Quad/Graphics(US:QUAD)2024-10-29 22:37PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Quad/Graphics, Inc. for the three and nine months ended September 30, 2024, and 2023, including statements of operations, comprehensive loss, balance sheets, cash flows, and shareholders' equity, along with accompanying notes Condensed Consolidated Statements of Operations (Unaudited, in millions, except per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $674.8 | $700.2 | $1,963.8 | $2,169.8 | | Operating income (loss) | $(4.9) | $13.7 | $(0.5) | $22.2 | | Net loss | $(24.7) | $(2.7) | $(55.6) | $(33.4) | | Loss per share (Basic and diluted) | $(0.52) | $(0.06) | $(1.17) | $(0.68) | Condensed Consolidated Balance Sheets (Unaudited, in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $591.9 | $587.7 | | Total assets | $1,388.8 | $1,509.7 | | Total current liabilities | $698.1 | $790.8 | | Total liabilities | $1,337.9 | $1,390.2 | | Total shareholders' equity | $50.9 | $119.5 | Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(45.9) | $41.1 | | Net cash provided by (used in) investing activities | $21.9 | $(57.4) | | Net cash provided by (used in) financing activities | $(16.3) | $2.1 | | Net decrease in cash and cash equivalents | $(40.4) | $(14.2) | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes provide detailed disclosures supporting the financial statements, covering revenue recognition, restructuring and impairment charges, debt amendments, assets held for sale, and segment performance - The company's business is seasonal, with net sales and operating income typically higher in the second half of the year due to back-to-school and holiday-related advertising19 - In Q3 2024, the company committed to a plan to sell the majority of its European operations, classifying them as held for sale, resulting in a non-cash impairment charge of $50.9 million to reduce the carrying value to its estimated fair value114117 - On October 18, 2024, the company completed the ninth amendment to its Senior Secured Credit Facility, extending the maturity of a portion of its revolving credit facility and Term Loan A to October 2029 and modifying certain financial covenants55 Restructuring, Impairment and Transaction-Related Charges, Net (in millions) | Charge Type | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Employee termination charges | $2.2 | $19.1 | | Impairment charges | $52.2 | $65.9 | | Other restructuring charges (income) | $(16.1) | $(5.2) | | Total | $39.3 | $81.9 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including results of operations, segment performance, liquidity, capital resources, and debt management, highlighting transformation efforts and industry challenges Results of Operations Net sales decreased in Q3 2024 and the nine-month period, leading to widened net losses primarily due to increased restructuring and impairment charges and lower print volumes Q3 2024 vs Q3 2023 Performance (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $674.8 | $700.2 | (3.6)% | | Operating income (loss) | $(4.9) | $13.7 | (135.8)% | | Net loss | $(24.7) | $(2.7) | (814.8)% | | EBITDA (non-GAAP) | $19.7 | $46.2 | (57.4)% | Nine Months 2024 vs 2023 Performance (in millions) | Metric | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $1,963.8 | $2,169.8 | (9.5)% | | Operating income (loss) | $(0.5) | $22.2 | (102.3)% | | Net loss | $(55.6) | $(33.4) | (66.5)% | | EBITDA (non-GAAP) | $79.5 | $121.2 | (34.4)% | - The decrease in product sales for the nine-month period was primarily due to a $107.9 million decrease from paper sales and a $73.5 million decrease in print product sales, reflecting lower volumes211 - Restructuring, impairment, and transaction-related charges increased significantly, driven by a $50.1 million year-over-year increase in impairment charges for the nine-month period, largely from the planned divestiture of European operations204 Liquidity and Capital Resources Total liquidity was $255.4 million as of September 30, 2024, with negative operating cash flow and free cash flow, while the Debt Leverage Ratio increased but remained compliant with covenants Key Liquidity Metrics (in millions) | Metric | As of Sep 30, 2024 | | :--- | :--- | | Cash and cash equivalents | $12.5 | | Unused revolving credit capacity | $242.9 | | Total Liquidity | $255.4 | Cash Flow and Free Cash Flow (YTD, in millions) | Metric | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $(45.9) | $41.1 | | Purchases of property, plant and equipment | $(45.7) | $(59.5) | | Free Cash Flow (non-GAAP) | $(91.6) | $(18.4) | - The Debt Leverage Ratio (Net Debt / Adjusted EBITDA) was 2.16x at September 30, 2024, up from 2.01x at December 31, 2023, but remains within management's target range of 1.75x to 2.25x257258 - The company was in compliance with all financial covenants as of September 30, 2024, including its Total Leverage Ratio (2.22 to 1.00 vs. limit of 3.50 to 1.00) and Senior Secured Leverage Ratio (2.19 to 1.00 vs. limit of 3.00 to 1.00)261262263 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, credit, and commodities, which are mitigated through hedging strategies and contractual clauses - Interest Rate Risk: The company has $296.2 million in variable rate debt and uses interest rate collars and swaps to effectively fix the rate on $200.0 million of this debt273 - Foreign Currency Risk: A hypothetical 10% adverse change in foreign exchange rates would result in a potential decrease of approximately $9.0 million in the value of net current assets held by foreign subsidiaries275 - Credit Risk: The company maintains an allowance for credit losses of $21.3 million as of September 30, 2024, with no single client accounting for more than 5% of net sales, mitigating concentration risk278279 - Commodity Risk: Primary raw materials include paper, ink, and energy, with mitigation strategies including in-house ink production, price adjustment clauses for paper, and approximately half of paper supplied directly by clients280282283 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during the quarter - The company's management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report286 - No changes occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting287 PART II OTHER INFORMATION Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K were reported - No material changes to risk factors were reported since the last Annual Report on Form 10-K289 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares during Q3 2024, with $77.5 million remaining authorized for future repurchases under the existing program - No shares were repurchased during the three months ended September 30, 2024290 - As of September 30, 2024, $77.5 million of authorized repurchases remained under the company's share repurchase program290 Item 5. Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter292 Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and iXBRL financial statements