Quad Reports Q2 and YTD Financials; Generates $51M in Cash from Operating Activities

Quad/Graphics, Inc. reported results for its second quarter ended June 30, 2020.

Recent Highlights

• Aggressively implemented risk-mitigating and cost-reduction efforts while growing print segment share through its integrated marketing solutions for clients.
• Generated positive cash flow during the second quarter and increased year-to-date net cash provided by operating activities by $51 million and increased Free Cash Flow by $79 million, compared to the first half of 2019.
• Reduced net debt by $125 million over last 12 months to end the quarter with a Debt Leverage Ratio of 3.18x, net of excess cash.
• Maintained significant liquidity as of June 30, 2020, including $70 million of cash on hand and up to $465 million in unused capacity under Quad’s revolving credit agreement.
• Sold Versailles, Ky., book manufacturing facility on July 1 as part of ongoing efforts to optimize product portfolio.

Joel Quadracci

“Our second quarter performance was strong despite the significant economic impact from the COVID-19 pandemic. We proactively aligned our cost structure with lower demand while also continuing to improve productivity, leading to higher Adjusted EBITDA margin and increased cash flow. Throughout the quarter, we remained unwavering in our focus to: 1) maintain our employees’ health and well-being; 2) provide high-quality, on-time delivery for our clients; and 3) ensure the long-term financial health of the Company,” said Joel Quadracci, Quad Chairman, President and CEO.

“I am extremely proud of our team’s ability to come together and act with urgency to not only navigate this unprecedented period in history, but to continue to innovate for our clients,” Quadracci added. “We continue to advance our strategic transformation as a marketing solutions partner, making investments in talent and technology, and innovating new integrated solutions that help our clients simplify their executional requirements to deliver content and campaigns more efficiently and effectively. Our Quad 3.0 strategy provides us with the right tools, talent and platform to exit the COVID-19 pandemic from a position of strength. Despite the disruptive impact of COVID-19, we continue to demonstrate our value to clients by offering innovative solutions such as content workflow re-engineering, freeing clients to focus on developing strategies that will drive response and revenues.”

Quadracci concluded: “As we look forward, we will continue to closely monitor the COVID-19 pandemic and its impacts on our clients and the worldwide economy, and adjust our priorities accordingly to support our financial objectives, all while continuing to keep our employees safe and serving our clients’ evolving needs.”

Summary Results

Results for the three months ended June 30, 2020, included:

• Net Sales (excluding discontinued operations) — Net sales were $585 million in 2020, down 38% from 2019. Sales declined 36% during the quarter, excluding the impact of the January 2020 sale of the Omaha packaging plant primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures.
• Net Loss From Continuing Operations — Excluding the results from discontinued operations, net loss from continuing operations was $15 million in 2020, or $0.29 diluted loss per share, compared to net loss from continuing operations of $3 million in 2019, or $0.07 diluted loss per share.
• Adjusted EBITDA (excluding discontinued operations) — Adjusted EBITDA was $60 million in 2020, as compared to $81 million in 2019, while Adjusted EBITDA margin improved to 10.2% in 2020, as compared to 8.5% in 2019. The Adjusted EBITDA variance to prior year primarily reflects the impact from the sales decline due to the COVID-19 pandemic as well as ongoing printing industry volume and pricing pressures, partially offset by savings from cost reduction initiatives. Adjusted EBITDA margin grew by 170 basis points in the quarter due to cost savings initiatives more than offsetting the relative percentage decline in sales.

Results for the six months ended June 30, 2020, included:

• Net Sales (excluding discontinued operations) — Net sales were $1.4 billion in 2020 as compared to $1.9 billion in 2019, down 26%. Sales declined 25% during the six months ended June 30, 2020, after excluding the impact of the January 2020 sale of the Omaha packaging plant primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures.
• Net Loss From Continuing Operations — Excluding the results from discontinued operations, net loss from continuing operations was $24 million in 2020, or $0.46 diluted loss per share, as compared to net loss from continuing operations of $16 million in 2019, or $0.31 diluted loss per share.
• Adjusted EBITDA (excluding discontinued operations) — Adjusted EBITDA was $135 million in 2020, as compared to $159 million in 2019, while Adjusted EBITDA margin improved to 9.6% in 2020, as compared to 8.3% in 2019. The Adjusted EBITDA variance to prior year primarily reflects the impact from the sales decline, an $11 million decrease in paper byproduct recoveries, and a $7 million increase in hourly production wages due to strategic investments made to increase starting wages, partially offset by savings from cost reduction initiatives, a $9 million net non-cash benefit from a change in vacation policy, and a $6 million net reduction in workers’ compensation reserves from improved production safety initiatives. Adjusted EBITDA margin grew by 130 basis points year-to-date due to 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 $67 million for the six months ended June 30, 2020, an increase of $51 million from 2019, primarily due to improvements in working capital.
• Free Cash Flow — Free Cash Flow was $29 million for the six months ended June 30, 2020, an increase of $79 million from 2019, primarily due to improvements in working capital and a $37 million decrease in capital expenditures. As a reminder, the Company historically generates the majority of its Free Cash Flow in the fourth quarter of the year.

Dave Honan, Executive Vice President and CFO, concluded: “We continue to demonstrate our ability to manage through the pandemic by showing disciplined cost management and cash conservation efforts, while also continuing to grow print segment share through our integrated marketing solutions for our clients. We delivered strong second quarter operating and cash performance when considering the significant economic impact that the pandemic had on our net sales. These efforts, along with ongoing debt reduction, also helped protect the health of our balance sheet. In the last 12 months, we have reduced net debt by $125 million, and have ample liquidity and no material maturities in our debt capital structure until May of 2022.”

Source: Quad