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Quad/Graphics Inc  (NYSE:QUAD)
Q1 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Quad First Quarter 2019 Conference Call. (Operator Instructions) A slide presentation accompanies today's webcast and participants are invited to follow along, advancing the slides themselves. To access the webcast, follow the instructions posted in this morning's earnings release.

Alternatively, you can access the slide presentation on the Investors section of Quad's website, under the Events and Recent Presentations link. Following today's presentation, the conference will be open for questions. (Operator Instructions) Please note, this event is being recorded.

And I will now like to turn the conference over to Kyle Egan, Quad's Director of Investor Relations and Assistant Treasurer. Kyle, please go ahead.

Kyle Egan -- Assistant Treasurer and Director 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 Dave Honan, Quad's Executive Vice President and Chief Financial Officer. Joel will lead off today's call with discussions of our continued Quad 3.0 transformation, Dave will follow with a summary of Quad's first quarter 2019 financial results followed by Q&A.

I'd 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, free cash flow and debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures.

Finally, a replay of the call and the slide presentation will be available on the Investors section of quad.com, shortly after our call concludes today.

I'll now hand the call over to Joel.

Joel Quadracci -- Chairman, President & CEO

Thank you, Kyle, and welcome, everyone. Our first quarter 2019 results were in line with our expectations and reflect consistent execution against our strategic priorities. As always, we remain disciplined in how we run all aspects of our business and continue to make the necessary strategic investments to ensure we grow our business profitably, while strengthening our core business and maintaining our industry position as a high-quality, low-cost producer. We continue to work toward completing the acquisition of LSC Communications and expect the all-stock transaction to close in mid-2019.

Quad stockholders voted to approve the issuance of shares in connection with the acquisition at a special meeting held on February 25. In a separate meeting, LSC shareholders voted to adopt the agreement and plan of merger. We are enthusiastic about the value and stability this transaction will create for our clients and shareholders.

As outlined on Slide 3, through this business combination, we will enhance our highly efficient print platform to fuel our Quad 3.0 transformation and strengthen the role of print in a multi-channel world. Deliver time and cost-savings opportunities to clients from our complementary platforms to maintain the long-term relevance of print and preserve the long-term strategic vision of the Quadracci family, as we move forward in a disrupted marketplace, generate synergies and additional strong free cash flow to create more profitable company and enhance stability by maintaining our strong and healthy balance sheet from the all-stock transaction structure. In turn, this will enable us to adjust for ongoing digital media disruption and offset print industry declines through growth in our integrated services offering in Quad 3.0.

We continue to build on our Quad 3.0 momentum. A recent acquisition of Periscope, a leading independent creative agency, accelerates our transformation with its best-in-class capabilities and strategy, creative analytics, media buying and more. Through our integrated marketing solutions platform, we create more value than the traditional silo agency approach that exists today. Our clients benefit from reduced complexity, increased efficiencies and improved marketing spend effectiveness as well as cycle time reduction.

On Slide 4, we show some Periscope's exceptional creative work that is winning recognition. The team recently won multiple awards at the show 2019 and annual events sponsored by the Advertising Federation of Minnesota, honoring exceptional creative work from agencies. Periscope took home the coveted Best of Show plus an incredible 25 other wins for clients such as Trolli Candy, The Minnesota Lottery, Great Clips Hair Salons and Schwan's frozen foods for work related to social media execution, TV and Internet commercials, integrated advertising campaigns and more. This is a huge honor and reflects how Periscope delivers on its mission to do things people love. In addition, Quad also won several other awards, including a Gold AVA Digital Award for video work and American Advertising Awards or Addys for social media work.

As a marketing solutions partner, our focus is on solving problems for our clients, which in turn generates more revenue for Quad across all our business categories. These categories, which are shown on Slide 4, 5 include integrated services, which has experienced 40% growth since 2017 and is now nearly 20% of total revenues. Targeted execution with such a strong base for Quad 3.0 growth and large scale of execution, which provides the scale on cash flow necessary for future investment opportunities.

Our Quad 3.0 strategy is working as evidenced in the new and expanded relationships with clients and is a significant driver behind our best quarterly organic sales performance since 2014. The work we are doing today for omnichannel retailer, Bed, Bath & Beyond is a great example of how we're partnering with our clients to advance their strategies and goals through innovative use of our integrated marketing solutions platform.

We have had a 20-year relationship with Bed, Bath & Beyond. And over that time, had build a strong relationship centered on mutual respect and trust and commitment to innovation. Bed, Bath & Beyond selected us an innovative partner to collaborate and execute on a solution that would allow them to better leverage available data to more precisely target campaign content and offers and do it efficiently at scale. Our solution has the added benefit of simultaneously reducing costs and production cycle time, a win-win. This success opened the door for us to do more for Bed, Bath & Beyond, including data services and full logistics services. I'm pleased to share that Bed, Bath & Beyond recently signed a contract extension with us.

Sirius XM, the world's largest audio entertainment company, is another client with whom we partnered -- partnering to deliver Quad 3.0 solutions, focused on improving response rates. Recently, Sirius XM successfully completed the migration of its direct mail business to Quad as part of a new 5-year multimillion dollar contract. Now that this migration is complete, Sirius XM looks forward to exploring additional strategic opportunities with Quad and we are prepared to deliver.

The work we're doing for clients like Bed, Bath & Beyond and Sirius XM shows that our Quad 3.0 strategy is working. Our integrated marketing solutions platform, which includes marketing strategy and creative through execution across all channels reduces complexity, increases efficiency and improves effectiveness. As we continue to evolve our offering and deliver more value to our clients, we remain focused on our consistent priorities to make long-term strategic investments that further accelerate our transformation and proactively address the changing needs of our clientele, generate sustainable strong free cash flow, drive EBITDA enhancement, strengthen the balance sheet and demonstrate our ongoing commitment to providing long-term shareholder returns.

I want to thank all of our employees for the important role they play in our ongoing transformation as a marketing solutions partner. Together, we are creating a better way for our clients, our shareholders and our collective future.

With that, I will now turn the call over to Dave.

Dave Honan -- Executive Vice President & Chief Financial Officer

Thank you, Joel, and good morning, everyone. Our first quarter results were in line with our expectation and we remain on track for delivering our full year 2019 financial guidance. For competitive purposes, the first quarter of 2019 includes the acquisition of Periscope, which was completed on January 3, 2019.

Slide 6 provides a snapshot of our first quarter financial results.

Net sales increased 3.8% to $1 billion, driven by a 4.4% increase from the Periscope, Ivie and Rise acquisitions, partially offset by organic sales decline of 0.6%. Included in the organic sales decline was a 0.8% negative impact from foreign exchange losses. Excluding those foreign exchange losses, first quarter 2019 organic sales grew by 0.2%, our first organic sales increase since 2014. We continue to realize incremental revenue from expanding client relationship as part of our Quad 3.0 offering, which helps us offset some of the organic declines in print due to ongoing print industry volume and price pressures, primarily in our large scale execution category related to magazines, retail inserts and directories.

Our annual sales guidance assumptions continue to include downward price pressures of 1% to 1.5% and print volume declines of 1% to 4%. First quarter 2019 adjusted EBITDA of $70 million was at the midpoint of our guidance range of $65 million to $75 million. This compares to $110 million of adjusted EBITDA in the first quarter of 2018. A $40 million decrease was due to $22 million of nonrecurring benefits in 2018 that did not repeat in 2019, which included a gain on property of insurance claim and a change in employee vacation policy. The remainder of the decrease was an $8 million impact from strategic investments made to increase hourly production wages in our most competitive labor markets and the impact from organic print pricing and volume declines primarily in magazines, retail inserts and directories. As a result of these variances and the dilutive impact on our margins from increased pass-through paper sale, adjusted EBITDA margins declined to 7% from 11.4% in 2018.

As we discussed on our last earnings call, we anticipated a decrease in adjusted EBITDA in the front half of 2019, with growth in the back half. Within the front half of 2019, we expect a sequential improvement in adjusted EBITDA in the second quarter as compared to our first quarter and expect second quarter adjusted EBITDA to be in the range of $70 million to $80 million.

Within the back half of the year, we expect year-over-year growth due to increased synergies from acquisitions and revenues in our Quad 3.0 integrated services offering as well as productivity improvements from the additional long-term investments in employees and in automation.

Free cash flow was negative $101 million as compared to negative $22 million in the first quarter of 2018 and was in line with our expectation. The decrease is primarily due to increased capital expenditures, up $21 million from the long-term investments in automation and productivity in our manufacturing platform, $19 million in lower net earnings and an expected decrease in cash provided from seasonal working capital changes. In addition, we incurred $3.3 million of LSC transaction-related payments in the first quarter of 2019, which we exclude from free cash flow.

As a reminder, we realized our strongest volumes in the back half of the year due to seasonality. And as a result, the majority of our free cash flow will be generated in the fourth quarter of the year.

Slide 7 includes a summary of our debt capital structure as of March 31. We completed an amendment and extension of our credit facility during the quarter, which provides us with the liquidity and structural flexibility for the pending acquisition of LSC Communications and maintains our strong and flexible balance sheet.

The amendment increased our existing debt capital structure by $725 million and extended maturities of the revolving credit facility and Term Loan A through 2024 and the Term Loan B through 2026. Debt increased $201 million to end the first quarter at $1.1 billion, primarily due to $120 million of net cash paid for the Periscope acquisition and seasonal negative free cash flow as previously discussed.

We finished the first quarter of 2019 with a debt leverage ratio of 2.99x. As we've noted before, at times we may operate outside our long-term targeted leverage range of 2 to 2.5x depending on the timing of compelling strategic investment opportunities such as the January 2019 acquisition of Periscope. Therefore, our current priority for the use of cash will be debt reduction until we're back in our long-term leverage target range. Additionally, the pending all-stock acquisition of LSC will also increase leverage. However, we do expect to be back within the 2 to 2.5x targeted leverage range within 2 years of completing the LSC acquisition. This is consistent with our history of deleveraging back into our long-term targeted leverage range within 2 years of completing a significant acquisition, as we've demonstrated with the World Color, Vertis and Brown Printing acquisitions.

During the quarter, we entered into a 5-year $130 million interest rate swap to convert variable rates into fixed rate debt. Including the impact of the swap, our debt capital structure is now 66% fixed and 34% floating with the blended interest rate of 6.4% as of March 31, 2019. We estimate that our current blended interest rate of 6.4% will decrease to approximately 5.7% upon the completion of the LSC acquisition as delayed draw Term Loan A will then fully fund at a lower interest rate. Available liquidity under our $800 million revolver was $516 million as of March 31, and we have no significant maturities until May of 2022. We believe we have sufficient liquidity for current business needs pursing future growth opportunities and returning value to our shareholders.

Slide 8 shows our continued commitment to our dividend, which is one of the ways in which we return value to our shareholder. Our next quarterly dividend of $0.30 per share will be payable on June 7 to shareholders of record as of May 28, 2019. We consistently paid a quarterly dividend and our annual dividend of $1.20 per share is yielding approximately 10% or represents less than 40% of our free cash flow at the midpoint of our 2019 guidance.

In addition, the free cash flow yield on our stock price at the close of business yesterday was approximately 27%, which is significant in today's market. While much of the year still remains in front of us, we're pleased that our first quarter results were in line with our expectations and that we remain on track for delivering our 2019 financial guidance.

We have made significant investments such as the Periscope, Ivie and Rise acquisitions to expand our offering beyond print production to include an integrated stack of higher-margin marketing services. This expanded offering, at a time of continued media disruption, provides us with a unique opportunity with our clients and we believe makes Quad a compelling long-term investment for our shareholders. We continue to work toward completing the acquisition of LSC Communications, a combination that we believe will strengthen our print platform to fuel our Quad 3.0 strategy and create greater value for our clients. Given our experience in acquisitions of this nature and scale, we are confident in our ability to execute on this integration and create future value for all shareholders.

And now I'd like to turn the call back to our operator who will facilitate taking your questions. Cole?

Questions and Answers:

Operator

(Operator Instructions) First question today comes from Jamie Clement with Buckingham Research Group.Please go ahead.

Jamie Clement -- Buckingham Research Group -- Analyst

Good morning gentlemen. Joel, if I can, so obviously top line performance best since 2014, can you talk a little bit about where the strength came from and kind of how much it is integrated services? How much of this is more on the execution side? And also, the blend of the 2 like turning execution customers into kind of services customers and vice versa?

Joel Quadracci -- Chairman, President & CEO

Yes. I mean, everything is really morphing toward this 3.0 sale and it's really making a difference. But let me just kind of walk you through the different categories. When I look at retail inserts, that industry continues to be down about 12% for the quarter, but we fared significantly better being about 7% off due to some recent wins there. And again, retailers have a lot of need for help right now and the whole story about the integrated marketing really resonates with them. So while we might be down a little bit in retail inserts there, we're also offering a lot of different services, such as in-store signage with recent wins that we've done there as well as some of the creative services that we have to offer. The catalog industry is where the industry is of about 2%. I think that they tend to be second-half heavy. When I look at publications, they're the ones who continue to struggle to compete with the digital media out there as they struggle with turning their offering in the printed world into pages. They were off about double-digit. We're a little bit worse than that just from the standpoint of some shuttered titles that happened and some frequency change. But also, as they -- one evidence of how they continued to compete or trying to complete ESPN magazine, they just announced that they're going to seize the print edition. They will continue to do some special items there, but that's something coming in the future. And then when I look at books, books has been a better story as of late than I think people have thought, but it's still a challenged area. And they were off about 4% if you look at the industry. But also big announcement this morning, which really shows how they have to continue to navigate this digital world and how they compete with it is Cengage and McGraw-Hill just announced a merger this morning.

Jamie Clement -- Buckingham Research Group -- Analyst

Well, that was my second question, so go ahead.

Joel Quadracci -- Chairman, President & CEO

Yes. Well, you can see that everyone is trying to figure out how to navigate it. I mean, books are not going away, but they have to be able to compete with digital offerings in terms of lower-cost items with online education and things like that, which is stated in their press release. But a real great story here this quarter especially is direct mail. The industry was -- had growth in it, but we had significant growth this quarter. We were well into the double-digit percent growth in direct mail. I mentioned Sirius XM was a major win for us, but we've had multiple wins. And these are 3.0 wins, where we're using things like Accelerated Insights, which is our virtual testing platform to help people figure out how they're going to drive data and use aggressive personalization in print. And I want to keep reiterating the capability we have, not just in direct mail, but in catalogs and magazines, is we can really drive tremendous amounts of personalization if people are using the data correctly. And because we're helping them use the data correctly, we're seeing in direct mail when people personalize and when they work with us to figure out what is the right data, we're seeing double-digit increases in response rates, which as you know is a significant deal for our customers. And so we continue to see that, that the direct mail stays and very much grow in the complexity of doing. And I have to tell you and I asked all the employees who work on personalization at Quad, not just in direct mail, but on the catalog side, I'm always amazed at what they can do where every piece can be completely different. And it shows in the response rate changes. So while we have challenges in certain category, we're very proud of the best organic growth that we've had in the long time and it really is because of the way we're selling print and helping people make it more responsive as well as the additional services and other forms of print that come with it.

Jamie Clement -- Buckingham Research Group -- Analyst

Ok. I thank you for that Joel.Okay. And if I could, Dave, turn to you, I think my number is a pretty close to right here. But if I take the full year -- the 380 midpoint of full year EBITDA guidance. I think that implies your -- if I can take the midpoint of kind of the 70 to 80 that you discussed in the second quarter, I think you're looking at kind of somewhere to the tune of like up $20 million. Can you help us bridge that a little bit because I mean I would -- I know you mentioned acquisition synergies, but I mean, I can't imagine you got $20 million of synergy with Periscope?

Dave Honan -- Executive Vice President & Chief Financial Officer

Yes. No, it's a combination of things. And Jamie, it's a really good question. Your numbers are right on based on how we're guiding the year just the midpoint of the guidance. The majority of where you're going to see improvement from us is in the productivity and cost-reduction standpoint. We've made a lot of investment into our platform in terms of automation, but we've also and we talked about this starting last -- in the third quarter of last year, we made significant investments in this starting wages in very competitive wage markets in our plan. That has had the result of reducing turnover in our facilities and getting us to more full employment levels, which in turn with our training and our education of those employees, it's allowing us to drive productivity in those facilities. And it's not a light switch. So it takes some time to come around and we're starting to see that happen in the first quarter of this year and that's building. Predominantly, we've weighed that in our guidance to the back half of this year, as we continue to see that improvement in productivity.

Joel Quadracci -- Chairman, President & CEO

I'll just further point out, Jamie, if you look at last year, last fall, it's -- we only strive for better productivity, but last fall was down from '17. And so we know when we have the right people and we're not struggling to find bodies and train them up. We know we can get back there. And we've seen a drastic improvement in our pipeline of people, not just in getting bodies, but also the quality of people coming in. And so we've really put a lot of emphasis on training because we know we can get right back

there on the productivity and that's a big part of what you're going to see

Dave Honan -- Executive Vice President & Chief Financial Officer

Yes. And I think that the final thing I would just say about the cost-reduction side is with the amount of available capacity in this industry, there's a lot of excess capacity, you essentially carry that to produce in the higher seasonal peak for volumes, which is into the third quarter and beginning of the fourth quarter. What you'll see from a cost-reduction standpoint is then we'll be able to address some of those fixed costs once we come through that busy season into the late fourth quarter. And so some of that is also built into the fourth quarter as we projected this year..

Jamie Clement -- Buckingham Research Group -- Analyst

Is it also fair to say if you're investing in automation and the plants that it's not just the capital investment, but you've also guide, I don't know whether it's training and just kind of whether that impacts your productivity temporarily also, so it's a little -- as addition by subtraction as some of that goes away. Is that also a little bit true?

Joel Quadracci -- Chairman, President & CEO

Yes. See it's kind of -- it's all kind of layered together. So you have a multipronged approach in how we have to manage the platform and automation is certainly a big part of it.

Dave Honan -- Executive Vice President & Chief Financial Officer

Yes. You saw our CapEx in the first quarter, it was up $21 million over last year. And that -- then that is the timing of that automation investment, which started pretty heavy in the back half of last year as we were dealing with the full employment levels and trying to get to those full employment levels, but also the ability to take fixed costs out of the platform and being able to automate and upgrade equipment and the continued investment we're making with our customers so that we can offer more substantial personalization in our -- in the 4 walls of our plants.

Jamie Clement -- Buckingham Research Group -- Analyst

Okay. I -- I will pause for now get back in the queue. Okay. Thanks.

Dave Honan -- Executive Vice President & Chief Financial Officer

Thanks. Operator?

Operator

And our next question comes from Dan Jacome with Sidoti & Company.Please go ahead with your question.

Joel Quadracci -- Chairman, President & CEO

Good morning.

Dan Jacome -- Sidoti & Company -- Analyst

Good morning. Can you hear me.

Joel Quadracci -- Chairman, President & CEO

Yes.

Dan Jacome -- Sidoti & Company -- Analyst

So can you talk a little bit more about Cengage action. I know you worked it, something on it came here in 2017 at least and I know it's too early to tell, but how do you think this transformation news we heard this morning across the industry could impact things like book fulfillment and then industry pricing in the next couple of years? I'm just trying to understand, do you think it's going to be -- and it sounds like, yes, but you do think it's going to be a net positive or neutral? Or how are you looking at it just on this initial glance?

Joel Quadracci -- Chairman, President & CEO

Well, I think, I can't speak for them. But in their release, they did talk about a big part of the reason is to better compete with digital alternatives and that stuff is real. So to me, it's a net positive because I want them to be healthy. I want them to be strong and I want them to be able to print books. And together, both those companies, we've worked with them on lowering inventory levels, being more just-in-time and really providing that digital print side that we've talked about in the past that really helps to manage the print side even better. So I look at it as a net positive and it also goes to show you that they still have to navigate this challenging multi-channel world.

Dan Jacome -- Sidoti & Company -- Analyst

Okay. Great. And then my next question was just on the approval process for the LSC, I think financing is there. You have the shareholders approving. Did you get any additional request or anything to that matter from regulators in the last couple of months? I'm just curious more than anything.

Joel Quadracci -- Chairman, President & CEO

Yes. I mean, this process is what the process is, which is they ask for information and we respond with it. And so we've been in active dialogue with them all the way along the way in the expected process that we're in. And so nothing has really changed here. We expect to close mid-year.

Dan Jacome -- Sidoti & Company -- Analyst

Thank you.

Joel Quadracci -- Chairman, President & CEO

Thanks. Thanks then operator. Any more questions.

Operator

Yep.We have a follow-up question from Jamie Clement with BRG. Please go ahead.

Jamie Clement -- Buckingham Research Group -- Analyst

Yeah. Hey guys. Thanks.In terms of the timing from regulatory approval to actual close, just kind of if the weeks go on and that kind of thing just kind of for modeling purposes and that sort of stuff like, once it's approved, assuming it is approved, how long would it take to close?

Dave Honan -- Executive Vice President & Chief Financial Officer

Yes, Jamie, we expect as soon as possible after receiving that approval to move ahead to close. So we still think it's kind of the mid-year guidance, but we're actively working with the DOJ right now and trying to help them complete the review.

Jamie Clement -- Buckingham Research Group -- Analyst

Okay. So like I mean just but not a matter of months. I mean, you're talking way less than that, right?

Joel Quadracci -- Chairman, President & CEO

Yes. That's is a...

Jamie Clement -- Buckingham Research Group -- Analyst

From approval to close like I don't know what it's going to be approved, obviously, but OK. And then just the other thing in terms of like the decision and timing of the investment in the plants, whether it be automation or whether it be maybe additional staff is part of this in anticipation of the deal, like in other words, more volume is ultimately going to be flown in those plants. Is this -- I mean -- and then also like is this money part of your $135 million, dollar for dollar calculation on cost to realize synergies? Or are we not there yet?

Joel Quadracci -- Chairman, President & CEO

Well, it's all kind of mixed in, so hard to delineate because we automate anyway and we make investments in the platform anyway, but we are doing -- the 2 companies are still competing. So it's very -- not a lot of planning in between the 2 companies, but we certainly plan -- our planning on our side of the steps we need to take when it closes and that includes some of the investment that we've made in these mega plants to really make sure that it's -- we're ready for whatever decisions we have to make. So yes, I mean, it's -- this length of time to go through a process like this is challenging because you want to get in and plan more together, but we're doing a lot of stuff on our side. And as you know, this isn't our first ride in the rodeo. We've done some significant integrations in the past, and I think we pretty much lived up to everything we've said, we'd exceeded typically what we have said we would do. And so what's great about it too and I think I talked about this in the past is we have a PMO Office that's really knows how to kind of handle and manage this. And when weren't doing acquisitions, they actually just stayed in place and helped us manage cost. So it's not like we have to fire up our capability that we had several years ago and capabilities continue to operate in a different mode and now very easily it's transitioning over to the integration side.

Jamie Clement -- Buckingham Research Group -- Analyst

Okay. And then Dave, I mean, obviously the stock is going to do what the stock is going to do. But if you -- once you close this, I can't remember exactly what you said your average borrowing cost was, but it was in the 5s. You conceivably -- I mean, if it was right now, I mean, your dividend yield would be twice your average borrowing costs. Is there anything in the new facilities that will preclude you going into the market and being opportunistic and buying back stock as you have periodically over the years?

Dave Honan -- Executive Vice President & Chief Financial Officer

No. Our debt agreements allow that flexibility to be very balanced with our capital approach. I did say in my prepared remarks that our primary usage is going to be debt reduction. We like to operate in that 2 to 2.5x leverage range. It gives us a lot of opportunity to take advantage of displacement in the marketplace or just have the ability to make the right investments that really fit the 3.0 strategy. So I think you've seen in our past, Jamie. We've continued to be balanced about this opportunistically. There have been times we've gone into the market and bought some shares. We have $100 million share repurchase authorization that's evergreen and so we can take advantage of that at the right time. But again, I really point to my commentary, which is about debt reduction and that's really important for us to have even stronger balance sheet as we move forward.

Joel Quadracci -- Chairman, President & CEO

And Jamie, I can't overemphasize my excitement around 3.0. I'm seeing things happen that are really interesting and it's going to -- we're going to want to take advantage of investments that we might want to make in the future on it, whether it's in talent, capability or development from an innovation standpoint. And so again, we see this as a real shift happening. And to be honest, I'm actually seeing people who didn't use print before are starting to try it. And my favorite quote I heard from a customer, well, I won't name from the millennial group after seeing the results of some direct mail was: "Wow, this stuff really works. Doesn't it?" And so it's almost like a new technology for same people, but...

Jamie Clement -- Buckingham Research Group -- Analyst

Yes. I get it. I get it. But Dave, well, all I was getting at it was it like -- I mean, obviously, if you're retiring shares, those are dividend checks, you don't have to pay out, it's actually cash flow accretive. You know what I meant?

Joel Quadracci -- Chairman, President & CEO

Correct.Okay guys thanks very much I appreciate the time as always. All right thanks to you Jimmy. Operator next question.

Operator

And this will actually conclude our question-and-answer session. So I'd like to turn the conference back over to Mr. Joel Quadracci for any closing remarks.

Joel Quadracci -- Chairman, President & CEO

Thank you, operator, and thank you all for joining us. We will certainly continue to update you as appropriate on the process we're in on the acquisition side, but also as the world turns with 3.0 and we'll see you next quarter. Thank you.

Operator

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

Duration: 35 minutes

Call participants:

Kyle Egan -- Assistant Treasurer and Director of Investor Relations

Joel Quadracci -- Chairman, President & CEO

Dave Honan -- Executive Vice President & Chief Financial Officer

Jamie Clement -- Buckingham Research Group -- Analyst

Dan Jacome -- Sidoti & Company -- Analyst

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