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Quad/Graphics(QUAD) - 2021 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Quad/Graphics reported a net earning of $10.2 million in Q1 2021, reversing a prior-year loss, driven by lower restructuring charges and reduced operating expenses, despite decreased net sales Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total net sales | $705.8 million | $822.5 million | | Operating income from continuing operations | $21.0 million | $5.0 million | | Net earnings (loss) attributable to Quad common shareholders | $10.2 million | $(12.4) million | | Diluted earnings (loss) per share | $0.19 | $(0.25) | Condensed Consolidated Balance Sheet Summary | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $633.7 million | $679.2 million | | Total assets | $1,837.2 million | $1,927.7 million | | Total current liabilities | $628.7 million | $682.7 million | | Total liabilities | $1,744.1 million | $1,842.9 million | | Total shareholders' equity | $93.1 million | $84.8 million | Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $72.9 million | $44.7 million | | Net cash (used in) provided by investing activities | $(6.0) million | $14.3 million | | Net cash (used in) provided by financing activities | $(41.4) million | $70.7 million | | Cash and cash equivalents at end of period | $80.6 million | $207.8 million | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail key accounting policies and financial activities, including revenue disaggregation, restructuring charges, debt management, and discontinued operations - The COVID-19 pandemic has negatively impacted the business, leading to cost reduction initiatives and an amendment to the Senior Secured Credit Facility for financial covenant relief through September 30, 202128 Disaggregated Revenue (Q1 2021 vs Q1 2020) | Revenue Category | Q1 2021 (Million) | Q1 2020 (Million) | % Change | | :--- | :--- | :--- | :--- | | Total Products | $526.0 | $645.0 | -18.4% | | - US Print & Related | $459.9 | $563.6 | -18.4% | | - International | $66.1 | $81.4 | -18.8% | | Total Services | $179.8 | $177.5 | +1.3% | | - US Print & Related | $174.7 | $173.0 | +1.0% | | - International | $5.1 | $4.5 | +13.3% | | Total Net Sales | $705.8 | $822.5 | -14.2% | Restructuring, Impairment and Transaction-Related Charges | Charge Type | Q1 2021 (Million) | Q1 2020 (Million) | | :--- | :--- | :--- | | Employee termination charges | $4.7 | $12.6 | | Impairment charges | $0.8 | $2.5 | | Other restructuring charges (income) | $(3.1) | $6.5 | | Total | $2.6 | $22.8 | - The company's Book business is reported as a discontinued operation following its sale in 2020, generating a loss from discontinued operations of $3.8 million net of tax for Q1 20202739 - As of March 31, 2021, total debt was $888.1 million, down from $923.4 million at December 31, 2020, with the company in compliance with all debt covenants, including a Maximum Total Net Leverage Ratio of 3.18 to 1.00 against a covenant of 4.50 to 1.006570 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 14.2% YoY decline in net sales primarily to ongoing print industry volume pressure and decreased pass-through paper sales, while improved profitability stemmed from reduced restructuring charges and SG&A expenses - The company's strategic priorities include growing as a marketing solutions partner, strengthening its core integrated marketing platform, empowering employees, and enhancing financial strength through disciplined capital management and debt reduction129130131134135 Key Performance Metrics (Q1 2021 vs Q1 2020) | Metric | Q1 2021 (Million) | Q1 2020 (Million) | | :--- | :--- | :--- | | Net Sales | $705.8 | $822.5 | | Operating Income | $21.0 | $5.0 | | EBITDA (Non-GAAP) | $67.1 | $51.9 | | Free Cash Flow (Non-GAAP) | $56.0 | $15.7 | - The Debt Leverage Ratio decreased to 3.24x at March 31, 2021, from 3.35x at December 31, 2020, due to a $61.0 million decrease in Net Debt, though it remains above the target range of 2.0x-2.5x due to pandemic impacts207208 - Total liquidity was $543.7 million as of March 31, 2021, comprising $80.6 million in cash and $463.1 million of unused revolving credit facility capacity, deemed sufficient for ongoing requirements195 Results of Operations Total net sales fell 14.2% to $705.8 million in Q1 2021, primarily due to decreased product sales, while improved profitability was driven by significant reductions in SG&A and restructuring charges Consolidated Operating Results Summary (Q1 2021 vs Q1 2020) | Line Item | Q1 2021 (Million) | Q1 2020 (Million) | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $705.8 | $822.5 | -14.2% | | Total cost of sales | $559.8 | $647.7 | -13.6% | | Selling, general & administrative expenses | $80.5 | $99.6 | -19.2% | | Restructuring, impairment and transaction-related charges | $2.6 | $22.8 | -88.6% | | Operating income from continuing operations | $21.0 | $5.0 | +320.0% | - Product sales decreased by $119.0 million, driven by a $59.5 million decline in print product lines, a $52.4 million decrease in pass-through paper sales, and a $7.5 million decrease from the divestiture of the Omaha packaging plant166 - SG&A expenses decreased by $19.1 million, primarily due to an $8.7 million decrease in employee-related costs, a $6.1 million decrease from foreign translation impacts, and a $4.4 million decrease in credit loss expense170 Liquidity and Capital Resources The company's liquidity remains strong with $543.7 million available, driven by significantly increased net cash from operating activities and improved Free Cash Flow, alongside debt reduction and covenant compliance Free Cash Flow (Non-GAAP) | Component | Q1 2021 (Million) | Q1 2020 (Million) | | :--- | :--- | :--- | | Net cash provided by operating activities | $72.9 | $44.7 | | Less: purchases of property, plant and equipment | $(16.9) | $(29.0) | | Free Cash Flow | $56.0 | $15.7 | - Net cash from operating activities increased by $28.2 million year-over-year, mainly due to a $35.0 million positive change in operating assets and liabilities197 - The company was in compliance with all financial covenants as of March 31, 2021, with limitations on dividends and share repurchases during the 'Covenant Relief Period' (through September 30, 2021) if the Total Net Leverage Ratio is above 2.75x210211215 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates, foreign currency, credit, and commodity prices through strategies like interest rate swaps, client diversification, and contractual clauses - To manage interest rate risk, the company uses interest rate swaps to classify $380.0 million of its variable-rate debt as fixed-rate debt, with $246.7 million in variable-rate debt and $645.9 million in fixed-rate debt as of March 31, 2021220 - Foreign currency translation risk applies to net current assets of foreign subsidiaries, which stood at $34.1 million, where a hypothetical 10% adverse change would result in a $3.4 million decrease222 - Credit risk is managed through client evaluation and monitoring, with an allowance for credit losses of $33.3 million as of March 31, 2021, and no single client exceeding 5% of net sales in Q1 2021226227 - Commodity risk is mitigated as most paper is client-supplied, the company produces its own ink, and price adjustment clauses in contracts help offset raw material price volatility229230 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021233 - No changes occurred during the fiscal quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting234 PART II: OTHER INFORMATION Item 1A. Risk Factors The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020237 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its $100.0 million program due to debt covenant restrictions but did acquire shares from employees for tax withholding purposes - The company has a $100.0 million share repurchase program, but no shares were repurchased during the three months ended March 31, 2021, with the full $100.0 million remaining available238241 - The company is currently prohibited from repurchasing capital stock due to restrictions in its Senior Secured Credit Facility, which are in effect during the Covenant Relief Period ending September 30, 2021241 - In March 2021, 258,670 shares of Class A common stock were transferred from employees to the Company to satisfy tax withholding requirements in connection with vesting restricted stock241 Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including CEO and CFO certifications and financial statements formatted in iXBRL