Strong Cost Discipline and Continued
Productivity Improvements Drive Increases in Full-Year Margin and
Cash Flow While Reducing Debt by $184 Million
Quad/Graphics, Inc. (NYSE: QUAD) (“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 IR@quad.com.
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
Forward-Looking Statements
This press release contains certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include statements regarding,
among other things, our current expectations about the Company’s
future results, financial condition, sales, earnings, free cash
flow, margins, objectives, goals, strategies, beliefs, intentions,
plans, estimates, prospects, projections and outlook of the Company
and can generally be identified by the use of words or phrases such
as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,”
“plan,” “foresee,” “project,” “believe,” “continue” or the
negatives of these terms, variations on them and other similar
expressions. These forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause
actual results to be materially different from those expressed in
or implied by such forward-looking statements. Forward-looking
statements are based largely on the Company’s expectations and
judgments and are subject to a number of risks and uncertainties,
many of which are unforeseeable and beyond our control.
The factors that could cause actual results to materially differ
include, among others: the negative impacts the coronavirus
(COVID-19) has had and will continue to have on the Company’s
business, financial condition, cash flows, results of operations
and supply chain, as well as the global economy in general
(including future uncertain impacts); the impact of decreasing
demand for printed materials and significant overcapacity in the
highly competitive environment creates downward pricing pressures
and potential underutilization of assets; the impact of digital
media and similar technological changes, including digital
substitution by consumers; the impact of fluctuations in costs
(including labor and labor-related costs, energy costs, freight
rates and raw materials) and the impact of fluctuations in the
availability of raw materials; the inability of the Company to
reduce costs and improve operating efficiency rapidly enough to
meet market conditions; the impact of the various restrictive
covenants in the Company’s debt facilities on the Company’s ability
to operate its business, as well as the uncertain negative impacts
COVID-19 may have on the Company’s ability to continue to be in
compliance with these restrictive covenants; the impact of
increased business complexity as a result of the Company’s
transformation to a marketing solutions partner; the impact
negative publicity could have on our business; the failure to
successfully identify, manage, complete and integrate acquisitions,
investment opportunities or other significant transactions, as well
as the successful identification and execution of strategic
divestitures; the failure of clients to perform under contracts or
to renew contracts with clients on favorable terms or at all; the
impact of changing future economic conditions; the fragility and
decline in overall distribution channels; the impact of changes in
postal rates, service levels or regulations; the failure to attract
and retain qualified talent across the enterprise; the impact of
regulatory matters and legislative developments or changes in laws,
including changes in cyber-security, privacy and environmental
laws; significant capital expenditures may be needed to maintain
the Company’s platforms and processes and to remain technologically
and economically competitive; the impact of risks associated with
the operations outside of the United States, including costs
incurred or reputational damage suffered due to improper conduct of
its employees, contractors or agents; the impact of an other than
temporary decline in operating results and enterprise value that
could lead to non-cash impairment charges due to the impairment of
property, plant and equipment and intangible assets; the impact on
the holders of Quad’s class A common stock of a limited active
market for such shares and the inability to independently elect
directors or control decisions due to the voting power of the class
B common stock; and the other risk factors identified in the
Company’s most recent Annual Report on Form 10-K, as such were
previously supplemented and amended in the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2020,
and which may be further amended or supplemented by subsequent
Quarterly Reports on Form 10-Q or other reports filed with the
Securities and Exchange Commission.
Except to the extent required by the federal securities laws,
the Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
Non-GAAP Financial Measures
This press release contains financial measures not prepared in
accordance with generally accepted accounting principles (referred
to as Non-GAAP), specifically Adjusted EBITDA, Adjusted EBITDA
Margin, Free Cash Flow, Debt Leverage Ratio and Adjusted Diluted
Earnings (Loss) Per Share From Continuing Operations. Adjusted
EBITDA is defined as net earnings (loss) attributable to Quad
common shareholders excluding interest expense, income tax expense
(benefit), depreciation and amortization, restructuring, impairment
and transaction-related charges, (loss) earnings from discontinued
operations, net of tax, net pension income, loss (gain) on debt
extinguishment, equity in (earnings) loss of unconsolidated entity,
the Adjusted EBITDA for unconsolidated equity method investments
(calculated in a consistent manner with the calculation for Quad)
and net earnings (loss) attributable to noncontrolling interests.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net
sales. Free Cash Flow is defined as net cash provided by operating
activities less purchases of property, plant and equipment, plus
LSC-related payments primarily related to incremental interest
payments associated with the 2019 amended debt refinancing and
transaction-related costs. Debt Leverage Ratio is defined as total
debt and finance lease obligations less cash and cash equivalents
divided by the last twelve months of Adjusted EBITDA. Adjusted
Diluted Earnings (Loss) Per Share From Continuing Operations is
defined as earnings (loss) from continuing operations before income
taxes and equity in (earnings) loss of unconsolidated entity
excluding restructuring, impairment and transaction-related
charges, loss (gain) on debt extinguishment, and adjusted for
income tax expense at a normalized tax rate, divided by diluted
weighted average number of common shares outstanding.
The Company believes that these Non-GAAP measures, when
presented in conjunction with comparable GAAP measures, provide
additional information for evaluating Quad’s performance and are
important measures by which Quad’s management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies. Reconciliation
to the GAAP equivalent of these Non-GAAP measures are contained in
tabular form on the attached unaudited financial statements.
About Quad
Quad (NYSE: QUAD) is a worldwide marketing solutions partner
that leverages its 50-year heritage of platform excellence,
innovation and strong culture and social purpose to create a better
way for its clients, employees and communities. The Company’s
integrated marketing platform helps brands and marketers reduce
complexity, increase efficiency and enhance marketing spend
effectiveness. Quad provides its clients with unmatched scale for
client on-site services and expanded subject expertise in marketing
strategy, creative solutions, media deployment (which includes a
strong foundation in print) and marketing management services. With
a client-centric approach that drives the Company to continuously
evolve its offering, combined with leading-edge technology and
single-source simplicity, the Company has the resources and
knowledge to help a wide variety of clients in multiple vertical
industries, including retail, publishing, consumer packaged goods,
financial services, insurance, healthcare and direct-to-consumer.
Quad has multiple locations throughout North America, South America
and Europe, and strategic partnerships in Asia and other parts of
the world. For additional information visit www.QUAD.com.
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
For the Three Months Ended
December 31, 2020 and 2019
(in millions, except per share
data)
(UNAUDITED)
Three Months Ended December
31,
2020
2019
Net sales
$
843.3
$
1,069.9
Cost of sales
682.9
867.9
Selling, general and administrative
expenses
97.1
107.1
Depreciation and amortization
42.7
50.2
Restructuring, impairment and
transaction-related charges
75.1
15.7
Total operating expenses
897.8
1,040.9
Operating income (loss) from continuing
operations
(54.5
)
29.0
Interest expense
16.6
20.4
Net pension income
(2.5
)
(1.5
)
Earnings (loss) from continuing operations
before income taxes and equity in earnings of unconsolidated
entity
(68.6
)
10.1
Income tax expense
17.8
3.6
Earnings (loss) from continuing operations
before equity in earnings of unconsolidated entity
(86.4
)
6.5
Equity in earnings of unconsolidated
entity
(0.7
)
(0.6
)
Net earnings (loss) from continuing
operations
(85.7
)
7.1
Earnings (loss) from discontinued
operations, net of tax
(8.3
)
0.5
Net earnings (loss)
(94.0
)
7.6
Less: net earnings attributable to
noncontrolling interests
—
0.1
Net earnings (loss) attributable to
Quad common shareholders
$
(94.0
)
$
7.5
Earnings (loss) per share attributable
to Quad common shareholders
Basic:
Continuing operations
$
(1.69
)
$
0.14
Discontinued operations
(0.16
)
0.01
Basic earnings (loss) per share
attributable to Quad common shareholders
$
(1.85
)
$
0.15
Diluted:
Continuing operations
$
(1.69
)
$
0.14
Discontinued operations
(0.16
)
0.01
Diluted earnings (loss) per share
attributable to Quad common shareholders
$
(1.85
)
$
0.15
Weighted average number of common
shares outstanding
Basic
50.7
50.2
Diluted
50.7
51.0
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
For the Years Ended December 31,
2020 and 2019
(in millions, except per share
data)
(UNAUDITED)
Year Ended December
31,
2020
2019
Net sales
$
2,929.6
$
3,923.4
Cost of sales
2,334.8
3,192.2
Selling, general and administrative
expenses
335.1
397.6
Depreciation and amortization
181.6
209.5
Restructuring, impairment and
transaction-related charges
124.1
89.4
Total operating expenses
2,975.6
3,888.7
Operating income (loss) from continuing
operations
(46.0
)
34.7
Interest expense
68.8
90.0
Net pension income
(10.5
)
(6.0
)
Loss on debt extinguishment
1.8
30.5
Loss from continuing operations before
income taxes and equity in loss of unconsolidated entity
(106.1
)
(79.8
)
Income tax expense (benefit)
0.3
(24.4
)
Loss from continuing operations before
equity in loss of unconsolidated entity
(106.4
)
(55.4
)
Equity in loss of unconsolidated
entity
0.2
0.3
Net loss from continuing
operations
(106.6
)
(55.7
)
Loss from discontinued operations, net of
tax
(21.9
)
(100.6
)
Net loss
(128.5
)
(156.3
)
Less: net loss attributable to
noncontrolling interests
(0.2
)
—
Net loss attributable to Quad common
shareholders
$
(128.3
)
$
(156.3
)
Loss per share attributable to Quad
common shareholders
Basic and diluted:
Continuing operations
$
(2.10
)
$
(1.11
)
Discontinued operations
(0.43
)
(2.01
)
Basic and diluted loss per share
attributable to Quad common shareholders
$
(2.53
)
$
(3.12
)
Weighted average number of common
shares outstanding
Basic and diluted
50.6
50.0
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
As of December 31, 2020 and
2019
(in millions)
(UNAUDITED)
December 31, 2020
December 31, 2019
ASSETS
Cash and cash equivalents
$
55.2
$
78.7
Receivables, less allowances for credit
losses
399.1
456.1
Inventories
170.2
210.5
Prepaid expenses and other current
assets
54.7
109.0
Current assets of discontinued
operations
—
56.6
Total current assets
679.2
910.9
Property, plant and equipment—net
884.2
1,036.5
Operating lease right-of-use
assets—net
81.0
97.9
Goodwill
103.0
103.0
Other intangible assets—net
104.3
137.2
Equity method investment in unconsolidated
entity
2.6
3.6
Other long-term assets
73.4
127.5
Long-term assets of discontinued
operations
—
0.5
Total assets
$
1,927.7
$
2,417.1
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
$
320.0
$
416.7
Other current liabilities
310.8
303.0
Short-term debt and current portion of
long-term debt
20.7
40.0
Current portion of finance lease
obligations
2.8
7.7
Current portion of operating lease
obligations
28.4
30.2
Current liabilities of discontinued
operations
—
15.8
Total current liabilities
682.7
813.4
Long-term debt
902.7
1,058.5
Finance lease obligations
2.0
6.0
Operating lease obligations
54.5
70.4
Deferred income taxes
4.2
2.8
Other long-term liabilities
196.8
221.1
Long-term liabilities of discontinued
operations
—
0.6
Total liabilities
1,842.9
2,172.8
Shareholders’ Equity
Preferred stock
—
—
Common stock
1.4
1.4
Additional paid-in capital
833.1
847.4
Treasury stock, at cost
(13.1
)
(31.5
)
Accumulated deficit
(566.0
)
(423.5
)
Accumulated other comprehensive loss
(171.3
)
(167.2
)
Quad’s shareholders’ equity
84.1
226.6
Noncontrolling interests
0.7
17.7
Total shareholders’ equity and
noncontrolling interests
84.8
244.3
Total liabilities and shareholders’
equity
$
1,927.7
$
2,417.1
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Years Ended December 31,
2020 and 2019
(in millions)
(UNAUDITED)
Year Ended December
31,
2020
2019
OPERATING ACTIVITIES
Net loss
$
(128.5
)
$
(156.3
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
181.6
223.1
Impairment charges
75.6
100.0
Goodwill impairment
—
10.1
Loss on debt extinguishment
1.8
30.5
Stock-based compensation
10.6
13.6
Gain on the sale or disposal of property,
plant and equipment
(1.8
)
(6.6
)
Loss (gain) on the sale of businesses
3.5
(8.4
)
Gain from property insurance claims
(4.7
)
(0.8
)
Deferred income taxes
48.5
(57.1
)
Other non-cash adjustments to net loss
2.8
3.9
Changes in operating assets and
liabilities
0.8
3.5
Net cash provided by operating
activities
190.2
155.5
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
(61.0
)
(111.0
)
Cost investment in unconsolidated
entities
(0.5
)
—
Proceeds from the sale of property, plant
and equipment
7.4
17.5
Proceeds from the sale of businesses
61.3
11.1
Proceeds from property insurance
claims
4.8
0.3
Loan to an unconsolidated entity
—
(5.0
)
Acquisition of businesses—net of cash
acquired
(2.2
)
(121.0
)
Other investing activities
(0.1
)
—
Net cash provided by (used in) investing
activities
9.7
(208.1
)
FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt
1.0
1,285.1
Payments of long-term debt
(177.9
)
(1,119.4
)
Payments of finance lease obligations
(7.4
)
(8.7
)
Borrowings on revolving credit
facilities
350.6
3,636.1
Payments on revolving credit
facilities
(351.7
)
(3,642.1
)
Payments of debt issuance costs and
financing fees
(2.7
)
(20.2
)
Change in ownership of noncontrolling
interests
(22.4
)
—
Equity awards redeemed to pay employees’
tax obligations
(1.0
)
(6.6
)
Payment of cash dividends
(9.5
)
(57.1
)
Other financing activities
(2.6
)
(5.3
)
Net cash provided by (used in) financing
activities
(223.6
)
61.8
Effect of exchange rates on cash and cash
equivalents
0.2
—
Net increase (decrease) in cash and cash
equivalents
(23.5
)
9.2
Cash and cash equivalents at beginning of
year
78.7
69.5
Cash and cash equivalents at end of
year
$
55.2
$
78.7
The Condensed Consolidated Statements of Cash Flows include the
cash flows related to the United States Book business for all
periods presented.
QUAD/GRAPHICS, INC.
SEGMENT FINANCIAL INFORMATION
For the Three Months and Years
Ended December 31, 2020 and 2019
(in millions)
(UNAUDITED)
Net Sales
Operating Income (Loss)
from Continuing Operations
Restructuring, Impairment and
Transaction-Related Charges (1)
Three months ended December 31,
2020
United States Print and Related
Services
$
757.3
$
(42.9
)
$
72.1
International
86.0
1.3
2.9
Total operating segments
843.3
(41.6
)
75.0
Corporate
—
(12.9
)
0.1
Total
$
843.3
$
(54.5
)
$
75.1
Three months ended December 31,
2019
United States Print and Related
Services
$
965.0
$
40.3
$
9.5
International
104.9
3.7
2.5
Total operating segments
1,069.9
44.0
12.0
Corporate
—
(15.0
)
3.7
Total
$
1,069.9
$
29.0
$
15.7
Year ended December 31, 2020
United States Print and Related
Services
$
2,627.6
$
1.7
$
110.1
International
302.0
(0.8
)
12.2
Total operating segments
2,929.6
0.9
122.3
Corporate
—
(46.9
)
1.8
Total
$
2,929.6
$
(46.0
)
$
124.1
Year ended December 31, 2019
United States Print and Related
Services
$
3,521.0
$
130.1
$
24.6
International
402.4
8.6
10.0
Total operating segments
3,923.4
138.7
34.6
Corporate
—
(104.0
)
54.8
Total
$
3,923.4
$
34.7
$
89.4
______________________________
(1)
Restructuring, impairment and transaction-related charges are
included within operating income (loss) from continuing
operations.
The segment information contained in the above table does not
include the operating results related to the United States Book
business.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED
EBITDA AND ADJUSTED EBITDA MARGIN
For the Three Months Ended
December 31, 2020 and 2019
(in millions)
(UNAUDITED)
Three Months Ended December
31,
2020
2019
Net earnings (loss) attributable to Quad
common shareholders
$
(94.0
)
$
7.5
Interest expense
16.6
20.4
Income tax expense
17.8
3.6
Depreciation and amortization
42.7
50.2
EBITDA (Non-GAAP)
$
(16.9
)
$
81.7
EBITDA Margin (Non-GAAP)
(2.0
)%
7.6
%
Restructuring, impairment and
transaction-related charges (1)
75.1
15.7
(Earnings) loss from discontinued
operations, net of tax (2)
8.3
(0.5
)
Net pension income (3)
(2.5
)
(1.5
)
Other (4)
0.4
0.4
Adjusted EBITDA (Non-GAAP)
$
64.4
$
95.8
Adjusted EBITDA Margin
(Non-GAAP)
7.6
%
9.0
%
______________________________
(1)
Operating results for the three months ended December 31, 2020
and 2019, were affected by the following restructuring, impairment
and transaction-related charges:
Three Months Ended December
31,
2020
2019
Employee termination charges (a)
$
9.3
$
2.3
Impairment charges (b)
59.9
4.3
Transaction-related charges and
adjustments (c)
(0.3)
0.5
Integration costs (d)
0.6
1.2
Other restructuring charges (e)
5.6
7.4
Restructuring, impairment and
transaction-related charges
$
75.1
$
15.7
______________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, as well as other
capacity and strategic reduction restructuring initiatives,
including $56.6 million of impairment charges for property, plant
and equipment in Oklahoma City, Oklahoma during the three months
ended December 31, 2020.
(c)
Transaction-related charges and
adjustments consisted primarily of professional service fees and
adjustments related to business acquisition and divestiture
activities.
(d)
Integration costs were primarily related
to the integration of acquired companies.
(e)
Other restructuring charges includes costs
to maintain and exit closed facilities, as well as lease exit
charges, and is presented net of gains on the sale of
facilities.
(2)
(Earnings) loss from discontinued
operations, net of tax, includes the results of operations for the
Company’s United States Book business. During the third quarter of
2019, the Company made the decision to sell its United States Book
business. Accordingly, the Company applied discontinued operations
treatment for the intended sale of its United States Book business
in all periods presented, as required by United States GAAP. The
Company successfully completed the sale of its United States Book
business in the year ended December 31, 2020.
(3)
As required by United States GAAP, pension
components other than service cost are required to be excluded from
operating income. The Company has also excluded pension income from
the calculation of Adjusted EBITDA.
(4)
Other includes the following items: (a)
the equity in (earnings) loss of unconsolidated entity, which
includes the results of operations for an investment in an entity
where Quad has the ability to exert significant influence, but not
control, and is accounted for using the equity method of
accounting; (b) the Adjusted EBITDA for unconsolidated equity
method investments, which was calculated in a consistent manner
with the calculation above for Quad; and (c) the net earnings
(loss) attributable to noncontrolling interests, which is the
portion of the net earnings (loss) not owned by Quad for an
investment where Quad has a controlling financial interest.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED
EBITDA AND ADJUSTED EBITDA MARGIN
For the Years Ended December 31,
2020 and 2019
(in millions)
(UNAUDITED)
Year Ended December
31,
2020
2019
Net loss attributable to Quad common
shareholders
$
(128.3
)
$
(156.3
)
Interest expense
68.8
90.0
Income tax expense (benefit)
0.3
(24.4
)
Depreciation and amortization
181.6
209.5
EBITDA (Non-GAAP)
$
122.4
$
118.8
EBITDA Margin (Non-GAAP)
4.2
%
3.0
%
Restructuring, impairment and
transaction-related charges (1)
124.1
89.4
Loss from discontinued operations, net of
tax (2)
21.9
100.6
Net pension income (3)
(10.5
)
(6.0
)
Loss on debt extinguishment (4)
1.8
30.5
Other (5)
0.7
1.6
Adjusted EBITDA (Non-GAAP)
$
260.4
$
334.9
Adjusted EBITDA Margin
(Non-GAAP)
8.9
%
8.5
%
_________________________________
(1)
Operating results for the years ended December 31, 2020 and
2019, were affected by the following restructuring, impairment and
transaction-related charges:
Year Ended December
31,
2020
2019
Employee termination charges (a)
$
34.7
$
22.2
Impairment charges (b)
64.1
7.9
Transaction-related charges (c)
1.4
51.6
Integration costs (d)
1.9
3.3
Other restructuring charges (e)
22.0
4.4
Restructuring, impairment and
transaction-related charges
$
124.1
$
89.4
________________________________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, as well as other
capacity and strategic reduction restructuring initiatives,
including $56.6 million of impairment charges for property, plant
and equipment in Oklahoma City, Oklahoma during the year ended
December 31, 2020.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities, and included a $45 million reverse
termination fee paid during the year ended December 31, 2019, in
connection with the termination of the definitive agreement
pursuant to which Quad would have acquired LSC Communications, Inc.
(“LSC”).
(d)
Integration costs were primarily related
to the integration of acquired companies.
(e)
Other restructuring charges include costs
to maintain and exit closed facilities, as well as lease exit
charges, and are presented net of gains on the sale of facilities
and businesses. A $1.6 million gain on the sale of facilities was
included during the year ended December 31, 2020, and an $8.4
million gain on the sale of a business was included during the year
ended December 31, 2019.
(2)
Loss from discontinued operations, net of
tax, includes the results of operations for the Company’s United
States Book business. During the third quarter of 2019, the Company
made the decision to sell its United States Book business.
Accordingly, the Company applied discontinued operations treatment
for the intended sale of its United States Book business in all
periods presented, as required by United States GAAP. The Company
successfully completed the sale of its United States Book business
in the year ended December 31, 2020.
(3)
As required by United States GAAP, pension
components other than service cost are required to be excluded from
operating income. The Company has also excluded pension income from
the calculation of Adjusted EBITDA.
(4)
The $1.8 million loss on debt
extinguishment recorded during the year ended December 31, 2020,
relates to a $2.4 million loss on debt extinguishment from the
fourth amendment to the Company’s April 28, 2014 Senior Secured
Credit Facility, completed on June 29, 2020, partially offset by a
$0.6 million gain on debt extinguishment recorded during the first
quarter of 2020, primarily related to the repurchase of the
Company’s unsecured 7.0% senior notes due May 1, 2022. The $30.5
million loss on debt extinguishment recorded during the year ended
December 31, 2019, includes $15.9 million relating to the third
amendment to the Company’s April 28, 2014 Senior Secured Credit
Facility, completed on January 31, 2019; and $14.6 million relating
to the retirement of the Term Loan B, completed on July 26,
2019.
(5)
Other includes the following items: (a)
the equity in (earnings) loss of unconsolidated entity, which
includes the results of operations for an investment in an entity
where Quad has the ability to exert significant influence, but not
control, and is accounted for using the equity method of
accounting; (b) the Adjusted EBITDA for unconsolidated equity
method investments, which was calculated in a consistent manner
with the calculation above for Quad; and (c) the net earnings
(loss) attributable to noncontrolling interests, which is the
portion of the net earnings (loss) not owned by Quad for an
investment where Quad has a controlling financial interest.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
FREE CASH FLOW
For the Years Ended December 31,
2020 and 2019
(in millions)
(UNAUDITED)
Year Ended December
31,
2020
2019
Net cash provided by operating
activities
$
190.2
$
155.5
Less: purchases of property, plant and
equipment
(61.0
)
(111.0
)
Plus: LSC-related payments (1)
—
61.3
Free Cash Flow (Non-GAAP)
$
129.2
$
105.8
______________________________
(1)
LSC-related payments include
transaction-related costs associated with the proposed, but now
terminated, acquisition of LSC, including a $45 million reverse
termination fee and incremental interest payments associated with
the 2019 amended debt refinancing during the year ended December
31, 2019.
The above calculation of Free Cash Flow includes the cash flows
related to the United States Book business for all periods
presented.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
DEBT LEVERAGE RATIO
As of December 31, 2020 and
2019
(in millions, except ratio)
(UNAUDITED)
December 31, 2020
December 31, 2019
Total debt and finance lease obligations
on the condensed consolidated balance sheets
$
928.2
$
1,112.2
Less: Cash and cash equivalents
55.2
78.7
Net Debt (Non-GAAP)
$
873.0
$
1,033.5
Divided by: Adjusted EBITDA for the year
ended (Non-GAAP)
$
260.4
$
334.9
Debt Leverage Ratio (Non-GAAP)
3.35
x
3.09
x
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
ADJUSTED DILUTED EARNINGS PER
SHARE FROM CONTINUING OPERATIONS
For the Three Months Ended
December 31, 2020 and 2019
(in millions, except per share
data)
(UNAUDITED)
Three Months Ended December
31,
2020
2019
Earnings (loss) from continuing operations
before income taxes and equity in earnings of unconsolidated
entity
$
(68.6
)
$
10.1
Restructuring, impairment and
transaction-related charges
75.1
15.7
Adjusted net earnings from continuing
operations, before income taxes (Non-GAAP)
6.5
25.8
Income tax expense at 25% normalized tax
rate
1.6
6.5
Adjusted net earnings from continuing
operations (Non-GAAP)
$
4.9
$
19.3
Basic weighted average number of common
shares outstanding
50.7
50.2
Plus: effect of dilutive equity incentive
instruments (Non-GAAP)
0.7
0.8
Diluted weighted average number of common
shares outstanding (Non-GAAP)
51.4
51.0
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.10
$
0.38
Diluted earnings (loss) per share from
continuing operations (GAAP)
$
(1.69
)
$
0.14
Restructuring, impairment and
transaction-related charges per share
1.46
0.31
Income tax expense from condensed
consolidated statement of operations per share
0.35
0.07
Income tax expense at 25% normalized tax
rate per share
(0.02
)
(0.13
)
Other items from condensed consolidated
statement of operations per share (2)
—
(0.01
)
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.10
$
0.38
______________________________
(1)
Adjusted diluted earnings per share from
continuing operations excludes the following: (i) the results of
operations for the United States Book business; (ii) restructuring,
impairment and transaction-related charges; (iii) loss on debt
extinguishment; (iv) discrete income tax items; (v) equity in
earnings of unconsolidated entity; and (vi) net earnings
attributable to noncontrolling interests.
(2)
Other items from condensed consolidated
statement of operations per share is comprised of the diluted
earnings (loss) per share impacts of equity in earnings of
unconsolidated entity and net earnings attributable to
noncontrolling interests.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
ADJUSTED DILUTED EARNINGS PER
SHARE FROM CONTINUING OPERATIONS
For the Years Ended December 31,
2020 and 2019
(in millions, except per share
data)
(UNAUDITED)
Year Ended December
31,
2020
2019
Loss from continuing operations before
income taxes and equity in loss of unconsolidated entity
$
(106.1
)
$
(79.8
)
Restructuring, impairment and
transaction-related charges
124.1
89.4
Loss on debt extinguishment
1.8
30.5
Adjusted net earnings from continuing
operations, before income taxes (Non-GAAP)
19.8
40.1
Income tax expense at 25% normalized tax
rate
5.0
10.0
Adjusted net earnings from continuing
operations (Non-GAAP)
$
14.8
$
30.1
Basic weighted average number of common
shares outstanding
50.6
50.0
Plus: effect of dilutive equity incentive
instruments (Non-GAAP)
0.5
0.9
Diluted weighted average number of common
shares outstanding (Non-GAAP)
51.1
50.9
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.29
$
0.59
Diluted loss per share from continuing
operations (GAAP)
$
(2.10
)
$
(1.11
)
Restructuring, impairment and
transaction-related charges per share
2.43
1.76
Loss on debt extinguishment per share
0.04
0.60
Income tax benefit from condensed
consolidated statement of operations per share
0.02
(0.48
)
Income tax expense at 25% normalized tax
rate per share
(0.10
)
(0.20
)
Other items from condensed consolidated
statement of operations per share (2)
—
0.02
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.29
$
0.59
______________________________
(1)
Adjusted diluted earnings per share from
continuing operations excludes the following: (i) the results for
the United States Book business; (ii) restructuring, impairment and
transaction-related charges; (iii) loss on debt extinguishment;
(iv) discrete income tax items; (v) equity in loss of
unconsolidated entity; and (vi) net loss attributable to
noncontrolling interests.
(2)
Other items from condensed consolidated
statement of operations per share is comprised of the diluted
earnings (loss) per share impacts of equity in loss of
unconsolidated entity and net loss attributable to noncontrolling
interests.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share from Continuing Operations.
The Company believes that these Non-GAAP measures, when presented
in conjunction with comparable GAAP measures, provide additional
information for evaluating Quad’s performance and are important
measures by which Quad’s management assesses the profitability and
liquidity of its business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net earnings (loss) as a measure of operating performance or to
cash flows provided by operating activities as a measure of
liquidity. These Non-GAAP measures may be different than Non-GAAP
financial measures used by other companies.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210223006125/en/
Investor Relations Contact Katie Krebsbach Investor
Relations Lead, Quad 414-566-4247 kkrebsbach@quad.com
Media Contact Claire Ho Director of Corporate
Communications, Quad 414-566-2955 cho@quad.com
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