Quad/Graphics, Inc. Q3 FY2023 Earnings Call

Good morning, and welcome to the Quad's third quarter conference call. A slide presentation accompanies today's webcast and participants are invited to follow along, advancing the slides themselves. To access the webcast, follow 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. Please note that this event is being recorded. I'd like to turn the conference over to Katie Krebsbach, Quad's Investor Relations Manager. 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 2023 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 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 and the slide presentation 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. Beginning on Slide 3. In the third quarter, we were pleased to deliver consistent year-over-year EBITDA margins and $27 million of free cash flow despite a challenging revenue environment. Net sales declined compared to the same period in 2022, primarily due to lower print, paper logistics sales as well as the 2022 divestiture of our Argentinian print operations. We continue to pay down debt, strengthen our balance sheet and return capital to shareholders through additional share repurchases. We are on track to achieve full year 2023 guidance for adjusted EBITDA, free cash flow and debt leverage. And by the end of the year, we will have reduced debt by over $560 million or 55% since January 1, 2020. We are lowering our full year 2023 net sales guidance due to industry-wide print volume reductions in response to ongoing economic uncertainty, continued postal rate increases and the impact of rising interest rates on specific clients. At Quad, we have seen the greatest impact to categories most sensitive to rising interest rates, such as financial services, direct mail, including credit cards, insurance and loans. Tony will share more detail on our year-to-date net sales breakdown and financial guidance shortly. We are confident in our ability to manage for these near-term print volume challenges, along with long-term expected organic declines in certain product lines like retail inserts, due to our long-standing disciplined approach to managing all aspects of our business including treating all costs as variable and aligning our cost structure to revenue opportunities. At the same time, we continue to build momentum as a marketing experience company, and Quad is unparalleled in that we seamlessly bring together all these central resources, brands and marketers needed for frictionless, scalable marketing execution, as shown on Slide 4. As we continue to scale our integrated marketing offering, print remains a core component of our business and the largest portion of our revenue mix. We will continue to innovate and invest in print and other channels to ensure we can fulfill our clients at our expanding marketing needs. Turning to Slide 5. I'm pleased to share that we continue to evolve our strategic leadership at the governance level with the recent appointment of Melanie Huet to Quad's Board of Directors as an independent member. Melanie has a deep background in brand development, management and transformation and understands firsthand the challenges facing our clients. Currently, she is President of Brand Management & Innovation and a member of the Executive Committee at Newell Brands, a leading consumer products company. Prior to joining Newell in February of this year, she was Executive Vice President and Chief Commerce Officer at Serta Simmons Bedding. There, she delivered three quarters of market share growth, transformed the sales organization and built a $1.5 billion innovation pipeline. Melanie has also worked in consumer products marketing at ConAgra Foods, Unilever, Kimberly-Clark, and Kraft Heinz. We look forward to leveraging Melanie's expertise on our board as we expand and strengthen our offerings and drive revenue growth. I'm also pleased to share that Joshua Lowcock has joined our company as President of Quad Media and will further energize our efforts to create a differentiated, cohesive and market-leading audience targeting and media engagement offering. Joshua joins us from UM Worldwide, part of agency holding company, IPG, where he was Global Chief Media Officer responsible for omnichannel media, strategy, predictive analytics, performance marketing, content, innovation, and ad tech. He played a pivotal role in developing UM Worldwide's go-to-market strategy. Previously, Joshua worked at Mediavest, where he led the Walmart digital team. He also served as Head of Commercial Products and Platforms at News Corp where he led the launch of the company's customer data and analytics strategy. Joshua is well known in the industry and publishes and speaks regularly on topics relating to media, innovation, and transformation. We will tap his considerable experience and expertise to elevate relationships with clients and fast-track growth in areas that represent significant opportunity for us. On Slide 6, we show Quad's key growth drivers, delivering integrated service excellence, accelerating market penetration in key verticals, and evolving our culture as an MX company. Integrated Service Excellence is at the core of who we are and what we do. Quad connects every facet of the marketing journey efficiently and at scale, providing innovative data-driven offerings from strategy and consulting to data and analytics technology solutions, media services, creative and content solutions, and managed services. As a result, we help companies reduce the complexity they experience from working with multiple agency partners and vendors, increase their marketing process efficiency, and maximize the effectiveness of their marketing efforts. Turning to Slide 7, we show how we are growing our presence with well-known brands in our target verticals of consumer packaged goods, finance and insurance, health, direct-to-consumer, retail, and publishing. These reputable well-known brands include Amazon, Walmart, Conagra, American Express, and Abbott Labs, and are all admired for the excellence in the loyalty they have built with consumers. We take great pride in knowing they trust us to deliver on their marketing vision. To accelerate market penetration, we are focused on growing awareness that better marketing is built on Quad. We are gaining visibility with new brands, including blue-chip companies through our participation in industry events. For example, we recently participated in the 2023 Forbes CMO Summit in Miami and Advertising Week in New York City, where we connected with brands and marketers about their marketing challenges and how Quad can solve those challenges. On Slide 8, we show an example of how we're growing momentum with a premier brand, Titleist, the golf industry's leading performance equipment brand, recently engaged us for our brand design and product launch expertise. We will be updating the packaging for its flagship Pro V1 golf ball, the most played ball in PGA TOUR and the #1 golf ball brand in the world. This opportunity represents significant positive exposure for Quad as the Titleist company produces more than 350 million golf balls every year. Titleist selected Quad for several reasons, including our exceptional approach to brand design in which we focus on making brands a favorite through measured potential, consumer action and reaction, and connections, our comprehensive creative services and expertise, which include brand positioning, design strategy, brand identity systems, adaptive design, packaging, and retail environment. Our ability to leverage our own in-house consumer testing for brand package performance by our package insight team and our proven product launch expertise, which consists of our strategy, creative and connections planning to build and place attention-grabbing campaigns that bolster awareness and drive sales. We are excited to be under a multi-year contract as Titleist's trusted partner for this high-profile brand building work, which will be in the market in early 2025. We successfully competed against respected sports brand agencies with deep category experience for this win. We look forward to expanding our partnership with Titleist's parent company, Acushnet, for other top-rated equipment for golfers. On Slide 9, we show an example of how we're helping another thriving consumer packaged goods company achieve brand growth. Cacique, the #1 producer of authentic Mexican-style cheeses, meats, sopes, and other products in the U.S., is experiencing rapid growth as demand for Hispanic foods soar. Cacique chose to partner with Quad due to our reputation for delivering breakthrough creative and brand growth in CPG categories. The company came to us by word of mouth, recommended by another client for whom we are providing brand strategy, creative and campaign development, and more. As Cacique's new creative agency of record, we are focused on building awareness and loyalty among consumers seeking authentic ingredients and high-quality products in this category. In addition to brand strategy and creative and campaign development, we are also leveraging our data-driven connections planning expertise in support of Cacique's aggressive business goals to reach new market segments. Our work with Cacique is just underway and will be in the market in 2024. Cacique is an impressive brand new to our CPG portfolio and one with tremendous revenue growth opportunity. Already, we are in discussions with this client for more opportunities to refresh its brand and packaging and provide printing services. Turning to Slide 10, for more than 50 years, our commitment to creating a better way has inspired creativity in how we address environmental, social, and governance matters. For Quad, ESG is a business imperative as it underpins our growth strategy. We have made progress on our ESG commitments published in our inaugural 2021 report. These include maintaining our focus on diversity, equity, inclusion; prioritizing sustainable resource consumption; and investing in employee safety, health, and wellness. To learn more about our commitments and how we continue to create positive, sustainable change in our company and in the communities where we live and work, please access our newly released 2023 ESG update on quad.com or scan the flowcode on Slide 10 of today's presentation. Before I turn the call over to Tony, I would like to thank our employees during our seasonally busiest time of the year for their continued hard work and daily commitment to providing the highest levels of service for our clients. As we move forward with our growth strategy, I have great confidence in our team and continue to be enthusiastic about our growth opportunities as a marketing experience company. With that, I will now turn the call over to Tony for the financial review.

Thanks, Joel, and good morning, everyone. On Slide 11, we show our diverse revenue mix. Net sales were $700 million in the third quarter of 2023, a 16% decline compared to the third quarter of 2022. On a year-to-date basis, net sales were $2.2 billion in 2023, a decline of 7% compared to 2022. Our net sales were impacted by industry-wide print volume reductions in response to continued economic uncertainty, postal rate increases, and the impact of rising interest rates on specific clients. For example, on a year-to-date basis, direct mail has temporarily decreased from 14% of our total revenues to 11%. We expect direct mail growth in future years. Despite these headwinds, we have seen year-to-date increases in our net sales mix from segment share gains in magazines and catalogs, in Mexico due to increased education volumes exported to the United States and in our in-store signage product offering, continuing a multi-year trend of high revenue growth for our in-store team. Slide 12 provides a snapshot of our third quarter 2023 financial results. Adjusted EBITDA was $57 million in the third quarter of 2023 as compared to $69 million in the third quarter of 2022, and adjusted EBITDA margin declined slightly to 8.2% in the third quarter of 2023 compared to 8.3% in the third quarter of 2022. The decline was due to lower sales and lower pension income, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives. On a year-to-date basis, adjusted EBITDA was $168 million in 2023 compared to $173 million in 2022, while adjusted EBITDA margin improved from 7.4% to 7.7%. Adjusted diluted earnings per share was $0.11 in the third quarter of 2023 as compared to $0.32 in the third quarter of 2022. On a year-to-date basis, adjusted diluted earnings per share was $0.28 in 2023 compared to $0.49 in 2022. The decline was primarily due to lower adjusted net earnings and was partially offset by the positive impact from share repurchases. We are active in the market yet again this quarter, repurchasing our Class A shares. Beginning in the second quarter of 2022, we have repurchased 5.5 million shares or approximately 10% of our outstanding shares for a total purchase price of $20 million. Free cash flow was negative $18 million in the first 9 months of 2023, a $61 million improvement compared to the first 9 months of 2022, and included $27 million of free cash flow generation in the third quarter of 2023. We have now generated positive free cash flow during both the second and third quarters of 2023, which are typically negative free cash flow quarters due to seasonality. The increase in free cash flow was primarily attributable to lower inventory yields as supply chain challenges improved, and we experienced strong receivables collections. This improvement was achieved despite a $10 million increase in capital expenditures as we continue to invest in our automation initiatives. As a reminder, the company historically generates the majority of its free cash flow in the fourth quarter of the year. Slide 13 includes a summary of our debt capital structure. We are pleased to have reduced debt by $132 million over the last 12 months with strong free cash flow. However, due to the working capital build during our peak production season, on a year-to-date basis, net debt increased by $39 million to $584 million at September 30, 2023, and the debt leverage ratio increased 20 basis points to 2.36x at the end of the third quarter 2023. The increase in net debt and the debt leverage ratio was primarily due to the negative $18 million of free cash flow and $10 million of Quad share buybacks in the first 9 months of 2023. We expect debt to decrease to under $470 million in the fourth quarter with seasonal reduction of inventory and collections of receivables, and we remain on track to achieve the low end of our long-term targeted debt leverage range of 2 to 2.5x by the end of this year. As of September 30, our blended interest rate was 7.1%, which is up from 5.7% a year ago. To mitigate the impact of the rising interest rate environment, we entered into two interest rate collar agreements effective February 1, 2023. Including interest rate swaps, our debt is 50% floating and 50% fixed. Our liquidity includes up to $331 million of availability under our revolving credit agreement as well as $11 million of cash on hand. Our nearest significant debt maturity is $88 million occurring in January 2024, which we will fund with our revolving credit agreement and cash on hand. The majority of the debt maturities are not due until November 2026. We have updated our 2023 guidance as shown on Slide 14. Annual net sales are now expected to decline 7% to 9% compared to previous guidance of annual net sales remaining flat to declining 5%. Although we planned for organic print decline in our original guidance, print volumes fell further than our projections due to continued economic uncertainty and higher postage rates in addition to the impact on specific clients of rising interest rates, as we previously discussed. Despite the net sales decline, our flexible model and focus on disciplined cost management and labor productivity is enabling us to increase our expected adjusted EBITDA margin by 50 basis points at the midpoints of our updated guidance ranges. That profitability performance, combined with reduced working capital requirements from improved supply chain is driving strong free cash flow, and we reaffirm the midpoint of our free cash flow guidance to be $70 million in 2023, which includes at least $70 million of investment in capital expenditures to further automate our unparalleled integrated marketing platform. And finally, we continue to expect debt leverage to be approximately 2.0x by the end of 2023. Slide 15 includes our key investment highlights as we continue to build on our momentum as a marketing experience company. We believe that Quad is a compelling long-term investment and we remain focused on growing net sales and driving higher profitability through continued diversification of our revenue with clients. With our expanded offerings, there is a significant addressable revenue opportunity with both our large base of existing clients as well as new clients. As part of a multi-year debt reduction strategy, by the end of this year, we expect to reduce debt by over $560 million from over $1 billion on January 1, 2020, representing the low end of our current long-term target debt leverage range of 2.0x. We intend to further reduce debt in 2024 with our strong free cash flow generation, augmented with proceeds from selling non-core assets. And with significant debt reduction, we will further strengthen what we believe is an industry-leading financial foundation that provides us the flexibility to strategically deploy capital, including scaling the growing parts of our business, and further automating our print offerings for greater production efficiencies while returning capital to shareholders. With that, I'd like to turn the call back to our operator for questions.

First question is from Kevin Steinke, Barrington Research Associates.

I wanted to start off with something that really stood out to me here is the flexibility of your business model, as you noted. The midpoint of the sales guidance, as I calculate it for 2023 came down by about 6%, but you were able to maintain the midpoint of your adjusted EBITDA guidance. So you talked about cost management and labor productivity and things like that. But maybe just talk a little bit about what you're able to do to adjust to quickly to maintain the profitability outlook despite the lower sales outlook and maybe any actions that you took in the quarter on the cost side?

Yes, Kevin, this is Joel. I'll address that first and then Tony can add more. I want to emphasize that Quad needs to be very adaptable. We come from a challenging print industry, and simultaneously, we're striving to become a game changer in the marketing sector. Being in the printing business has taught us to be proficient at adapting to changing circumstances. We maintain a mindset that all costs are variable. Over time, as we've encountered expected declines in certain areas, like retail inserts and publications, we've been able to downsize our operations, which has unfortunately involved closing some plants. However, we've also realized value from those plants by selling the real estate to reduce debt. Another key factor has been the excellent work from our team on the ground; as Tony noted, productivity is significantly up this year. Reflecting on the tough labor environment from just a year ago, we adopted a comprehensive approach and accelerated our training efforts. As we faced market softness this year due to various economic factors, our full-time employees are now better trained compared to before. This adaptability is part of our lean enterprise model. We've always been quick to adjust. Our focus has been on weathering challenges and seizing opportunities, which is why we quickly reduced employee costs. When the pandemic struck, we exited panic mode within weeks, allowing us to keep the business running by making difficult decisions swiftly. This responsive culture is ingrained in our operations, partly due to our background, and we have a disciplined team that ensures we adjust accordingly. Tony, did I miss anything?

One thing I would just add, when we think about EBITDA, Kevin, is we've been focused on our pricing and making sure that we get the value that we provide to customers. So you're seeing a benefit come through the bottom line coming from in the inflationary times we've been able to focus on some price increases.

Well, and also, I think that as we provide multiple service products to people, we're getting paid for the value of that because anytime we can do more than one thing for our client, we can actually help them pull cost out through workflow analysis. And really, the more they kind of expose to us, the more we can kind of look at content and figure out where a lot of the waste is, and people are willing to pay for that because their savings is much greater than the value that they are paying us.

Okay. That's great commentary. So when I think about the change in the sales outlook, maybe just walk us through what's changed there? Was it primarily the direct mail piece that you highlighted? Or is it more broad-based than that? Maybe as you have in previous calls, maybe just touch on the sales trends you're seeing across the various product categories?

Sure. There's a larger theme of economic softness. We noticed this from our clients as we approached summer, with a focus on the fall. Recent retail figures were not adjusted for inflation, revealing a decline in absolute units in the consumer packaged goods and retail sectors. This is a significant factor. We categorize our offerings into large-scale print, targeted print, and integrated solutions to show where the expected decline is. As anticipated, large-scale print has decreased. Retail interest seems to retract more quickly due to economic conditions, and we expect this trend to continue. In targeted print—which includes catalogs, direct mail, packaging, and in-store—we benefit from our MX strategy and the work we do to solve brand problems upfront, leading brands to engage us in connecting with consumers through various channels. Direct mail has been challenging, and it's vital to highlight that we don’t view this as a continual decline. We concentrate on highly personalized, data-driven direct mail; however, our sales decreased significantly this year, a trend that began late last year coinciding with rising interest rates. In the financial sector, we saw a notable player exit Consumer Banking, which impacted us. While there is some economic pressure affecting sales, the challenges in direct mail can be overcome as we continue to promote its value. In-store sales increased by 12%, and packaging remained relatively stable. Another factor influencing our revenue is the postal service's actions. Catalogs are particularly impacted, as the post office is attempting to resolve its issues by raising prices instead of cutting costs. They've implemented two price increases this year for our clients. Consequently, catalog prospecting has faced cutbacks. Overall, we've observed a broad economic pullback, particularly in marketing, which tends to be the first area affected. Direct mail is the segment I would emphasize, as we believe it's a manageable category that won’t consistently decrease.

Okay. That's helpful. So, when I review the updated sales guidance, it suggests a nice seasonal increase in fourth-quarter sales. Are you anticipating or noticing a fairly typical sequential ramp-up related to the holidays, although it may be starting from a lower base?

Yes. I mean, at this point in the year, a lot of that stuff, our customers are pretty locked and loaded. There is some ebb and flow in it, and specifically, maybe between months, sometimes. But December is one that kind of sort of materializes later in the game, but we feel very good about where things are at for the rest of the year.

Any thoughts on volumes in the industry beyond the end of this year? I understand you haven't provided guidance for next year, but it seems to depend on the economy. Do you think interest rates will remain a challenge in the financial services sector, or might we see some pent-up marketing spend return? Will trends continue to follow consumer behavior, or do you have any insights from your industry experience on how you expect volumes to behave in this environment?

If I had a better idea of the economic outlook, I could provide a more precise answer. However, I believe the situation largely depends on how things develop over time. In the financial sector, for example, there's been a noticeable impact from rising interest rates, yet companies still need to engage with their customers. Initially, there may be a pause in activity, but eventually, businesses have to return to their marketing efforts. I anticipate a gradual return to normalcy in that regard. When it comes to volumes, predicting them is challenging due to the current economic challenges, but we are not sitting back waiting for things to improve as a strategy. We have been implementing various plans to grow our direct mail business. Recently, we've closed a facility which will help address our volume shortfall and strategically position us for future opportunities in the direct mail market. We continuously assess all areas affected by any downturn and take proactive measures to navigate through it. On the sales front, we have significant developments in our marketing experience sector. We consistently showcase our success stories, particularly with brands like Titleist, which we are very proud of. These successes not only establish our reputation but are expected to generate substantial future revenue. It’s important to note that when we focus on targeted print alongside integrated solutions, we typically deal with larger contracts. We've been successful in attracting great talent, like Josh Lowcock, who specializes in media, data, and analytics. We are gearing up swiftly to expand our reach to new brands that are not yet familiar with Quad, and despite the economic challenges our usual customers may face in 2024, we plan to continue cultivating new opportunities.

Kevin, you have participated in several of our calls, and you know that during uncertain economic times, we will continue to prioritize the strength of our balance sheet and debt reduction. We mentioned further decreases in debt reduction, aiming to get below 2.0 leverage as we look towards 2024. So while we keep investing in growth, as Joel indicated, we will also continue to support our shareholders. We can achieve all of this due to the strong free cash flow we generate.

Yes, that's a great point, Tony. You mentioned a few new wins in your slide deck, and I wanted to ask about the overall pipeline for your agency solutions and how the messaging around your unique end-to-end integrated marketing solutions is being received in the current economic environment.

Yes, it's actually being received well. I think that it goes to the ecosystem that's out there for brands and how they market it is, it's fairly broken. Like we always say, it's not very integrated. And in one of my answers before I mentioned, the more a client allows us to look at their process, their content, how they go to market, the more we can help integrate those processes, not just in how they would interact with us in producing it versus a big holding company, but also within their own four walls. We're very good at helping them squeeze the cost out that can happen because of cost takeout. So it's been received very well. And I'd say that I always believe that never waste a soft environment because that's when a lot of our marketers are under more pressure. It's under more pressure to try and find the audience, convert them to customers, but also under more pressure to find cost takeout. And so they tend to want to listen a lot quicker in a downturn, but our marketing team has done an outstanding job over the past two years of making us known to a whole group of clients who never knew us before. And so we feel very good about the growth of the pipeline and the types of services we're being asked to do and the fact that the integration part is playing out. And so again, sometimes it takes a little while for someone to start with being an AOR, but then cascade down into us doing in-store or packaging for them. But when they do that, that's when you start to see the revenue pop from each of the accounts. So like I said, we're very ambidextrous. Yes, I'm like a little disappointed that on the print side, we have to manage for some pullback, but I'm super excited on the marketing experience side because it's really reign true to what people are looking for.

I have a couple more questions. When you mention the increases in postage rates and how your clients have responded, you highlighted the catalog segment. Do you believe they will eventually adjust to this, or do you assist them in managing this aspect? I know you're already working on ways to reduce their postage costs. How do you see this situation ultimately evolving or being resolved?

Yes, I think it's twofold. When there is a rapid increase in your biggest cost, you tend to see a quick reaction until adjustments can be made. Historically, when the post office implements significant rate increases, there is an immediate pullback. However, businesses still need to market, so they adapt by becoming more strategic about their mailing efforts. They focus more on response rates per piece and ways to improve that. This leads to a better understanding of their audience and what they are sending. We are also committed to helping clients analyze the best use of their budget. On the operational side, we have several strategies in place to mitigate postal costs over time. We significantly reduce current postal expenses through extensive co-mailing initiatives. We are excited to be rolling out a new product that will help our clients further offset these postal increases. It will take time for some to test it out, but we are launching it with publications now, and we aim to get catalogers on board as quickly as possible. This situation drives us to be innovative. It’s important to remember that we carry out much of the post office's work. We handle the sorting, combine shipments from various customers, and deliver them almost to the nearest post office for pickup. Thus, we focus on process innovation to assist in offsetting these costs. So, it’s a combination of factors in relation to your question.

Yes, and the majority of cost that someone pays to print is postal, right? So this is a big item. So all the solutions that Joel talked about and the scale that we bring, that gives us an advantage in helping businesses be the most efficient they can be in getting things delivered to end destinations.

All right. Yes. Understood. So just two more here. Anything to highlight in your international markets and what's going on there? Saw decline year-over-year. But is that seeing the same kind of headwinds as you're experiencing in the U.S., I guess?

Well, quite frankly, where we see the softness would be in Europe because Europe has obviously big challenges now and ahead of it. But if you look at Mexico, that is being tremendously successful for us, and we're continuing to actually grow that organically. And so we've got into some new product lines. We've signed up a lot of new customers. We're adding a new very large press in Mexico, has to be up and running by February or our clients will be upset, but it's on schedule. But that's actually a great story. So Mexico is a very good highlight offset by some of the softness in Europe.

Okay. And then lastly, Tony, as we think about the restructuring and impairment charge line, they were up a bit sequentially in the third quarter from the second quarter. Have you taken additional actions that would lead to a bit higher charges than you had been previously expecting here? Or just how should we think about that trending in the fourth quarter?

Sure. So if I start with the third quarter on that, a portion of the expense that you saw come through that line was impairment related, about half of it impairment-related non-cash in nature. So third quarter was actually from a cash perspective, the lowest restructuring quarter thus far. As we look out in the fourth quarter, we are anticipating some restructuring expenses. We continue to address capacity needs in our production platform that will lead to cost there.

Operator?

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Joel for closing remarks.

Thank you, operator, and thank you, everyone, for joining today's call. I want to close by reiterating my confidence in our strategy and in our role as a marketing experience company. Our integrated marketing offering continues to be a competitive differentiator and a key driver behind our company's overall momentum going forward. At the same time, we remain focused on proactively managing all aspects of our business for long-term strength and stability and shareholder value creation. With that, thank you again, and have a good day. We look forward to speaking with you again next quarter.

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