Company Achieves Third Consecutive Quarter of Improvement in Net Sales Trend; Strong Operating Performance Drives Increases in Margin and Free Cash Flow, Enabling Further Debt Reduction

Sussex, Wis. – Quad/Graphics, Inc. (“Quad” or the “Company”), today reported results for the first quarter of 2021.

Recent Highlights

• Achieved third consecutive quarter of improvement in net sales decline rate since the height of the pandemic.
• Achieved margin expansion and new business wins in agency solutions and print, while continuing to align costs to demand environment.
• Increased cash from operating activities to $73 million and Free Cash Flow to $56 million, up from $45 million and $16 million in 2020, respectively.
• Reduced Net Debt by $61 million during the first quarter and improved the Debt Leverage Ratio to 3.24x at March 31, 2021.
• Maintained strong liquidity position with up to $463 million in unused capacity under Quad’s revolving credit agreement and $81 million of cash on hand.

“We are very pleased with our performance during the first quarter,” said Joel Quadracci, Chairman, President & CEO of Quad. “Our team achieved a third straight quarter of improvement in net sales decline rate, increased our adjusted EBITDA margin, and drove higher cash flows. These positive trends included new business wins in agency solutions and print, reflecting how well our integrated marketing solutions offering is resonating in the marketplace. We remain focused on growing segment share and managing costs to drive strong cash flow, which will enable further debt reduction.

“We continue to leverage our commitment to client focus, platform excellence, innovation, strong culture and social purpose to accelerate our competitive position as a worldwide marketing solutions partner. Our integrated marketing platform creates superior value for our clients by helping them reduce the complexity of working with multiple agency partners and vendors, increase efficiencies, and improve marketing spend effectiveness across all channels. Our state-of-the-art offering and commitment to innovation has allowed us to establish and expand relationships with valued brands across top-performing verticals, including consumer technology, healthcare, finance and consumer-packaged goods. Our offering includes robust research capabilities to help brands and marketers better understand the drivers of consumer engagement and their purchasing journey, built on sound data and analytics. Recently, we announced our expanded partnership with Package InSight, an organization that studies brand packaging performance, consumer attention and shelf impact, to enhance this differentiating aspect of our offering.

“We will continue to remain nimble and adapt to the rapidly evolving demand landscape as the economy re-opens. We will remain disciplined in how we manage all aspects of our business, including taking advantage of value-creating opportunities that will help accelerate our transformation into higher margin products and services, and enhance our financial strength and create shareholder value. Notably, our strong culture and values include an enduring focus on social and environmental matters, and the benefit that this focus brings to the company and the communities we serve. For example, our comprehensive and sustainable diversity, equity and inclusion strategy is a moral and business imperative as it will ensure we attract and retain the talent we need to successfully compete and grow as a trusted marketing solutions partner. Similarly, our long-standing focus on conserving raw materials, minimizing waste and recycling make a meaningful impact on both the environment and the value we create.”

Summary Results

Results for the three months ended March 31, 2021, include:

Net Sales — Net sales were $706 million in the first quarter of 2021, down 14% from the same period in 2020, primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume pressures. The first quarter decline represents a third quarter of sequential revenue improvement during the pandemic, as compared to a 21% decline in the fourth quarter of 2020, a 28% decline in the third quarter of 2020 and a 38% decline in the second quarter of 2020.

Net Earnings (Loss) From Continuing Operations — Net earnings from continuing operations were $10 million or $0.19 diluted earnings per share in the first quarter of 2021, an increase of $19 million compared to the first quarter of 2020, which recorded a net loss of $9 million or $0.17 diluted loss per share.

Adjusted EBITDA — Adjusted EBITDA was $66 million in the first quarter of 2021, as compared to $75 million in the same period in 2020, while Adjusted EBITDA margin improved to 9.3% in 2021, as compared to 9.2% in 2020. The variance in Adjusted EBITDA to prior year reflects the impact of the net sales decline and $18 million of nonrecurring benefits realized in 2020, including a $12 million benefit from a change in the hourly production employee vacation policy, and a $6 million benefit in the cost of worker’s compensation claims from improved production safety procedures. These impacts were partially offset by savings from cost reduction initiatives. Adjusted EBITDA margin improved 15 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 increased by $28 million to $73 million in the first quarter of 2021, as compared to $45 million in the same period in 2020, primarily due to improvements in working capital.

Free Cash Flow — Free Cash Flow increased by $40 million to $56 million in the first quarter of 2021, as compared to $16 million in the same period in 2020, primarily due to higher net cash provided by operating activities as described above and a $12 million decrease in capital expenditures.

Dave Honan, Executive Vice President and CFO, concluded: “Our commitment to disciplined cost management and productivity improvements drove a higher Adjusted EBITDA margin and, when combined with new agency and print business wins, helped us deliver solid financial results despite the impact of the pandemic. This included a substantial increase in our Free Cash Flow, which enabled us to reduce Net Debt by $61 million and improve our Debt Leverage Ratio to 3.24x. We will continue to use our strong Free Cash Flow, in addition to proceeds from asset sales, to further reduce debt, and we expect to further improve our Debt Leverage Ratio to be at or near 3.0x by the end of 2021.”

Quarterly Conference Call

Quad will hold a conference call at 10 a.m. ET on Wednesday, May 5, to discuss first quarter 2021 results. As part of the conference call, Quad will conduct a question and answer session. Investors are invited to email their questions in advance to [email protected]. 

Participants can pre-register for the webcast by navigating to https://dpregister.com/sreg/10155015/e6ee4a26aa.  Participants will be given a unique PIN to gain immediate access to the call on May 5, bypassing the live operator. Participants may pre-register at any time, including up to and after the call start time.

Alternatively, participants without internet access may dial in on the day of the call as follows:

U.S. Toll-Free: 1-877-328-5508
International Toll: 1-412-317-5424
An audio replay of the call will be posted on the Investors section of Quad’s website shortly after the conference call ends. In addition, telephone playback will also be available until June 5, 2021, accessible as follows:

U.S. Toll-Free: 1-877-344-7529
International Toll: 1-412-317-0088
Replay Access Code: 10155015