Executive Summary / Key Takeaways

• Strategic Transformation Underway: Quad/Graphics (NYSE:QUAD) is successfully executing a multi-year transformation from a traditional commercial printer to a "marketing experience (MX) company," integrating creative, production, and media solutions across digital and physical channels. This shift is driving revenue diversification towards higher-margin offerings.
• Proprietary Data and AI as Core Differentiators: Central to Quad's MX strategy is its proprietary household-based data stack, representing 92% of U.S. households with over 3 billion data points. Leveraging partnerships with Google Cloud and AI-powered tools like Audience Builder 2.0, Quad offers superior audience targeting and content personalization, leading to quantifiable improvements in client ROI and new business wins.
• Financial Discipline and Outlook: Despite a challenging macroeconomic environment and print industry headwinds, Quad maintains strong financial discipline. The company reaffirmed its 2025 guidance, projecting a sequential improvement in net sales decline (2-6% ex-Europe) and stable Adjusted EBITDA margins. Long-term, Quad targets net sales growth by 2028, significant Adjusted EBITDA margin expansion, and robust free cash flow conversion.
• Strengthened Balance Sheet and Shareholder Returns: Through aggressive debt reduction ($684 million since 2020) and strategic asset divestitures, Quad has significantly fortified its balance sheet, targeting a low 1.5x net debt leverage by year-end 2025. This financial strength supports increased growth investments and enhanced shareholder returns, including a 50% dividend increase and opportunistic share repurchases.
• Navigating Industry Headwinds with Innovation: Quad is actively mitigating pressures from rising postal rates and digital substitution through innovative postal optimization solutions (e.g., Household Fusion, Enru acquisition) and by demonstrating the effectiveness of integrated omnichannel marketing, particularly in driving engagement through tactile media.

The Evolution of a Marketing Powerhouse

Quad/Graphics, Inc., founded in 1971 as a commercial printer, has undergone a profound strategic transformation, evolving into a comprehensive "marketing experience (MX) company." This shift moves beyond traditional print services to offer integrated creative, production, and media solutions across both digital and physical channels. The company's journey, marked by significant acquisitions like World Color Press in 2010 and strategic divestitures such as its European operations in early 2025, has reshaped its portfolio to focus on higher-margin, value-added services. This strategic pivot is critical in an industry facing decreasing demand for traditional print and persistent overcapacity.

The commercial printing sector remains highly fragmented, characterized by intense competition and downward pricing pressures. Key direct competitors include RR Donnelley & Sons Company , Veritiv Corporation (VRTV), and Xerox Holdings Corporation . While RRD and VRTV compete in print production and distribution, and XRX in printing technology and digital services, Quad distinguishes itself through its integrated MX Solutions Suite. Unlike competitors that often operate in silos, Quad's approach ensures all marketing components work seamlessly together, aiming to maximize client results. This integrated model provides a unique value proposition, offering clients a single partner to simplify complex marketing challenges and drive stronger outcomes.

Technological Edge: Data, AI, and Omnichannel Activation

At the heart of Quad's competitive strategy lies its robust technological differentiation, particularly its proprietary household-based data stack and advanced AI capabilities. This data stack is a true differentiator, representing 92% of U.S. households with over 3 billion continuously revalidated data points. It encompasses more than 20,000 attributes, including demographic, transactional, attitudinal, and proprietary "passion" identifiers, which are more accurate and resilient than fleeting digital alternatives like cookies. This deep consumer insight enables Quad to offer superior audience intelligence and activation.

Quad's commitment to innovation is evident in its strategic partnership with Google Cloud, leveraging AI optimization capabilities and large language models. This collaboration is driving the development of new AI-driven solutions that tap into Quad's data stack to enable personalization at scale. A prime example is Audience Builder 2.0, an AI-powered tool that democratizes access to the vast data stack, allowing employees to easily create complex, high-propensity audiences. By year-end, the integration of large language models is expected to enable even faster audience creation through natural language prompts, significantly accelerating campaign development and iteration for clients.

The tangible benefits of this technology are clear. Quad's transparent data activation avoids the "tech tax" often incurred by marketers, maximizing clients' dollars in working media. This channel-agnostic approach allows data to be activated across any media channel, online or offline, based on client objectives. For instance, the At-Home Connect solution modernizes direct mail by enabling trigger-based, personalized mailings based on online consumer interactions, integrating seamlessly with client automation platforms like Salesforce (CRM) and HubSpot (HUBS). This capability helps convert abandoned shopping carts and re-engage lapsed customers, demonstrating the power of connecting online engagement with offline impact.

Another significant technological offering is In-Store Connect, an omnichannel retail media network that capitalizes on the boom in retail media. This solution delivers engaging messages and promotions directly in brick-and-mortar stores, a critical moment in the purchasing decision. In-Store Connect has already demonstrated an average of 5% to 20% product sales lift for participating brands, with some promotional campaigns achieving over 20% sales increases. Quad has successfully doubled its footprint with Save Mart Companies, expanding into 15 additional stores, and partnered with Vallarta to launch in 15 stores. This expansion into physical retail media networks, combined with its digital capabilities, positions Quad to capture a share of the eMarketer-projected $100 billion growth in omnichannel RMN ad spend by 2028.

Financial Performance and Strategic Momentum

Quad's recent financial performance reflects its strategic transformation and disciplined operational management amidst a dynamic market. For the second quarter of 2025, net sales were $571.9 million, a 9.8% decrease year-over-year. However, excluding the impact of the European operations divestiture, net sales declined by a more modest 4%. Year-to-date through June 30, 2025, net sales were $1,201.3 million, down 6.8% year-over-year, or 3% excluding the European divestiture. This decline was primarily attributed to lower paper and logistics sales, as well as the annualization of a large grocery client loss in March 2025.

Despite top-line pressures, Quad's profitability metrics show resilience. Adjusted EBITDA for Q2 2025 was $43 million, resulting in a 7.6% margin, compared to $52 million (8.2% margin) in Q2 2024. Year-to-date Adjusted EBITDA was $89 million (7.4% margin), down from $102 million (7.9% margin) in the prior year. The decrease in Adjusted EBITDA was primarily due to lower sales and increased investments in innovative offerings, partially offset by reduced selling, general, and administrative expenses, improved manufacturing productivity, and ongoing cost reduction initiatives. The company's "holistic continuous improvement and lean enterprise methodologies" are key to maximizing operating margins and maintaining its position as a "high-quality, low-cost producer."

Quad's strategic shift is evident in its revenue mix. For the first half of 2025, revenue from targeted print offerings (direct marketing, packaging, in-store) increased by 2% as a percentage of total sales, while large-scale print offerings (magazines, retail inserts) decreased by 2%. This indicates progress in diversifying away from declining legacy print products. For example, direct mail volume was up 14% in Q1 2025, and in-store sales increased by 13%. These gains are often driven by Quad's integrated solutions, which combine data-driven targeting with creative and production expertise.

The company's liquidity and balance sheet remain strong. As of June 30, 2025, total liquidity stood at $217.6 million, with $202.1 million available under the most restrictive debt covenants. While consolidated debt and finance lease obligations increased by $75.7 million in the first half of 2025 due to seasonal working capital needs and strategic investments, the company's net debt, adjusted for seasonality, decreased by $84 million from June 30, 2024, to June 30, 2025. Quad's next significant debt maturity of $193 million is not due until October 2029, providing substantial financial flexibility. The company also actively manages interest rate risk through interest rate collars and swaps, converting $200 million of variable rate debt to fixed, which would lead to lower interest expense on approximately 86% of its debt if rates decline.

Competitive Positioning and Strategic Responses

Quad's competitive standing is defined by its integrated approach and proprietary data. While competitors like RRD (RRD) offer integrated services, Quad's "end-to-end" MX ecosystem and its unique household-centric data stack provide a distinct advantage in personalization and campaign effectiveness. Quad's ability to offer faster campaign turnaround times (e.g., 20-30% quicker than industry averages) and its transparent approach to media spending further differentiate it from rivals. However, Quad's gross margins (around 20-22% in 2024) and operating margins (4-6%) have historically lagged RRD's (25-28% and 5-7% respectively), suggesting RRD may have greater cost efficiencies in its core print operations. Quad's higher operating costs are partly attributable to its ongoing investments in technology and diversification.

In the digital printing and marketing technology space, Xerox (XRX) excels in hardware innovation, offering products with 20-25% greater efficiency and higher gross margins (30-35%). While Quad's strength lies in its comprehensive service integration, it faces the challenge of keeping pace with pure-play technology innovators. Quad's strategic response involves continuous investment in AI and automation to streamline its own operations and enhance client offerings, aiming to bridge these technological gaps and improve its cost structure. The company's expansion into the $26.6 billion branded solutions market and partnerships like Adalytics for media transparency further broaden its competitive scope.

Indirect competitors, including digital-first companies and tech giants like Alphabet (GOOGL), pose a long-term threat by offering cheaper and more accessible digital advertising alternatives. This dynamic pressures traditional print and marketing services providers. Quad mitigates this by emphasizing the complementary nature of physical and digital media, as supported by its "Return of Touch Report," which highlights consumer desire for tactile brand experiences. The report found that 71% of consumers feel print catalogs or magazines are more authentic than digital campaigns, and 86% of Gen Z and millennials find touching products essential to purchasing decisions. This reinforces Quad's strategy of seamlessly connecting online and offline channels for enhanced customer engagement.

Outlook and Investment Implications

Quad has reaffirmed its full-year 2025 guidance, projecting net sales to decline between 2% and 6% (excluding the divested European operations), a sequential improvement from the 9.7% decline in 2024. Adjusted EBITDA is expected to be between $180 million and $220 million, with a midpoint of $200 million. The company anticipates lower Adjusted EBITDA in Q2 2025 (its lowest print volume quarter), followed by sequentially higher Adjusted EBITDA in Q3 and Q4 during its seasonal production peak. Free cash flow is guided to be in the range of $40 million to $60 million, with capital expenditures increasing to $65 million to $75 million to fuel growth investments.

Looking further ahead, Quad's long-term financial goals by 2028 are ambitious and reflect its MX transformation. The company expects to reach an inflection point of net sales growth, driven by its higher-margin integrated solutions and targeted print offerings. Adjusted EBITDA margin is projected to improve by at least 100 basis points compared to 2024, reaching low double-digit margins in the long term. Free cash flow conversion is also expected to improve significantly, from approximately 25% of Adjusted EBITDA in 2025 to 35% by 2028 and 40% long-term, primarily due to lower interest and restructuring payments.

Key risks to this outlook include continued macroeconomic uncertainties, particularly the impact of tariffs and inflation on client marketing spend. Rising postal rates remain a significant challenge, with increases of 50-80% from 2021-2024 far outpacing CPI. While a 10-13% increase is expected in July 2025, Quad is proactively mitigating this through postal optimization solutions and by demonstrating print's ROI through data-driven targeting. The recent appointment of David Steiner as Postmaster General and the USPS's willingness to test catalog discounts offer a glimmer of hope for more sustainable postal policies.

Conclusion

Quad/Graphics is in the midst of a profound and strategic transformation, leveraging its deep roots in print to build a modern marketing experience company. The company's investment thesis hinges on its ability to drive diversified revenue growth through its integrated MX Solutions Suite, powered by a differentiated household-based data stack and cutting-edge AI. This technological leadership, combined with a relentless focus on operational efficiency and a fortified balance sheet, positions Quad to capture market share in the evolving marketing landscape.

While challenges from declining legacy print volumes and rising postal costs persist, Quad's proactive strategic initiatives, including targeted acquisitions, asset optimization, and a commitment to innovation, demonstrate its adaptability. The company's clear guidance towards net sales growth by 2028, coupled with expanding profitability and strong free cash flow generation, suggests a compelling long-term investment opportunity. For discerning investors, Quad represents a unique play on the convergence of physical and digital marketing, with its technological prowess and financial discipline serving as critical enablers for future value creation in a competitive industry.