But call it, we've gone from -- if we have 70 stores today, we're going to be up close to 130 as these new wins roll out. The important thing is geographically diverse. And so building out that Northeast and sort of continue to grow out California in some interesting spaces is really cool.

But what is kind of the revenue contribution at this point, some sense of that, for In-Store Connect?

Still low, Barton. This is still in the early stages of ramping up.

Okay. All right. And then the final thing is, Joel, you were talking about that Quad stands behind the Postmaster General idea plans for reform. You said that, that could lessen the need to kind of lean on just rate hikes. If Steiner's approach were just kind of the plan, which has kind of the normal run rate going forward over the years, where do you think normalized postage rate increases would settle in? What do you think we get?

Yes. And I think you can look at its legislative agenda. It's not just -- so remember, they're mandated and this started in '71, they're mandated to go to every address in the country, which there's over 1 million new ones every year, much of it rural. So they're mandated to go to it. So the challenge that we have is, in the past five years, they've used pricing to try and fix it. So you increase pricing dramatically, which lowers the volume using that whole infrastructure, which means then you have to increase pricing because volume went down, and it's sort of the spiral. When they first established this back in the '70s, they recognized that the taxpayer has to pay for this infrastructure to some degree because you can't support it. And so there already was taxpayer support back then to the tune of $460-ish million in 1971.

And so what the part of this thing is, look, if you insist on the mandate continuing and you don't allow us to adjust based on what revenue can support, you're going to have to pay for it. We're going to have to go back to that. And if you watch these hearings and the last one became a little bit overly political with some of the voter stuff that was going on. But when each of the individual senators kind of opine, they each talk about, could you please increase the performance of my local towns and cities. And so politically, they all seem to think that it's a very important thing to have this mandate. And so I think his goal is to try and make it less political and being able to do this because it's very bipartisan in terms of what the taxpayer tells them. And so there's a series of other things involved there, including some relief on what happens with retirement costs.

But what we'd expect as an industry and what we would ask the post office as a part of strings attached, so to speak, is get back to increases that the rest of the world gets, which is really associated with inflation, which is used to be measured by CPI, and they were capped at CPI. And so we think that there's a fighting chance to get back to that -- if pricing is not the only mechanism to handle this. If it is the only mechanism, it's problematic. And I think people recognize that. That's a long answer, but it's a very complicated topic.

I appreciate that. I mean what do you think it takes years to get to a CPI back to a CPI regime? Or any chance that could happen?

I think he's trying to get this pushed pretty quickly. I'm going to be spending some time in Washington. I've spent time with him, with our customers. A lot of different people, there's a lot of different users of this. So there's a lot of opinions. But we have to get people to coalesce around that if we have a fighting chance to have the post office be effective for all of us, they need to get behind supporting this legislative agenda because it's very important. And time is of the essence. They bought some time here. But if they don't do it quickly, they're going to come to a bill out that they can't ignore and it truly would be a bill-out as opposed to paying for infrastructure that the taxpayer wants.

Okay. Great. And then just one final question here. With the exit of Lima pending, can you give us a sense of what the revenue and EBITDA impact is of that exit and also just what the size is of that facility and square feet?

It's a little over a 200,000 square foot facility, Barton. We've had good discussions so far with multiple potential buyers. So it potentially could be a bit higher than the $40 per square foot that we historically use as an average. But outcome is uncertain yet, right? There's a lot to play out here. From a revenue perspective, it's about $25 million to $30 million of revenue and small adjusted EBITDA.

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Quadracci for any closing remarks.

Thank you, operator, and thank you, everyone, for joining today's call. I want to close by reiterating that Quad remains committed to our strategic vision, leveraging our integrated marketing platform to drive diversified growth, improve print and marketing efficiencies and create meaningful value for all of our stakeholder groups. With that, thank you again, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Quad's First Quarter 2026 Conference Call.

[Operator Instructions]

Please note this event is being recorded. I will now turn the conference over to Julie Fraundorf, Quad's Executive Director of Corporate Development and Investor Relations. Julie, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, Quad's Chairman and Chief Executive Officer; and Tony Staniak, Quad's Chief Financial Officer and Treasurer. Joel will lead today's call with a business update, and Tony will follow with a summary of Quad's first quarter 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 2. 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 net 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 Investors section of quad.com shortly after our call concludes today.

I will now hand over the call to Joel.

Thank you, Julie, and good morning, everyone. I'll begin with key highlights shown on Slide 3. Our first quarter results were in line with our expectations, and we are on track to achieve our full year 2026 guidance. During the quarter, we maintained steady profitability and expanded margins compared to Q1 2025. Our strong balance sheet enabled us to return $7 million to shareholders, including $6 million in regular cash dividends and $1 million in share repurchases. We continue to make strategic investments in our expanded marketing solutions and are seeing strong momentum in our audience strategy services, which are powered by Quad's proprietary household-based data stack.

Quad's MX offering shown on Slide 4 includes a suite of integrated solutions across creative, production and media supported by intelligence and technology and spanning both digital and physical channels. As we invest in our growing solutions portfolio, we are maintaining cost discipline while navigating dynamic macroeconomic challenges, including continued postage rate increases and cost pressures in our supply chain stemming from the ongoing conflict in the Middle East.

In late Q1, oil and gas prices increased sharply, driving up distribution costs and raising input costs tied to petrochemicals used in certain manufacturing processes, most notably ink. In response, Quad implemented a temporary surcharge on ink. We are continuing to proactively manage the situation should volatility persist, including diversifying suppliers, optimizing inventory planning and taking targeted pricing actions where appropriate. Postage remains a significant macroeconomic challenge for many of our clients, representing the single largest marketing expense for our mailers and a key factor shaping marketing spend decisions.

The USPS continues to rely on price increases as one of its primary levers to address its financial challenges. Earlier this month, the Postal Service announced the details of its next rate increase expected to take effect on July 12. We estimate this will result in an average postage increase of up to 10% for many of our Co-mail clients.

In March, Postmaster General, David Steiner, testified before Congress stating that absent federal intervention, the USPS is expected to run out of cash in 2027. The Postmaster General attributes this in large part to the USPS' universal service obligation, which requires it to deliver mail 6 days a week to every address, a number that grows by more than 1 million delivery points each year. The Postmaster General emphasized that to continue executing its universal service obligation, the USPS must either be federally compensated for the public service or provided the pricing and operational flexibility necessary to sustain it. It should be noted that since the Postmaster General's testimony before Congress, the USPS has been granted additional financial flexibility that will now provide it with liquidity beyond 2027.

As this situation evolves, Quad's Postal Affairs team remains actively engaged with policymakers in Washington as well as the Postal Service, advocating on behalf of our clients and the broader mailing ecosystem. To help mitigate ongoing rate increases, we continue to deploy the same 2-pronged approaches we have had for decades, focused on maximizing postal cost savings while improving response rates. Small reductions in the cost of postage can translate into substantial savings when applied across millions of pieces, and this is where Quad continues to deliver measurable value for our clients.

As shown on Slide 5, our postal optimization solutions work together to reduce clients' mailing costs. This example demonstrates how a layered optimization approach led to significant savings for our client across 1 week of mailings. To start, the client reduced its overall postage cost by 20% by participating in Quad's main optimization program of Co-mail. The client realized an additional 3% savings per piece in high-density delivery areas by utilizing advanced Co-mail sortation capabilities. We help the client capture further savings through our Household Fusion program, which combines multiple publications or catalogs into a single mail piece where eligible. In parallel, our postal experts help the client qualify for USPS promotions, lowering its cost even further.

Taken together, these solutions cut the client's postage costs by 27%. This is a notable savings considering postage accounts for up to 70% of the cost to manufacture and deliver print mail pieces. It is also important to note that savings generally increase as the size of our weekly Co-mail pool grows. Today, there is still a fair amount of clients who do not optimize their mailings in our programs. As more clients adopt our postal optimization programs, we expect to generate higher savings for all participants. We also continue to invest in innovation -- innovative solutions that improve the efficiency and effectiveness of direct mail, including At-Home Direct, our self-service direct mail automation platform.

Launched last year, the platform enables personalized mail with timely, scalable delivery, greater speed and operational simplicity. It also enables trigger-based mail informed by online consumer interactions or special life events to drive consumers further along the purchasing journeys.

On Slide 6, we show an example of how Fidium, a rapidly growing fiber Internet provider, is using the platform to streamline workflows and get into market faster, consolidating multiple segmented direct mailings into a single weekly execution. With At-Home Connect, Fidium reduced its mail cycle from 2 weeks to just 5 days, eliminating approximately 45 labor hours per month and reduced direct mail production costs by 33%. As one Fidium executive said, switching to At-Home Connect has been a game changer for our direct mail program. It saves us time and reduces print and postage costs without sacrificing volume. Overall, it's been a seamless and highly effective solution. Beyond driving operational efficiencies, we are always working to identify and invest in solutions that improve marketing effectiveness and generate stronger response rates for our clients.

Slide 7 highlights our work with Monogram, a Boston-based financial services firm as it scaled its new private student loan product, Abe. Monogram needed a partner to help increase booked loans while establishing credibility in a competitive, mature market. Quad partnered with the client from strategy through execution, leveraging our team's industry insights and experience to develop the brand's first-ever direct mail effort. The program launched during the peak lending season, running 6 campaigns from late April through September 2025. The strategy used Quad's proprietary household-based data stack to identify high potential borrowers and cosigners.

Campaigns incorporated premarket testing, audience modeling, creative optimization and response analysis with insights continuously applied to improve performance over time. The program delivered strong results. Abe achieved its 2025 growth objectives with booked loans increasing sixfold year-over-year while maintaining its target cost per application. This example reflects the value of our integrated approach, which combines data, strategy, creative and execution. The program also earned industry recognition with Quad receiving a Financial Services Strategy award in the personal finance category from the Gramercy Institute, the world's largest network for senior marketers from leading financial institutions. As an industry thought leader, Quad partners with some of the nation's most respected researchers to better understand emerging market trends.

As shown on Slide 8, we have continued our partnership with the Harris Poll, one of the longest-running survey firms in the U.S., releasing findings from a new national study that examined how AI is shaping the consumer shopping experience. The studies show shoppers are primarily turning to AI for practical reasons. When we ask why AI appeals to them, 2 in 3 shoppers said they like how the technology can spot pricing inconsistencies and 3 in 5 said it helps them stay on budget and narrow choices more quickly. Findings also underscore that AI complements physical shopping experiences versus replacing them with a majority of Gen Z and millennials saying they use AI in store for real-time help.

As AI continues to influence how consumers discover, evaluate, engage with brands, Quad is helping clients adapt. For example, AI-based search has significantly disrupted traditional paid search and search engine optimization marketing strategies. In response, Rise has developed a proprietary AI referral agent reporting system that enables clients to track, measure and optimize performance across large language models.

By monitoring metrics like AI citation rate, depth and engagement quality, the system helps clients understand if AI LLMs are surfacing their brand content, whether those appearances are driving site traffic and which platforms are delivering the strongest results, allowing them to continuously refine their strategy and improve market effectiveness.

Before I turn the call over to Tony, I would like to recognize our employees and thank them. Their hard work and commitment to urgently innovate is helping solve our clients' most complex marketing problems, drive Quad's diversified business and advance our long-term strategic goals.

With that, I'll turn the call over to Tony.

Thanks, Joel, and good morning, everyone. On Slide 9, we show our diverse revenue mix. During the first quarter of 2026, net sales were $581 million, a decrease of 4.3% compared to the first quarter of 2025 when excluding the February 28, 2025, divestiture of our European operations. The decline in net sales was primarily due to lower print volumes and lower agency solutions sales. Our agency solutions sales were impacted by a pullback in spend from certain existing clients and our ongoing evolution from project-based work toward agency of record engagements.

Comparing our net sales breakdown between first quarter 2025 and 2026, our revenue mix as a percentage of total net sales increased in our targeted print offerings of direct mail, packaging and in-store and also in our logistics business due to increased volume and additional list services provided through our enhanced Co-mail operations. These increases were offset by declines in the print product lines of magazines and catalogs and also agency solutions.

Slide 10 provides a snapshot of our first quarter 2026 financial results. Adjusted EBITDA was $45 million in the first quarter of 2026 as compared to $46 million in the first quarter of 2025, and adjusted EBITDA margin increased from 7.2% to 7.7%. The increase in adjusted EBITDA margin was primarily due to cost realignment actions taken due to print volume declines and benefits from improved manufacturing productivity. Adjusted diluted earnings per share was $0.25 in the first quarter of 2026 as compared to $0.20 in the first quarter of 2025, an increase of 25%. The increase was primarily due to higher net earnings, including lower interest expense due to reduced debt and lower depreciation and amortization as well as the beneficial impact of a lower share count.

Beginning in 2022, we have repurchased 7.6 million Quad shares at an average price of $4.16 per share, representing approximately 13.6% of our total outstanding common stock as of that time. This includes 167,000 shares repurchased year-to-date for approximately $1 million. Quad's Board of Directors authorized a share repurchase program of up to $100 million of our outstanding Class A common stock in 2018. As of March 31, 2026, there were $68.4 million of authorized repurchases remaining under the program. Free cash flow was negative $107 million in the first quarter of 2026 as compared to negative $100 million in the first quarter of 2025. The $7 million decline in free cash flow was primarily due to a $5 million increase in net cash used in operating activities, mainly from higher inventories and a $2 million increase in capital expenditures.

We show the seasonality of our free cash flow and debt leverage on Slide 11. We typically generate negative free cash flow in the first 9 months of the year, followed by large positive free cash flow in the fourth quarter with higher collections after our production peak. In 2026, we anticipate a similar pattern for our free cash flow and debt leverage. When removing the impact of seasonality, our net debt has reduced by $36 million from March 31, 2025, to March 31, 2026. As previously reported, we completed the divestiture of our European operations to Capmont in February 2025. The total sales price included a 3-year note receivable.

As of March 31, 2026, we did not receive payment of principal and interest for the first annual installment of the note receivable totaling $6 million, which was due to be paid to us on February 28, 2026. As a result, our net debt balance as of March 31, 2026, was $6 million higher than we expected. We are working with Capmont on this past-due payment.

Slide 12 presents our balanced capital allocation strategy, which is fueled by our free cash flow in addition to our ability to generate proceeds from asset sales. We expect to generate future cash proceeds from buildings we currently have for sale in Waukee, Iowa, and Thomaston, Georgia. With this strong cash generation, we intend to continue to increase our growth investments as a marketing experience company, maintain low debt balances and return capital to shareholders through our quarterly dividend and share repurchases. In the first quarter of this year, we increased our quarterly dividend by 33% to $0.10 per share or $0.40 per share on an annual basis. We are pleased to return capital to shareholders through the quarterly dividend and opportunistic share repurchases.

Slide 13 includes a summary of our debt capital structure. At the end of the first quarter, our debt had a blended interest rate of 6.6% and our total available liquidity, including cash on hand under our most restrictive debt covenant was $177 million. Our next significant debt maturity of $205 million is not due until October of 2029. Given uncertainty regarding interest rates, we hold 4 interest rate swaps with notional value of $130 million and one interest rate collar agreement with notional value of $75 million. Including all interest rate derivatives, we have 49% of our interest rate exposure capped if interest rates rise. And with the interest rate collar, we would pay lower interest expense on approximately 68% of our debt if interest rates decline.

We reaffirm our 2026 guidance as shown on Slide 14 and are pleased that our guidance represents another step on our way to our 2028 outlook for revenue growth. We continue to expect 2026 net sales to decline 1% to 5% compared to 2025, excluding $23 million of 2025 net sales from the divestiture of our European operations. The 3% sales decline at the midpoint of the guidance range reflects the continued ongoing improvement trend from a 5% net sales decrease from 2024 to 2025 and a 10% decrease from 2023 to 2024, excluding the European divestiture. Consistent with the seasonal pattern from last year, net sales in the second quarter are expected to be the lowest of the year, followed by sequentially increasing net sales in the third and fourth quarters during our seasonal production peak.

Full year 2026 adjusted EBITDA is expected to be between $175 million and $215 million, with $195 million at the midpoint of that range being essentially equal with the 2025 adjusted EBITDA of $196 million. We anticipate lower adjusted EBITDA in the second quarter of 2026 compared to the first quarter, and then we expect sequentially higher adjusted EBITDA in the third and fourth quarters, consistent with the projected net sales seasonality. Our adjusted EBITDA margin is expected to increase by 30 basis points from 8.1% in 2025 to 8.4% in 2026 due to continued disciplined cost management and margin-enhancing changes in our revenue mix. We expect 2026 free cash flow to be in the range of $40 million to $60 million, with $50 million at the midpoint of that range, also essentially equal with the 2025 free cash flow of $51 million.

We expect increased net cash from operating activities due to higher cash earnings and the timing of working capital despite an additional week of payroll payments for 53 Thursday paydays falling in the 2026 calendar year. We will have a year-over-year cash flow benefit as we return to 52 weekly payrolls in 2027 and the next time we will pay 53 payrolls in a calendar year will not occur until 2032. The projected higher net cash from operating activities is expected to be offset by higher capital expenditures, which are expected to be in the range of $55 million to $65 million.

Over many years, we have invested in robotics and automation on the plant floor and across our postal optimization solutions to have what we believe is the most technology-advanced platform in the industry. We intend to continue investing in growth and automation, both in our print platform, such as digital presses and direct mail as well as in our service lines, including In-Store Connect by Quad.

And finally, our net debt leverage ratio is expected to decrease to approximately 1.5x by the end of 2026, achieving the low end of our long-term targeted net debt leverage range of 1.5x to 2.0x. As a reminder, we may operate above this range at certain times of the year due to the seasonality of our business, investments or acquisitions. We are closely monitoring the current business climate, which continues to present uncertainty, driven by factors, including persistent inflationary pressures, evolving global trade dynamics, geopolitical tensions and cautious business spending. These factors, in addition to postal rate increases, could affect print and marketing spend. We will remain agile and adapt to the shifting environment.

Slide 15 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build on our momentum as a marketing experience company. We continue to expect the rate of net sales decline to improve as it has since 2024 and then reach an inflection point of net sales growth in 2028. In addition, by 2028, we expect to improve adjusted EBITDA margin to 9.4% and are planning to achieve progress towards that goal in 2026 by improving the adjusted EBITDA margin by 30 basis points. Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 26% based on our 2026 guidance to 35% by 2028, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments.

Finally, we expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy. We believe that Quad is a compelling long-term investment, and we remain focused on achieving our financial goals and providing strong shareholder returns.

With that, I'd like to turn the call back to our operator for questions.

[Operator Instructions]

The first question comes from Barton Crockett with Rosenblatt Securities.

Let me see. One of the things, I guess, just to look a little bit kind of big picture for the moment. Could you talk a little bit about the degree to which you're seeing all of the macro pressures, including the war pressures and the inflation pressures that prompted you to put in the surcharge, and the return of kind of postage rate hikes. To what degree is that dampening demand from your marketing clients? Or to what degree are people kind of looking past that and continuing the pace?

Yes, I'd say so on the sort of the disruption of the supply chain, there's a lot of petroleum-based products that go into some of the things that we do, but primarily impacting ink, whether it's pigments or some of the underlying other components. And so that's why we put a surcharge on. It's a meaningful number in our pricing, but nothing close to like what postage does to our customers. And so we have a surcharge on that, that we will monitor the situation and ebb and flow as it goes forward. I will say that one of the other challenges in this is those components we compete with other industries on as well. So it's like they have choices on where to put those components. And so ink is just one of the areas that those components go in from a global perspective.

Postage, as you know, has been sort of a cumulative effect of multiple years of double inflationary increases. And I would say that with this postal increase, and it depends who you are. It's anywhere from 3% to 10% increase for clients in July. I'd say that they generally expected in their budgeting process an increase somewhere in that range. And so I'd tell you that I don't expect like a big pullback through the end of the year. The question will be is how does that cumulative impact adjust their planning for 2027, and that's what we focus on now. So I think in general, we don't see people kind of adjusting plans significantly at this point because of postage.

And like I said, we added this sort of waterfall slide for you all to kind of understand the impact of the different layers of Co-mail and optimization that we've built. One example I could tell you is we just had our postal conference a couple of weeks ago where all our clients come together, one very large customer really kind of didn't do a lot of optimization out of their own volume because they had significant volume. They were going to get hit by about a 10% increase, which was a bit of a surprise to them. But they ended up within days saying that they're going to join our optimization program to a bigger degree than they were, which is allowing them to suddenly come back down to more of the expected return that they're going to have or rate increase that they're going to have.

So all in all, I'd say that it's -- as we said, we sort of are as expected for the year, don't see volumes at this point changing significantly from what we're expecting, but it's also a crazy world.

Okay. All right. Now one of the things also is in your long-term outlook, aspiring to growth in 2028, when you guys at your Investor Day had talked about the road there, you talked about some growth areas bracketed largely within services becoming big enough to tip the kind of top line into positive and outweighing kind of the pressure in the products that are more secularly challenged. To what degree do the results that you're seeing in the first quarter and year-to-date, are they consistent with that kind of long-term aspiration you have to return to growth?

Yes, Barton, this is Tony. So yes, I would say in our services offerings, we still think that those are growth areas for us. We saw a decline in agency in the first quarter compared to last year. We view that more due to our change from project-based to agency of record engagements. So we expect growth in 2027 and beyond in agency. I also would remind that targeted print, direct mail, packaging, in-store, those are also expected for growth in our model. And we've seen that as a percentage of our revenue mix in Q1 and even dating back to last year, we've seen those areas continue to grow. So we believe we remain on track for the 2028 inflection point.

Yes, just to add to that, again, I always talk about the print tangible projects -- products as being really big invoices, really big engagements, whereas as you're up in the services side, smaller invoices more profitable. And they sort of impact each other by flowing revenue back and forth. But In-store, packaging, direct mail are all places we're going to grow that have those girthy things. The catalogs and publications is where we see a lot of the -- I'm sorry, in retail are where we see the bigger declines that we have to offset.

Catalogs probably would have been a lot less so over the years if they're probably the most sensitive to these postal increases. So if we can kind of -- if the Postmaster General can kind of get control of this thing, I feel better about it. But again, we still have good girthy product lines here that we expect to grow and In-store was significantly up in the first quarter as an example.

Okay. And one of the things that you had mentioned was the delayed payment from Capmont. Can you give us more detail of what's going on? Was there some inability on their part to pay? Or was there some performance benchmark that was not hit by the business you sold? I mean, can you give us some sense of what's going on there?

I'll start by, Barton, saying that we expect to be paid in full on the note receivable. We're actively working with Capmont to achieve that. There is no performance benchmark as it relates to the note receivable. It's very clear on being due at certain periods. And so we are fully anticipating to receive those payments. I wouldn't want to speculate beyond that.

Okay. And then just the final thing here, just to step back again on the Postal Service. With Steiner beginning to -- his regime, we're beginning to see what they do, how they flex kind of the business versus DeJoy. Does this -- Joel, do you still have hopes that under Steiner, we're going to see a less aggressive rate hike regime over multiple years than we saw with DeJoy? Or is the jury still out on that?

Well, look, I think he's -- if you watch his testimony, it's a good hint. And I'd say that he's doing a very good job of simplifying the problem for Congress and trying to simplify it and get people more on the same page in general. What people forget is when you talk about the Post Office, it's a big organization. But if you talk about the postal system, which is the economy around the Post Office, it's a $2 trillion economy that uses the Post Office. And so there is significant impact to the economy about what happens with the Post Office and people forget that. And so what he's clarifying is, look, we have this mandate that started in 1971 that we have to deliver to every household 6 days a week. Every time it's been pushed to kind of pull back from some of those mandates, politically, it hasn't been able to happen.

Now in 1971, as a little history, when they did this, Congress anticipated that there had to be some public sharing of cost to be able to create that ongoing delivery. And so they subsidized the Post Office by the tune of about $460 million a year that ultimately kind of went down into the '80s because they saw that the Post Office through its postage could start sustaining itself without that. They didn't anticipate the Internet. They didn't anticipate all this, but they did anticipate that there may be funding from time to time. So he's reminding them of that. And today, that equivalent would be somewhere in the neighborhood of about $10 billion to help support it.

And I have always believed that at some point, the taxpayer has to step in because there's no business that can have their hands handcuffed to be able to do what they have to do and the infrastructure cost to do it in and pay it through your other users. And so I think he's got a lot of attention, and I think there is some momentum there to kind of look at it from the standpoint of what's good for America, what's good for the consumer. And again and again, the consumer has weighed in on wanting to have a Post Office.

And you think about the things in that economy, the $2 trillion economy, things like getting your prescription drugs when you're in a rural area, that goes through the Post Office. And so I actually have a renewed optimism that if there's a time where maybe a Postmaster General like David Steiner as opposed to DeJoy, who is very good to work with, works well with Congress, can crystallize the problem and try and bring a realistic solution to it once and for all.

And so I actually have a little bit of optimism, but that's also enhanced by the fact that our additional investments we've done in Co-mail with Enru and getting to high density, that waterfall of different opportunities we've created for the clients to offset these costs will help bridge until we figure out what way the Post Office is going to go. I don't think it's politically viable to let the Post Office fail.

The next question comes from Mark Zgutowicz with Benchmark.

Just looking at your agency business, down 18% year-over-year and the underlying growth that we're seeing coming from Rise generally in that business. Just curious how you anticipate or when you anticipate a visible acceleration there. You've obviously got macro pressures, but curious, as you look at Rise and the initiatives that you talked a bit about there, how that may offset some of those pressures. And if we're looking at next year, first half versus second half in terms of realizing some of those growth benefits from Rise?

Yes. And I'd say in the quarter, we saw -- we did see some pullback from existing customers just with some of the macroeconomic types of things that are going on. We certainly are spending a lot of time continuing to enhance what Rise does. As a reminder to people, we really came from performance media to now full stack media. And one is a little bit more transactional, whereas the other has a longer sales cycle. And so part of this is the transition to that, that I feel good about ramping up as we get into -- towards the end of the year, but it's certainly into '27.

Our expectations are to continue to ramp that part of the agency solutions side, but as well as ramping up the other parts of agency solutions, which is Betty creative, et cetera. But the question is a good question because, again, you're sort of switching from a little more transactional to more holistic and those cycles are longer. So that combined with some of the macroeconomic stuff and your regular -- some you win, some you lose, kind of explains where we are.

And then Tony, just one last one for me. Tony, in terms of the free cash flow range, obviously, you're reiterating that guidance. But just as we look at that range, $40 million to $60 million, it's obviously a wide one. Just if you could maybe talk about some of the puts and takes on that range, including perhaps CapEx trajectory there, which is up a couple of million dollars this quarter. But just some of the puts and takes there as you look at potentially coming in at that low end versus high end of that range.

Great. Mark, first I want to say welcome to the call and excited to have you covering the stock. So thanks for picking us up. And on the CapEx side, I mean, we've guided for the year to $55 million to $65 million, midpoint of $60 million. I mean we will spend that amount if we think there's opportunities that further enhance our growth and automation possibilities. But last year, as an example, we didn't spend the full CapEx range that we had as we looked at timing of investments and where we wanted to put our money. So it's possible that in puts and takes, that CapEx could be an area that causes that -- within that range to go towards either a higher or a lower end.

The other 2 components that kind of walk us from adjusted EBITDA down to free cash flow, interest expense, we can predict that pretty well and restructuring. We think we've got a good hold on that for the year. I would say, consistent kind of from a cash payment standpoint from where it was last year. So CapEx and then ultimately where the adjusted EBITDA lands are the 2 biggest drivers that will flex us within the range.

The next question comes from Kevin Steinke with Barrington Research Associates.

Just to maybe wrap up on the discussion about the Postal Service. You mentioned that the Postal Service had been granted additional flexibility that will keep it solvent. I know there had been some discussion about raising, I think, the debt limit for the Postal Service and also giving it the ability to actually be able to raise prices more. Just any more insight into the flexibility that they now have...

Yes. I mean, part of this, my belief is he's purposely trying to create a crisis because none of this is really that new. I mean everyone knows that the Post Office has been sliding and struggling. They're getting relief on some of the pension to create that liquidity. Their debt limit hasn't been raised in years. And so to most of us, it's like a logical ask to be able to raise it to something that's more realistic from where it is. So there's -- it's always been the problem that there's structural challenges with how the Post Office is set up. They do have a regulatory oversight group with the PRC that regulates how they can do pricing. His belief is he wants more flexibility in how to do pricing.

Like he would probably tell you that a first-class stamp, are you really not going to use a first class -- buy a first-class stamp if it's $0.95 versus $0.85. And if you look at relative to the rest of the world, our stamp price is significantly lower. And if you look at Europe, most of the time, they're delivering these letters a couple of hundred miles for a significantly lower stamp price, you're delivering across an entire continent. So these are not new things, but it's how do you fix the structure so that it has a fighting chance. And the big one is the mandate. Look, it's like if everybody wants a gas line at their house in the United States, the United States government is going to make sure that we put the gas lines in, almost like a utility, right, it is a utility.

For the Post Office, people believe that they deserve to have the Post Office coming every day. I think that there's been debate in the industry, could we do with less dates -- days of a week. I think most of the industry would say, yes. But every time you try and do that, the political nature of this where everybody in their own constituents start complaining that you're going to close my post office, it doesn't happen. And so his very frank comment to Congress is we can do this. We can deliver 6 days a week. We can increase the number of addresses we have to go to by $1 million. But if that's the case -- 1 million addresses, but if that's the case, you have to pay for it because the rest of the infrastructure, the rest of the users of the Post Office can't make it work.

The only way that it will make the Post Office work is a short-term thing of raising the rates by more than inflation, which is what's been happening. That's a death spiral because it kills the hand that feeds you while not solving the problem of giving the taxpayer what they want. And so that's really the simplistic approach I think he's taking, and I'm supportive of it.

Great. That's helpful color. Just also following up on the temporary surcharge. It doesn't sound like it's that meaningful, but just can you give us a sense of just how much of your cost base that applies to? And is there any meaningful benefit to just your reported revenue from that temporary surcharge flowing through?

Yes. I don't think you should think of this as a material or significant benefit to revenue. From a bottom line standpoint, it is just an offset of the increase in costs. So it doesn't make us better or worse off. And as far as a percentage of our cost after the print and paper itself, the ink is a relatively lower component of the cost structure. So this is not a highly significant item.

The place where -- which we did talk about, I'll just mention is with diesel fuel being up significantly, obviously, our freight side is impacted by the significant increases in rates. But for years now, we've had a weekly surcharge that bounces around with diesel. And so we're not impacted from that from a freight standpoint, which is really important. So we almost -- it's like we already have that surcharge structure in place on a weekly basis on the diesel side, which would have been more impactful.

Okay. Understood. So just again, to circle back on the agency solutions, you mentioned a pullback from some existing clients. Do you expect that to pick back up again? Or have you had discussions with those clients about why they pulled back and again, when it might come back? Just any more color on, I guess, on that side.

I think, it kind of say it depends who you talk to and reasons for pullback are kind of in all various different places. But as I talk to people, I think one of the things that people believe will be one of those good things is just the tax returns that people are expecting refunds at a different level this year. So some of the industry will talk about that, that's a positive coming. But again, I think that you're just living in this time where you wake up and suddenly we're in a war, you're having this disruption in supply chain.

These surcharges are coming across the board to pretty much all our customers from their products. And so I think it's just a matter of people trying to figure it out, and you're early in the season here, and that's when people kind of are sort of ebbing and flowing. What comes, again, I think that -- I don't feel that it's significantly disrupted to the point where we're going to see in our product lines a huge disruption. So there may have been some pullback in the agency side. But that didn't necessarily reflect a pullback in the higher revenue side of print. We didn't see people pulling back because of those issues.

Okay. Understood. That's helpful. You highlighted some momentum in audience strategy services and tying that to the data stack. Just, I guess, any more comment on that? And one of your best assets is that household-based data stack and maybe more commentary on how that continues to benefit you?

Yes. I'd say that it benefits us through other product lines mostly, which is like if you talk about direct mail, DM and the concept of the DM agency we have, what the DM agency heavily does is, yes, we set up direct mail for them. But more importantly, it's what's the audience you're going to. That's what the agency does. It's helped them at the beginning of how do you find a really good audience. And that's one of the biggest challenges in marketing today is getting audience, new audience, people who are confirmed recent transactors who fit your profile of the product you're selling.

And so the data stack helps us with that to really sift through and find out who is the right audience for you in combination with other data sets. We think ours brings another level to it because of the nature of the household personalities we can see. And that's where it really starts and then it equates into, okay, if we use that audience and we do a direct mail piece for you, did it work better or not. And what we're seeing is we're enhancing the effectiveness of the print piece, and that's allowing us to win more of the big invoice products and allowing us to gain trust to be the adviser as its agency to people who are using some of our other product lines.

Operator, anymore questions?

No. This concludes the question-and-answer session. I would like to turn the conference back over to Joel Quadracci for any closing remarks.

Okay. Thanks, operator. Thank you, everyone, for joining today's call. I just want to close by reiterating that Quad remains committed to our strategic vision, leveraging our integrated marketing platform to drive diversified growth, improve print and marketing efficiencies and create meaningful value for all of our stakeholders. With that, thank you, and we'll see you next quarter.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Good morning, and welcome to Quad's Fourth Quarter and Full Year 2025 Conference Call. During today's call, all participants will be in listen-only mode. [Operator Instructions]

A slide presentation accompanies today's webcast and participants are invited to follow along, advancing the slides themselves. [Operator Instructions]

Please note this event is being recorded. I will now turn the conference over to Julie Fraundorf, Quad's Executive Director of Corporate Development and Investor Relations. Julie, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, Quad's Chairman and Chief Executive Officer; and Tony Staniak, Quad's Chief Financial Officer and Treasurer. Joel will lead today's call with a business update, and Tony will follow with a summary of Quad's fourth quarter and full year 2025 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 2.

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 net 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 Investors section of quad.com shortly after our call concludes today.

I will now hand over the call to Joel.

Thank you, Julie, and good morning, everyone. I'll begin with key highlights shown on Slide 3. In 2025, we achieved our full year financial guidance. Despite a planned reduction in reported sales, we generated strong cash flow, enabling us to make targeted investments that support long-term growth, reduce debt and provide strong shareholder returns. We also made meaningful progress advancing our revenue diversification strategy, targeted print categories, including packaging, in-store marketing, experienced net sales growth and direct mail performed well above our 2025 expectations, primarily due to higher volumes and strong operational efficiencies. Our Betty Creative and Rise Media agencies also produced highly visible work for leading brands like Aldi, Natural, CLR and Gallo.

Our 2026 financial guidance, which Tony will walk through reflects this continued progress and remains consistent with our expectation to return to net sales growth by 2028. I'm also pleased that Quad's strong balance sheet and disciplined approach to managing the business have enabled the company to increase its quarterly dividend by 33% to $0.10 per share or $0.40 per share on an annualized basis, underscoring our focus on creating long-term shareholder value.

Moving to Slide 4. Quad's integrated marketing platform encompasses all the resources brands and marketers need to strategize, plan, create, deploy measure and optimize their marketing efforts across all media channels from household to in-store to online. We do this through our MX solution suite, which seamlessly integrates creative production and media solutions across physical and digital channels. Supported by data-driven intelligence and state-of-the-art technology, these scalable solutions are tailored to eliminate friction at any point along the marketing journey.

While our products and services are organized into distinct solution suites, they are intentionally designed to function together. This integration is a significant competitive advantage for Quad as it creates a unified ecosystem that improves marketing performance for clients. One area where this integration is delivering results is direct mail, a critical tactic under the broader umbrella of direct marketing.

On Slide 5, we highlight our direct marketing agency, which we formalized in 2025. The agency provides an improved marketing experience for mailers by combining strategy and planning, audience identification and activation, creative, production and measurement services. Our DM agency leverages Quad's proprietary data stack, which we use to generate targeted highly responsive audiences. Clients also benefited from premarket testing services that validate content and designs before a single piece is printed or campaign is deployed.

Uniting these often siloed services with our robust manufacturing platform enables Quad to scale personalized direct mail building on the strong DM sales momentum we gained in 2025. On Slide 6, we highlight our work with Heartland Dental, one of the largest dental support organizations in the U.S. as an example of how we are helping clients modernize the direct mail channel. Heartland Dental relies on printed direct mail as a proven growth driver and is working to improve efficiency and effectiveness by moving from broad geography-based mailings to more targeted outreach aligned with our high-value patient segments.

Since winning the business in the fourth quarter of 2025, Quad has partnered closely with Heartland Dental to establish the foundation for long-term success. The team is focused on understanding objectives, assessing creative and performance and delivering postal optimization. We are developing a structured test and learn strategy designed to improve return on investment per mail piece rather than just simply minimizing cost per piece. Using our accelerated marketing insights, premarket testing, we are optimizing legacy creative while utilizing Quad's market-leading personalization platform to generate new one-to-one dynamic content.

As the partnership matures, Quad plans to introduce more advanced household level targeting using our proprietary data stack. This will enable the client to shift spend toward higher-value growth audiences in key geographies and -- in parallel, Heartland Dental is using Quad's at-home Connect platform to run automated trigger-based direct mail. On the production side, Quad is looking to deliver a 7-figure postal savings for the client in the first year of our partnership by leveraging USPS' promotions and our postal optimization services creating capacity for reinvestment into Heartland Dental's growth strategy.

Turning to Slide 7. We continue to invest in scaling creative and media capabilities through our Betty and Rise agencies. To support increasing client demand, we recently announced new offices in Austin, Texas and Mexico City, Mexico. The Austin office is a full-service studio, while our Mexico City office opening later this quarter, will bring Rise media experts and Betty creatives together to support clients with strength in retail, grocery and packaging design.

As our agency footprint grows, so does our ability to win larger integrated assignments demonstrated by recent wins with premier brands like Scandinavia designs and Valvoline Instant Oil Change. On Slide 7, we highlight our newest integrated agency client, the Gorilla Glue Company, a leading manufacturer of tough adhesives and adhesive products. Last year, Gorilla Glue hired Betty to develop a scalable creative platform for use across the brand's broad product portfolio.

The resulting campaign, which launched last month, combines real actors and product demonstrations with a hyper realistic brand character created with advanced generative AI and CGI technology. This blended approach demonstrates how Betty applies AI to unlock new creative possibilities while remaining authentic and relatable. While Betty developed the campaign, the Gorilla Glue Company worked with industry analysts from Excel Partners Group to search for a new media agency. As a result, the client named Rise as its media agency of record for both Gorilla Glue and [indiscernible] skincare brand.

Rise now leads the brand's integrated media strategy, planning, buying and measurement across all digital and traditional channels. Morgan Roberts, VP of Brand Management at the Gorilla Glue Company said, -- in Betty, we see just not an agency, but a creative ally that can help us bring bold ideas to life in a way that feels authentic to the brand while helping move it forward. Rise should offer its ability to bring rigor accountability and clear measurement to our media approach, helping us connect more effectively with DI wires, professionals and everyone in between.

Looking ahead, future campaigns for this client's brands will be empowered by Quad's proprietary data stack to identify and activate the highest-value audiences for its products. With creative and media working in close coordination, Rise's audience insights and experiential media planning will inform Betty's creative strategy. This consolidated partnership streamlines execution, reduces handoffs for the client and reinforces Quad's integrated model for delivering scalable, high-performing marketing programs.

Transitioning to Slide 8. Quad is increasingly applying its integrated solutions to support emerging consumer packaged goods brands looking to scale their presence across big box retailers. Our extensive manufacturing and structural design capabilities enable us to execute rapid market entry while offering a wide array of displays that capture consumers' attention and educate them on product benefits. With decades of experience serving some of the biggest U.S. retailers, we know how to adjust an in-store deploys designed to meet a particular chain's distinct environments and merchandising requirements.

This helps CPG brands scale quickly by introducing modified and adaptive displays to new retailers. We provide an example of this execution on Slide 9 with [ Pura, ] a fast-growing smart home fragrance company, which engaged Quad to support the brand's largest in-store retail promotion to date. Quad was involved from the outset providing integrated support across concept development, structural engineering, print production and distribution.

This early integrated involvement enabled a cohesive solution rather than a series of disconnected offerings. To translate [ Pura's ] premium sensory brand into a high-traffic retail setting Quad designed a custom end cap that elevated a standard retail fixture into a home-inspired brand moment. The display featured a custom engineered diffuser that allow shoppers to experience Pure's fragrances, while maintaining display integrity and product security.

After the retailer awarded Pure more shelf space, Quad designed an additional side cap display with complementary look and feel. We continue to partner in all the brands in aisle displays as well as new end cap opportunities with that retailer, and we have since deployed similar Pure displays across multiple national and regional retailers.

Turning to Slide 10. In support of Quad's ongoing evolution as a company that solves marketing complexity at scale, I am pleased to share that we have expanded Dave Honan's role promoting him to President in addition to his ongoing responsibilities as Chief Operating Officer. Since joining Quad in 2009, Dave has been instrumental in strengthening our operations, margins and performance discipline. The Board and I have deep confidence in his ability to continue to drive day-to-day execution across the company. Dave and I have worked closely together for 17 years, developing a trusted, highly effective partnership grounded in a shared vision and strategy for Quad.

We remain committed to continuing to build our Quad's 55-year legacy of excellence. As CEO for the past 4 years, Dave has done an excellent job overseeing operational leadership for our manufacturing platform. In his expanded role, he now extends its operational focus to the entire company. This leadership structure allows me as Chairman and CEO, to remain deeply focused on long-term strategy, innovation, partnerships and stakeholder relationships. I look forward to leading Quad flat for many years to come, and I'm extremely optimistic about what we are all building together, a company that helps brands connect with people and smarter more meaningful ways rooted into a values-driven culture that is focused on creating a better way and acting with a soul every day.

Alongside this evolution, our executive leadership structure, we've taken additional steps to reinforce alignment deeper within the business. As shown on Slide 11, we have strategically aligned our marketing and sales functions under 1 leader, Executive Vice President and Chief Revenue Officer, Julie Currie. This new structure creates an even stronger connection between the company's marketing efforts and business growth priorities, helping ensure our brand demand and go-to-market activities are tightly linked to prioritize revenue generation.

We want to take a moment to thank Josh Golden, Quad's former Chief Marketing Officer and wish him well as he pursues a new career opportunity. Since he joined Quad in 2021, Josh played an essential role in elevating our brand identity as a marketing experience company and in building a strong marketing organization that will contribute to our growth into the future. We appreciate Josh's many contributions to Quad.

Turning to Slide 12. Quad continues to make targeted investments in artificial intelligence to drive both cost efficiency and revenue generation. Internally, AI-powered automation is improving productivity across recurring labor-intensive workflows and like scheduling, job ticket creation and automated planning for machine maintenance. Externally, Quad has infused AI across our MX solution suite to drive clients' marketing efficiency and effectiveness.

For example, we continue to scale usage of AI capabilities within our audience Builder platform, underpinned by our proprietary data stack to accelerate the creation of faster, more precise audiences for clients. Rise has adopted a new agency operating system that uses AI-powered optimization and agentic AI tools to provide automated reporting with advanced measurement and insights. In addition to Betty's use of AI and creative campaigns, Betty Studios is blending synthetic and traditional photography to produce high volumes of creative assets faster and more cost effectively for clients.

Moving to Slide 13. In Q4, we completed the integration of [ Andrews ] co-mail volume and high-density capabilities. Our postal optimization platform now has significantly expanded mail pool sizes and improve sortation levels, generating greater savings for our clients with postage remaining mailer single largest cost to manufacture and deliver printed marketing materials representing up to 70% of costs Quad's ability to maximize postage savings is critical to maintaining print's value in the marketing mix. As such, we remain focused on adding volume into our co-mail pools by growing our third-party co-mail partnerships.

In April, Quad will hold its 25th postal conference. This one-of-a-kind industry often will feature discussions with quad postal experts, clients and USPS leadership, including Postmaster General and CEO, David Steiner. I look forward to using this opportunity to share more about our postal optimization solutions with clients while collaborating on how to best address ongoing challenges in the postal landscape.

Transitioning to Slide 14. I would like to recognize our employees and thank them for their continued commitment to work. Their innovation and collaboration have created a unique company culture at Quad, which was recently recognized by 2 high-profile media outlets. Forbes named Quad to its inaugural list of Best Employers for company culture. And [ Digit A ] named Betty Agency, the best hybrid work environment as part of its work life awards.

These honors reinforce Quad's ability to attract and retain top talent, which is critical to our long-term growth. Before I turn the call over to Tony, I would like to recognize a really important transition in our manufacturing network. After more than 35 years in Upson County, our plant outside Thomaston, Georgia is wrapping up production and will close in early March.

I want to express our deep, deep appreciation to the employees there. Their dedication, craftsmanship and pride in their work have been central to our success for decades. I also want to thank the Upson County community for its long-standing partnership and support. As we close this chapter, we do so with gratitude for everything we accomplished together and for the legacy that remains.

With that, I'll turn the call over to Tony.

Thanks, Joel, and good morning, everyone. On Slide 15, we show our diverse revenue mix Net sales were $631 million in the fourth quarter of 2025, a decrease of 5.7% compared to the fourth quarter of 2024, when excluding the divestiture of our European operations. For the full year, we achieved our public guidance range with net sales of $2.4 billion in 2025, a 4.8% decline in 2025 compared to 2024, excluding the European divestiture. The decline in our full year net sales was due to lower paper sales, lower print volumes and lower logistics and agency sales including the loss of a large grocery client in 2024, which annualized at the beginning of March 2025.

Comparing our net sales breakdown between 2024 and 2025, and our revenue mix as a percentage of total net sales increased in our targeted print offerings of direct mail, packaging and in-store as well as in our QuadMed employer sponsored health care business. These increases were offset by expected declines in the print product lines of magazines and catalogs and also logistics, which is correlated with print volume declines.

Slide 16 provides a snapshot of our fourth quarter and full year 2025 financial results. Adjusted EBITDA was $55 million in the fourth quarter of 2025 as compared to $63 million in the fourth quarter of 2024. And on a full year basis, adjusted EBITDA was $196 million in 2025 and compared to $224 million in 2024. The decrease in adjusted EBITDA in both periods was primarily due to the impact of lower net sales, increased investments in innovative offerings to drive future revenue growth and the divestiture of our European operations, partially offset by lower selling, general and administrative expenses and benefits from improved manufacturing productivity.

Adjusted diluted earnings per share was $0.36 in the fourth quarter of 2025 and which was consistent with the fourth quarter of 2024. And full year 2025 adjusted diluted earnings per share was $1.01 and an increase of $0.16 or 19% from 2024 due to higher adjusted net earnings and the beneficial impact of a lower share count due to stock buybacks. Beginning in 2022, we have repurchased 7.4 million quad shares at an average price of $4.11 representing approximately 13% of our total outstanding common stock as of that time. This includes 1.5 million shares at an average price of $5.40 for $8 million during 2025.

Quad's Board of Directors authorized a share repurchase program of up to $100 million of our outstanding Class A common stock in 2018. As of December 31, 2025, and there was $69.5 million of authorized repurchases remaining under the program. We expect to continue to be opportunistic in terms of our future share repurchases. Free cash flow was $51 million in 2025 as compared to $56 million in 2024. The $5 million decline in free cash flow was primarily due to a $17 million decrease in net cash provided by operating activities, mainly driven by timing of working capital partially offset by a $12 million decrease in capital expenditures. As we have previously shared, we will continue to generate proceeds from asset sales in addition to the strong free cash flow generated by our large printing operations, as shown on Slide 17.

We generated over $870 million of free cash flow and proceeds from asset sales from 2020 to 2025, including $88 million during 2025. These asset sales include divestitures of certain noncore portions of our business as well as sales of property, plant and equipment from closed facilities. During 2025, we completed the sale of our European operations to QuadMed and we also sold 5 buildings, including the Greenville, Michigan production facility and an ancillary building in Sussex, Wisconsin during the fourth quarter of 2025.

We will generate future cash proceeds from buildings we currently have for sale in Waukee, Iowa and Thomaston, Georgia. This strong cash generation fuels our balanced capital allocation strategy as shown on Slide 18. We while maintaining low net debt leverage of 1.57x as of December 31, 2025, we deepened our postal optimization offering through the April 2025 acquisition of the [indiscernible] and invested $45 million, representing approximately 2% of our net sales in capital expenditures for growth, automation and maintenance of our offerings.

We also provided $22 million of shareholder returns in 2025, including $14 million of cash dividends and the earlier mentioned $8 million of share repurchases. In the first quarter of 2025, we increased dividends by 50% to $0.075 per share quarterly -- and as announced last week, our Board of Directors approved increasing dividends by another 33% to $0.10 per share paid quarterly or $0.40 per share on an annual basis. The 2026 dividend approval represents a sustainable $5 million increase in expected cash dividend payments in 2026 compared to 2025. We are pleased to return capital to shareholders through the quarterly dividend and opportunistic share repurchases. We show the results of our multiyear debt reduction strategy on Slide 19. During 2025, we reduced net debt by $42 million and from 2020 to 2025, we used our strong cash generation to reduce debt by $726 million, a 70% reduction from over $1 billion of debt on January 1, 2020.

The Slide 20 includes a summary of our debt capital structure. During 2025, we were pleased to add Flagstar Bank, 1 of the largest regional lenders in the country to our bank group of 12 premier institutions.

At the end of 2025, our debt had a blended interest rate of 7.0% and our total available liquidity, including cash on hand, under our most restrictive debt covenant was $299 million. Our next significant maturity of $205 million is not due until October of 2029. Given uncertainty regarding interest rates, we hold 4 interest rate swaps with notional value of $130 million and 1 interest rate collar agreement with notional value of $75 million. Including all interest rate derivatives, we have 58% of our interest rate exposure caps and with the interest rate collar, we would pay lower interest expense on approximately 62% of our debt if interest rates decline.

During the fourth quarter of 2025, we completed an annuitization of a portion of the defined benefit single employer pension plan as shown on Slide 21. We annuitized $96 million of pension liability, representing 32% of the single employer pension obligation as of the time of annuitization with a $94 million distribution from the pension plan assets. This represented the pension obligations to 6,200 or 65% of the pension plan participants. We incurred a noncash settlement charge of $13 million with the annuitization. As a reminder, we acquired the single employer pension plan along with 2 multi-employer pension plans and other post-retirement obligations as part of the acquisition of World Color Press in 2010, totaling $533 million of net obligations as of the acquisition date.

Since the acquisition, we have made cash contributions to these plans and taken other actions, such as the pension annuitization to reduce the net obligations by $491 million and improve the funded status of the qualified pension plan to 91% funded. As of December 31, 2025, only $42 million of net pension liability remains. We share our 2026 guidance as shown on Slide 22, and I'm pleased that our 2026 guidance represents another step on our way to our 2028 outlook for revenue growth.

We expect 2026 net sales to decline 1% to 5% compared to 2025, excluding $23 million of 2025 net sales from the divestiture of our European operations. The 3% decline at the midpoint of the 2026 guidance range represents continued sequential improvement from year-over-year net sales declines of 9.7% in 2024 and 4.8% in 2025 and when excluding the impact of the European divestiture. With our typical seasonality, net sales are expected to be lower in the first half of 2026, followed by higher net sales in the second half of the year during our seasonal production peak.

Full year 2026 adjusted EBITDA is expected to be between $175 million and $215 million with $195 million at the midpoint of that range being essentially equal with the 2025 adjusted EBITDA of $196 million. We expect adjusted EBITDA to follow the same seasonal pattern as net sales. Our adjusted EBITDA margin is expected to increase by 30 basis points from 8.1% in 2025 to 8.4% in 2026 due to continued disciplined cost management and changes in revenue mix. We expect 2026 free cash flow to be in the range of $40 million to $60 million with $50 million at the midpoint of that range also essentially equal with the 2025 free cash flow of $51 million. we expect increased net cash from operating activities due to higher cash earnings and timing of working capital to be offset by higher capital expenditures.

In 2026, free cash flow was expected to be weakest in the first quarter due to the timing of investments in our people in the form of annual bonuses and 401(k) matching payments as well as the timing of working capital. As a reminder, the company historically generates the majority of its free cash flow in the fourth quarter of the year. With the expectation for strong cash generation, we plan to increase our growth investments while maintaining low debt leverage. Capital expenditures are expected to be in the range of $55 million to $65 million, approximately $15 million higher than 2025 at the midpoint of our 2026 guidance range, as we continue to invest in growth and automation, both in our print platform as well as in our service lines, including in-store Connect by Quad.

In addition, our net debt leverage ratio is expected to decrease from 1.7x at the end of 2025 to approximately 1.5x by the end of 2026 and achieving the low end of our long-term targeted net debt leverage range of 1.5x to 2.0x. As a reminder, we may operate above this range at certain times of the year due to the seasonality of our business. We are closely monitoring the potential impacts of tariffs and inflationary pressures on our clients in addition to postal rate increases, which could affect print and marketing spend. We will remain nimble and adapt to the changing demand environment while following our disciplined approach to how we manage all aspects of our business, including treating all costs variable, optimizing capacity utilization and maintaining strong labor management. As part of these actions, we announced the closure of our Thomaston Georgia print plant in the fourth quarter of 2025 and anticipate operations ceased by the end of the first quarter.

Slide 23 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build our momentum as a marketing experience company. We continue to expect the rate of net sales decline to improve as it has since 2024 and then reach an inflection point of net sales growth in 2028. We are strategically investing for the future as we expect growth in our integrated solutions and targeted print offerings to outpace organic decline in our large-scale print product lines.

Excluding the large-scale print product lines of retail inserts, magazines and directories, we anticipate the business to grow at a 3% CAGR through 2028. In addition, by 2028, we expect to improve adjusted EBITDA margin to 9.4% and are planning to achieve progress towards that goal in 2026 by improving the adjusted EBITDA margin 30 basis points. We then anticipate reaching low double-digit adjusted EBITDA margins in the long term as our net sales mix of higher-margin services and products increases while continuing to improve manufacturing productivity and reduce costs.

Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 26% based on our 2026 guidance to 35% by 2028, and and the 40% in the long term, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments. Finally, we continue to expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy.

We believe that Quad is a compelling long-term investment and we remain focused on achieving our financial goals and providing strong shareholder returns, including the recently increased quarterly dividend of $0.10 per share payable on March 13, 2026, to shareholders of record as of February 27, 2026.

With that, I'd like to turn the call back to our operator for questions.

[Operator Instructions]

The first question comes from Kevin Steinke with Barrington Research.

I wanted to start off by asking about direct mail, you mentioned that direct mail outperformed your expectations in 2025, I believe. And you talked about the strong momentum in that targeted print category, your direct marketing agency. So -- maybe any more commentary on growth trends and kind of how you see that momentum carrying into perhaps 2026 and beyond.

Yes. I think it's also a chance for you to clarify the difference between DM, meaning direct mail, the product and DMAOR, the agency. So DM direct mail is sort of the letter shop kind of letter-based mail that you'll get -- and predominantly, over the course of time, a lot of it has been very generic direct mail where it's the same thing to everyone where Quad really likes to play is becoming much more personalized, driving data to increase responsiveness. And so the difference between sort of a generic letter piece and a very data-driven letter piece means a much, much higher response rate and in a relatively great response rate to the rest of the media world when you think about mix across all channels.

And so that's something that people sort of sometimes don't realize that this is a very responsive channel, and we're also getting people like [indiscernible] to reenter the direct mail space because of the responsiveness. And so as the -- when we think about the DM ALR, the agency around direct mail that's the ability to tap into all the stuff that we talk about generally in our agency solutions, which is the data stack to help find that audience and become much more targeted. And because it's very household centric, the data stack is with the personalities of the household, that becomes a really powerful combination with direct mail, the product that goes into the mailbox.

And so as we think forward, the more we kind of help people as an agency for DM creating innovation and taking the use of direct mail to a whole different level. we think that there'll be plenty of other combinations that make sense such as linking those efforts with things like in-store connect for advertisers or other types of marketing. And so that approach is really helping drive people towards us, but also creating direct mail where there was in direct mail and so we're excited about the approach that Scott and his team have taken and really excited about the actual sort of learnings that are happening real time and resulting in real numbers.

Yes. Okay. That's good to hear. I wanted to also ask about just the postal service had put off the postal rate increase that normally would have gone in, in January on certain categories, which I believe included catalogs -- and I think it sounds like longer-term catalog could be a really integral part of a client's marketing outreach. So have you seen any greater uptake in terms of catalogs or other channels due to the delayed postal rate increase, acknowledging the fact that rates are still up significantly over the last several years.

Look, I'll answer that specifically, but also more generally as it relates to what's going on with the post office because I think you know that it's 1 of my sort of favorite things to [indiscernible]. As a reminder, Postal is about 70% of the direct mailers spend. And when we talk about co-mail and all that stuff, that's our ability to work share with the post office to create much more efficiency for them which then results in great significant savings for our clients because they offer discounts if you make it more efficient.

Until 2021 for over a decade, the post office was required to stick to the change in CPI as their rate increase every year. And so that created not only predictable models but really stayed in tune with how the rest of the world works because inflation is, in fact, kind of a measurement of what goes on in the pricing world for products and services. And so what they did the previous Postmaster General in 2021 post the pandemic, they were given the authority to go above that to try and fix some of the problems they have. And so what they proceeded to do was aggressively use that authority. They started increasing twice a year, once at the beginning of the year and once in the mid-time part of the year, averaging over 35% greater than inflation.

Now in any industry, if you're going to significantly increase your biggest cost by 35% over inflation over a period of years, everyone would see an increase in decline. And so what's happened here, catalog has always been a very responsive mechanism. There's a whole industry around it. And there is people who are specific to catalogs and then there's a whole lot of marketers who use catalogs as a part of the media mix. We have seen accelerated decline during that period. Now the new Postmaster General, everything that we see and hear is that he'd like to change the philosophy to more of a growth philosophy. -- because raising rates, by the way, in those time period did create more revenue and they claim success with that, but that's not true growth. That's pricing used to increase revenue, which then in the following year, creates a significant decline in the volume.

And then you have to raise revenue again or rates again to try and keep that revenue flat. It's kind of a spiral. And the new Postmaster General indicates that he would like to kind of think differently about the post office writ large with the growth mentality. And the evidence of that was that he did forgo an allowed increase in January. That being said, they're still on target for an increase in the second half of the year. And specific to catalogs, they did implement a test period, which allowed them to offset last year's midyear increase, but that's set to lapse. And it won't prove to be successful in driving volume because that 35% average over the rate of inflation over a period of many years, created the cost baseline that is so far ahead of where it should be, that it hasn't been able to instigate growth like we would like.

And the biggest part of catalog that's been impacted would be in prospecting mailing where they're using the catalog to try and gain new customers. That's where you're not already having a transactional relationship with someone. Therefore, the responsive rate versus the customers' catalog that you said would be significantly lower. But it's still effective in driving volume. But if your cost is so far above where the baseline should be people, that's where you see a lot of the volume hit catalogs. So specific to your question, we haven't seen growth in catalogs. We've seen further decline because that baseline is so outpaced inflation but we've done a significant job of helping offset that, though, this past year with the [ Andrew ] acquisition. So we've had over a 50% increase in our multi-mall volumes, which means that much more mail gets exposed to potential discounts.

We've had a 3x improvement in enhancing carrier route density levels, which is -- speaks to discounts. And we've had over a $0.075 plus postal savings per piece for enhanced carrier routes. So all in all, what that means is we've at least been able to try and offset the damage they've done. What I'm looking for what I'm hoping for is a realization that they have to spur growth through creating a more significant discount opportunity specifically for prospective mailing and hold off on trying to kill the category with significant increases. I know that's a very long-winded answer -- but I think it's really important for all constituents on the phone to understand that part of what's going on.

That's great. Absolutely. I appreciate all the insight there. I just want to ask you also about any updates on in-store connect in terms of the pipeline there or further store deployments in the works? And maybe where you stand at in terms of how much you've rolled that out currently? .

Yes. We've learned a lot in the last year of trying a whole new category, which, as you know, is a bet we're making that in-store media that everyone in the specifically grocery space, but retail in general, talk about activating -- and the challenge is it affects every part of a retailer's business, whether it's merchandising media selling, how the experience is through the store. So it involves every part of a company's organization which, for us, was a learning that it's going to -- it takes longer for people to be able to execute and make a decision on this. That being said, we've seen an acceleration in conversations as well as opportunities and increases in accounts that we're going to be doing and some new exciting opportunities that we'll be turning on in the near future.

So I'd say that -- there continues to be what we believe is there there in in-store media as a new medium to be activated. And it's again about getting to as many eyeballs as you can so that CPGs want to make it a regular part of their budget. And so we're sort of full steam ahead here. Again, we've learned a lot that it takes a little bit longer for organizations to navigate it, but it hasn't changed for the interest that we're seeing out there. .

And Kevin, I'll just add, we've reserved capital in our CapEx guidance for 2026 for growth here in [ ICQ. ] So it's 1 of the primary drivers behind the increase in CapEx between years. .

Okay. That's helpful. Yes, go ahead.

And speaking to CapEx, in addition to that, we have money reserved for some other growth initiatives that were in the planning process of but not ready to talk about. -- but we think we'll be worth the spend.

Okay. Great. Just a couple more here on the financial side of things. When we look at the guidance ranges provided for 2026, as you noted, the midpoint implies a continued improvement in the sales trend over the previous 2 years. Just kind of curious, as you think about those ranges for sales and adjusted EBITDA. What are the factors you're thinking about in terms of maybe higher end versus lower end of those ranges as 2026 progresses? .

Yes, I'd say that, again, the -- on the sales side, I'll cover that, which is a little bit to what I talked about is to what degree does some of the decline that we plan for and know how to manage to what degree does Postal impact that, that could either create a higher opportunity or a little bit lower in that category. -- but then to the degree at which we continue to see momentum of direct mail in store as well as packaging, which have all been feeling good and looking good. .

Yes. I think those targeted print categories, we've said this since our Investor Day in '24. They're at a higher margin profile than our large-scale print offerings. So as the mix continues to evolve towards targeted print that will help lift our margins, which is what we're seeing this year. And then we're going to continue to watch, obviously, the cost side closely and have demonstrated actions towards that effect.

Okay. Great. And then just lastly, maybe a question about capital allocation. You continue to be at or near the low end of your targeted leverage ratio range, and it's really nice to see the significant dividend increase you announced? Should we just think about capital allocation going forward, continuing to be pretty balanced. You mentioned share repurchases. Are you still looking for maybe tuck-in acquisition opportunities or any other things you'd want to touch on, obviously, organic growth investments as well. But .

Yes, Ken. I think overall, the message for 2026 is similar to 2025. We'll look at -- if a tuck-in acquisition fits and meets our parameters, that is possible. CapEx remains important. Joel talked about not only ICQ but other growth that we could put money towards -- we do believe in providing a strong return to shareholders. We are proving out, getting towards that 2028 flip. And in the meantime, we want to reward our shareholders for being long term and part of this.

So that's where the stock buybacks and the dividend come in. And then maintaining low debt leverage, we still think is is very prudent in this cycle to make sure we can weather any storms but also be available for -- have cash available for any opportunities that present themselves. So I would expect a similar type of mix and what we did in 2025.

Our next question comes from Barton Crockett with Rosenblatt Securities.

Let me see, just stepping back to the environment. You've given your guidance range for the year. Can you give us some sense of how we're starting in the first quarter relative to your metrics that you put out there, particularly revenue?

Yes. I mean first quarter, as we said in our prepared remarks, that's a lower volume quarter for us, especially compared to the back half of the year. I think we've started out on track with what we expected and seeing decent volumes here in February so far as well. So I feel like we're on track. .

And I'd add that sort of some of the noise of past year with things like tariffs and all that stuff. You sort of feel like people are a little more confident in their decisions. which is a good thing. And so we're seeing some reinvestment.

Which is interesting because some of the commentary out there, particularly Pinterest was talking about marketing pullback by large retailers. You guys aren't seeing anything like that is what you're telling us. Is that correct?

Well, it's again, as I said last year, it's situational. But no, we -- I can say that so far, we haven't seen like significant pullback. And again, I think that in our media channel, it's been a tried and true channel for them that they know very well for many, many years. and some of the pullbacks that they've done, like 1 of the areas that got pulled back over time, and we've said this would happen is retail inserts, that a lot of the big box guys are already sort of kind of pared that back significantly, where it remains actually relatively strong is in things like grocery.

And so some of the shifts that have happened in our media channels have already kind of -- some of them have played out a little more than maybe some of the stuff that's kind of rejiggering around in the bigger media mix. So at this point, again, situationally some are better, some are worse. But again, I think that because of the channels we're in, if anything, we're seeing people want to get more help in some of the ways to market and how to use audience better linking our channels to other channels and interest in things like ISC Q because part of the challenge in digital, too is, overall, people are seeing a lot of I guess, crowded nature of the channel. And in some cases, you start to see lower responsiveness.

So people are always jiggering around how do they get more responsiveness. So I think certainly, with things like AI you're probably able to analyze it even better of what's working and what's not these days. and that's the quest that people are on. So will we see some other stuff as we get to the seasonally busy part of the year. Typically, at this point, we wouldn't see that from the clients.

Okay. Now 1 of the things also you touched on postal, I want to make sure I understand what you have visibility into and what's still unknown. So you have visibility into January postage but is this still unknown what's going to happen midyear? .

Works -- I think the industry is basically accepting or expecting an increase of somewhere in the 6% to 8% range mid-year which, again, 1 of the things that happened a couple of years ago is when they surprised everybody outside of the budgeting process. The good news is that at least people have been expecting this again, aspirationally, they prefer further incentives to try and increase mail. But I think that, that 1 is kind of built in.

Okay. So is it your view that it's unknown what the longer-term trajectory is? Or does it feel likely to you that we're kind of stay somewhere in this 0% to 8% kind of range.

That's the big question, right? You have a new regime in and there's a lot of pressure on the post office to fix itself. You'll probably see the Postmaster General. My understanding is we'll be up in front of Congress pretty soon to talk about operational issues, but he's also trying to implement sort of continuation of some of the old strategy but trying to pivot them to growth. And you can't do that unless you sort of tackle the ability for customers to pivot to growth, i.e., pricing. And so that's the part I'm really watching closely, but we don't have full visibility to at this point.

Okay. All right. And then just 1 other category. I was kind of curious about the question, which is -- there's been tremendous kind of uptake among performance marketers in some of the end-to-end kind of digital Performance Max kind of black box give you an outcome online digitally solutions that are driven by scale by people like Google tied into their search and [ U2 ] properties. That seems to be an area of increased focus for performance marketers. I'm just wondering if that's creating some competitive pressures for you guys in rise and then your push into your kind of angle on performance. .

Yes. Well, look, we're using all of the channels for it. And within digital, we're using Google. We're using YouTube. We're using all those different services to place ads. I think that the challenge people are trying to tackle is the integration of how does it all work together. So I always talk about integration, I talk about all channels, but even within digital, people are trying to understand when I spend on Pinterest versus Facebook, what happens. I've heard varying accounts depending on the category of like how responsive really is Facebook in our advertising spend. I've heard opposite. So it's like the biggest issue people are trying to drive to is understanding when I spend in digital, where should it be and what is the true measurement. And that's what we're trying to provide them. And that, for us, has been opportunity.

This concludes our question-and-answer session. I would like to turn the conference back over to the management for closing remarks. .

Thank you, operator, for joining -- and everyone, for joining the call. I want to close by reiterating that Quad remains committed to our strategic vision, leveraging our integrated marketing platform to drive diversified growth improved print and marketing efficiencies and create meaningful value for all stakeholders.

With that, thank you again, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to Quad's Third Quarter 2025 Conference Call. [Operator Instructions]

A slide presentation accompanies today's webcast. The 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.

[Operator Instructions] Please note this event is being recorded. I will now turn the conference over to Katie Krebsbach, Quad's Senior Manager of Investor Relations. 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 third quarter and year-to-date 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 2.

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 net 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 Investors 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 results met our expectations, and on Slide 3, we outline key highlights from our third quarter and year-to-date performance. We continue making targeted investments in AI-powered tools and systems, data and audience intelligence services and our In-Store Connect retail media network.

These investments, combined with our creative marketing services and premier print platform, fortify Quad's differentiated strengths as a marketing experience company that simplifies the complexities of marketing for brands and marketers. They also advance our revenue diversification strategy, which aims to return Quad to net sales growth in 2028. Quad's continued strong balance sheet and our disciplined approach to managing the business have enabled us to return $19 million of capital to shareholders year-to-date.

Additionally, we are updating our full year 2025 guidance by narrowing our ranges for sales, adjusted EBITDA and cash flow, which Tony will walk through later. Quad's MX offering, shown on Slide 4, includes a suite of integrated solutions for creative, production and media backed by intelligence and tech across all digital and physical channels. As we invest in our growing solution set, we also continue to monitor macroeconomic pressures such as inflation, employment rates, tariffs and high postage costs, which may negatively impact our clients' mission-critical marketing plans.

Quad's overall supply chain continues to have limited direct exposure to tariffs. Our largest imports, the paper we bring in from Canada and the books we manufacture for U.S. clients in our Mexico facilities, are compliant under the USMCA and remain exempt from tariffs. However, tariffs have increased the cost of certain print-related materials such as ink pigments and plates. As a result, we have notified our clients that Quad will pass along these costs through a January 1 price increase, consistent with the rest of the industry.

During the third quarter, we did not see a significant pullback from clients due to tariffs. However, we are closely monitoring client actions given ongoing uncertainty around the macro environment.

With postage being now our single largest marketing expense, high postage rates continue to significantly impact our industry. However, marketers received positive news in September when the USPS announced that it would not issue a January price increase for market dominant mail, which includes magazines, catalogs and direct mail. This announcement comes at an important time for marketers as they formalize their 2026 media plans.

During the quarter, Quad leaders and I met with the USPS to have an open discussion about mailers' concerns. We presented data on a variety of topics, including how twice annual rate increases and inconsistent delivery service negatively affect our industry. We also discussed work sharing, whereby private sector mailers like Quad perform tasks that the USPS would otherwise handle in exchange for discounted rates.

The USPS has recently affirmed that this type of public-private partnership is critical to the postal landscape as it reduces operational costs for the government and lowers postage cost for mailers. I appreciate the USPS' renewed engagement with the mailing industry under the new Postmaster General and look forward to continued collaboration to keep print a vital part of the marketing mix.

We continue to deploy a strategic two-pronged approach to help clients mitigate the impacts of high postal rates. Our approach focuses on maximizing savings while increasing marketing effectiveness. To maximize savings, we provided clients with innovative postal optimization solutions.

Earlier this year, we expanded our co-mailing capabilities by acquiring the co-mail assets of Enru to support high-density presort levels, which generates additional savings through economies of scale. We also offer innovative bundling services like Household Fusion, which combines different mail pieces destined for a single household into one package for a discounted rate.

To drive marketing effectiveness, we create smarter audience segments and deploy personalized content. This ultimately yields a higher response rate and greater return on investment, which offsets the cost of postage.

Transitioning to Slide 5. Audience data is the lifeblood of today's marketing ecosystem. Quad is uniquely positioned to provide audience intelligence through our proprietary data stack, which is anchored in physical household-centric data. Our stack represents 92% of U.S. households and includes more than 20,000 addressable demographic, transactional, attitudinal and behavioral characteristics as well as hundreds of proprietary interests or what we call passions.

Addressable data enables precisely targeted marketing efforts that drive measurable results. Using our data stack, we create a single knowable audience that can be built and bought across multiple media partners, supporting physical and digital channels. This unified buying experience helps clients understand who they are targeting and where, breaking down the walled gardens put in place by other media platforms and thereby removing unintentional audience duplication. The biggest hurdle to scaling the application of our data stack has been the time and specialized knowledge required to interpret the relevant data for each particular use case.

During last quarter's earnings call, I shared the launch of Quad's Audience Builder, a proprietary platform that enables employees to easily access our data stack and create complex high-propensity audiences. I'm pleased to share that Quad has successfully integrated a generative AI chat feature into the platform, which provides an even faster and more effective way for our media strategists, analysts and planners to uncover consumer insights and design high-performing audiences. This new feature uses Cortex AI functionality from Snowflake, a leading cloud data platform, to interpret prompts, analyze stored audience attributes and enrich results with external demographic data.

Erin Foxworthy, Global Head of Marketing and Advertising at Snowflake, said, our collaboration with Quad is a testament to the power of AI to transform how marketers interact with their data. We're making it possible for brands to unlock sophisticated insights and act at them with speed and precision.

Turning to Slide 6. While the consumer journey today is more complicated and convoluted than ever, in-store shopping remains an important and engaging channel for our consumers. Recent research presented by Quad and conducted by The Harris Poll, one of the longest running surveys in the U.S., finds that 76% of Americans believe physical retail experiences help them connect more deeply with people and brands, and 86% of Gen Z and Millennials report that touching and feeling products are essential to their purchase decisions.

In the coming days, Quad will release results from The Harris Poll's follow-up survey that shows a significant consumer preference for in-person shopping during the holiday due to its ability to spur brand discovery and human connection. These findings underscore how tactile brand experiences remain essential to driving sales and strengthening brand loyalty, especially as new technologies like AI disrupt traditional marketing methods.

On Slide 7, we highlight how Favorite Child, the brand strategy and design practice within Quad's creative agency, is helping retailers like Aldi turn their private label packaging into powerful brand amplifier. With more than 2,500 U.S. locations, Aldi is widely recognized as the nation's fastest-growing grocery chain. Although 90% of its 3,000-plus products are private label, many shoppers don't realize these items are exclusive to Aldi. The retailer hired Favorite Child to address this lack of brand visibility, leading Aldi's largest packaging refresh to date.

To start, Favorite Child created Aldi's first-ever namesake brand, which puts its name on every product for recognizability and will replace many of the grocer's 90 previous brand names. The new Aldi packaging brand relies on a strategic design system comprised of flexible layouts, cohesive colors and bold fonts to balance brand consistency with eye-catching variety that pops on shelf.

In addition, Favorite Child is working alongside other creative agencies to refresh some of the grocery's most popular private label brands like Clancy's, Simply Nature and Southern Grove. The rejuvenated packaging will include the tag 'an Aldi Original' to strengthen the product's connections to the retailer's overall brand. Certain Aldi branded products are already on shelves and rollout will continue to scale throughout 2026.

Moving to Slide 8. We spotlight how In-Store Connect, our retail media network for brick-and-mortar stores, supports retailers and CPG brands by leveraging digital technology within the physical store environment.

During the quarter, we introduced advancement to our solution, including 3 new digital signage form factors, all which are designed to grab shopper attention and increase brand visibility. We continue to receive positive results from CPG campaigns, demonstrating the effectiveness of our in-store retail media network.

Earlier this year, we conducted a test and control study with multiple clients, including Procter & Gamble, PepsiCo and Nestle USA. The study tracked year-over-year brand sales lift across 4-week period with The Save Mart Companies. The results showed significantly higher sales lift in locations deploying our solution versus those without it.

Nestle USA deployed a campaign for DiGiorno frozen pizza and experienced a 23 percentage point sales lift in test stores versus control stores. PepsiCo used our retail media network to drive awareness of its new 6-pack Rockstar Energy drink and experienced a sales lift of 25 percentage points.

In high-velocity retail categories, achieving significant sales lift can be difficult, particularly for mature brands like Procter & Gamble. Using In-Store Connect to promote laundry products such as Tide, Downy and Bounce, P&G realized a sales lift of 8 percentage points.

With these strong results and growing pipeline of CPGs, we are optimistic about In-Store Connect's future growth. When clients integrate their marketing efforts, they improve business outcomes, accelerate their speed to market and realize cost efficiencies.

While traditional holding companies focus their efforts on individual agency capabilities, cobbling together businesses that operate in silos, Quad has structured our services to work harmoniously together, producing results greater than the sum of their parts. Throughout 2025, Quad has seen particularly strong momentum in our integrated approach to direct mail.

On Slide 9, we share an example of this through our work with one of the nation's largest auto insurers. Quad partnered with the client to relaunch its direct mail channel through a scalable data-backed strategy. Our end-to-end service model has helped the client modernize its direct marketing efforts with significantly condensing its number of partners compared to past programs.

Quad's support includes strategic guidance on the client's quarterly and annual DM plans; audience targeting for customer acquisition campaigns; DM creative design backed by Quad's proprietary accelerated marketing insights; premarket testing to connect the best content, creative and format; print execution through our state-of-the-art manufacturing platform; postal optimization services and guidance to maximize USPS discounts; and comprehensive analytics to fuel growth through test-and-learn tactics. The iterative nature of this approach conducted all under one roof has enabled the client to evolve its strategy over time based on consumer response rates.

With this strategy, we have helped the client successfully relaunch its direct mail channel, mailing more than 30 million pieces through the first 3 quarters of 2025.

Before I turn the call over to Tony, I would like to recognize our employees and thank them for their continued hard work during our traditionally busiest season of the year. Whether it's on the manufacturing floor, in agency services or anywhere in between, your hard work and commitment to innovation is helping solve client problems, drive diversified business and advance our long-term strategic goals.

With that, I'll turn the call over to Tony.

Thanks, Joel, and good morning, everyone. On Slide 10, we show our diverse revenue mix. Net sales were $588 million in the third quarter of 2025, a decrease of 7% compared to the third quarter of 2024 when excluding the 6% impact of the February 28, 2025, divestiture of our European operations. The decline in net sales during the third quarter was primarily due to lower paper sales, lower print volumes and lower logistics and agency solutions sales.

Net sales were $1.8 billion in the first 9 months of 2025, a 4% decline compared to the first 9 months of 2024 when excluding the 5% impact of the Europe divestiture due to the same factors as the third quarter and including the loss of a large grocery client, which annualized at the beginning of March 2025.

Comparing our net sales breakdown between the first 9 months of 2024 and 2025, our revenue mix as a percentage of total net sales increased 2% in our targeted print offerings, driven by growth in direct marketing, packaging and in-store.

Slide 11 provides a snapshot of our third quarter 2025 and year-to-date financial results. Adjusted EBITDA was $53 million in the third quarter of 2025 as compared to $59 million in the third quarter of 2024, and adjusted EBITDA margin improved from 8.7% to 8.9%.

On a year-to-date basis, adjusted EBITDA was $141 million in 2025 compared to $161 million in 2024 and adjusted EBITDA margin declined from 8.2% to 7.9%. The decrease in adjusted EBITDA in both periods was primarily due to the impact of lower net sales, increased investments in innovative offerings to drive future revenue growth and the divestiture of our European operations, partially offset by lower selling, general and administrative expenses and benefits from improved manufacturing productivity.

Adjusted diluted earnings per share was $0.31 in the third quarter of 2025, increased 19% from $0.26 in the third quarter of 2024. Year-to-date, adjusted diluted earnings per share was $0.65 in 2025, increased 33% from $0.49 in 2024. The increases are due to higher earnings, including lower restructuring, impairment and transaction-related charges, lower depreciation and amortization and lower interest expense, as well as the beneficial impact of share repurchases.

Free cash flow improved $5 million from last year to negative $87 million in the 9 months ended September 30, 2025. The improvement in free cash flow is primarily due to a $9 million decrease in capital expenditures, partially offset by a $4 million increase in net cash used in operating activities.

We show the seasonality of our free cash flow and net debt on Slide 12. Due to the seasonality of our business from the timing of holiday-related advertising and promotions, we typically generate negative free cash flow in the first 9 months of the year, followed by large positive free cash flow in the fourth quarter, resulting in reduced net debt at the end of the year.

For the remainder of 2025, we anticipate a similar seasonal pattern for our free cash flow and net debt, and we expect free cash flow in the fourth quarter to be in the range of $137 million to $147 million. When removing the impact of seasonality, our net debt has decreased by $25 million from September 30, 2024, to September 30, 2025.

Our free cash flow, in addition to proceeds from asset sales, fuels our capital allocation strategy, as shown on Slide 13. During the third quarter, we made additional progress on the sale of closed facilities, including the sale of our 2 buildings in Effingham, Illinois for $6.5 million. The geographic location and the length of the sales process resulted in a lower price per square foot compared to what we have received in previous real estate transactions.

We continue to expect to generate future cash proceeds from additional owned facilities that are currently for sale, including in Greenville, Michigan; Waukee, Iowa; and an ancillary building in Sussex, Wisconsin.

Our strong cash generation has enabled us to deepen our product offering through acquisitions, such as the co-mailing assets of Enru, maintain low debt balances and returned $19 million of capital to shareholders year-to-date through $11 million of cash dividends and $8 million of share repurchases.

This year, we increased the quarterly dividend by 50% to $0.075 per share, and our next dividend is payable on December 5. In addition, we repurchased 1.4 million shares of Class A common stock thus far in 2025. This brings total repurchases to 7.4 million shares since we commenced buybacks in 2022 or approximately 13% of Quad's March 31, 2022, outstanding shares. We believe this represents strong value, and we will remain opportunistic in terms of our future share repurchases.

Slide 14 includes a summary of our debt capital structure. In August, we were pleased to add Flagstar Bank, one of the largest regional lenders in the country to our bank group. With this addition, the aggregate outstanding principal amount of our Term Loan A was increased by $20 million and our revolving credit availability was increased by $15 million, further bolstering our liquidity.

At the end of the third quarter, our total available liquidity, including cash on hand under our most restrictive debt covenant, was $166 million, with our next significant maturity of $205 million not due until October 2029.

As a reminder, given uncertainty regarding interest rates, we entered into 2 interest rate collar agreements for $150 million notional value during 2023 with $75 million maturing on October 31, 2025.

Due to the upcoming maturity, during the third quarter, we entered into $80 million of interest rate swaps. Including these interest derivatives, at the end of the third quarter, our blended interest rate was 7.1%, and we would pay lower interest expense on approximately 70% of our debt if interest rates decline.

We update our 2025 guidance as shown on Slide 15. For net sales, we are narrowing the range and reaffirming the midpoint of our guidance. We now expect net sales to decline 3% to 5% or 4% at the midpoint compared to previous guidance of a 2% to 6% decline when excluding 2025 net sales of $23 million and 2024 net sales of $153 million from our divested European operations.

We are also narrowing adjusted EBITDA and free cash flow within our original guidance ranges. Full year 2025 adjusted EBITDA is now expected to be between $190 million and $200 million compared to previous guidance of $180 million to $220 million, while free cash flow is expected to be at the higher end of our original guidance range at $50 million to $60 million compared to previous guidance of $40 million to $60 million.

Capital expenditures are now expected to be between $50 million and $55 million compared to previous guidance of $65 million to $75 million as part of our balanced capital allocation strategy.

Finally, our net debt leverage ratio is expected to slightly increase from approximately 1.5x to approximately 1.6x by the end of 2025. This increase is due to cash used in the acquisition of the co-mailing assets of Enru as well as lower-than-expected proceeds received from the sale of the Effingham, Illinois buildings, partially offset by higher free cash flow at the midpoint of our updated guidance.

Our net debt leverage ratio remains near the low end of our long-term targeted leverage range of 1.5x to 2.0x. And as a reminder, we may operate above this range at certain times of the year, primarily due to the seasonality of our business.

We are closely monitoring the potential impacts of tariffs and inflationary pressures on our clients in addition to the recent postal rate increases, which could affect print and marketing spend. We will remain nimble and adapt to the changing demand environment while following our disciplined approach to how we manage all aspects of our business, including treating all costs as variable, optimizing capacity utilization and maintaining strong labor management.

Slide 16 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build on our momentum as a marketing experience company. Compared to net sales declining 9.7% in 2024, we continue to expect the rate of net sales decline to improve to negative 4% in 2025 excluding the Europe divestiture and then reach an inflection point of net sales growth in 2028.

We are strategically investing for the future as we expect growth in our integrated solutions and targeted print offerings to outpace organic decline in our large-scale print product lines.

Excluding the large-scale print offerings of retail inserts, magazines and directories, we anticipate the business to grow at a 3% CAGR through 2028. In addition, by 2028, we expect to improve adjusted EBITDA margin by at least 100 basis points compared to the 8.4% margin in 2024 and then reach low double-digit adjusted EBITDA margins in the long term as our net sales mix of higher-margin services and products increases while continuing to improve manufacturing productivity and reduce costs.

Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 28% based on our updated 2025 guidance to 35% by 2028 and to 40% in the long term, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments.

Finally, we continue to expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy. We believe that Quad is a compelling long-term investment, and we remain focused on achieving our financial goals.

With that, I'd like to turn the call back to our operator for questions.

[Operator Instructions] The first question comes from Kevin Steinke with Barrington Research.

I wanted to start out by talking about some of the trends you're seeing in your targeted print categories. You presented your normal slide showing that those targeted print categories continue to increase as a percentage of revenue. So I don't know if there's any in particular that you might want to call out year-to-date in what you're seeing in terms of uptake by clients and growth trends or growth rates.

Yes. No, that's a good question. I'd say just starting with catalog, which is in that, continues to be a bit muted because of the significant postal increase that happened in July. But when you look at -- direct mail is up year-to-date by like over 6%; packaging over 9% year-to-date; in-store, plus 11% year-to-date.

So again, these are areas where a lot of the approach we're taking and sort of the consultative approach with our clients are really working. And specifically, when you think about direct mail, that is really benefiting quite a bit from how we really push using the data stack and using data to really drive personalization, which thereby increases the responsiveness of it. And we're getting a lot of great new wins from that as well as customers growing their volume with us. And so yes, the direct targeted print area has some great story to it here.

Okay. Yes, that's helpful. So you mentioned there the postal increases impacting catalogs, but it sounds like a pretty significant piece of news that the postal -- U.S. Postal Services is putting off a price increase for some of your -- some categories.

I mean, how significant do you see that as being? And it just sounds like a lot more favorable environment for your clients. And I don't know if there's any early reaction you've gotten from clients and what that might mean for their future marketing campaigns.

Yes, it's certainly news well received, because that increase would be somewhere in the, I don't know, 5%, 6% range. And they've foregone that, which is great news. Again, the challenge, as I shared with the post office, is the last increase of 11% is on top of several years of significant inflation busting rates.

So if you look at from 2021, 2022 to today, while total inflation might be up in the 16-plus percent range, the rates on postal are up like 60%. And so, we're still going to be suffering from that because it just makes it very difficult to have the response rates make up for it.

That being said, we're very excited about what we've done with Enru, which is the co-mail acquisition we did. For a reminder, this is a third-party co-mailer that used to be a part of LSC that co-mail is not just for them, but also for the other printers throughout the industry to be able to aggregate enough volume to create discounts. And there's a slightly different philosophy that they had, which is trying to target high-density mailing, where we're more 5 digits.

So what's happened is, as we've rolled this out, we're experiencing pretty significant increases in discounts for our clients. I would tell you that in the first 3 or 4 cycles of this, the amount of stuff we got into high density, which you should translate into the next phase of discount, is quite a bit more than we originally anticipated.

And so it's always a little bit frustrating because we do all this work and spend this money investing in things like Enru to offset increases that probably shouldn't have happened. But the good news is the work we've done on Enru I think will -- combined with not having the increase in January, I'm hoping shows a little bit of a positive for customers as they go into the 2026 planning. And so we're watching them closely to see what happens as they put their '26 plans together.

Okay. That's helpful. I wanted to just talk about just some of the updated guidance ranges. Obviously, you narrowed the net sales comparable organic range to down 3% to down 5%. That still implies a fairly meaningful range of outcomes for the fourth quarter. So maybe just can you talk about what would kind of get you to the lower end or the higher end of the sales outlook for the fourth quarter or how you might have planned that from a scenario perspective?

Yes, I'll start. I'd say that the one area that can bounce a little more significantly is in the direct mail area as it's more transactional. And so, as people kind of get to the end of the year and they're looking at their budgets, they may shift some in or shift some out accordingly. So that's where sometimes you'll see a little bit more of variability as we get into the fourth quarter. A lot of the catalog stuff would already be kind of set. But Tony, maybe you can add on.

Yes. I think fourth quarter is a seasonally busy quarter for us, so it can be prone to a little more fluctuation. But as you saw, Kevin, we reaffirmed the midpoint at 4%. Year-to-date without Poland, we're basically at 4%. So we're indicating that the fourth quarter is going to end at about the same rate.

Right. Okay. Yes. Understood. And maybe just also touch on the adjusted EBITDA range. You narrowed that. The midpoint came down a bit, not a lot. But maybe talk about that. And then also the CapEx range came down in terms of what you're expecting to spend this year?

Sure. I mean the adjusted EBITDA range, the midpoint, as you pointed out, decreased from $200 million to $195 million, a relatively small shift in that adjusted EBITDA for the year. We're happy to be within the range, as we said in the scripted comments.

As you look at free cash flow, that's increasing $5 million. And due to lower capital expenditures -- we remain committed over the long term to put 2% of our revenue back into CapEx. We think that CapEx will shift over time from less large machines like some of the $15 million presses we bought over the years to more technology and automation focus for the floor.

But overall, right, we're still over 2% this year, even at the updated guidance 2.2% invested in CapEx. So that's lifting our free cash flow by $5 million at the midpoint.

Okay. Great. I also wanted to ask about In-Store Connect. Some continued exciting developments there. But just any update on the pace of deployment or pipeline of potential deployments. Obviously, you're getting some good data in terms of the sales lift. So how much is that peaking the interest of grocers or others who might want to deploy the offering?

Yes. It's a really interesting story because we were at a grocery shop in Vegas just about a month or so ago, and that's where all the CPGs and grocery retailers will be. And if I compare this year to last year, last year, it was a lot of people kicking tires and a lot of people kind of saying, "Yes, we know we sort of got to think about this, but we're doing work on that." And so it was very much like an investigative sort of approach.

This year, it was much more along the lines of "we got to get going with this" or "we are going with this." And with some of the existing customers we've rolled out with, we're talking about going to the next phase of rollout like we're doing with Save Mart, where we've gone -- we've already been installing the next phase for them.

And so the pipeline looks pretty interesting, but I think the overall story in the industry is one from kind of investigating it and trying to determine is it a way to go to much more stronger feeling that at some point we have to go. And so I also will say that some of the form factors that we evolved and as we learn more about how it impacts the different categories, like that -- if you look in that picture we have, that what I call the wedge, which is the vertical sign that is in aisle, that's a new form factor to us.

And you would have -- at a grocery shop it felt like you would have thought we're inventing the iPhone because the reaction from CPGs and clients was great because of the visibility, the improved visibility that it gives as you walk down an aisle. We have filed a patent on it, so it's patent pending, because we think this thing will have a lot of uses on a go-forward basis.

But we're also learning a lot about, again, how some of these different categories work. So like in the pizza case with the DiGiorno getting that big lift. It's a big lift because when you're walking through the grocery store, typically, frozen pizza is a discretionary spend item. And so when you throw pizza in front of people while they're picking up their beer, it's amazing how much responsiveness this gets.

And I think that's the big key here, is we continue to show responsiveness of advertising within markets. And I continue to believe that the pressure is going to be on in how you get your brand in front of consumers, because as digital advertising continues to get disrupted, where AI is summarizing things for you, you're not clicking through to the publishers, which therefore means you're not seeing advertising.

I think every marketer is trying to look at how they continue to build brand. And still 90% of the food bought out there is done within a grocery store. And so it is a place where people intend to purchase. They're there to purchase. Therefore, just trying to get them to go down the extra aisle or put in the extra piece of food is really important and responsive. So we're pretty excited about it.

The next question comes from Barton Crockett with Rosenblatt Securities.

I wanted to ask about if you're seeing an impact from this announcement that there is no postage rate hike for your categories in January. The marketers are doing their planning. Are they do you think inclined to -- is that going to impact their spend? Is that going to impact your revenue do you think potentially?

Yes, I mean one would hope so. I think that they're still like deep into it because they're also still getting through the end of this year, which will impact how they think about next year. So it's a little early for us to tell what the impact will be for 2026.

But certainly as we think about not having the increase in January, the fact that they are doing -- for catalogers, they are doing this test period from October through, I think, June of trying to offset the 11% increase that happened in July, plus the fact that we're showing a lot of our customers increased savings through high-density mailing, which will only improve as this continues to get rolled out. I would hope that we will see some positive results of that or less negative results on some of the volume hits that have happened as a result of the illogical pricing increases that the post office has done.

Okay. And is there -- is it too early to have any sense of whether this is a one and done or whether it's regime change and maybe postage going up well in excess of inflation is over? Is it too early to say that?

It's too early to say that. I worry about, okay, no increase in January, but what will they do in July. And I think you've got a very practical Postmaster General. David Steiner is a very practical leader. And if you watched his career, he's obviously very talented. So I think he's in the phase of really kind of building what his strategy is.

But clearly, there's an impact by not extending the increases. I think that they're realizing that they're pushing it too far, and that's hurting volume. So yes, a little bit too soon to see. There's going to be a lot of, I think, more news to come on what his strategy will roll out to be.

One of the real positive things there is we had the whole previous regime that really didn't want to engage with the community or talk to the community. And David is very accessible, I think, and is meeting with the community, wants to understand what's going on and taking that feedback. So we very much welcome his approach of reengagement with the industry.

Okay. That's great. So switching gears a little bit on the holiday season. Just -- maybe this is a bit of a reiteration, but just to make sure I understand what you're seeing. The tariff grinch isn't stealing Christmas. I mean, the environment for Christmas seems normal after all this volatility at this point. Is that correct?

That's what we're feeling. We're not seeing anything that's like out of the crazy norm other than just there's a lot of variables that will probably come into play here. But yes, it doesn't feel like the grinch is stealing Christmas.

Okay. That's great. And then in terms of the asset sales, any -- it seems like you took down Effingham a meaningful step down from that $40 per square foot norm that you've been posting previously. For the remaining kind of properties that are for sale, any early thoughts about whether Effingham is more representative or the $40 buyer is more representative of what one should expect you're able to get in proceeds from this stuff?

Yes, I'd say the biggest problem with Effingham is location. It's just not sort of the place people want to be. But Tony, go ahead.

Yes, I'd add to that, Barton. I think we've got enough historical basis that I think that rule of thumb that you just mentioned is still the one to use. The properties that we have for sale now that I talked about, they're smaller buildings, right, than what we saw in the case of Effingham or some of the previous. But I still think that rule of thumb is a good one to use going forward.

Okay. And the square footage, just tell me how much is for sale at Sussex?

It's about 200,000 square feet in a building that is remote -- or across the street from our headquarters.

Operator?

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Quadracci for any closing remarks.

Now thank you, everybody, for joining today. I just want to close by reiterating that Quad remains steadfast in our strategic vision, leveraging our integrated marketing platform to unlock diversified growth, improve print and marketing efficiencies and create meaningful value for all our stakeholders. With that, thank you again, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.