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Quad Reports Third Quarter and Year-to-Date 2021 Results

Press release from the issuing company

Continued Recovery and Strong Execution Drives 4% Higher Net Sales with Organic Growth of 7% and Increased Profitability Year-Over-Year; Company Reaffirms Full-Year Outlook

SUSSEX, WI — Quad/Graphics, Inc. (“Quad” or the “Company”), today reported results for the third quarter of 2021.

Recent Highlights

  • Increased net sales by 4%, with 7% organic growth (excluding the divestiture of the Company’s third-party logistics business), from third quarter 2020 driven by higher print volumes, including print segment share gains from new clients, as well as a continued positive trend in Agency Solutions net sales.
  • Increased net earnings from continuing operations by $12 million to $14 million during the third quarter of 2021 as compared to 2020.
  • Achieved a 6% increase in Adjusted EBITDA to $64 million during the third quarter of 2021 as compared to 2020.
  • Reduced net debt by $140 million or 15% over the past 12 months.
  • Reaffirms full-year financial outlook for 2021 Net Sales, Adjusted EBITDA and Debt Leverage.
  • Amends and extends $1 billion bank debt agreement to November 2026.

Joel Quadracci, Chairman, President & CEO of Quad, said: “Our third quarter results were strong with higher print volumes, including print segment share gains from new clients, as well as a continued positive trend in Agency Solutions, all of which contributed to year-over-year organic growth of 7% in net sales. Our integrated marketing offering continues to be a competitive differentiator and a key driver behind our company’s overall organic growth. We are proud that some of the world’s most recognizable brands have chosen to partner with us for strategic marketing solutions, reflecting the strength of our offering and ability to deliver more value through reduced complexity, increased efficiencies and enhanced marketing spend effectiveness across all media channels. We continue to build out and invest in the talent, technology, products and services that will further advance our value as a marketing solutions partner.”

Quadracci continued: “Right now, businesses everywhere around the globe are experiencing disruption from unprecedented supply chain issues and mounting inflationary pressures. At Quad, we are working thoughtfully and diligently to mitigate these impacts on our business while successfully maintaining the high-quality, responsive service on which our clients have come to depend. As always, we will remain nimble and adapt to changes and challenges while continuing our disciplined approach to managing all aspects of our business to enhance our financial strength and create shareholder value.”

Summary Results

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

Net Sales — Net sales were $706 million in the third quarter of 2021, up 4% from the same period in 2020. Excluding the divestiture of QuadExpress, a third-party logistics (3PL) business, organic net sales increased 7% from 2020. The net sales increase during the third quarter was due to a 10% increase in year-over-year print net sales and an 8% increase in year-over-year Agency Solutions net sales. Net sales increased in print and Agency Solutions primarily driven by net sales growth from existing clients as well as print segment share gains from new clients.

Net Earnings From Continuing Operations — Net earnings from continuing operations were $14 million or $0.27 diluted earnings per share in the third quarter of 2021, an increase of $12 million compared to the third quarter of 2020. Net earnings increased due to higher profit from increased net sales, an $11 million gain from the sale and leaseback of the West Allis, Wis. production facility in the third quarter of 2021, and a $9 million net gain from property insurance claims, partially offset by the negative impact of cost inflation and $9 million of non-recurring temporary cost savings in 2020 primarily related to salary reductions and furloughs due to the COVID-19 pandemic.

Adjusted EBITDA — Adjusted EBITDA was $64 million in the third quarter of 2021, as compared to $61 million in the same period in 2020, while Adjusted EBITDA margin improved to 9.1% in 2021 compared to 8.9% in 2020. The increase in Adjusted EBITDA and Adjusted EBITDA margin was driven by higher profit from increased net sales and a $9 million net gain from property insurance claims, partially offset by the negative impact of cost inflation and $9 million of temporary COVID-19 pandemic related cost savings in 2020.
Results for the nine months ended September 30, 2021, include:

Net Sales — Net sales were $2.1 billion in the nine months ended September 30, 2021, up 1% from the same period in 2020. Excluding recent divestitures, organic net sales increased 2% compared to 2020. The net sales increase during the nine months ended September 30, 2021 was due to a 13% increase in year-over-year logistics net sales and a 9% increase in year-over-year Agency Solutions net sales, while print net sales were flat between years (which includes a 14% decrease in first quarter net sales due to year-over-year impacts from the COVID-19 pandemic). Over the past six months, after annualizing the first year of the COVID-19 pandemic’s impact on our business, organic net sales have increased 13% over 2020 primarily from net sales growth from existing clients and print segment share gains from new clients.

Net Earnings (Loss) From Continuing Operations — Net earnings from continuing operations were $59 million or $1.12 diluted earnings per share in the nine months ended September 30, 2021, an increase of $80 million compared to the same period in 2020, which recorded a net loss of $21 million or $0.41 diluted loss per share from continuing operations. Net earnings increased due to higher profit from increased net sales, a $52 million decrease in restructuring, impairment, and transaction-related charges (including a $24 million net gain from the sale of businesses) and a $25 million gain from the sale and leaseback of the Chalfont, Penn. and West Allis, Wis. production facilities. These increases were partially offset by $39 million of non-recurring temporary cost savings in 2020 primarily related to salary reductions and furloughs due to the COVID-19 pandemic, a $12 million benefit in 2020 from a change in the vacation policy, and the negative impact of cost inflation.

Adjusted EBITDA — Adjusted EBITDA was $190 million in the nine months ended September 30, 2021, as compared to $196 million in the same period in 2020. The $6 million decrease was due to $39 million of temporary COVID-19 pandemic related cost savings in 2020, a $12 million benefit in 2020 from a change in the vacation policy, and the negative impact of cost inflation, partially offset by higher profit from increased net sales and a $9 million net gain from property insurance claims.

Net Cash Provided by Operating Activities — Net cash provided by operating activities decreased by $85 million to $22 million for the nine months ended September 30, 2021, as compared to $107 million in the same period in 2020, primarily due to higher working capital to support the seasonal net sales growth and strategically increasing paper and materials inventory levels to serve our clients during this period of worldwide supply chain disruption, and $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 decreased by $76 million to negative $20 million for the nine months ended September 30, 2021, as compared to the same period in 2020, primarily due to the decrease in Net Cash Provided by Operating Activities described above, partially offset by a $9 million decrease in capital expenditures. As a reminder, the Company historically generates the majority of its Free Cash Flow in the fourth quarter of the year as seasonal working capital build in the third quarter is realized in the fourth quarter.

Net Debt — Debt less cash and cash equivalents decreased by $74 million to $799 million as of September 30, 2021, as compared to $873 million at December 31, 2020. The reduction was primarily due to cash generated from asset sales, including the divestiture of QuadExpress, a third-party logistics (3PL) business, and the sale and leaseback of the Chalfont, Penn. and West Allis, Wis. facilities. Over the past 12 months, Net Debt decreased $140 million, representing a 15% reduction in Net Debt. The Debt Leverage Ratio improved 21 basis points to 3.14x at September 30, 2021, from 3.35x at December 31, 2020.
2021 Outlook

The Company reaffirms the following full-year 2021 financial outlook:

Financial Metric 2021 Outlook
Annual Net Sales Change (1) 1% to 3% increase
Full-Year Adjusted EBITDA $240 to $260 million
Year-End Debt Leverage Ratio (2) Approximately 2.75x
(1) Annual Net Sales Change excludes the Net Sales impact from the divestiture of QuadExpress, which was sold on June 30, 2021.
(2) Debt Leverage Ratio is calculated at the midpoint of the Adjusted EBITDA outlook.

Dave Honan, Executive Vice President and CFO, concluded: “We achieved strong operational and financial performance in the third quarter as we grew Net Sales, Adjusted EBITDA and Adjusted EBITDA margin despite significant challenges from inflationary costs and supply chain disruptions. As we look to the fourth quarter, our strong sales momentum and continued drive for operational excellence provides us with the confidence to reaffirm our full-year 2021 outlook. Additionally, we are pleased with the continued long-term partnership and support of our bank group as evidenced in the extension of our $1 billion bank debt agreement to November 2026.”

Quarterly Conference Call

Quad will hold a conference call at 10 a.m. ET on Wednesday, November 3, to discuss third 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/10161221/eec196c88e. Participants will be given a unique PIN to gain immediate access to the call on November 3, 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 December 3, 2021, accessible as follows:

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

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