Earnings Call Transcript - QUAD Q4 2025

Operator, Operator

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

Julie Fraundorf, Executive Director of Corporate Development and Investor Relations

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.

Joel Quadracci, Chairman and Chief Executive Officer

Thank you, Julie, and good morning, everyone. I'll start with the key highlights from Slide 3. In 2025, we met our full year financial guidance. Even with a planned decrease in reported sales, we generated strong cash flow, which allowed us to make targeted investments for long-term growth, reduce debt, and deliver strong returns to shareholders. We made significant progress in advancing our revenue diversification strategy. Targeted print categories, such as packaging and in-store marketing, saw net sales growth, and direct mail exceeded our expectations for 2025 due to increased volumes and strong operational efficiencies. Our agencies, Betty Creative and Rise Media, also delivered impressive work for notable brands like Aldi, Natural, CLR, and Gallo. Our financial guidance for 2026, which Tony will detail, reflects this progress and aligns with our goal of returning to net sales growth by 2028. I'm also pleased that Quad’s solid balance sheet and disciplined management approach have allowed us to raise our quarterly dividend by 33% to $0.10 per share, or $0.40 annually, highlighting our commitment to long-term shareholder value. Moving to Slide 4, Quad's integrated marketing platform includes all the resources brands and marketers need to strategize, plan, create, deploy, measure, and optimize their marketing efforts across various media channels. We accomplish this through our MX solution suite, which integrates creative production and media solutions across physical and digital channels. Backed by data-driven intelligence and cutting-edge technology, our scalable solutions are designed to minimize friction at any point in the marketing journey. While our offerings are organized into distinct solution suites, they are intentionally crafted to work together. This integration provides a significant competitive edge for Quad, creating a unified ecosystem that enhances marketing performance for clients. One area where this integration is proving effective is direct mail, an essential tactic within direct marketing. On Slide 5, we showcase our direct marketing agency, established in 2025, which enhances the marketing experience for mailers by merging strategy, audience identification, creative production, and measurement services. Our agency utilizes Quad's proprietary data stack to generate highly responsive target audiences. Clients have also benefited from our pre-market testing services that confirm content and designs before any printing or campaign launch. By integrating these often separate services with our robust manufacturing platform, Quad can scale personalized direct mail, building on the momentum we gained in 2025. On Slide 6, we share our collaboration with Heartland Dental, one of the largest dental support organizations in the U.S., illustrating how we assist clients in modernizing direct mail. Heartland Dental relies on printed direct mail as a key growth driver and is focused on enhancing efficiency by shifting from broad geography-based mailings to more targeted outreach. Since we began working with them in the fourth quarter of 2025, we have partnered closely to lay the groundwork for long-term success. The team is concentrating on understanding goals, refining creative and performance, and optimizing postal strategies. We are implementing a structured test-and-learn approach to improve return on investment per mail piece rather than simply reducing costs. Using our accelerated marketing insights and pre-market testing, we are refining existing creative while leveraging Quad's personalization platform to create new, dynamic content. As our partnership develops, we plan to incorporate more advanced household-level targeting utilizing our data stack, allowing the client to divert spending towards higher-value growth audiences in key areas. Concurrently, Heartland Dental is using Quad's at-home Connect platform to execute automated trigger-based direct mail. In terms of production, Quad aims to achieve significant postal savings for the client within the first year of our partnership by leveraging USPS promotions and our optimization services, freeing up resources for reinvestment in Heartland Dental's growth strategy. Moving to Slide 7, we are enhancing our creative and media capabilities through our Betty and Rise agencies. To meet rising client demand, we've recently opened new offices in Austin, Texas, and Mexico City, Mexico. The Austin office will serve as a full-service studio, while the Mexico City office, scheduled to launch later this quarter, will combine the expertise of Rise media professionals with Betty creatives to better support clients in retail, grocery, and packaging design. As our agency presence expands, our capacity to secure larger integrated assignments also increases, as evidenced by recent wins with major brands like Scandinavia Designs and Valvoline Instant Oil Change. On this slide, we highlight our newest integrated agency client, Gorilla Glue Company, a leading adhesive manufacturer. Last year, Gorilla Glue engaged Betty to create a scalable creative platform for their extensive product lineup. The campaign, which launched last month, features real actors and product demonstrations combined with a hyper-realistic brand character developed using advanced generative AI and CGI technology. This approach illustrates how Betty leverages AI to unlock new creative opportunities while maintaining authenticity. While Betty was responsible for campaign development, Gorilla Glue sought a new media agency and ultimately selected Rise as its media agency for both Gorilla Glue and its skincare brand. Rise now oversees the brand's integrated media strategy, planning, buying, and measurement across all digital and traditional channels. Morgan Roberts, VP of Brand Management at Gorilla Glue Company, expressed that they see Betty not just as an agency, but as a creative partner that can help them realize bold ideas authentically while advancing the brand. Rise, with its expertise, provides accountability, rigor, and clear measurement to enhance their media strategy, allowing them to connect effectively with DIYers, professionals, and beyond. Moving forward, coming campaigns for this client's brands will utilize Quad's data capabilities to pinpoint and activate the most valuable audiences. With creative and media coordinated closely, Rise's audience insights and experiential media planning will inform Betty's creative strategy. This consolidated partnership streamlines execution, minimizes handoffs for the client, and reinforces Quad's integrated model for delivering high-performing marketing solutions. On Slide 8, we describe how Quad is increasingly applying its integrated solutions to support emerging consumer packaged goods (CPG) brands eager to enhance their presence in big box retailers. Our extensive manufacturing and structural design capabilities enable swift market entry while providing a variety of displays that grab consumer attention and educate them on product benefits. With decades of experience catering to major U.S. retailers, we are adept at customizing in-store displays to meet individual chain requirements. This approach helps CPG brands rapidly scale by implementing modified and adaptive displays for new retailers. Slide 9 details our partnership with Pura, a rapidly growing smart home fragrance company, which enlisted Quad's support for its largest in-store retail promotion to date. From the start, Quad offered integrated assistance in concept development, structural engineering, print production, and distribution. This early collaboration produced a cohesive solution rather than disparate services. To reflect Pura's premium sensory brand in a retail setting, Quad crafted a custom end-cap that transformed a standard retail fixture into an inviting brand experience. The display featured a custom diffuser, allowing customers to enjoy Pura's fragrances while ensuring product security. Following the retailer's decision to allocate more shelf space to Pura, Quad designed additional complementary side cap displays. We continue to collaborate on aisle displays for that brand and are rolling out similar Pura displays across both national and regional retailers. Moving on to Slide 10. As Quad evolves into a company that tackles marketing complexity at scale, I am thrilled to announce the expansion of Dave Honan’s role to President in addition to his current responsibilities as Chief Operating Officer. Since joining Quad in 2009, Dave has played a critical role in enhancing our operations, margins, and performance discipline. The Board and I have great confidence in his ability to drive day-to-day execution across the company. Dave and I have cultivated a strong partnership over 17 years, grounded in a unified vision and strategy for Quad. We remain dedicated to continuing to build on Quad's 55-year legacy of excellence. As CEO for the last four years, Dave has excelled in overseeing our manufacturing operations. In this new role, he will broaden his operational focus to encompass the entire company. This new leadership structure enables me, as Chairman and CEO, to concentrate on long-term strategy, innovation, partnerships, and stakeholder relations. I look forward to fostering Quad's growth for many years, and I am optimistic about what we are creating together: a company that helps brands meaningfully connect with people, anchored in a values-driven culture committed to creating better solutions every day. Alongside this evolution, we have also strengthened alignment within the business. As shown on Slide 11, we have strategically centralized our marketing and sales functions under a single leader, Executive Vice President and Chief Revenue Officer, Julie Currie. This change builds a stronger link between our marketing initiatives and business growth priorities, ensuring that our brand demand and go-to-market strategies are closely aligned with revenue generation goals. I would like to take a moment to thank Josh Golden, our former Chief Marketing Officer, and wish him well as he embarks on a new career opportunity. Since joining Quad in 2021, Josh has been instrumental in elevating our brand identity as a marketing experience company and has built a solid marketing organization that will continue to drive our growth moving forward. We appreciate all of Josh's contributions to Quad. Turning to Slide 12, Quad is making targeted investments in artificial intelligence to foster cost efficiency and revenue increases. Internally, AI-driven automation is enhancing productivity across labor-intensive workflows like scheduling, job ticket creation, and machine maintenance planning. Externally, Quad is integrating AI throughout our MX solution suite to boost our clients' marketing efficiency. For instance, we are expanding the use of AI within our audience builder platform, supported by our proprietary data stack, to create faster and more precise target audiences for clients. Rise has adopted a new agency operating system that employs AI tools for optimization, automation, and advanced measurement insights. Furthermore, Betty is utilizing AI in creative campaigns, blending synthetic and traditional photography to produce high volumes of creative assets more quickly and cost-effectively for clients. Moving to Slide 13, in Q4, we successfully integrated Andrews' co-mail volume and high-density capabilities. Our postal optimization platform has significantly enlarged mail pool sizes and improved sortation levels, enabling greater savings for our clients, as postage represents their largest expense in producing and distributing printed marketing materials. Quad's ability to maximize postage savings is crucial for maintaining the value of print within the marketing mix. Therefore, we are focused on increasing volume in our co-mail pools by expanding our third-party co-mail partnerships. In April, Quad will host its 25th postal conference, offering an opportunity for discussions with our postal team, clients, and USPS leaders, including Postmaster General David Steiner. I look forward to sharing insights about our postal optimization solutions while collaborating to address ongoing challenges within the postal landscape. Transitioning to Slide 14, I want to acknowledge our employees and express gratitude for their ongoing dedication. Their innovation and collaboration have fostered a unique company culture at Quad, recently recognized by prominent media outlets. Forbes included Quad in its inaugural list of Best Employers for company culture, and Digit A named Betty Agency the best hybrid work environment in its Work Life Awards. These accolades underscore Quad's ability to attract and retain top talent, which is vital for our long-term growth. Before I hand the call over to Tony, I want to address an important transition in our manufacturing network. After over 35 years in Upson County, our plant near Thomaston, Georgia, will conclude production and close in early March. I want to extend our heartfelt appreciation to the employees at that facility. Their dedication, craftsmanship, and pride have been fundamental to our success over the years. I also thank the Upson County community for their longstanding support. As we close this chapter, we do so with deep gratitude for everything we achieved together and for the enduring legacy that remains. Now, I will pass the call to Tony.

Anthony Staniak, Chief Financial Officer and Treasurer

Thanks, Joel, and good morning, everyone. On Slide 15, we highlight our diverse revenue mix. In the fourth quarter of 2025, net sales reached $631 million, reflecting a 5.7% decrease from the fourth quarter of 2024, excluding the divestiture of our European operations. Over the full year, we met our public guidance with net sales of $2.4 billion in 2025, a 4.8% decline compared to 2024 when excluding the European divestiture. This decline was primarily due to reduced paper sales, lower print volumes, and decreased logistics and agency sales, including losing a major grocery client in 2024, which was reflected starting in March 2025. When comparing our net sales breakdown between 2024 and 2025, our revenue mix as a portion of total net sales increased for our targeted print offerings in direct mail, packaging, and in-store segments, as well as in our QuadMed employer-sponsored healthcare business. These gains were counterbalanced by expected declines in magazine and catalog print product lines and logistics, both of which correlate with declines in print volume. Slide 16 gives an overview of our financial results for the fourth quarter and the full year of 2025. Adjusted EBITDA was $55 million in the fourth quarter of 2025, down from $63 million in the fourth quarter of 2024. For the full year, adjusted EBITDA stood at $196 million in 2025 compared to $224 million in 2024. The decreases in adjusted EBITDA for both periods mainly stemmed from lower net sales, increased investments in innovative offerings to foster future revenue growth, and the divestiture of our European operations. These decreases were 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, consistent with the fourth quarter of 2024. For the entire year of 2025, adjusted diluted earnings per share was $1.01, reflecting an increase of $0.16 or 19% from 2024, driven by higher adjusted net earnings and the positive impact of a reduced share count due to stock buybacks. Beginning in 2022, we have bought back 7.4 million Quad shares at an average price of $4.11, accounting for about 13% of our total outstanding common stock at that time. This includes 1.5 million shares purchased at an average price of $5.40 for $8 million during 2025. Quad's Board of Directors approved a share repurchase program of up to $100 million of our outstanding Class A common stock in 2018. As of December 31, 2025, we have $69.5 million remaining under this program, and we plan to remain opportunistic regarding future share repurchases. Free cash flow in 2025 was $51 million, down from $56 million in 2024. This $5 million decline was largely due to a $17 million decrease in net cash from operating activities, primarily related to the timing of working capital, partially mitigated by a $12 million reduction in capital expenditures. As mentioned previously, we will continue to obtain proceeds from asset sales along with strong free cash flow generated by our large printing operations, as depicted on Slide 17. From 2020 to 2025, we generated over $870 million in free cash flow and asset sale proceeds, including $88 million in 2025. These asset sales involved divestitures of non-core business segments and sales of property and equipment from closed facilities. In 2025, we finalized the sale of our European operations to QuadMed and disposed of five buildings, including the Greenville, Michigan production facility and an additional building in Sussex, Wisconsin in the fourth quarter of 2025. We anticipate future cash proceeds from the buildings currently for sale in Waukee, Iowa, and Thomaston, Georgia. This robust cash generation supports our balanced capital allocation strategy, as shown on Slide 18. We maintained a low net debt leverage of 1.57x as of December 31, 2025. We enhanced our postal optimization offering with the April 2025 acquisition of [indiscernible] and invested $45 million, about 2% of our net sales, in capital expenditures for growth, automation, and maintenance of our offerings. We also returned $22 million to shareholders in 2025, including $14 million in cash dividends and the previously mentioned $8 million in 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 another 33% increase to $0.10 per share quarterly or $0.40 annually. This 2026 dividend increase signifies a sustainable $5 million rise in expected cash dividend payments compared to 2025. We are pleased to return capital to shareholders through quarterly dividends and opportunistic stock buybacks. Slide 19 summarizes our multi-year debt reduction strategy. In 2025, we lowered net debt by $42 million, and from 2020 to 2025, we utilized our strong cash generation to decrease debt by $726 million, a 70% drop from over $1 billion at the start of 2020. Slide 20 outlines our debt capital structure. During 2025, we welcomed Flagstar Bank, a major regional lender, to our bank group of 12 premier institutions. By the end of 2025, our debt carried a blended interest rate of 7.0%, and our total available liquidity, including cash on hand and our most restrictive debt covenant, was $299 million. Our next significant maturity of $205 million is scheduled for October 2029. Due to uncertainties regarding interest rates, we hold four interest rate swaps with a notional value of $130 million and one interest rate collar agreement with a notional value of $75 million. With these interest rate derivatives, 58% of our exposure is capped, and the collar would enable lower interest expenses on about 62% of our debt if interest rates fall. In the fourth quarter of 2025, we completed the annuitization of part of our defined benefit single employer pension plan, as shown on Slide 21. We annuitized $96 million of pension liability, which represented 32% of the plan's obligation at the time, along with a $94 million distribution from the pension assets. This covered pension obligations for 6,200 participants, or 65% of the total plan participants. We incurred a noncash settlement charge of $13 million with this annuitization. To remind you, we acquired this single employer pension plan along with two multi-employer plans and other post-retirement obligations with the acquisition of World Color Press in 2010, which amounted to $533 million in net obligations at the time of acquisition. Since then, we have made cash contributions and taken measures, like pension annuitization, to reduce our net obligations by $491 million and improved the qualified pension plan's funded status to 91%. As of December 31, 2025, we have only $42 million in net pension liability remaining. We present our 2026 guidance on Slide 22, and I’m pleased to report that our 2026 forecast marks another step toward our 2028 revenue growth outlook. We anticipate a net sales decline of 1% to 5% in 2026 compared to 2025, excluding $23 million of 2025 net sales from the divestiture of our European operations. The midpoint of the 3% decline in our 2026 guidance indicates continued sequential improvement from year-on-year declines of 9.7% in 2024 and 4.8% in 2025, excluding the European divestiture. Due to typical seasonality, we expect lower net sales in the first half of 2026, followed by higher sales in the second half during our seasonal production peak. Full year 2026 adjusted EBITDA is projected to be between $175 million and $215 million, with $195 million at the midpoint being comparable to the 2025 adjusted EBITDA of $196 million. We expect adjusted EBITDA to follow a similar seasonal pattern as net sales. Our adjusted EBITDA margin is expected to rise by 30 basis points from 8.1% in 2025 to 8.4% in 2026, due to consistent cost management and changes in revenue mix. We foresee 2026 free cash flow ranging from $40 million to $60 million, with $50 million at the midpoint, essentially equivalent to the 2025 free cash flow of $51 million. We expect increased net cash from operating activities driven by higher cash earnings and the timing of working capital to be balanced against higher capital expenditures. Free cash flow is anticipated to be weakest in the first quarter of 2026 due to the timing of staff investments in annual bonuses and 401(k) match payments, alongside working capital timing issues. As a reminder, the company usually generates most of its free cash flow in the fourth quarter of the year. With expectations of strong cash flow, we plan to increase growth investments while maintaining low debt leverage. Capital expenditures are projected to be in the range of $55 million to $65 million, which is around $15 million higher than 2025 at the midpoint of our 2026 guidance. This underscores our commitment to invest in growth and automation across our print platform as well as in our service lines, including in-store Connect by Quad. Moreover, we anticipate our net debt leverage ratio to decrease from 1.7x at the end of 2025 to about 1.5x by the end of 2026, achieving the lower end of our targeted long-term net debt leverage range of 1.5x to 2.0x. Please note, we may operate above this range at certain seasonal times throughout the year. We are vigilantly monitoring potential impacts from tariffs and inflationary pressures on our clients, along with postal rate increases that may influence print and marketing expenditures. We will remain flexible and adapt to changing demand conditions while adhering to our methodical approach to managing all business aspects, notably treating all costs as variable, optimizing capacity use, and maintaining effective labor management. As part of these strategies, we announced the closure of our Thomaston, Georgia print plant in the fourth quarter of 2025, with operations expected to cease by the end of the first quarter. Slide 23 summarizes our 2028 financial outlook and long-term financial goals as we continue to build our momentum as a marketing experience company. We expect the rate of net sales decline to enhance, as observed since 2024, ultimately reaching a turning point for net sales growth in 2028. We are strategically investing for the future, anticipating growth in our integrated solutions and targeted print offerings to outpace the organic decline in our large-scale print product lines. Excluding large-scale print segments like retail inserts, magazines, and directories, we expect the business to grow at a 3% compound annual growth rate through 2028. Additionally, by 2028, we aim to improve adjusted EBITDA margin to 9.4% and are planning to demonstrate progress toward this objective in 2026 by raising the adjusted EBITDA margin by 30 basis points. We expect to attain low double-digit adjusted EBITDA margins in the long run, as our net sales mix shifts toward higher-margin products and services while we continue to enhance manufacturing productivity and reduce costs. Regarding free cash flow, we plan to escalate our free cash flow conversion rate as a percentage of adjusted EBITDA from approximately 26% based on our 2026 guidance to 35% by 2028 and 40% in the long term, primarily due to reduced interest payments on lower debt balances and decreased restructuring costs. Finally, we continue to expect to uphold our current long-term target net debt leverage ratio within the range of 1.5x to 2.0x, aligned with our balanced capital allocation strategy. We believe that Quad represents a compelling long-term investment, and we are dedicated to achieving our financial objectives while delivering strong returns to shareholders, which includes 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’ll hand the call back to our operator for questions.

Operator, Operator

The first question comes from Kevin Steinke with Barrington Research.

Kevin Steinke, Analyst

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 how you see that momentum carrying into perhaps 2026 and beyond.

Joel Quadracci, Chairman and Chief Executive Officer

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 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. That's something that people sometimes don't realize, that this is a very responsive channel, and we're also getting people to reenter the direct mail space because of the responsiveness. 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. 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. As we think forward, the more we kind of help people as an agency for DM create innovation and take 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. That approach is really helping drive people towards us, but also creating direct mail where there was none, and 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.

Kevin Steinke, Analyst

That's good to hear. I wanted to ask about the postal service delaying the rate increase that typically occurs in January for certain categories, including catalogs. It seems that catalogs could play a crucial role in a client's marketing outreach long-term. Have you noticed any increased use of catalogs or other channels because of the postponed rate increase, especially considering that rates have risen significantly over the past few years?

Joel Quadracci, Chairman and Chief Executive Officer

I'll address your question specifically regarding the postal service and also provide a broader view. Postal services account for about 70% of direct mail spending. Our collaboration with the post office focuses on co-mailing, which enhances efficiency and leads to significant savings for our clients through available discounts for improving efficiency. Previously, from over a decade until 2021, the post office had to limit its annual rate increases to the change in CPI, resulting in predictable models that aligned with general inflation trends seen across various industries. However, after the pandemic, the former Postmaster General was given the authority to exceed this limit in an effort to address some existing issues, which led to aggressive rate increases averaging over 35% above inflation. Such substantial rises in costs would generally result in noticeable declines in any industry, and we have indeed witnessed an accelerated decline during that time. The new Postmaster General aims to shift towards a growth mindset, as indicated by the recent decision to forgo an increase in January, although an increase is still anticipated for the latter half of the year. Specifically for catalogs, a temporary test period was implemented to mitigate last year's midyear rate increase, but this is about to end, and we do not expect it to effectively drive volume due to the excessively high baseline from the previous increases. The most affected area of catalogs has been in prospecting mailings aimed at acquiring new customers, where the responsive rate to catalogs has notably declined. While catalogs still generate volume, the disproportionate cost increases lead to reductions in usage. In summary, we have not observed growth in catalogs but rather additional declines due to the inflated baseline costs. Nonetheless, we have made considerable efforts to counteract this impact over the past year through the acquisition of Andrews.

Kevin Steinke, Analyst

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 in terms of how much you've rolled that out currently?

Joel Quadracci, Chairman and Chief Executive Officer

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 grocery space, but retail in general, talks about activating. 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. It involves every part of a company's organization, which was a learning that it's going to take longer to execute and make decisions 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 is in in-store media as a new medium to be activated. It’s about getting to as many eyeballs as possible so that CPGs want to make it a regular part of their budget. We are full steam ahead here. Again, we learned a lot that it takes longer for organizations to navigate, but it hasn't changed the interest that we're seeing out there.

Anthony Staniak, Chief Financial Officer and Treasurer

And Kevin, I want to mention that we have set aside capital in our CapEx guidance for 2026 to support growth in ICQ. This is a key factor contributing to the increase in CapEx from year to year.

Kevin Steinke, Analyst

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

Anthony Staniak, Chief Financial Officer and Treasurer

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

Kevin Steinke, Analyst

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 two 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 the higher end versus lower end of those ranges as 2026 progresses?

Joel Quadracci, Chairman and Chief Executive Officer

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

Anthony Staniak, Chief Financial Officer and Treasurer

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. We're going to continue to watch, obviously, the cost side closely and have demonstrated actions towards that effect.

Kevin Steinke, Analyst

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?

Anthony Staniak, Chief Financial Officer and Treasurer

Yes, Ken. Overall, the message for 2026 is similar to 2025. We'll assess if a tuck-in acquisition aligns with our parameters, which is a possibility. Capital expenditures remain essential. Joel mentioned not only ICQ but also other growth areas where we could allocate funds. We are committed to providing a strong return to shareholders and are working towards that shift in 2028. In the meantime, we want to reward our long-term shareholders. This is where the stock buybacks and the dividend come into play. We believe that maintaining low debt leverage is wise in this cycle to help us handle any challenges and also be ready for any opportunities that arise. I expect a similar approach to what we executed in 2025.

Operator, Operator

Our next question comes from Barton Crockett with Rosenblatt Securities.

Barton Crockett, Analyst

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?

Anthony Staniak, Chief Financial Officer and Treasurer

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.

Joel Quadracci, Chairman and Chief Executive Officer

And I'd add that some of the noise of the past year with things like tariffs has led people to feel a little more confident in their decisions, which is a good thing. We’re seeing some reinvestment.

Barton Crockett, Analyst

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?

Joel Quadracci, Chairman and Chief Executive Officer

It's again, as I said last year, it's situational. But no, I can say that so far, we haven't seen significant pullbacks. Again, I think that in our media channel, it's been a tried and true channel for them that they know well for many years. Some of the pullbacks that they've done, like one of the areas that got pulled back over time, and we've said this would happen is retail inserts, where a lot of the big box guys have already pared that back significantly, while in things like grocery, it remains relatively strong. Some shifts that have happened in our media channels have already played out more than perhaps some of the stuff that’s rejiggering around in the bigger media mix.

Barton Crockett, Analyst

Okay. Now one 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 it still unknown what's going to happen midyear?

Joel Quadracci, Chairman and Chief Executive Officer

I think the industry is basically accepting or expecting an increase of somewhere in the 6% to 8% range mid-year which, again, one 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. Aspiration-wise, they prefer further incentives to increase mail. But I think that, that one is kind of built-in.

Barton Crockett, Analyst

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 staying somewhere in this 0% to 8% range?

Joel Quadracci, Chairman and Chief Executive Officer

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. The Postmaster General will be up in front of Congress to talk about operational issues, but he's also trying to implement a continuation of some of the old strategy but trying to pivot them to growth. You can't do that unless you tackle the ability for customers to pivot to growth, which involves pricing. That’s the part I’m watching closely, but we don’t have full visibility to at this point.

Operator, Operator

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

Joel Quadracci, Chairman and Chief Executive Officer

Thank you, operator, 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.

Operator, Operator

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