Earnings Call Transcript - QUAD Q3 2025

Operator, Operator

Good morning, and welcome to Quad's Third Quarter 2025 Conference Call. A slide presentation accompanies today's webcast. Participants are invited to follow along and advance the slides themselves. To access the webcast, follow the instructions posted in the earnings release. Alternatively, you can find the slide presentation in the Investors section of Quad's website under Events and Presentations. Please note this event is being recorded. I will now turn the conference over to Katie Krebsbach, Quad's Senior Manager of Investor Relations. Katie, please go ahead.

Katie Krebsbach, Senior Manager of Investor Relations

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, Quad's Chairman, President and Chief Executive Officer; and Tony Staniak, Quad's Chief Financial Officer. Joel will lead today's call with a business update, and Tony will follow with a summary of Quad's third quarter and year-to-date financial results, followed by Q&A. I would like to remind everyone that this call is being webcast, and forward-looking statements are subject to safe harbor provisions as outlined in our quarterly news release and in today's slide presentation on Slide 2. Quad's financial results are prepared in accordance with generally accepted accounting principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, free cash flow, net debt and net debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call will be available on the Investors section of quad.com shortly after our call concludes today. I will now hand over the call to Joel.

Joel Quadracci, Chairman, President and CEO

Thank you, Katie, and good morning, everyone. Our results met our expectations, and on Slide 3, we outline key highlights from our third quarter and year-to-date performance. We continue making targeted investments in AI-powered tools and systems, data and audience intelligence services and our In-Store Connect retail media network. These investments, combined with our creative marketing services and premier print platform, fortify Quad's differentiated strengths as a marketing experience company that simplifies the complexities of marketing for brands and marketers. They also advance our revenue diversification strategy, which aims to return Quad to net sales growth in 2028. Quad's continued strong balance sheet and our disciplined approach to managing the business have enabled us to return $19 million of capital to shareholders year-to-date. Additionally, we are updating our full year 2025 guidance by narrowing our ranges for sales, adjusted EBITDA and cash flow, which Tony will walk through later. Quad's MX offering, shown on Slide 4, includes a suite of integrated solutions for creative, production and media backed by intelligence and tech across all digital and physical channels. As we invest in our growing solution set, we also continue to monitor macroeconomic pressures such as inflation, employment rates, tariffs and high postage costs, which may negatively impact our clients' mission-critical marketing plans. Quad's overall supply chain continues to have limited direct exposure to tariffs. Our largest imports, the paper we bring in from Canada and the books we manufacture for U.S. clients in our Mexico facilities, are compliant under the USMCA and remain exempt from tariffs. However, tariffs have increased the cost of certain print-related materials such as ink pigments and plates. As a result, we have notified our clients that Quad will pass along these costs through a January 1 price increase, consistent with the rest of the industry. During the third quarter, we did not see a significant pullback from clients due to tariffs. However, we are closely monitoring client actions given ongoing uncertainty around the macro environment. With postage being now our single largest marketing expense, high postage rates continue to significantly impact our industry. However, marketers received positive news in September when the USPS announced that it would not issue a January price increase for market dominant mail, which includes magazines, catalogs and direct mail. This announcement comes at an important time for marketers as they formalize their 2026 media plans. During the quarter, Quad leaders and I met with the USPS to have an open discussion about mailers' concerns. We presented data on a variety of topics, including how twice annual rate increases and inconsistent delivery service negatively affect our industry. We also discussed work sharing, whereby private sector mailers like Quad perform tasks that the USPS would otherwise handle in exchange for discounted rates. The USPS has recently affirmed that this type of public-private partnership is critical to the postal landscape as it reduces operational costs for the government and lowers postage cost for mailers. I appreciate the USPS' renewed engagement with the mailing industry under the new Postmaster General and look forward to continued collaboration to keep print a vital part of the marketing mix. We continue to deploy a strategic two-pronged approach to help clients mitigate the impacts of high postal rates. Our approach focuses on maximizing savings while increasing marketing effectiveness. To maximize savings, we provided clients with innovative postal optimization solutions. Earlier this year, we expanded our co-mailing capabilities by acquiring the co-mail assets of Enru to support high-density presort levels, which generates additional savings through economies of scale. We also offer innovative bundling services like Household Fusion, which combines different mail pieces destined for a single household into one package for a discounted rate. To drive marketing effectiveness, we create smarter audience segments and deploy personalized content. This ultimately yields a higher response rate and greater return on investment, which offsets the cost of postage. Transitioning to Slide 5. Audience data is the lifeblood of today's marketing ecosystem. Quad is uniquely positioned to provide audience intelligence through our proprietary data stack, which is anchored in physical household-centric data. Our stack represents 92% of U.S. households and includes more than 20,000 addressable demographic, transactional, attitudinal and behavioral characteristics as well as hundreds of proprietary interests or what we call passions. Addressable data enables precisely targeted marketing efforts that drive measurable results. Using our data stack, we create a single knowable audience that can be built and bought across multiple media partners, supporting physical and digital channels. This unified buying experience helps clients understand who they are targeting and where, breaking down the walled gardens put in place by other media platforms and thereby removing unintentional audience duplication. The biggest hurdle to scaling the application of our data stack has been the time and specialized knowledge required to interpret the relevant data for each particular use case. During last quarter's earnings call, I shared the launch of Quad's Audience Builder, a proprietary platform that enables employees to easily access our data stack and create complex high-propensity audiences. I'm pleased to share that Quad has successfully integrated a generative AI chat feature into the platform, which provides an even faster and more effective way for our media strategists, analysts and planners to uncover consumer insights and design high-performing audiences. This new feature uses Cortex AI functionality from Snowflake, a leading cloud data platform, to interpret prompts, analyze stored audience attributes and enrich results with external demographic data. Erin Foxworthy, Global Head of Marketing and Advertising at Snowflake, said our collaboration with Quad is a testament to the power of AI to transform how marketers interact with their data. We're making it possible for brands to unlock sophisticated insights and act on them with speed and precision. Turning to Slide 6. While the consumer journey today is more complicated and convoluted than ever, in-store shopping remains an important and engaging channel for our consumers. Recent research presented by Quad and conducted by The Harris Poll, one of the longest-running surveys in the U.S., finds that 76% of Americans believe physical retail experiences help them connect more deeply with people and brands, and 86% of Gen Z and Millennials report that touching and feeling products are essential to their purchase decisions. In the coming days, Quad will release results from The Harris Poll's follow-up survey that shows a significant consumer preference for in-person shopping during the holiday due to its ability to spur brand discovery and human connection. These findings underscore how tactile brand experiences remain essential to driving sales and strengthening brand loyalty, especially as new technologies like AI disrupt traditional marketing methods. On Slide 7, we highlight how Favorite Child, the brand strategy and design practice within Quad's creative agency, is helping retailers like Aldi turn their private label packaging into a powerful brand amplifier. With more than 2,500 U.S. locations, Aldi is widely recognized as the nation's fastest-growing grocery chain. Although 90% of its 3,000-plus products are private label, many shoppers don't realize these items are exclusive to Aldi. The retailer hired Favorite Child to address this lack of brand visibility, leading Aldi's largest packaging refresh to date. To start, Favorite Child created Aldi's first-ever namesake brand, which puts its name on every product for recognizability and will replace many of the grocer's 90 previous brand names. The new Aldi packaging brand relies on a strategic design system comprised of flexible layouts, cohesive colors and bold fonts to balance brand consistency with eye-catching variety that pops on shelf. In addition, Favorite Child is working alongside other creative agencies to refresh some of the grocery's most popular private label brands like Clancy's, Simply Nature and Southern Grove. The rejuvenated packaging will include the tag 'an Aldi Original' to strengthen the product's connections to the retailer's overall brand. Certain Aldi branded products are already on shelves and rollout will continue to scale throughout 2026. Moving to Slide 8. We spotlight how In-Store Connect, our retail media network for brick-and-mortar stores, supports retailers and CPG brands by leveraging digital technology within the physical store environment. During the quarter, we introduced advancements to our solution, including 3 new digital signage form factors, all of which are designed to grab shopper attention and increase brand visibility. We continue to receive positive results from CPG campaigns, demonstrating the effectiveness of our in-store retail media network. Earlier this year, we conducted a test and control study with multiple clients, including Procter & Gamble, PepsiCo and Nestle USA. The study tracked year-over-year brand sales lift across a 4-week period with The Save Mart Companies. The results showed significantly higher sales lift in locations deploying our solution versus those without it. Nestle USA deployed a campaign for DiGiorno frozen pizza and experienced a 23 percentage point sales lift in test stores versus control stores. PepsiCo used our retail media network to drive awareness of its new 6-pack Rockstar Energy drink and experienced a sales lift of 25 percentage points. In high-velocity retail categories, achieving significant sales lift can be difficult, particularly for mature brands like Procter & Gamble. Using In-Store Connect to promote laundry products such as Tide, Downy and Bounce, P&G realized a sales lift of 8 percentage points. With these strong results and growing pipeline of CPGs, we are optimistic about In-Store Connect's future growth. When clients integrate their marketing efforts, they improve business outcomes, accelerate their speed to market and realize cost efficiencies. While traditional holding companies focus their efforts on individual agency capabilities, cobbling together businesses that operate in silos, Quad has structured our services to work harmoniously together, producing results greater than the sum of their parts. Throughout 2025, Quad has seen particularly strong momentum in our integrated approach to direct mail. On Slide 9, we share an example of this through our work with one of the nation's largest auto insurers. Quad partnered with the client to relaunch its direct mail channel through a scalable data-backed strategy. Our end-to-end service model has helped the client modernize its direct marketing efforts with significantly condensing its number of partners compared to past programs. Quad's support includes strategic guidance on the client's quarterly and annual DM plans; audience targeting for customer acquisition campaigns; DM creative design backed by Quad's proprietary accelerated marketing insights; pre-market testing to connect the best content, creative and format; print execution through our state-of-the-art manufacturing platform; postal optimization services and guidance to maximize USPS discounts; and comprehensive analytics to fuel growth through test-and-learn tactics. The iterative nature of this approach, conducted all under one roof, has enabled the client to evolve its strategy over time based on consumer response rates. With this strategy, we have helped the client successfully relaunch its direct mail channel, mailing more than 30 million pieces through the first 3 quarters of 2025. Before I turn the call over to Tony, I would like to recognize our employees and thank them for their continued hard work during our traditionally busiest season of the year. Whether it's on the manufacturing floor, in agency services or anywhere in between, your hard work and commitment to innovation is helping solve client problems, drive diversified business and advance our long-term strategic goals. With that, I'll turn the call over to Tony.

Anthony Staniak, Chief Financial Officer

Thanks, Joel, and good morning, everyone. On Slide 10, we show our diverse revenue mix. Net sales were $588 million in the third quarter of 2025, a decrease of 7% compared to the third quarter of 2024 when excluding the 6% impact of the February 28, 2025, divestiture of our European operations. The decline in net sales during the third quarter was primarily due to lower paper sales, lower print volumes and lower logistics and agency solutions sales. Net sales were $1.8 billion in the first 9 months of 2025, a 4% decline compared to the first 9 months of 2024 when excluding the 5% impact of the Europe divestiture due to the same factors as the third quarter and including the loss of a large grocery client, which annualized at the beginning of March 2025. Comparing our net sales breakdown between the first 9 months of 2024 and 2025, our revenue mix as a percentage of total net sales increased 2% in our targeted print offerings, driven by growth in direct marketing, packaging and in-store. Slide 11 provides a snapshot of our third quarter 2025 and year-to-date financial results. Adjusted EBITDA was $53 million in the third quarter of 2025 as compared to $59 million in the third quarter of 2024, and adjusted EBITDA margin improved from 8.7% to 8.9%. On a year-to-date basis, adjusted EBITDA was $141 million in 2025 compared to $161 million in 2024 and adjusted EBITDA margin declined from 8.2% to 7.9%. The decrease in adjusted EBITDA in both periods was primarily due to the impact of lower net sales, increased investments in innovative offerings to drive future revenue growth and the divestiture of our European operations, partially offset by lower selling, general and administrative expenses and benefits from improved manufacturing productivity. Adjusted diluted earnings per share was $0.31 in the third quarter of 2025, an increase of 19% from $0.26 in the third quarter of 2024. Year-to-date, adjusted diluted earnings per share was $0.65 in 2025, an increase of 33% from $0.49 in 2024. The increases are due to higher earnings, including lower restructuring, impairment and transaction-related charges, lower depreciation and amortization and lower interest expense, as well as the beneficial impact of share repurchases. Free cash flow improved $5 million from last year to negative $87 million in the 9 months ended September 30, 2025. The improvement in free cash flow is primarily due to a $9 million decrease in capital expenditures, partially offset by a $4 million increase in net cash used in operating activities. We show the seasonality of our free cash flow and net debt on Slide 12. Due to the seasonality of our business from the timing of holiday-related advertising and promotions, we typically generate negative free cash flow in the first 9 months of the year, followed by large positive free cash flow in the fourth quarter, resulting in reduced net debt at the end of the year. For the remainder of 2025, we anticipate a similar seasonal pattern for our free cash flow and net debt, and we expect free cash flow in the fourth quarter to be in the range of $137 million to $147 million. When removing the impact of seasonality, our net debt has decreased by $25 million from September 30, 2024, to September 30, 2025. Our free cash flow, in addition to proceeds from asset sales, fuels our capital allocation strategy, as shown on Slide 13. During the third quarter, we made additional progress on the sale of closed facilities, including the sale of our 2 buildings in Effingham, Illinois for $6.5 million. The geographic location and the length of the sales process resulted in a lower price per square foot compared to what we have received in previous real estate transactions. We continue to expect to generate future cash proceeds from additional owned facilities that are currently for sale, including in Greenville, Michigan; Waukee, Iowa; and an ancillary building in Sussex, Wisconsin. Our strong cash generation has enabled us to deepen our product offering through acquisitions, such as the co-mailing assets of Enru, maintain low debt balances and return $19 million of capital to shareholders year-to-date through $11 million of cash dividends and $8 million of share repurchases. This year, we increased the quarterly dividend by 50% to $0.075 per share, and our next dividend is payable on December 5. In addition, we repurchased 1.4 million shares of Class A common stock thus far in 2025. This brings total repurchases to 7.4 million shares since we commenced buybacks in 2022 or approximately 13% of Quad's March 31, 2022, outstanding shares. We believe this represents strong value, and we will remain opportunistic in terms of our future share repurchases. Slide 14 includes a summary of our debt capital structure. In August, we were pleased to add Flagstar Bank, one of the largest regional lenders in the country to our bank group. With this addition, the aggregate outstanding principal amount of our Term Loan A was increased by $20 million and our revolving credit availability was increased by $15 million, further bolstering our liquidity. At the end of the third quarter, our total available liquidity, including cash on hand under our most restrictive debt covenant, was $166 million, with our next significant maturity of $205 million not due until October 2029. As a reminder, given uncertainty regarding interest rates, we entered into 2 interest rate collar agreements for $150 million notional value during 2023 with $75 million maturing on October 31, 2025. Due to the upcoming maturity, during the third quarter, we entered into $80 million of interest rate swaps. Including these interest derivatives, at the end of the third quarter, our blended interest rate was 7.1%, and we would pay lower interest expense on approximately 70% of our debt if interest rates decline. We update our 2025 guidance as shown on Slide 15. For net sales, we are narrowing the range and reaffirming the midpoint of our guidance. We now expect net sales to decline 3% to 5% or 4% at the midpoint compared to previous guidance of a 2% to 6% decline when excluding 2025 net sales of $23 million and 2024 net sales of $153 million from our divested European operations. We are also narrowing adjusted EBITDA and free cash flow within our original guidance ranges. Full year 2025 adjusted EBITDA is now expected to be between $190 million and $200 million compared to previous guidance of $180 million to $220 million, while free cash flow is expected to be at the higher end of our original guidance range at $50 million to $60 million compared to previous guidance of $40 million to $60 million. Capital expenditures are now expected to be between $50 million and $55 million compared to previous guidance of $65 million to $75 million as part of our balanced capital allocation strategy. Finally, our net debt leverage ratio is expected to slightly increase from approximately 1.5x to approximately 1.6x by the end of 2025. This increase is due to cash used in the acquisition of the co-mailing assets of Enru as well as lower-than-expected proceeds received from the sale of the Effingham, Illinois buildings, partially offset by higher free cash flow at the midpoint of our updated guidance. Our net debt leverage ratio remains near the low end of our long-term targeted leverage range of 1.5x to 2.0x. And as a reminder, we may operate above this range at certain times of the year, primarily due to the seasonality of our business. We are closely monitoring the potential impacts of tariffs and inflationary pressures on our clients in addition to the recent postal rate increases, which could affect print and marketing spend. We will remain nimble and adapt to the changing demand environment while following our disciplined approach to how we manage all aspects of our business, including treating all costs as variable, optimizing capacity utilization and maintaining strong labor management. Slide 16 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build on our momentum as a marketing experience company. Compared to net sales declining 9.7% in 2024, we continue to expect the rate of net sales decline to improve to negative 4% in 2025 excluding the Europe divestiture and then reach an inflection point of net sales growth in 2028. We are strategically investing for the future as we expect growth in our integrated solutions and targeted print offerings to outpace organic decline in our large-scale print product lines. Excluding the large-scale print offerings of retail inserts, magazines and directories, we anticipate the business to grow at a 3% CAGR through 2028. In addition, by 2028, we expect to improve adjusted EBITDA margin by at least 100 basis points compared to the 8.4% margin in 2024 and then reach low double-digit adjusted EBITDA margins in the long term as our net sales mix of higher-margin services and products increases while continuing to improve manufacturing productivity and reduce costs. Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 28% based on our updated 2025 guidance to 35% by 2028 and to 40% in the long term, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments. Finally, we continue to expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy. We believe that Quad is a compelling long-term investment, and we remain focused on achieving our financial goals. With that, I'd like to turn the call back to our operator for questions.

Operator, Operator

The first question comes from Kevin Steinke with Barrington Research.

Kevin Steinke, Analyst

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

Joel Quadracci, Chairman, President and CEO

Yes, that's a good question. Starting with the catalog, it continues to be somewhat subdued due to the significant postal increase that occurred in July. However, direct mail is up over 6% year-to-date, packaging is up over 9% year-to-date, and in-store has increased by 11% year-to-date. These areas reflect the effectiveness of our consultative approach with clients. Specifically, direct mail is greatly benefiting from our focus on utilizing data to enhance personalization, which in turn boosts responsiveness. We are also achieving many new wins and seeing customers increasing their volume with us. Overall, the direct targeted print segment has a compelling narrative.

Kevin Steinke, Analyst

Okay. Yes, that's helpful. You mentioned the postal increases affecting catalogs, but it seems significant that the U.S. Postal Service is delaying a price increase for certain categories. How important do you consider this? It appears to create a more favorable environment for your clients. Have you received any early feedback from clients and what implications might this have for their upcoming marketing campaigns?

Joel Quadracci, Chairman, President and CEO

Yes, it's definitely positive news since the increase would be in the 5% to 6% range. They've decided to forgo that, which is promising. However, as I mentioned with the post office, the last hike of 11% adds to years of substantial inflation rates. From 2021 to today, while overall inflation has risen by over 16%, postal rates have surged by about 60%. This creates challenges because it's difficult for response rates to compensate for the price increases. Despite this, we're excited about our progress with Enru, the co-mail acquisition. This third-party co-mailer, which used to be part of LSC, is not just for them but also helps other printers in the industry aggregate enough volume to secure discounts. Their approach focuses on high-density mailing, while we typically handle 5-digit mailings. Since we started implementing this, we've seen considerable increases in discounts for our clients. In the first few cycles, the amount of high-density mail we've processed has exceeded our expectations, which is encouraging. It's frustrating to invest in solutions like Enru to counteract unwarranted increases, but the advancements we've made could provide a positive outlook for customers as they plan for 2026. We're monitoring their preparations closely to see how things evolve as they finalize their plans for that year.

Kevin Steinke, Analyst

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

Joel Quadracci, Chairman, President and CEO

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

Anthony Staniak, Chief Financial Officer

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

Kevin Steinke, Analyst

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

Anthony Staniak, Chief Financial Officer

Sure. The midpoint of the adjusted EBITDA range decreased from $200 million to $195 million, which is a relatively small change for the year. We are pleased to be within this range, as mentioned in the scripted comments. In terms of free cash flow, we're seeing an increase of $5 million, and this is due to lower capital expenditures. We are committed long term to investing 2% of our revenue back into capital expenditures. We anticipate that our capital expenditures will gradually shift from large machinery investments, such as the $15 million presses we've purchased in the past, towards more technology and automation for our operations. Overall, we are still above 2% this year with the updated guidance, investing 2.2% in capital expenditures, which is contributing to the $5 million lift in free cash flow at the midpoint.

Kevin Steinke, Analyst

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

Joel Quadracci, Chairman, President and CEO

Yes. It's an interesting situation because we were at a grocery store in Vegas about a month ago, which is a gathering place for consumer packaged goods and grocery retailers. Last year, many attendees were just exploring the concept, indicating they needed to think about it but had not yet taken action. This year, however, the sentiment shifted significantly towards a sense of urgency to implement these solutions. For our existing customers, like Save Mart, we are advancing to the next phase of rollout, and there's a promising pipeline ahead. The overarching trend in the industry has moved from investigation to a firm commitment to act. We have also developed new formats, such as a vertical sign in the aisle, which has garnered an impressive reaction from CPGs and clients due to its enhanced visibility. We've filed a patent on it, as we believe it will have various applications moving forward. Additionally, we're gaining insights into how different product categories respond. For instance, in the frozen pizza sector, featuring products prominently can lead to significant sales increases, especially when customers are already shopping for complementary items like beer. The responsiveness of advertising in these environments is crucial, especially as digital advertising faces challenges due to disruptions from AI. Marketers must focus on brand visibility, particularly since a substantial majority of food purchases occur in grocery stores. Therefore, encouraging shoppers to explore additional aisles or consider extra items is vital. We're enthusiastic about these developments.

Operator, Operator

The next question comes from Barton Crockett with Rosenblatt Securities.

Barton Crockett, Analyst

I wanted to ask if you are seeing any effects from the announcement that there will be no postage rate increase for your categories in January. As marketers are planning, do you think this will influence their spending? Could it potentially affect your revenue?

Anthony Staniak, Chief Financial Officer

Yes, I hope so. I believe they're still deeply involved because they are also focused on finishing this year, which will influence their thoughts for next year. It's a bit too early for us to determine the impact for 2026. However, as we consider the absence of a January increase, they are conducting a test period from October through June aimed at offsetting the 11% increase that occurred in July. Additionally, we are demonstrating to our customers increased savings through high-density mailing, a trend that should only enhance as we continue to roll it out. I would anticipate seeing some positive outcomes or reduced negative impacts regarding the volume declines caused by the unreasonable pricing increases implemented by the post office.

Barton Crockett, Analyst

Okay. Is it too early to determine if this is a one-time occurrence or if there is a shift in the trend, possibly indicating that postage increases significantly beyond inflation are over? Is it too early to say?

Joel Quadracci, Chairman, President and CEO

It's too early to say that. I worry about, okay, no increase in January, but what will they do in July. And I think you've got a very practical Postmaster General. David Steiner is a very practical leader. And if you watched his career, he's obviously very talented. So I think he's in the phase of really kind of building what his strategy is. But clearly, there's an impact by not extending the increases. I think that they're realizing that they're pushing it too far, and that's hurting volume. So yes, a little bit too soon to see. There's going to be a lot of, I think, more news to come on what his strategy will roll out to be. One of the real positive things there is we had the whole previous regime that really didn't want to engage with the community or talk to the community. And David is very accessible, I think, and is meeting with the community, wants to understand what's going on and taking that feedback. So we very much welcome his approach of reengagement with the industry.

Barton Crockett, Analyst

Okay, that's great. So shifting focus to the holiday season, just to confirm my understanding: it seems that the impact of tariffs won't negatively affect Christmas. The situation for the holiday season appears to be normal despite all the recent volatility. Is that correct?

Joel Quadracci, Chairman, President and CEO

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

Barton Crockett, Analyst

Okay. That's great. Regarding the asset sales, it appears that you reduced the value of Effingham significantly from the previously indicated $40 per square foot. For the other properties that are for sale, do you have any initial thoughts on whether Effingham is more typical or if the $40 buyer is a better representation of the expected proceeds?

Joel Quadracci, Chairman, President and CEO

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

Anthony Staniak, Chief Financial Officer

Yes, I'd add to that, Barton. I think we've got enough historical basis that I think that rule of thumb that you just mentioned is still the one to use. The properties that we have for sale now that I talked about, they're smaller buildings, right, than what we saw in the case of Effingham or some of the previous. But I still think that rule of thumb is a good one to use going forward. It's about 200,000 square feet in a building that is remote or across the street from our headquarters.

Operator, Operator

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

Joel Quadracci, Chairman, President and CEO

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

Operator, Operator

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