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Quad Reports Fourth Quarter and Full-Year 2020 Results

Press release from the issuing company

Strong Cost Discipline and Continued Productivity Improvements Drive Increases in Full-Year Margin and Cash Flow While Reducing Debt by $184 Million

Sussex, Wis. – Quad/Graphics, Inc. (“Quad” or the “Company”) today reported results for its fourth quarter and full year ending December 31, 2020.

Recent Highlights

  • Achieved second straight quarter of sequential improvement in Net Sales since the beginning of the pandemic.
  • Aligned costs with demand environment throughout 2020 and achieved margin expansion while growing print segment share. Improved Adjusted EBITDA margin to 8.9% in 2020 from 8.5% in 2019 despite print industry volume and pricing pressures and the impact of the COVID-19 pandemic.
  • Delivered cash from operating activities of $190 million and Free Cash Flow of $129 million; increases of $35 million and $23 million compared to 2019, respectively.
  • Strengthened product portfolio by divesting non-core assets, generating $69 million in proceeds during 2020.
  • Reduced debt by $184 million during 2020, ending the year with a Debt Leverage Ratio of 3.35x.
  • Maintained strong liquidity position, with up to $461 million in unused capacity under Quad’s revolving credit agreement and $55 million of cash on hand.

“We are pleased that our consistent and strong operating performance delivered solid full-year results with higher Adjusted EBITDA margin and cash flow, which helped us overcome a year of unprecedented challenges due to the global pandemic. These results were driven by purposeful efforts to expand segment share growth, disciplined cost management, and productivity improvements across the organization, all of which helped offset the significant volume impact caused by the pandemic,” said Joel Quadracci, Chairman, President & CEO of Quad.

“This past year repeatedly tested the responsiveness and resiliency of our team, and we showed our mettle. The team demonstrated incredible speed and agility to reduce costs and adapt business operations amid constantly changing circumstances and demands,” Quadracci said. “We were able to increase print segment share while advancing our revenue diversification efforts in integrated solutions and targeted print. We protected the financial health of the Company while both prioritizing the health and well-being of employees, and providing exceptional service and continued innovation to our clients. We continued to strengthen our platform and position as a marketing solutions partner through the optimization of our product portfolio, which included investments in growth-focused areas of our business and divestments of our non-core assets, such as our Book platform – the proceeds of which we used to pay down debt. We also intensified our commitment to diversity, equity and inclusion. Just last week we announced a new partnership with The BrandLab, a non-profit dedicated to changing the face and voice of the marketing industry by bringing young people from diverse backgrounds together with local agencies and corporations. I could not be more proud to be part of this three-year, $1 million commitment to enable BrandLab to begin operating in Milwaukee and create internship opportunities for local students who identify as Black, Indigenous and People of Color or who come from low-income families.”

Quadracci added: “Looking ahead to 2021 – our milestone 50th anniversary year – we will continue to build on our established track record of navigating change and disruption. As always, we will manage through short-term challenges, while remaining committed to our long-term focus and strategic priorities. We believe there are exceptional opportunities to expand relationships with existing clients while acquiring new ones, and expand in growth market verticals due to our industry-leading integrated marketing platform that reduces complexity, increases efficiencies and enhances marketing spend effectiveness. We are a nimble organization and are confident we can take advantage of value-creating opportunities that will help us expand into higher margin products and services as we look to build momentum in our pandemic recovery throughout 2021.”

Summary Results

Results for the three months ended December 31, 2020, included:

Net Sales — Net sales were $843 million in 2020, down 21% from 2019, primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures. However, the fourth quarter decline represents another quarter of sequential revenue improvement during the pandemic, as compared to 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 loss from continuing operations was $86 million in 2020, or $1.69 diluted loss per share, as compared to net earnings of $7 million, or $0.14 diluted earnings per share in 2019. This variance was mainly driven by $75 million of restructuring and non-cash impairment expenses due to fourth quarter 2020 plant closure announcements, and lower net sales.

Adjusted EBITDA — Adjusted EBITDA was $64 million in 2020, as compared to $96 million 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.

Results for full-year ended December 31, 2020, included:

Net Sales — Net sales were $2.9 billion in 2020, down 25% from 2019, 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 was $107 million in 2020, or $2.10 diluted loss per share, as compared to a net loss of $56 million, or $1.11 diluted loss per share in 2019. The increase in net loss is mostly due to $35 million of higher restructuring, impairment and transaction-related charges, and lower net sales.

Adjusted EBITDA — Adjusted EBITDA was $260 million in 2020, as compared to $335 million in 2019, while Adjusted EBITDA margin improved to 8.9% in 2020, as compared to 8.5% in 2019. The Adjusted EBITDA variance to prior year primarily reflects the impact from the sales decline, a $12 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 $15 million net reduction in workers’ compensation expense primarily from improved production safety performance, and a $9 million net non-cash benefit from a change in vacation policy. Adjusted EBITDA margin increased by 35 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 $190 million in 2020, an increase of $35 million from 2019, primarily due to $40 million of income tax refunds received during the third quarter of 2020 due to the CARES Tax Act.

Free Cash Flow — Free Cash Flow was $129 million in 2020, an increase of $23 million from 2019, primarily due to a $50 million decrease in capital expenditures, partially offset by a $27 million decrease in cash earnings.

Dave Honan, Executive Vice President and CFO, concluded: “Our increased productivity and disciplined cost management delivered increased Adjusted EBITDA margin in 2020 despite the sales impact of the COVID-19 pandemic. While the pandemic impacted our client base, we achieved a second straight quarter of sequential improvement in net sales. With significant cash flow conversion and our ongoing commitment to debt reduction, we strengthened our balance sheet, paying down $184 million in debt during 2020 and ending the year with a Debt Leverage Ratio of 3.35x. In 2021, we will continue our focus on strengthening our balance sheet, while pursuing transformational net sales growth and winning additional segment share.”

2021 Outlook

Given the ongoing lack of full-year visibility due to the pandemic, the Company is not issuing 2021 financial guidance at this time; however, it believes it will continue to see sequential improvement in quarterly net sales trends in the first half of 2021 due to the improving impact of the pandemic on net sales and print segment share gains. The Company expects Free Cash Flow to decrease in 2021 due to the non-recurring nature of the CARES Act income tax refund received in 2020, partially offset by improvements in working capital, lower pension contributions and lower capital expenditures. The Company will use Free Cash Flow and cash generated from asset sales to reduce debt and expects to end 2021 at a lower debt leverage ratio than it ended 2020.

Quarterly Conference Call

Quad will hold a conference call at 10 a.m. ET on Wednesday, February 24, to discuss fourth quarter and full-year 2020 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/10151732/e153def91c

Participants will be given a unique PIN to gain immediate access to the call on February 24, 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 March 24, 2021, accessible as follows:

• U.S. Toll-Free: 1-877-344-7529
• International Toll: 1-412-317-0088
• Replay Access Code: 10151732

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