Quad/Graphics, Inc. (NYSE: QUAD), a global marketing solutions partner, reported a 4% decline in net sales to $675 million in its third quarter of 2024 earnings call. Despite the sales dip, primarily due to decreased paper and agency solution sales, the company highlighted a strategic shift towards becoming a marketing experience (MX) company and managing financial challenges. Adjusted EBITDA rose to $59 million, and adjusted diluted earnings per share increased to $0.26, up from $0.11 in the same quarter last year.
Key Takeaways
- Quad reported a 4% decrease in net sales year-over-year, totaling $675 million.
- Adjusted EBITDA improved to $59 million, with margins growing to 8.7%.
- Adjusted diluted earnings per share increased to $0.26 from the previous year's $0.11.
- The company is transforming into a marketing experience company, with new AI-driven marketing solutions on the horizon.
- Quad anticipates a full-year net sales decline of about 9% and an improved year-end net debt leverage of 1.5 times.
Company Outlook
- Quad is focusing on reducing debt while continuing to invest in marketing experience offerings.
- The company expects to introduce new AI-driven marketing solutions by the end of 2024 and into 2025.
- An Investor Day is scheduled for November 20 to provide a more detailed strategy update.
Bearish Highlights
- The company is facing a net sales decline, with an expected full-year decrease of approximately 9%.
Bullish Highlights
- Quad has seen improved margins and adjusted EBITDA, signaling financial resilience.
- The strategic sale of the majority of European print operations for $45 million is set to streamline the business.
Misses
- The decline in net sales reflects ongoing challenges in the paper and agency solutions segments.
Q&A Highlights
- CEO Joel Quadracci emphasized the importance of providing a better experience for clients, which in turn helps their customers.
- The company is hopeful for a volume rebound as consumer conditions improve.
- CFO Tony Staniak stated that Quad is now a marketing experience company across the Americas.
Strategic Initiatives
- Quad has sold the majority of its European operations for $45 million and launched an In-Store Connect Solution in 15 Save Mart stores.
- The company has entered into a partnership with Google (NASDAQ:GOOGL) Cloud to enhance AI and data capabilities.
Key Innovation
- Quad is developing AI-powered audience targeting and content generation to deliver personalized marketing at scale.
Client Success Stories
- Nicholas Children's Hospital and Consolidated Communications have seen significant improvements in marketing campaign performance through Quad's advanced data analytics.
Quad/Graphics continues to navigate the competitive landscape with a clear focus on innovation and operational efficiency. Its commitment to becoming a leading marketing experience company is underscored by strategic partnerships and technological advancements aimed at enhancing client outcomes. As the company prepares to share a more comprehensive strategy update on its upcoming Investor Day, stakeholders will be watching closely to gauge the effectiveness of Quad's transformation efforts and its impact on future financial performance.
Full transcript - Quad Graphics Inc (NYSE:QUAD) Q3 2024:
Conference Operator: Good morning, and welcome to Quad's Third Quarter 2024 Conference Call. During today's call, all participants will be in listen only mode. A slide presentation accompanies today's webcast and participants are invited to follow along advancing the slides themselves. To access the webcast, follow the instructions posted in the earnings release. Alternatively, you can access the slide presentation on the Investors section of Quad's website under the Events and Presentations link.
After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I will now turn the conference over to Katie Krebsbach, Quad's Investor Relations Manager. Katie, please go ahead.
Katie Krebsbach, Investor Relations Manager, Quad: 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. Joe will lead today's call with a business update, and Tony will follow with a summary of Quad's Q3 year to date 2024 financial results, followed by Q and 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 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.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Thank you, Katie, and good morning, everyone. Our Q3 results were in line with our expectations. 3rd quarter net sales declined versus prior year due to lower paper and agency solution sales. However, we achieved improvements in both adjusted EBITDA and adjusted EBITDA margin with adjusted EBITDA margin increasing by 54 basis points to 8.7%. We also continue to be a strong cash generator using these funds to pay down debt, strengthen our balance sheet and return capital to shareholders through a quarterly dividend.
Despite full year 2024 net sales trending toward the higher end of decline in our guidance range, we are maintaining the midpoints of our guidance for adjusted EBITDA and free cash flow. We are also reducing anticipated year end net debt leverage from approximately 1.8 times to 1.5 times pending the sale of the majority of our European operations by year end. As announced last week, we entered into a definitive agreement with CAPMOUNT, a Germany based private capital investment management firm to sell our European print operations for an enterprise value of approximately $45,000,000 operations that represent just 5% of our total net sales. This proposed sale supports Quad's ongoing strategic focus to optimize our business portfolio for growth as a marketing experience or MX company. We will continue to maintain state of the art print operations in locations that support our MX offering, including the Americas, with North America comprising our largest base of operations.
The transaction is expected to close by the end of the year pending customary regulatory clearances and other closing conditions. As a company founded on creating a better way, we continue to use every tool at our disposal to improve the marketers experience. Our solution suite shown on Slide 3 helps brands enhance their marketing experience by removing friction wherever it appears across the marketing journey, from creative production and media to everywhere in between. Supported by state of the art technology and data driven intelligence, our solutions are scalable and flexible operating together to provide clients with integrated service excellence. Our focus as an MX company includes accelerating our position in market value, leveraging ingenuity and innovation, relentlessly solving marketers' biggest challenges across industries and building on our strong culture as an MX company.
On Slide 4, we are excited to share the momentum behind in store connect by Quad, our in store retail media network solution that elevates the shopping experience by bringing the best elements of digital commerce into physical store environments. During the quarter, the Save Mart Companies, the largest private regional grocer on the West Coast, activated our solution in 15 stores and initial results are promising with participating brands all registering a positive sales lift. Tamara Pattison, Chief Digital Officer at the Save Mart Companies, echoed our enthusiasm for our solutions saying, what was most compelling to us was the capabilities around targeting, around activation and around analytics that came with the solution. We are really excited by what we're seeing not only from an in store activation perspective, but from the excitement with the supplier community. As we rolled out the initial testing phase at 15 stores, we haven't been disappointed.
We are excited for the future. In addition, the Save Mart Companies 2 other large regional grocery chains, including Oklahoma based Homeland stores, are in the process of testing our in store connection solution and through which we expect to have activations at approximately 30 more stores by year end. Momentum is building not only with supermarket chains, but department stores, home improvement stores and convenience stores too. Moving on to Slide 5, I'm proud to share how we're continuing to enhance our media intelligence solutions through the power of our proprietary household based data stack. Comprised of more than 3,000,000,000 data points that are revalidated weekly, our data stack represents more than 20,000 attributes from approximately 97% of the adult U.
S. Population. We are leveraging this robust data set to power our audience targeting solutions and helps clients optimize customer acquisition efforts and creating engaging content for their existing customers. In September, we announced our next step in monetizing our data stack through an exciting partnership with Google Cloud. By leveraging Google Cloud's artificial intelligence optimization capabilities and large language models, we are creating new AI driven solutions that tap into our data and seamlessly connect it with clients' creative and media.
In addition to streamlining access to Quad's audience targeting capabilities, these combined solutions will provide highly personalized content at scale across multiple marketing channels via image generation, content creation, layout design, translation and more. We plan to roll out our new AA driven offerings in the coming months. Next (LON:NXT), I'd like to spotlight 2 client examples that showcase the measurable benefits of our MX Solutions suite. Advancing to Slide 6, Nicholas Children's Hospital, a nationally ranked children's healthcare system in Miami, partnered with our RISE media agency to revise its marketing strategy. The focus of our work was to maintain reach while adhering to new guidelines for healthcare marketers related to heightened privacy regulations.
With our help, the hospital implemented a refreshed campaign strategy that ensured compliance while increasing engagement. Our work included a complete creative refresh to its various ad formats, including increased usage of video content, a refined paid media strategy that enhanced ad relevancy and increased web traffic, and an updated SEO strategy that improved the hospital's metadata and identified and addressed content gaps. These integrated efforts led to a 93% higher click through rate and a 3 75% higher engagement in paid social media ads year over year and 68% growth in website traffic. The client is extremely pleased with this results from our ongoing partnership and we look forward to supporting continued growth for this client as its media agency of record. On Slide 7, we show our work for Consolidated Communications, a $1,000,000,000 broadband and business communications provider serving customers across more than 20 states.
Through a multichannel direct marketing campaign, we helped enhance customer acquisition efforts in new regions covered by Fidium fiber, the clients rapidly expanding consumer broadband service. Specifically, we applied our proprietary household based data stack and advanced analytics to identify and reach high potential audience targets, designed and optimized creative content for both online and offline channels, and designed a printed direct mail to drive online conversions with flow code technology. The campaign combined the power of digital and print by supplementing mail pieces with targeted social media and website ads, as well as remarketing web based consumer leads with personalized mailings. The results of the campaign included high engagement and email open rates, reinforcing the value of well conceived and connected multi channel marketing campaigns. Before I turn the call over to Tony, I would like to take a moment to thank our employees during our seasonally busiest time of the year for the continued hard work and commitment to providing the highest levels of service for each of our clients.
I'm proud of our team and our future as an Amex company. And with that, I will now turn the call over to Tony for the financial review.
Tony Staniak, Chief Financial Officer, Quad: Thanks, Joel, and good morning, everyone. On Slide 8, we show our diverse revenue mix. Net sales were $675,000,000 in the Q3 of 2024, a decline of 4% compared to the same period in 2023, primarily due to lower paper and agency solution sales, including the loss of a large grocery client. On a year to date basis, net sales were $2,000,000,000 in 20.24, a 9% decline compared to 2023, primarily due to lower paper sales and lower print volumes, including the impact from client mix and increased gravure volume that has a lower unit price with a higher profit margin, as well as lower Agency Solution sales. During the 1st 9 months of 2024, magazines and catalogs increased as a portion of our net sales mix by 2% compared to the previous year due to recent segment share wins such as AARP, while retail inserts decreased 2%.
Slide 9 provides a snapshot of our Q3 2024 financial results. Adjusted EBITDA was $59,000,000 in the Q3 of 2024 as compared to $57,000,000 in the Q3 of 2023 and adjusted EBITDA margin increased 54 basis points from 8.2% to 8.7%. On a year to date basis, adjusted EBITDA was $161,000,000 in 20.24 compared to $168,000,000 in 2023 and adjusted EBITDA margin increased 48 basis points from 7.7% in the 1st 9 months of 2023 to 8.2% in the 1st 9 months of 2024. The margin increase in both periods was primarily due to benefits from improved manufacturing productivity and savings from cost reduction initiatives. During the first half of twenty twenty four, we completed previously announced restructuring actions, including plant closures and labor reductions that we expect will generate $60,000,000 of cost savings this year.
Adjusted diluted earnings per share was $0.26 in the Q3 of 2024 as compared to $0.11 in the Q3 of 2023. Year to date adjusted diluted earnings per share was $0.49 in 2024 compared to $0.28 in 2023. The increase in both periods was primarily due to higher adjusted net earnings and the beneficial impact of a lower share count due to stock buybacks. Since the Q2 of 2022, we have repurchased approximately 11% of our total outstanding common stock. Quad's Board of Directors authorized a share repurchase program of up to $100,000,000 of our outstanding Class A common stock in 2018.
As of September 30, 2024, there was $77,500,000 of authorized repurchases remaining under this program. Free cash flow was negative $92,000,000 in the 1st 9 months of 2024, as compared to negative $18,000,000 in the 1st 9 months of 2023. This change was primarily due to non recurring cash flow benefits realized in 2023 from reducing inventories enabled by an improved supply chain environment. As we have previously shared, we will continue to generate proceeds from asset sales in addition to our strong free cash flow as shown on slide 10. During the 5 year period from 2020 to 2024, we now expect to generate over $830,000,000 of free cash flow and proceeds from asset sales.
These asset sales include divestitures of certain non core portions of our business, such as the expected year end sale of the majority of our European operations for an enterprise value of approximately $45,000,000 as well as sales of property, plant and equipment from closed facilities. In September, we completed the sale of our former Saratoga Springs, New York 1,000,000 Square Foot manufacturing facility for net cash proceeds of $41,000,000 And last week, we announced the closure of our Wauke, Iowa directory manufacturing facility. We expect to generate further cash proceeds in 2025 from the sale of the Wauke building and 3 additional owned facilities we closed earlier in 2024. We show the seasonality of our free cash flow and debt leverage on Slide 11. Due to the seasonality of our business, we typically generate negative free cash flow in the 1st 9 months of the year, followed by large positive free cash flow in the 4th quarter.
Our seasonal production peak occurs in the late Q3 and early Q4 of the year due to the timing of holiday related advertising and promotions. This leads to inventory build prior to that time and then results in higher collections from clients in the Q4. In 2024, we continue to anticipate a similar seasonal pattern, more comparable to 2022 when we generated $174,000,000 of free cash flow in the 4th quarter. We believe we are on track to generate $142,000,000 to $162,000,000 of free cash flow in the Q4 this year to meet our full year 2024 free cash flow guidance of $50,000,000 to $70,000,000 and we plan to achieve net debt leverage of approximately 1.5 times with net debt of $330,000,000 pending the completion of the European divestiture. Slide 12 includes a summary of our debt capital structure.
At the end of the Q3 of 2024, our net debt was $490,000,000 reduced $94,000,000 from $584,000,000 1 year ago on September 30, 2023. We have focused on debt reduction over the past 5 years. And by this year end, we anticipate reducing debt by over $700,000,000 since January 1, 2020. Including interest rate derivatives, our debt at the end of the 3rd quarter was 57% floating and 43% fixed with a blended interest rate of 7.8% and our total available liquidity including cash on hand was $196,000,000 We are pleased with the October extension of our $690,000,000 Term Loan A and revolving credit agreement and the ongoing long term support and partnership with our Premier Bank Group. Our next significant maturity is now $193,000,000 due in October 2029.
We will continue to focus on debt reduction with our capital allocation. This debt extension also provides us with additional financial flexibility to focus on the growth and development of our offerings as a marketing experience company, while also returning capital to our shareholders. We share our updated 2024 guidance as shown on Slide 13. Consistent with what we communicated in the Q2 earnings call, our annual net sales are trending toward the higher end of decline in our guidance range and we expect a decline of approximately 9% compared to the original guidance of annual net sales declining 5% to 9%. With our flexible model, higher labor productivity and focus on disciplined cost management, we are maintaining the midpoints of adjusted EBITDA guidance at $225,000,000 and free cash flow guidance at $60,000,000 Free cash flow includes $65,000,000 of capital expenditures to further accelerate our offerings.
And finally, as previously mentioned, enabled by our strong cash generation, we now expect debt leverage to improve to approximately 1.5 times by the end of 2024, which is reduced from our original guidance of 1.8 times and is also below our targeted long term debt leverage range of 1.75 times to 2.25 times. Slide 14 includes our key investment highlights as we continue to build on our momentum as a marketing experience company. We believe that Quad is compelling long term investment and we remain focused on growing net sales and driving higher profitability through continued diversification of our revenue and clients. With our expanded offerings such as in store connect and our proprietary household based data stack discussed earlier, there is a significant addressable revenue opportunity with both our large base of existing clients as well as new clients. In addition, our strong cash generation will continue to fuel our capital allocation priorities.
These include investing and scaling our offerings, further reducing debt and returning capital to shareholders through our next quarterly dividend of $0.05 payable on December 6. We also expect to continue to be opportunistic in terms of our future share repurchases. We look forward to sharing a more comprehensive update on our strategy and growth opportunities at our upcoming Investor Day on November 20 in New York City. With that, I'd like to turn the call back to our operator for questions.
Conference Operator: We will now begin the question and answer session. Our first question comes from Kevin Steinke with Barrington Research Associates. Please go ahead. Good
Kevin Steinke, Analyst, Barrington Research Associates: Just I know you said you're going to be rolling that out in the coming months, but any have you gathered any initial feedback or initial reaction from your client base and how they see this benefiting them?
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes, I mean, I think one of the biggest challenges in marketing today is in finding good audience. And the other big challenge once you find good audience is actually having the content follow the messaging in a variable sort of way. The old days of sort of shotgun blast everybody with the same message in the same content doesn't work so well. So the world expects to be more personalized. And so by adding the AI element to our very large data stack, and I'll remind you that the data stack consists of all the household personalities in the country because of our existence as a printing company, we do all the work for the post office, it's almost 10% of the volume of the post office of marketing mail.
So we're going to every mailbox across the country with content and we know what content is going in. That's what creates the personality knowledge of the household. So once you have that, it's sort of digging through that huge data step to find out for the marketer what is the specific set of that data that works for us. And that's where AI comes into play to help us sift through that as opposed to using a team of data scientists. Now once we get that audience through AI, we use AI to actually auto generate content that's both in sort of text as well as actual visual content.
Because if you think about a customer for call it horticultural products, you may have different passions by each customer. 1 may be much more tactical on
Barton Crockett, Analyst, Rosenblatt: how they like
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: garden. Therefore, you want something that's more specific to them to hit them with content versus the person who just wants things to look nice and not have to put in a lot of work. And so you can literally vary the type of content that goes with this specific audience you follow. And so it's a huge deal because it really helps solve a problem that most of our marketing customers are dealing with today. And the response so far is people are anxious to jump on and start testing the content and the data.
Kevin Steinke, Analyst, Barrington Research Associates: That sounds great. I was wondering with this new kind of tool in your back pocket here, if you feel like this is something you can go out to the market as a differentiator to market yourself and win new business?
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes, absolutely. And we've been working on this for a while. And so it's all coming together and we're combining it with our media offering and analytics offering. And we'll also remind people that our approach is to be completely transparent in what we're spending of your media dollars. That is not always the case out there.
And there's a lot of murkiness as to am I spending the right dollars on the right audience. And so we believe that the hunger is there, not only for the transparency, but also the specificity of the type of audience that we can attract and go after for our clients. And then again, allowing content to follow along with it. It's very difficult for content to match your efforts on your audience when you start breaking down into significant number of different types of passions that people might have. And so, yes, I believe this will be a very large differentiator for us.
Kevin Steinke, Analyst, Barrington Research Associates: Excellent. I wanted to follow-up by asking about the reduction in your year end leverage ratio targets. Is that, as I understand it being specifically driven by the European operations sale?
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: It's a combination of, because we look, we've had a very busy quarter, as you know. We not only increased the margin that we have, but the divestitures of not just Poland, but also our very large high quality asset in Saratoga Springs to what we believe is a very good owner in terms of further community. So it's a combination of all of that.
Kevin Steinke, Analyst, Barrington Research Associates: Okay. And so as you think about the targeted leverage ratio range, you expect to come in below that at year end 2024? Are you sticking with the same target leverage range? Or is that something maybe you think about revising in the future?
Tony Staniak, Chief Financial Officer, Quad: Kevin, we look at that every year once a year and release that with our February earnings call, the next earnings call. So we'll come back to you at that point, but we're going to continue to have a commitment to keeping debt low going forward and we're happy with the low leverage. It gives us dry powder to continue to expand our offerings.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes, it kind of based the questions of uses of capital. And look, I love what we've done with our balance sheet because it really gives us optionality, whether that's whether or not we return capital to shareholders through the dividend or through repurchases that we've done in the past, we'll continue to be opportunistic there, but also in terms of enhancing our capability. So having that lower leverage range is great, but we always say that we may ebb and flow from that depending on the opportunities out there.
Kevin Steinke, Analyst, Barrington Research Associates: Yes, that makes sense. Certainly, it gives you more options on capital allocation. So that's great. And just when I think about the again, you talked about it last quarter, but the sales trending to more like the 9% decline for the full year. I assume the European sale is not factored into that?
Or is it or should I know you said year end 2024 for the sale. I just wonder if that's potentially before year end and if that could affect the outlook for sales for the full year?
Tony Staniak, Chief Financial Officer, Quad: Yes. With the regulatory clearances and other customary conditions, we won't close the sale until in December at some point, right? So it won't have a significant impact on the guidance if it closes, let's say, like December 15 or something like that, right? So you should look at the minus 9% consistent with what we said in the Q2 call with how our sales were playing out over the year. And keep in mind, we talk about the loss of the large grocery client, and that's 3% of that amount.
So the second half is kind of playing out as we expected.
Kevin Steinke, Analyst, Barrington Research Associates: Okay. That sounds good. Wanted to also just when you talk about the sales outlook, maybe just get an update on what you're seeing from your clients in terms of how they're reacting to higher postal rates, interest rates, are they getting a little bit more confident about interest rates coming down and maybe a little bit more comfortable with the economic outlook? I know I hit on a lot of areas there, but just trying to get a sense of the general tone of business with regard to some of those macro factors.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes, I think, look, the postal increase that we experienced in the last several years is huge. And no doubt, that continues to kind of have some impact this year, even though as I've said in the past, at least the increases this year the customers knew about. Last year, I'll remind you that the big increase that happened in July was quite a surprise post everybody's budgeting process. That being said, they're going to hold off on doing what was an expected increase after the 1st of the year. That's great news.
The challenge is that they still plan on doing an increase in the second half of
Barton Crockett, Analyst, Rosenblatt: the
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: year. Good news there is that people are planning for it. Bad news is it's a cumulative effect on volumes over the past 3 years continues to have some impact and some of that is in that 9%. We hope people will start to build back volumes as they see improvement with the consumer. From an interest rate standpoint, and we don't necessarily see the direct correlation or hear that from our customers, other than we saw sort of in the CPG space some softness.
And what I'm hearing from CPGs is if you're at the lower end of the economic sort of ladder, that whole group has really been hit hard for the hardest. And they've seen some pullback in spend on higher end items and really pivoting towards the need to have, while maybe the middle tier and the higher tier are still spending quite well. So I think how that plays out is a little bit, we've obviously got a big election coming and we'll see what comes after that. But right now, I think that it's a little bit of not a one size fits all when we talk to our customers. It's a little bit across every spectrum with sort of a maybe a little bit negative to neutral in our view.
Kevin Steinke, Analyst, Barrington Research Associates: Okay. Thanks for the update there. Just lastly, I wanted to ask about what you're seeing in Mexico, Latin America, trends there in terms of business and kind of if that's you continue to view that as a core part of your portfolio in the Americas?
Tony Staniak, Chief Financial Officer, Quad: Yes. So, yes, I'll start with our Mexico operations. That's a natural extension of our U. S. Print platform.
We export quite a bit of volume out of Mexico into the United States and had a particularly strong Q3 in Mexico, this quarter, right? So we remain bullish about the opportunity. And Colombia and Peru as well can serve as extensions as we go across all of South America. So as Joel said in the prepared comments, we're a marketing experience company across the Americas.
Kevin Steinke, Analyst, Barrington Research Associates: Okay. Thanks for all the good commentary. I will turn it over. Thanks.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Thanks, Kevin. Operator?
Conference Operator: Yes. And the next question comes from Barton Crockett with Rosenblatt. Please go ahead.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Good morning, Barton. Hey. Good morning,
Barton Crockett, Analyst, Rosenblatt: guys. Thanks for taking the question. Just I guess a little bit about the numbers here to make sure I understand. So implicit, I think in your 9% full year guide, if I'm doing the math right, would be about an 8% decline in the Q4. Is that right?
And why would it be a little bit more pressured than the Q3? Is that maybe just the mix from the grocery client you lost? Or is there something else going on? So that's one question.
Tony Staniak, Chief Financial Officer, Quad: I think no, so yes, for first off, through first part on Q4, you had 8% to 9% decline in the 4th quarter to get us to that approximately 9% for the year. And you will see ebb and flow depending on how volumes come out, in particular retail inserts. We saw let for instance in the Q3, July of 2023 was a pretty low quarter for us. So we had a favorable comparable there in 2024 and that can happen on a monthly basis going forward. So again, we're saying we're consistent with the negative 9% we gave for the year starting late last quarter that we talked about.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes. And I'd probably add that if there was a soft spot would be maybe from that in the previous questions that we answered in the CPG space, impacting a little bit more on packaging in the quarter. So there's a little bit of that going on.
Barton Crockett, Analyst, Rosenblatt: Okay. All right. Now in terms of the sale of the majority of your European operations, is there any bigger than a breadbasket sizing you can give us for like the cash flow impact of that? I think you guys have reported like Europe overall is about 5% of revenues and I assume that's a majority, but if you could give us a little bit more color on that, it would be great.
Tony Staniak, Chief Financial Officer, Quad: Yes. I can talk to some of that. So first, the wording on the majority of the European operations. So we have a very important shared services center in Poland, 400 people strong that supports our U. S.
Admin operations as well as our clients. And we're retaining that going forward, right? So it is that stays with us. Then the revenue generating operations, the 5% that you saw in the pie chart, that is what we are selling to Katmant as part of the transaction. So again, 5% of revenue and think part of a typical print EBITDA multiple on that $45,000,000 enterprise value and you can kind of get to the approximate EBITDA range.
And then when you think about that our debt leverage ratio is half of the EBITDA multiple, you can see how this is nicely deleveraging for us as we put these proceeds towards debt reduction.
Barton Crockett, Analyst, Rosenblatt: Okay. I'm sorry, you said the leverage range is half of the EBITDA. Did I hear you correctly what you just said?
Tony Staniak, Chief Financial Officer, Quad: You did. Yes. So our leverage ratio as you see 2.16x right around there. And that's half of roughly what typical print multiples are.
Barton Crockett, Analyst, Rosenblatt: Okay. All right. And in terms of the outlook for the start of next year, you're slowing down here in the Q4. You've got a postage hiatus, but the cumulative impacts of CPG weakening. Any early sense, I mean, do things feel any better at the start of next year?
Is it too early to say? Any comments about the revenue trajectory for next year that you can give us?
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: Yes, I'd say it's probably too early to say because our clients are still in the busy season here. And so they're entering into the planning segment. And so we get some early reads, but not much. It usually starts playing out as we get closer to the end of the year.
Barton Crockett, Analyst, Rosenblatt: Okay. You guys have called out, I think, asset sales booked so far of $113,700,000 I think your statement of cash flow shows proceeds from asset sales are like $46,000,000 And I know Europe to comment is probably in there, but there's probably a little bit more in there. Could you give us a sense of what else is in that number? And also since I know you've got some other assets that are on the block, could there be some other things that flow in that are increments to that number this year? Or is it all kind of pushed to next year?
Tony Staniak, Chief Financial Officer, Quad: So for the cash flow statement, there's a couple of line items on there that roll up into our total proceeds. You picked up the asset sales in the $40,000,000 which is primarily the Saratoga sale that hit in the Q3, Saratoga building sale. There's also a line item for the sale of our Manipal investment in India that we did in the Q2 of the year, another $22,000,000 So if you add those two numbers together, and then the Europe sale is not yet in the statement of cash flow because the deal isn't closed. It is signed, but we have to work through these closing conditions. And so when that comes in, that gets you to the $114,000,000 in total, just to give you that bridge.
And then as far as items the rest of this year, we do have buildings for sale right now, but I'm not anticipating them to sell yet in the end of 2024. So I would think about that more as 2025 proceeds.
Barton Crockett, Analyst, Rosenblatt: Okay. All right. And then in terms of the savings that you talked about, dollars 60,000,000 savings, is that a realized number this year or is that an annualized run rate exiting next year?
Tony Staniak, Chief Financial Officer, Quad: It's realized sorry, Bart, it's realized this year to answer that part of the question.
Barton Crockett, Analyst, Rosenblatt: No, thank you. So what would be kind of the annualized rate from that?
Tony Staniak, Chief Financial Officer, Quad: That so if the full 60 is realized, yes, now you have a little bit more of tailwind as you're pointing out going into 2025 because some of the plant closures we still had people on for the 1st part of the year. And so you could see an incremental 15% to 20% as you get into the next part of the year, I mean, up 2025%.
Barton Crockett, Analyst, Rosenblatt: Okay. Now you've talked about your debt reduction and you did get denied amendment, so you've changed some of the terms a little bit. How should we think about your interest expense trajectory from here?
Tony Staniak, Chief Financial Officer, Quad: So, yes, with the new debt deal, the spread on that increased by 50 basis points. But you will we expect, as everyone else does in the market, see the variable interest rates come down. This is variable rate debt. So with where our debt is at and how it's a the interest rate varies based on the debt leverage range that we're at, with all the good work we've done on debt leverage, we could be at an interest rate of 7% relatively quickly, and then on a lower amount of debt, right? So the interest costs could come down quite a bit.
Barton Crockett, Analyst, Rosenblatt: Okay. All right, great. And then one final question here, just going harkening back to the Google AI arrangement. When do you expect that to start to be in the market and something that's impacting your business at a level that matters?
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: I'd say that we expect to sort of roll it out in a live format towards the end of the year, but really rolling into next year. And so it will start to come online through that. And it really sort of impacts the overall experience with our customers, because once we bring them in, trying to find audience, we expect that it starts to spill over to other services. So it's revenue from sort of a whole stack that starts to accumulate. But I expect that we'll probably see some early stage reaction from existing clients to start with.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Joel Quadracci, Chairman, President and Chief Executive Officer, Quad: All right. Well, thanks, everyone, for joining today's call. And I want to close by reiterating that our integrated marketing offering continues to be the competitive differentiator and key driver behind our ongoing evolution as an MX company. By providing a better experience for our clients, they can focus on best customer experience for their clients. And I'd like to remind investors of our November 20 Investor Day in New York City, where you can learn more about the MX experience.
With that, thank you again, and have a great day.
Conference Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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