Quad Reports Fourth Quarter and Full-Year 2018 Results

SUSSEX, Wis. - February 20, 2019 - Quad/Graphics reported results for its fourth quarter and full year ending December 31, 2018.

Financial Highlights

• Increased full-year 2018 net sales 1.5% to $4.2 billion with integrated services revenue now accounting for approximately 20% of net sales.
• Achieved full-year 2018 net earnings of $8 million, diluted earnings per share of $0.16, Non-GAAP Adjusted Diluted Earnings Per Share of $1.79, and full-year 2018 Non-GAAP Adjusted EBITDA and Adjusted EBITDA Margin of $415 million and 9.9%, respectively.
• Generated cash flow from operations of $261 million and Free Cash Flow of $164 million for full-year 2018, which reflects the Company’s decision to increase long-term strategic investments.
• Reduced debt and capital leases by $24 million during 2018 and Debt Leverage Ratio to 2.11x, net of excess cash, which is at the low end of Company’s long-term targeted range of 2.0x to 2.5x.
• Provides 2019 guidance, which includes the acquisition of Periscope, one of the nation’s top five independent creative agencies by annual revenue.
• Declares quarterly dividend of $0.30 per share.

“2018 was a truly pivotal year in our Quad 3.0 transformation as reflected by last week’s announcement to evolve our brand from Quad/Graphics to Quad,” said Joel Quadracci, Chairman, President & CEO of Quad. “While maintaining our focus on preserving our high-quality, low-cost producer status, we made strategic investments to accelerate our transformation as a marketing solutions partner by acquiring Ivie & Associates, increasing our investment in Rise Interactive to a majority ownership and, in January 2019, acquiring Periscope. Our integrated services revenue, including Periscope, has grown to approximately 20% of our net sales, and represents over 40% growth since 2017.”

Quadracci added: “Our Quad 3.0 strategy creates more value for clients by expanding our offering beyond print and content production to include an integrated stack of higher margin marketing services, which, in turn, drives incremental revenue across our print product categories. This integrated marketing solutions platform helps our clients reduce the complexity of working with multiple agency and vendor partners, while improving process efficiencies and enhancing marketing spend effectiveness. At a time of incredible media disruption, we remain confident that our Quad 3.0 strategy will create greater value for our clients and shareholders over the long-term.”

“We expect to complete the acquisition of LSC Communications in mid-2019,” Quadracci said. “We remain enthusiastic about the value this transaction will create for all clients and shareholders. This business combination will enhance our highly efficient print platform to fuel our Quad 3.0 transformation and strengthen the role of print in a multichannel media world.”

Fourth Quarter 2018 Summary Results

Net sales increased 1.5% during the fourth quarter 2018 to $1.2 billion, reflecting the impact of the Ivie & Associates and Rise Interactive investments as part of Quad’s continuing transformation as a marketing solutions partner. Organic sales declined 4.6% for the quarter after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 2.5%, and a 0.7% unfavorable foreign exchange impact. The organic results reflect ongoing print industry volume and pricing pressures, and are consistent with the Company’s expectations.

Net earnings attributable to Quad’s common shareholders decreased during the fourth quarter of 2018 to a loss of $21 million, and diluted earnings per share declined to a loss of $0.42 per share as compared to an earnings per share of $1.06 in 2017. Excluding restructuring costs, Non-GAAP Adjusted Diluted Earnings Per Share for the fourth quarter 2018 was $0.53 per share compared to $0.57 per share in the fourth quarter 2017. Fourth quarter 2018 Non-GAAP Adjusted EBITDA was $110 million compared to $122 million in the fourth quarter of 2017, and Adjusted EBITDA Margin was 9.3% compared to 10.5% in 2017. The Adjusted EBITDA variance to prior-year primarily reflects the impact from the organic sales decline of 4.6%, a $10 million impact from strategic investments made to increase hourly production employees’ wages, partially offset by the earnings impact from the growth in Quad’s integrated services revenues and a $6 million gain from a sales tax litigation settlement inPeru.

Full-Year 2018 Summary Results

Net sales increased 1.5% during the year ended December 31, 2018, to $4.2 billion. Organic sales declined 3.8%, as expected, after excluding acquisition sales impact of 4.3%, increased pass-through paper sales of 1.4%, and a 0.4% unfavorable foreign exchange impact, reflecting ongoing print industry volume and pricing pressures.

Net earnings attributable to Quad common shareholders for the year endedDecember 31, 2018, decreased to $9 million, or $0.16 per share. Excluding a non-cash charge of $22 million for an employee stock ownership plan contribution as part of the benefit of tax reform and restructuring charges, Non-GAAP Adjusted Diluted Earnings Per Share was $1.79 per share during the year ended December 31, 2018, which is flat as compared to 2017. 2018 Non-GAAP Adjusted EBITDA was $415 million compared to $448 million for 2017, and Adjusted EBITDA Margin was 9.9% compared to 10.8% in 2017. The Adjusted EBITDA variance to prior-year primarily reflects the impact from the organic sales decline of 3.8%, a $20 million impact from strategic investments in hourly production wages and marketing talent and infrastructure to support Quad 3.0 transformation, partially offset by the earnings impact from the growth in Quad’s integrated services revenues and cost savings initiatives.

Net cash provided by operating activities was $261 million for the year ended December 31, 2018, compared to $344 million in 2017, and Free Cash Flow was $164 million as compared to $258 million. Free Cash Flow decreased due to the Company’s long-term strategic investment decisions to increase capital expenditures in manufacturing automation, increase wages for hourly production employees in the Company’s most competitive labor markets, and transaction-related costs for the pending acquisition of LSC. Additionally, given paper supply pressures, the Company intentionally increased paper inventories to ensure uninterrupted client service.

“We are pleased to report that our Net Sales and Adjusted EBITDA full-year results were in-line with our expectations as we continued to invest in our business and execute on our strategic priorities for long-term growth and shareholder value,” said Dave Honan, Executive Vice President & Chief Financial Officer of Quad. “Our Debt Leverage Ratio, net of excess cash, was 2.11x as of December 31, 2018, which is at the low end of our long-term targeted range of 2.0x to 2.5x. The strength of our balance sheet provides us with the ability to deploy our capital between investing back into our business, making strategic acquisitions and returning capital to our shareholders through our consistent dividend and share repurchases.”

Quad’s next quarterly dividend of $0.30 per share will be payable on March 8, 2019, to shareholders of record as of February 25, 2019.

2019 Guidance

The Company provided the following 2019 financial guidance:

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“Our 2019 guidance does not reflect the pending acquisition of LSC,” Honan said. “We will continue to execute on our strategic priorities and work toward the successful completion of the LSC transaction, which represents a compelling opportunity for the achievement of $135 million in net synergies, excluding non-recurring integration costs, in less than two years. In anticipation of the mid-2019 closing, we recently announced the successful completion of the amendment and extension of our debt facilities, which will provide us with the appropriate liquidity and structural flexibility to complete our pending acquisition and maintain a strong, flexible balance sheet to create future value for all shareholders.”

Source: Quad

The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of Printing Impressions.