Achieves 19% Net Sales Increase From Q2 2020 and Raises Full-Year Outlook; Significantly Reduces Net Debt by $120 Million Since December 31, 2020

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

Recent Highlights

Increased net sales by 19% from second quarter 2020 driven by higher print, logistics and agency solutions sales, which rebounded compared to the pandemic-impacted period in 2020, as well as print segment share gains.

Increased net earnings from continuing operations by $49 million to $34 million for the second quarter of 2021, compared to a net loss from continuing operations of $15 million for the second quarter of 2020.

Achieved $60 million in Adjusted EBITDA during the second quarter of 2021, flat with the prior year, despite a year-over-year non-recurring benefit in 2020 of approximately $30 million in temporary cost reductions.

Increased cash provided by operating activities to $89 million and Free Cash Flow to $62 million during the first six months of 2021, increases of $22 million and $33 million, respectively.

Reduced Net Debt by $120 million year-to-date, improving the Company’s Debt Leverage Ratio to 3.0x at June 30, 2021, from 3.35x at December 31, 2020.

Sold QuadExpress, a third-party logistics (3PL) business, for $40 million, representing an Adjusted EBITDA multiple of over 8 times.

Raises and expands full-year financial outlook for 2021 Net Sales, Adjusted EBITDA and debt leverage.

“Thanks to strong operating and financial performance, our team delivered second quarter results that exceeded our expectations,” said Joel Quadracci, Chairman, President & CEO of Quad. “Our net sales grew 19% as compared to the same period last year, driven by organic growth and new business wins. This positive trend reflects the hard work of our employees and the success our integrated marketing offering is having in the marketplace. We remain committed to providing value to clients through our unique solutions, and will continue to establish and expand relationships with premier brands and marketers.

“We also divested our 3PL brokered freight business, QuadExpress, for a total consideration of $40 million, at the end of June. This divestiture, which represented a small portion of our global logistics business, was in line with our established strategy to optimize our product and service portfolio and invest in those parts of our business that can accelerate our growth and position as a marketing solutions partner. We are pleased to have found a great home for the QuadExpress team.

“As the ad market and broader economy continue to recover and return to growth, our innovative team remains committed to organically growing share, including new revenue from our expanded marketing services product offering, while also attracting new clients from new verticals. As always, we will remain nimble and adapt to changing demand in the marketplace while maintaining our disciplined approach to how we manage all aspects of our business to enhance our financial strength and create shareholder value. This includes continuing to build out and invest in the talent, technology, products and services that will further advance our strategy as a marketing solutions partner.”

Summary Results

Results for the three months ended June 30, 2021, include:

Net Sales — Net sales were $694 million in the second quarter of 2021, up 19% from the same period in 2020. Net sales increased in print, logistics and agency solutions primarily driven by organic growth, which rebounded compared to the pandemic-impacted period in 2020, as well as print segment share gains from new clients.

Net Earnings (Loss) From Continuing Operations — Net earnings from continuing operations were $34 million or $0.66 diluted earnings per share from continuing operations in the second quarter of 2021, an increase of $49 million compared to the second quarter of 2020, which recorded a net loss of $15 million or $0.29 diluted loss per share. Net earnings increased due to higher profit from a 19% increase in net sales, a $21 million gain on the sale of QuadExpress in the second quarter of 2021, a $14 million gain from the sale and leaseback of the Chalfont, Penn., production facility in the second quarter of 2021, and $9 million of lower restructuring, impairment and transaction-related charges, partially offset by approximately $30 million in non-recurring temporary cost savings in 2020 primarily related to salary reductions and furloughs due to the COVID pandemic.

Adjusted EBITDA — Adjusted EBITDA was $60 million in the second quarter of 2021, consistent with the same period in 2020. Increased net sales drove higher profit, offset by approximately $30 million in 2020 COVID-related temporary cost reductions.

Results for the six months ended June 30, 2021, include:

Net Sales — Net sales were $1.4 billion in the six months ended June 30, 2021, down 1% from the same period in 2020, primarily due to the impacts from the COVID-19 pandemic in the first quarter, nearly offset by year-over-year increases in print, logistics and agency solutions sales in the second quarter.

Net Earnings (Loss) From Continuing Operations — Net earnings from continuing operations were $45 million or $0.85 diluted earnings per share from continuing operations in the six months ended June 30, 2021, an increase of $69 million compared to the same period in 2020, which recorded a net loss of $24 million or $0.46 diluted loss per share. Net earnings were higher due to a $26 million decrease in restructuring, impairment, and transaction-related charges, a $24 million increase from gains on the sale of businesses, and a $14 million gain from the sale and leaseback of the Chalfont, Penn., production facility in the second quarter of 2021. These increases were partially offset by approximately $30 million in non-recurring temporary cost savings in 2020.

Adjusted EBITDA — Adjusted EBITDA was $126 million in the six months ended June 30, 2021, as compared to $135 million in the same period in 2020. The strong second quarter net sales growth and related Adjusted EBITDA impact partially offset the full year impact of non-recurring benefits in 2020 primarily related to approximately $30 million in temporary cost reductions and a $12 million benefit in 2020 from change in vacation policy.

Net Cash Provided by Operating Activities — Net cash provided by operating activities increased by $22 million to $89 million for the six months ended June 30, 2021, as compared to $67 million in the same period in 2020, primarily due to improvements in working capital.

Free Cash Flow — Free Cash Flow increased by $33 million to $62 million for the six months ended June 30, 2021, as compared to $29 million for the same period in 2020, primarily due to higher net cash provided by operating activities as described above, and an $11 million decrease in capital expenditures.

Net Debt — Debt less cash and cash equivalents decreased by $120 million to $753 million as of June 30, 2021, as compared to $873 million at December 31, 2020. The reduction was primarily due to $62 million in Free Cash Flow and cash generated from asset sales, primarily related to the sale of QuadExpress. Over the past twelve months, net debt decreased $225 million, representing a 23% reduction in net debt. The Debt Leverage Ratio improved 35 basis points to 3.0x at June 30, 2021, from 3.35x at December 31, 2020.

2021 Outlook

The Company provided the following 2021 financial outlook:

(1) Due to QuadExpress being sold on June 30, 2021, Annual Net Sales Change excludes QuadExpress sales for the second half of 2020
(2) Debt Leverage Ratio is calculated at the midpoint of the Adjusted EBITDA outlook

Dave Honan, Executive Vice President and CFO, concluded: “Our performance in the first half of the year and, in particular, the second quarter, surpassed our expectations. We have strong sales momentum heading into the second half of 2021, providing the foundation for our improved and expanded financial outlook for fiscal 2021. Our full-year outlook increases our Net Sales outlook to a 1% to 3% increase compared to 2020, and we expect further significant reductions in debt in the second half of the year to end 2021 with a Debt Leverage Ratio of approximately 2.75x.”

Quarterly Conference Call

Quad will hold a conference call at 10 a.m. ET on Wednesday, August 4, to discuss second quarter and year-to-date 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 August 4, 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 September 4, 2021, accessible as follows:

U.S. Toll-Free: 1-877-344-7529
International Toll: 1-412-317-0088
Replay Access Code: 10158830