Quad Reports Q3 2023 Sales Drop and Lowers Sales Guidance; Reaffirms EBITDA, Cash Flow Guidance

Quad/Graphics, Inc. (NYSE: QUAD) (“Quad” or the “Company”), reported results for the third quarter ended September 30, 2023.

Recent Highlights

• Reported Net Sales of $700 million in the third quarter of 2023 compared to $830 million in the third quarter of 2022, and Net Loss of $3 million in the third quarter of 2023, or $0.06 diluted loss per share, compared to Net Earnings and diluted earnings per share of $14 million and $0.27 in the third quarter of 2022, respectively.
• Achieved Adjusted EBITDA of $57 million in the third quarter of 2023 compared to Adjusted EBITDA of $69 million in the third quarter of 2022, and Adjusted EBITDA of $168 million in the nine months ended September 30, 2023, compared to Adjusted EBITDA of $173 million in the same period in 2022.
• Delivered Adjusted Diluted Earnings Per Share of $0.11 in the third quarter of 2023, compared to $0.32 in the third quarter of 2022, and in the nine months ended September 30, 2023, delivered Adjusted Diluted Earnings Per Share of $0.28 compared to $0.49 in the same period in 2022.
• Increased Net Cash Provided by Operating Activities by $71 million for the nine months ended September 30, 2023, compared to the same period in 2022.
• Increased Free Cash Flow by $61 million for the nine months ended September 30, 2023, compared to the same period in 2022, including $27 million of Free Cash Flow generation in the third quarter of 2023.
• Reduced Net Debt by $132 million over the last 12 months to end the third quarter with a Debt Leverage Ratio of 2.36x, which is within the company’s long-term targeted leverage range of 2.0x – 2.5x.
• Updated full-year 2023 financial guidance, lowering the range for Net Sales while narrowing and maintaining the original mid-points of guidance ranges for Adjusted EBITDA and Free Cash Flow and reaffirming the year-end Debt Leverage Ratio.
• Returned capital to shareholders by repurchasing 5.5 million shares of Quad Class A common stock since commencing buybacks in 2022, including 2.4 million shares in 2023, representing approximately 10% of Quad’s March 31, 2022 outstanding shares.

Joel Quadracci, Chairman, President and CEO of Quad, said: “Our flexible operating model and disciplined approach to managing all aspects of our business enabled us to deliver consistent, year-over-year EBITDA margins, strong Free Cash Flow and reduce debt despite a challenging revenue environment that led us to lower our annual Net Sales guidance. We are on track to achieve our Adjusted EBITDA, Free Cash Flow and Debt Leverage Ratio guidance and, by year end, will have reduced debt by over $560 million or 55% since January 1, 2020. With our strong balance sheet, we are able to continue making strategic investments in our business, accelerate our competitiveness as a marketing experience company, and position the business for improved growth opportunities as the economy improves, while returning capital to shareholders.

“Our distinction as a marketing experience, or MX, company resonates with brands and marketers because we seamlessly unite all the essential resources required for frictionless, scalable marketing execution. Our unparalleled integrated marketing platform provides our clients with a better marketing experience so they can focus on delivering the best customer experience.

“As we continue to scale our integrated marketing offering, print will remain a core component of our business and the largest portion of our revenue mix. While we remain confident in our ability to manage for short-term cyclical impacts as well as long-term expected organic declines in certain print product lines, such as retail inserts, we are focused on driving investment in the complementary areas of data and analytics, media, client technology and more to ensure we fulfill our clients’ ever-expanding marketing needs.

“As we close out 2023, we remain focused on delivering superior service to our clients while driving profitability, further enhancing our financial strength and returning capital to shareholders through opportunistic share repurchases. We will continue to prioritize growth, including bringing aboard experienced business professionals who can market and sell into our critical growth verticals. As always, we remain committed to creating a better, more purposeful and sustainable way forward for all our stakeholders.”

Summary Results

Click to enlarge. | Source: Quad Q3 2023 Earnings Call

Results for the third quarter ended September 30, 2023, include:

• Net Sales — Net Sales were $700 million in the third quarter of 2023, a decrease of 16% compared to the same period in 2022 primarily due to lower print, paper and logistics sales, as well as the 2022 divestiture of the Company’s Argentina print operations.
• Net Loss — Net Loss was $3 million in the third quarter of 2023 compared to Net Earnings of $14 million in the third quarter of 2022. The decrease is primarily due to lower sales, higher restructuring and impairment charges, increased interest expense from rising interest rates, and lower pension income, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.
• Adjusted EBITDA — Adjusted EBITDA was $57 million in the third quarter of 2023 as compared to $69 million in the same period in 2022. The decrease was due to lower sales and lower pension income, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.
• Adjusted Diluted Earnings Per Share — Adjusted Diluted Earnings Per Share was $0.11 in the third quarter of 2023, as compared to $0.32 in the third quarter of 2022, primarily due to lower adjusted net earnings and partially offset by the beneficial impact from the Company repurchasing Class A shares totaling approximately 10% of its outstanding shares beginning in the second quarter of 2022, for a total purchase price of $20 million.

Results for the nine months ended September 30, 2023, include:

• Net Sales — Net Sales were $2.2 billion in the nine months ended September 30, 2023, a decrease of 7% from the same period in 2022 primarily due to lower paper, logistics and print sales, as well as the 2022 divestiture of the Company’s Argentina print operations.
• Net Loss — Net Loss was $33 million in the nine months ended September 30, 2023, compared to Net Earnings of $18 million in the nine months ended September 30, 2022. The decrease is primarily due to lower sales, higher restructuring and impairment charges, increased interest expense from rising interest rates, and lower pension income, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.
• Adjusted EBITDA — Adjusted EBITDA was $168 million in the nine months ended September 30, 2023, as compared to $173 million in the same period in 2022. The decrease was primarily due to lower sales and lower pension income, partially offset by benefits from improved manufacturing productivity and savings from cost reduction initiatives.
  Adjusted Diluted Earnings Per Share — Adjusted Diluted Earnings Per Share was $0.28 in the nine months ended September 30, 2023, compared to $0.49 in the same period in 2022.
• Net Cash Provided by (Used in) Operating Activities and Free Cash Flow — Net Cash Provided by Operating Activities was $41 million in the nine months ended September 30, 2023, as compared to Net Cash Used in Operating Activities of $30 million in the same period in 2022. Free Cash Flow improved $61 million from last year to negative $18 million in the nine months ended September 30, 2023, and included $27 million of Free Cash Flow generation in the third quarter of 2023. The increase in Free Cash Flow was primarily due to lower inventory as supply chain challenges improved and to strong receivables collections, and was generated despite $10 million of increased capital expenditures as the Company continues to progress on its automation initiatives. As a reminder, the Company historically generates the majority of its Free Cash Flow in the fourth quarter of the year.
• Net Debt — Net Debt increased by $39 million to $584 million at September 30, 2023, as compared to $545 million at December 31, 2022, primarily due to the negative $18 million of Free Cash Flow and $10 million of Quad share buybacks in the nine months ended September 30, 2023. When removing seasonality, Net Debt decreased $132 million over the past twelve months.

Click to enlarge. | Source: Quad Q3 2023 Earnings Call

2023 Guidance

The Company updates its full-year 2023 financial guidance as follows:

Click to enlarge.

Tony Staniak, CFO of Quad, said: “Due to industry-wide print volume reductions, we are lowering our annual Net Sales guidance. Print volumes declined further than our projections in response to continued economic uncertainty, postal rate increases and the impact of rising interest rates on specific clients. Despite the top-line impact, our flexible business model and focus on cost management and labor productivity enabled us to maintain the midpoint of our guidance ranges for Adjusted EBITDA and Free Cash Flow. We continue to expect our Debt Leverage Ratio to be approximately 2.0x by the end of 2023, representing the low end of our long-term targeted debt leverage range of 2.0x-2.5x, and we intend to reduce debt further in 2024. We also remain committed to returning capital to shareholders through share repurchases and have completed $20 million of share buybacks since the second quarter of 2022. As always, we are nimble and ready to adapt to changes and challenges, while continuing our disciplined approach to managing all aspects of our business to enhance our financial strength and create shareholder value.”

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 the staff of Printing Impressions.