Quad Reports Third Quarter and Year-to-Date 2020 Results

Quad/Graphics, Inc. (NYSE: QUAD) (“Quad” or the “Company”) today reported results for its third quarter ending September 30, 2020.

Recent Highlights:
*Continued to align costs with current demand environment and achieved margin expansion while growing print segment share.
*Increased year-to-date cash from operating activities by $103 million and Free Cash Flow by $91 million compared to the first nine months of 2019.
*Reduced net debt by $95 million year-to-date and $222 million over the past 12 months, ending the quarter with a Debt Leverage Ratio of 3.22x, which was flat versus the comparable period in 2019.
*Maintained strong liquidity position as of September 30, 2020, including $93 million of cash on hand and up to $465 million in unused capacity under Quad’s revolving credit agreement.
*Completed the divestiture of Quad’s remaining Book platform on October 31 as part of the Company’s ongoing strategy to optimize its product portfolio.

“Building on our momentum from the first half of the year, we delivered a solid third quarter with strong operating and cash performance. We achieved net earnings gains through diligent cost management while continuing to focus on winning segment share and driving operational improvements. Our efforts resulted in higher Adjusted EBITDA margin both for the quarter and year-to-date, as well as increased cash flow. This enabled us to continue to pay down debt and strengthen our balance sheet, despite a significant net sales impact from the COVID-19 pandemic,” said Joel Quadracci, Chairman, President & CEO of Quad.

“Our team has been resilient in the face of significant challenges, and continues to demonstrate the ability to skillfully navigate the unprecedented headwinds created by the pandemic,” Quadracci added. “Throughout the quarter, we continued to prioritize the health and well-being of our employees and protect Quad’s long-term financial health, all while providing great service to our clients and securing new work. We also continued to advance our strategic transformation as a marketing solutions partner through investments in talent and technology, and innovating new integrated solutions like QDMX, a suite of solutions that delivers 100% personalized direct marketing at a fraction of the cost and with greater speed-to-market – a real game-changer for our clients who use direct mail or are thinking of adding it to their portfolio. Our Quad 3.0 strategy provides us with the right tools, talent and platform to exit the pandemic from a position of strength, poised to generate the revenue and Free Cash Flow required to take advantage of value-creating opportunities that will further offset organic print decline through expansion into higher margin products and services.”

Quadracci concluded: “As we move through our seasonally busiest time of year, we continue to closely monitor the pandemic and its impacts on our clients and the worldwide economy. Client volumes remain significantly below last year – a trend we anticipate will continue through year end. We are a nimble organization that can adjust our priorities to maintain good financial health, grow segment share and support our ongoing transformation, while continuing to keep our employees safe and serving our clients well.”

Summary Results
Results for the three months ended September 30, 2020, included:
*Net Sales — Net sales were $679 million in 2020, down 28% from 2019. Sales declined 26% during the quarter, excluding the impact of the January 2020 sale of the Omaha packaging plant, primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures.
*Net Earnings (Loss) From Continuing Operations — Net earnings from continuing operations increased $50 million from the third quarter of 2019, from a net loss of $47 million in 2019 ($0.94 diluted loss per share from continuing operations) to net earnings of $3 million in 2020 ($0.05 diluted earnings per share from continuing operations).
*Adjusted EBITDA — Adjusted EBITDA was $61 million in 2020, as compared to $80 million in 2019, while Adjusted EBITDA margin improved to 8.9% in 2020, as compared to 8.4% in 2019. The Adjusted EBITDA variance to prior year primarily reflects the impact from the sales decline, partially offset by savings from cost reduction initiatives. Adjusted EBITDA margin increased by 49 basis points in the quarter driven by cost-savings initiatives more than offsetting the relative percentage decline in sales.

Results for the nine months ended September 30, 2020, included:
*Net Sales — Net sales were $2.1 billion in 2020, down 27% in 2019. Sales declined 25% during the nine months ended September 30, 2020, after excluding the impact of the January 2020 sale of the Omaha packaging plant, primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures.
*Net Loss From Continuing Operations — Net loss from continuing operations improved $42 million from the first nine months of 2019, from a net loss of $63 million in 2019 ($1.26 diluted loss per share from continuing operations) to a net loss of $21 million in 2020 ($0.41 diluted loss per share from continuing operations).
*Adjusted EBITDA — Adjusted EBITDA was $196 million in 2020, as compared to $239 million in 2019, while Adjusted EBITDA margin improved to 9.4% in 2020, as compared to 8.4% in 2019. The Adjusted EBITDA variance to prior year primarily reflects the impact from the sales decline, a $13 million decrease in paper byproduct recoveries, and an $11 million increase in hourly production wages due to strategic investments made to increase starting wages, partially offset by savings from cost reduction initiatives, a $9 million net non-cash benefit from a change in vacation policy, and a $6 million net reduction in workers’ compensation reserves from improved production safety performance. Year-to-date Adjusted EBITDA margin increased by 101 basis points driven by cost savings initiatives more than offsetting the relative percentage decline in sales.
*Net Cash Provided by Operating Activities — Net cash provided by operating activities was $107 million for the nine months ended September 30, 2020, an increase of $103 million from 2019, primarily due to higher cash earnings and improvements in working capital.
*Free Cash Flow — Free Cash Flow was $57 million for the nine months ended September 30, 2020, an increase of $91 million from 2019, primarily due to a $48 million decrease in capital expenditures, $40 million of income tax refunds received during the third quarter of 2020 due to the CARES Tax Act and improvements in working capital. As a reminder, the Company historically generates the majority of its Free Cash Flow in the fourth quarter of the year.
details at: https://www.quad.com/resources/news_release/quad-reports-third-quarter-and-year-to-date-2020-results/

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