Strong Customer Service Performance Drives
Fourth Quarter Profitability, Free Cash Flow and Reduced Leverage;
Positions Company for Accelerated Transformation
Quad/Graphics, Inc. (NYSE: QUAD) (“Quad” or the “Company”) today
reported results for its fourth quarter and full-year ending
December 31, 2019.
Recent Highlights
- Exceeded revised 2019 guidance for net sales, Adjusted EBITDA
and Free Cash Flow.
- Reduced Debt Leverage Ratio to 3.1x in the fourth quarter.
- Expands cost reduction program to $100 million, to be fully
realized in 2020.
- Divested Omaha, Neb., packaging plant for $41 million as part
of ongoing efforts to optimize its product portfolio.
- Declares quarterly dividend of $0.15 per share.
“I am pleased to report that our fourth quarter results exceeded
expectations, driven by continued execution against our strategic
priorities, including aggressive cost management and increased
manufacturing productivity. We had one of the best quarters in the
past decade in terms of customer service performance, achieving
strong quality and on-time delivery for our clients in their
busiest season. This strong performance is due, in large part, to
our decision to invest $40 million to increase hourly production
employees’ wages, as we saw significant productivity gains
throughout the quarter,” said Joel Quadracci, Chairman, President
& CEO.
“In 2020, we will continue to make prudent, long-term decisions
as we accelerate the transformation of our company as a marketing
solutions partner with a strong foundation in print,” Quadracci
continued. “This transformation, which we call Quad 3.0, is focused
on counteracting ongoing print industry volume declines in order to
reposition the business toward growth. During 2019, this strategy
led to $225 million of organic incremental sales growth, helping to
significantly offset print sales decline. Our ultimate goal is to
completely offset the organic sales decline through growth of our
higher-margin marketing solutions, which drive revenue across all
our products and services.”
Added Quadracci: “We continue to win segment share, which
reflects the strength of our offering as well as the long-term
financial and operational stability of our company. We recently
secured 100 percent of print volumes from two large national
magazine publishers, and are onboarding that multi-year work now.
We also continue to optimize our product portfolio for the long
term through the lens of Quad 3.0. Most recently we divested our
Omaha packaging plant to focus on our higher value packaging
solutions that help clients create a cohesive brand experience
across channels. This follows our decision to divest our book
business and sell our industrial wood crating business in
2019.”
Summary Results
Results for the three months ended December 31, 2019,
included:
- Net Sales (excluding discontinued operations) — Net sales were
$1.1 billion in 2019, down 4.9% from 2018. Organic sales declined
5.9% during the quarter, after excluding sales related to the
January 2019 acquisition of Periscope. The organic results
benefitted from new sales generated from the Company’s Quad 3.0
growth strategy, which were offset by ongoing print industry volume
and pricing pressures, and a negative 0.3% impact from foreign
exchange.
- Net Earnings Attributable to Quad Common Shareholders — Net
earnings attributable to Quad common shareholders were $8 million
in 2019, or $0.15 diluted earnings per share, as compared to net
loss of $21 million in 2018, or $0.42 diluted loss per share.
Excluding the results from discontinued operations, net earnings
from continuing operations were $7 million in 2019, or $0.14
diluted earnings per share, as compared to net loss from continuing
operations of $11 million in 2018, or $0.23 diluted loss per
share.
- Adjusted EBITDA (excluding discontinued operations) — Adjusted
EBITDA was $96 million in 2019, as compared to $118 million in
2018, and Adjusted EBITDA margin was 9.0% in 2019, as compared to
10.5% in 2018. The variance to prior year primarily reflects the
impact from the organic sales decline of 5.9%, a $13 million
decrease in print profits from the reduction in market price for
paper byproduct recoveries, the impact of a $6 million gain in 2018
from a sales tax litigation settlement in Peru, and $5 million of
strategic investments made to increase hourly production employees’
wages, partially offset by cost reduction activities.
Results for the full-year ended December 31, 2019, included:
- Net Sales (excluding discontinued operations) — Net sales were
$3.9 billion in 2019 as compared to $4.0 billion in 2018, down
1.6%. Organic sales declined 3.5% after excluding sales related to
the acquisitions of Ivie and Periscope, and an investment in Rise
Interactive. The organic results reflect new sales generated from
the Company’s Quad 3.0 growth strategy, offset by ongoing print
industry volume and pricing pressures, and a negative 0.6% impact
from foreign exchange.
- Net Loss Attributable to Quad Common Shareholders — Net loss
attributable to Quad common shareholders was $156 million in 2019,
or $3.12 diluted loss per share, as compared to net earnings of $9
million in 2018, or $0.16 diluted earnings per share. Excluding the
results from discontinued operations, net loss from continuing
operations was $56 million in 2019, or $1.11 diluted loss per
share, as compared to net earnings from continuing operations of
$30 million in 2018, or $0.59 diluted earnings per share.
- Adjusted EBITDA (excluding discontinued operations) — Adjusted
EBITDA was $335 million in 2019, as compared to $428 million in
2018, and Adjusted EBITDA margin was 8.5% in 2019, as compared to
10.7% in 2018. The variance to prior year primarily reflects the
impact from the organic sales decline of 3.5%, $33 million in
non-recurring benefits in 2018 that did not repeat at the same
level in 2019, a $29 million impact from strategic investments made
to increase hourly production employees’ wages, and a $27 million
decrease in print profits from the reduction in market price for
paper byproduct recoveries, partially offset by cost reduction
activities.
- Net Cash Provided by Operating Activities — Net cash provided
by operating activities was $156 million in 2019, as compared to
$261 million in 2018, primarily due to lower net earnings and $61
million in transaction costs associated with a terminated
acquisition during the year.
- Free Cash Flow — Free Cash Flow, excluding $61 million in
payments from a terminated acquisition, was $106 million in 2019,
as compared to $164 million in 2018, primarily due to lower net
earnings and increased capital expenditures on long-term
investments in automation and productivity improvements in the
manufacturing platform.
Dividend
Quad’s next quarterly dividend of $0.15 per share will be
payable on March 9, 2020, to shareholders of record as of February
28, 2020.
2020 Guidance
The Company provided the following 2020 financial guidance:
U.S. $
2019 Actuals
2020 Guidance Range
Net Sales
$3.9 billion
$3.5 to $3.7 billion
Adjusted EBITDA
$335 million
$285 to $315 million
Free Cash Flow(1)
$106 million
$100 to $130 million
(1)
Free Cash Flow includes cash
flows from the discontinued operations of the book business.
Dave Honan, Executive Vice President and CFO, concluded: “In
fiscal 2020, we remain disciplined in our efforts to manage our
costs, and drive earnings and Free Cash Flow growth to reduce our
leverage and further strengthen our balance sheet. In line with
these goals, we have doubled our previously announced $50 million
cost reduction program to $100 million, which we expect to fully
realize in 2020. Looking ahead, these efforts, and the ongoing
success of our Quad 3.0 strategy, are expected to continue to
significantly offset ongoing print industry volume and pricing
pressures.”
Quarterly Conference Call
Quad will hold a conference call at 10 a.m. ET on Wednesday,
February 19, to discuss fourth quarter and full-year 2019
results.
Participants can pre-register for the webcast by navigating to
http://dpregister.com/10137590.
Participants will be given a unique PIN to gain immediate access to
the call on February 19, 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
19, 2020, accessible as follows:
- U.S. Toll-Free: 1-877-344-7529
- International Toll: 1-412-317-0088
- Replay Access Code: 10137590
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 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
increased business complexity as a result of the Company’s
transformation to a marketing solutions partner; the failure to
successfully identify, manage, complete and integrate acquisitions
and 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, including newspaper distribution channels;
the impact of changes in postal rates, service levels or
regulations; the impact of the various restrictive covenants in the
Company’s debt facilities on the Company’s ability to operate its
business; 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, which may be
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. 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, employee stock ownership plan contributions,
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 divided by the last twelve months of Adjusted EBITDA.
Adjusted Diluted Earnings (Loss) Per Share 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, employee stock
ownership plan contributions, 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
dedicated to creating a better way for its clients through a
data-driven, integrated marketing platform that helps 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 its expanded offering,
combined with leading-edge technology and single-source simplicity,
Quad has the resources and knowledge to help a wide variety of
clients in multiple vertical industries, including retail,
financial/insurance, healthcare, consumer packaged goods,
publishing 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, 2019 and 2018
(in millions, except per share
data)
(UNAUDITED)
Three Months Ended December
31,
2019
2018
Net sales
$
1,069.9
$
1,124.9
Cost of sales
867.9
917.1
Selling, general and administrative
expenses
107.1
90.1
Depreciation and amortization
50.2
52.9
Restructuring, impairment and
transaction-related charges
15.7
62.7
Total operating expenses
1,040.9
1,122.8
Operating income from continuing
operations
29.0
2.1
Interest expense
20.4
19.3
Net pension income
(1.5
)
(3.1
)
Earnings (loss) from continuing operations
before income taxes and equity in earnings of unconsolidated
entity
10.1
(14.1
)
Income tax expense (benefit)
3.6
(2.6
)
Earnings (loss) from continuing operations
before equity in earnings of unconsolidated entity
6.5
(11.5
)
Equity in earnings of unconsolidated
entity
(0.6
)
(0.3
)
Net earnings (loss) from continuing
operations
7.1
(11.2
)
Earnings (loss) from discontinued
operations, net of tax
0.5
(9.4
)
Net earnings (loss)
7.6
(20.6
)
Less: net earnings attributable to
noncontrolling interests
0.1
0.2
Net earnings (loss) attributable to
Quad common shareholders
$
7.5
$
(20.8
)
Earnings (loss) per share attributable
to Quad common shareholders
Basic:
Continuing operations
$
0.14
$
(0.23
)
Discontinued operations
0.01
(0.19
)
Basic earnings (loss) per share
attributable to Quad common shareholders
$
0.15
$
(0.42
)
Diluted:
Continuing operations
$
0.14
$
(0.23
)
Discontinued operations
0.01
(0.19
)
Diluted earnings (loss) per share
attributable to Quad common shareholders
$
0.15
$
(0.42
)
Weighted average number of common
shares outstanding
Basic
50.2
49.4
Diluted
51.0
49.4
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
For the Years Ended December 31,
2019 and 2018
(in millions, except per share
data)
(UNAUDITED)
Year Ended December
31,
2019
2018
Net sales
$
3,923.4
$
3,985.8
Cost of sales
3,192.2
3,221.4
Selling, general and administrative
expenses
397.6
358.9
Depreciation and amortization
209.5
214.9
Restructuring, impairment and
transaction-related charges
89.4
103.3
Total operating expenses
3,888.7
3,898.5
Operating income from continuing
operations
34.7
87.3
Interest expense
90.0
73.2
Net pension income
(6.0
)
(12.4
)
Loss on debt extinguishment
30.5
—
Earnings (loss) from continuing operations
before income taxes and equity in (earnings) loss of unconsolidated
entity
(79.8
)
26.5
Income tax benefit
(24.4
)
(2.4
)
Earnings (loss) from continuing operations
before equity in (earnings) loss of unconsolidated entity
(55.4
)
28.9
Equity in (earnings) loss of
unconsolidated entity
0.3
(1.0
)
Net earnings (loss) from continuing
operations
(55.7
)
29.9
Loss from discontinued operations, net of
tax
(100.6
)
(22.0
)
Net earnings (loss)
(156.3
)
7.9
Less: net loss attributable to
noncontrolling interests
—
(0.6
)
Net earnings (loss) attributable to
Quad common shareholders
$
(156.3
)
$
8.5
Earnings (loss) per share attributable
to Quad common shareholders
Basic:
Continuing operations
$
(1.11
)
$
0.61
Discontinued operations
(2.01
)
(0.44
)
Basic earnings (loss) per share
attributable to Quad common shareholders
$
(3.12
)
$
0.17
Diluted:
Continuing operations
$
(1.11
)
$
0.59
Discontinued operations
(2.01
)
(0.43
)
Diluted earnings (loss) per share
attributable to Quad common shareholders
$
(3.12
)
$
0.16
Weighted average number of common
shares outstanding
Basic
50.0
49.8
Diluted
50.0
51.6
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
As of December 31, 2019 and
2018
(in millions)
(UNAUDITED)
December 31, 2019
December 31, 2018
ASSETS
Cash and cash equivalents
$
78.7
$
69.5
Receivables, less allowances for doubtful
accounts
456.1
497.6
Inventories
210.5
279.0
Prepaid expenses and other current
assets
109.0
45.2
Current assets of discontinued
operations
56.6
55.3
Total current assets
910.9
946.6
Property, plant and equipment—net
1,036.5
1,153.8
Operating lease right-of-use
assets—net
97.9
—
Goodwill
103.0
44.5
Other intangible assets—net
137.2
112.6
Equity method investment in unconsolidated
entity
3.6
4.0
Other long-term assets
127.5
89.2
Long-term assets of discontinued
operations
0.5
118.4
Total assets
$
2,417.1
$
2,469.1
LIABILITIES AND SHAREHOLDERS’
EQUITY
Accounts payable
$
416.7
$
496.3
Other current liabilities
303.0
285.1
Short-term debt and current portion of
long-term debt
40.0
42.9
Current portion of finance lease
obligations
7.7
5.0
Current portion of operating lease
obligations
30.2
—
Current liabilities of discontinued
operations
15.8
22.0
Total current liabilities
813.4
851.3
Long-term debt
1,058.5
882.6
Finance lease obligations
6.0
10.3
Operating lease obligations
70.4
—
Deferred income taxes
2.8
32.1
Other long-term liabilities
221.1
231.8
Long-term liabilities of discontinued
operations
0.6
0.8
Total liabilities
2,172.8
2,008.9
Shareholders’ Equity
Preferred stock
—
—
Common stock
1.4
1.4
Additional paid-in capital
847.4
861.3
Treasury stock, at cost
(31.5
)
(56.6
)
Accumulated deficit
(423.5
)
(211.4
)
Accumulated other comprehensive loss
(167.2
)
(152.2
)
Quad’s shareholders’ equity
226.6
442.5
Noncontrolling interests
17.7
17.7
Total shareholders’ equity and
noncontrolling interests
244.3
460.2
Total liabilities and shareholders’
equity
$
2,417.1
$
2,469.1
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Years Ended December 31,
2019 and 2018
(in millions)
(UNAUDITED)
Year Ended December
31,
2019
2018
OPERATING ACTIVITIES
Net earnings (loss)
$
(156.3
)
$
7.9
Adjustments to reconcile net earnings
(loss) to net cash provided by operating activities:
Depreciation and amortization
223.1
230.7
Employee stock ownership plan
contribution
—
22.3
Impairment charges
100.0
26.5
Goodwill impairment
10.1
—
Loss on debt extinguishment
30.5
—
Stock-based compensation
13.6
15.6
Gain on the sale or disposal of property,
plant and equipment
(6.6
)
(17.8
)
Gain on the sale of a business
(8.4
)
—
Gain from property insurance claims
(0.8
)
(18.3
)
Deferred income taxes
(57.1
)
(14.5
)
Other non-cash adjustments to net earnings
(loss)
3.9
2.5
Changes in operating assets and
liabilities
3.5
5.7
Net cash provided by operating
activities
155.5
260.6
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
(111.0
)
(96.3
)
Proceeds from the sale of property, plant
and equipment
17.5
32.7
Proceeds from the sale of a business
11.1
—
Proceeds from property insurance
claims
0.3
14.5
Loan to an unconsolidated entity
(5.0
)
—
Acquisition of businesses—net of cash
acquired
(121.0
)
(71.4
)
Net cash used in investing activities
(208.1
)
(120.5
)
FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt
1,285.1
7.8
Payments of long-term debt
(1,119.4
)
(33.2
)
Payments of finance lease obligations
(8.7
)
(6.3
)
Borrowings on revolving credit
facilities
3,636.1
2,563.7
Payments on revolving credit
facilities
(3,642.1
)
(2,561.1
)
Payments of debt issuance costs and
financing fees
(20.2
)
—
Purchases of treasury stock
—
(36.7
)
Proceeds from stock options exercised
—
4.2
Equity awards redeemed to pay employees’
tax obligations
(6.6
)
(9.0
)
Payment of cash dividends
(57.1
)
(62.9
)
Contingent consideration paid for business
acquired
(5.3
)
—
Net cash provided by (used in) financing
activities
61.8
(133.5
)
Effect of exchange rates on cash and cash
equivalents
—
(1.5
)
Net increase (decrease) in cash and cash
equivalents
9.2
5.1
Cash and cash equivalents at beginning of
year
69.5
64.4
Cash and cash equivalents at end of
year
$
78.7
$
69.5
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, 2019 and 2018
(in millions)
(UNAUDITED)
Net Sales
Operating
Income (Loss) from Continuing
Operations
Restructuring, Impairment and
Transaction-Related Charges (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
Three months ended December 31,
2018
United States Print and Related
Services
$
1,022.3
$
64.1
$
5.8
International
102.6
(9.6
)
17.3
Total operating segments
1,124.9
54.5
23.1
Corporate
—
(52.4
)
39.6
Total
$
1,124.9
$
2.1
$
62.7
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
Year ended December 31, 2018
United States Print and Related
Services
$
3,598.7
$
183.3
$
37.5
International
387.1
1.5
22.2
Total operating segments
3,985.8
184.8
59.7
Corporate
—
(97.5
)
43.6
Total
$
3,985.8
$
87.3
$
103.3
______________________________
(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, 2019 and 2018
(in millions)
(UNAUDITED)
Three Months Ended December
31,
2019
2018
Net earnings (loss) attributable to Quad
common shareholders
$
7.5
$
(20.8
)
Interest expense
20.4
19.3
Income tax expense (benefit)
3.6
(2.6
)
Depreciation and amortization
50.2
52.9
EBITDA (Non-GAAP)
$
81.7
$
48.8
EBITDA Margin (Non-GAAP)
7.6
%
4.3
%
Restructuring, impairment and
transaction-related charges (1)
15.7
62.7
(Earnings) loss from discontinued
operations, net of tax (2)
(0.5
)
9.4
Net pension income (3)
(1.5
)
(3.1
)
Other (4)
0.4
(0.1
)
Adjusted EBITDA (Non-GAAP)
$
95.8
$
117.7
Adjusted EBITDA Margin
(Non-GAAP)
9.0
%
10.5
%
______________________________
(1)
Operating results for the three months
ended December 31, 2019 and 2018, were affected by the following
restructuring, impairment and transaction-related charges:
Three Months Ended December
31,
2019
2018
Employee termination charges (a)
$
2.3
$
5.8
Impairment charges (b)
4.3
10.2
Transaction-related charges (c)
0.5
7.1
Integration costs (d)
1.2
0.6
Other restructuring charges (e)
7.4
39.0
Restructuring, impairment and
transaction-related charges
$
15.7
$
62.7
______________________________
(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 $5.0 million of impairment charges for machinery and
equipment in Peru during the three months ended December 31,
2018.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities, including $6.4 million of legal fees
incurred related to the proposed, but now terminated, acquisition
of LSC Communications, Inc. (“LSC”) during the three months ended
December 31, 2018.
(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.
Included in other restructuring charges during the three months
ended December 31, 2018, was a $32.1 million increase to the
Company’s multiemployer pension plans (“MEPPs”) withdrawal
liability and $10.0 million in charges for certain legal matters
and customer contract penalties related to the Company’s operations
in Peru.
(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 has applied discontinued
operations treatment for the intended sale of its United States
Book business in all periods presented, as required by United
States GAAP.
(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. 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,
2019 and 2018
(in millions)
(UNAUDITED)
Year Ended December
31,
2019
2018
Net earnings (loss) attributable to Quad
common shareholders
$
(156.3
)
$
8.5
Interest expense
90.0
73.2
Income tax benefit
(24.4
)
(2.4
)
Depreciation and amortization
209.5
214.9
EBITDA (Non-GAAP)
$
118.8
$
294.2
EBITDA Margin (Non-GAAP)
3.0
%
7.4
%
Restructuring, impairment and
transaction-related charges (1)
89.4
103.3
Loss from discontinued operations, net of
tax (2)
100.6
22.0
Net pension income (3)
(6.0
)
(12.4
)
Employee stock ownership plan contribution
(4)
—
22.3
Loss on debt extinguishment (5)
30.5
—
Other (6)
1.6
(1.6
)
Adjusted EBITDA (Non-GAAP)
$
334.9
$
427.8
Adjusted EBITDA Margin
(Non-GAAP)
8.5
%
10.7
%
______________________________
(1)
Operating results for the years ended
December 31, 2019 and 2018, were affected by the following
restructuring, impairment and transaction-related charges:
Year Ended December
31,
2019
2018
Employee termination charges (a)
$
22.2
$
23.0
Impairment charges (b)
7.9
26.2
Transaction-related charges (c)
51.6
8.2
Integration costs (d)
3.3
1.3
Other restructuring charges (e)
4.4
44.6
Restructuring, impairment and
transaction-related charges
$
89.4
$
103.3
______________________________________
(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 $5.0 million of impairment charges for machinery and
equipment in Peru during the year ended December 31, 2018.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities, and included a $45.0 million reverse
termination fee paid for the termination of the definitive
agreement pursuant to which Quad would have acquired LSC during the
year ended December 31, 2019; and included $6.4 million of legal
fees incurred related to the proposed, but now terminated,
acquisition of LSC during the year ended December 31, 2018.
(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.
An $8.4 million gain on the sale of a business was included during
the year ended December 31, 2019. Included in other restructuring
charges during the year ended December 31, 2018, was a $32.1
million increase to the Company’s MEPPs withdrawal liability and
$10.0 million in charges for certain legal matters and customer
contract penalties related to the Company’s operations in Peru.
(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 has applied discontinued operations
treatment for the intended sale of its United States Book business
in all periods presented, as required by United States GAAP.
(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 Company made a $22.3 million non-cash
contribution to the Company’s employee stock ownership plan during
the year ended December 31, 2018.
(5)
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.
(6)
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. 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,
2019 and 2018
(in millions)
(UNAUDITED)
Year Ended December
31,
2019
2018
Net cash provided by operating
activities
$
155.5
$
260.6
Less: purchases of property, plant and
equipment
(111.0
)
(96.3
)
Plus: LSC-related payments (1)
61.3
—
Free Cash Flow (Non-GAAP)
$
105.8
$
164.3
______________________________
(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. 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, 2019 and
2018
(in millions, except ratio)
(UNAUDITED)
December 31, 2019
December 31, 2018
Total debt and finance lease obligations
on the condensed consolidated balance sheets
$
1,112.2
$
940.8
Divided by:
Adjusted EBITDA for Quad for the year
ended (Non-GAAP)
$
334.9
$
427.8
Pro forma Adjusted EBITDA for acquired
companies (Non-GAAP) (1)
—
2.9
Adjusted EBITDA for the year ended
(Non-GAAP)
$
334.9
$
430.7
Debt Leverage Ratio (Non-GAAP)
3.32
x
2.18
x
Debt Leverage Ratio—net of excess cash
(Non-GAAP) (2)
3.12
x
2.05
x
______________________________
(1)
As permitted by the Company’s senior
secured credit facility, certain pro forma financial information
related to the acquisition of Ivie & Associates (“Ivie”) was
included in calculating the Debt Leverage Ratio as of December 31,
2018. As the acquisition of Ivie was completed on February 21,
2018, the $2.9 million pro forma Adjusted EBITDA represents the
period from January 1, 2018, to February 20, 2018. Adjusted EBITDA
for Ivie was calculated in a consistent manner with the calculation
above for Quad. Ivie’s financial information has been consolidated
within Quad’s financial results since the date of acquisition. If
the two months of pro forma Adjusted EBITDA for Ivie was not
included in the calculation, the Company’s Debt Leverage Ratio
would have been 2.20x as of December 31, 2018.
(2)
The Company had $79 million and $70
million in cash and cash equivalents at December 31, 2019 and 2018,
respectively. Based on the Company’s typical year-end cash balance
of approximately $10 million, Quad had $69 million and $60 million
of excess cash at December 31, 2019 and 2018, respectively. If the
excess cash in each year was used to further pay down debt, the
Debt Leverage Ratio would have been 3.12x and 2.05x at December 31,
2019 and 2018, respectively.
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. 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, 2019 and 2018
(in millions, except per share
data)
(UNAUDITED)
Three Months Ended December
31,
2019
2018
Earnings (loss) from continuing operations
before income taxes and equity in (earnings) loss of unconsolidated
entity
$
10.1
$
(14.1
)
Restructuring, impairment and
transaction-related charges
15.7
62.7
Adjusted net earnings from continuing
operations, before income taxes (Non-GAAP)
25.8
48.6
Income tax expense at 25% normalized tax
rate
6.5
12.2
Adjusted net earnings from continuing
operations (Non-GAAP)
$
19.3
$
36.4
Basic weighted average number of common
shares outstanding
50.2
49.4
Plus: effect of dilutive equity incentive
instruments (Non-GAAP)
0.8
1.5
Diluted weighted average number of common
shares outstanding (Non-GAAP)
51.0
50.9
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.38
$
0.72
Diluted earnings (loss) per share from
continuing operations (GAAP)
$
0.14
$
(0.23
)
Restructuring, impairment and
transaction-related charges per share
0.31
1.23
Income tax expense (benefit) from
condensed consolidated statement of operations per share
0.07
(0.05
)
Income tax expense at 25% normalized tax
rate per share
(0.13
)
(0.24
)
Other items from condensed consolidated
statement of operations per share (2)
(0.01
)
0.01
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.38
$
0.72
______________________________
(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) employee stock ownership plan
contribution; (iv) loss on debt extinguishment; (v) discrete income
tax items; (vi) equity in (earnings) loss of unconsolidated entity;
and (vii) net earnings (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 (earnings) loss of
unconsolidated entity and net earnings (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. 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,
2019 and 2018
(in millions, except per share
data)
(UNAUDITED)
Year Ended December
31,
2019
2018
Earnings (loss) from continuing operations
before income taxes and equity in (earnings) loss of unconsolidated
entity
$
(79.8
)
$
26.5
Restructuring, impairment and
transaction-related charges
89.4
103.3
Employee stock ownership plan
contribution
—
22.3
Loss on debt extinguishment
30.5
—
Adjusted net earnings from continuing
operations, before income taxes (Non-GAAP)
40.1
152.1
Income tax expense at 25% normalized tax
rate
10.0
38.0
Adjusted net earnings from continuing
operations (Non-GAAP)
$
30.1
$
114.1
Basic weighted average number of common
shares outstanding
50.0
49.8
Plus: effect of dilutive equity incentive
instruments (Non-GAAP)
0.9
1.8
Diluted weighted average number of common
shares outstanding (Non-GAAP)
50.9
51.6
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.59
$
2.21
Diluted earnings (loss) per share from
continuing operations (GAAP)
$
(1.11
)
$
0.59
Restructuring, impairment and
transaction-related charges per share
1.76
2.00
Employee stock ownership plan contribution
per share
—
0.43
Loss on debt extinguishment per share
0.60
—
Income tax benefit from condensed
consolidated statement of operations per share
(0.48
)
(0.05
)
Income tax expense at 25% normalized tax
rate per share
(0.20
)
(0.73
)
Other items from condensed consolidated
statement of operations per share (2)
0.02
(0.03
)
Adjusted diluted earnings per share
from continuing operations (Non-GAAP) (1)
$
0.59
$
2.21
______________________________
(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) employee stock ownership plan contribution; (iv)
loss on debt extinguishment; (v) discrete income tax items; (vi)
equity in (earnings) loss of unconsolidated entity; and (vii) net
earnings (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 (earnings) loss of unconsolidated entity and
net earnings (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. 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/20200218006045/en/
Investor Relations Contact Kyle Egan Director of Investor
Relations and Assistant Treasurer, Quad 414-566-2482 kegan@quad.com Media Contact Claire Ho
Director of Corporate Communications, Quad 414-566-2955
cho@quad.com
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