Quad/Graphics(QUAD) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Details Quad/Graphics' unaudited financial statements and management's analysis for Q3 and YTD 2021 Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents Quad/Graphics' unaudited financial statements, showing improved net earnings and reduced debt for Q3 and YTD 2021 Condensed Consolidated Statements of Operations Details Q3 and YTD 2021 operating results, showing increased net sales and significant improvement in net earnings Q3 Financial Performance (Three Months Ended Sep 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Net Sales | $706.1M | $679.3M | | Operating Income | $28.0M | $6.3M | | Net Earnings Attributable to Quad | $14.3M | $1.6M | | Diluted EPS | $0.27 | $0.03 | Year-to-Date Financial Performance (Nine Months Ended Sep 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Net Sales | $2,105.8M | $2,086.3M | | Operating Income | $97.0M | $8.5M | | Net Earnings (Loss) Attributable to Quad | $58.9M | ($34.3M) | | Diluted EPS | $1.12 | ($0.68) | Condensed Consolidated Balance Sheets Presents the balance sheet as of September 30, 2021, highlighting reduced total debt and increased shareholders' equity Balance Sheet Comparison (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $743.0 | $679.2 | | Total Assets | $1,842.0 | $1,927.7 | | Total Current Liabilities | $867.7 | $682.7 | | Long-Term Debt | $563.8 | $902.7 | | Total Liabilities | $1,697.3 | $1,842.9 | | Total Shareholders' Equity | $144.7 | $84.8 | Condensed Consolidated Statements of Cash Flows Summarizes cash flows for YTD 2021, showing decreased operating cash flow and significant debt payments Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $22.1 | $107.4 | | Net Cash from Investing Activities | $67.4 | $7.0 | | Net Cash from Financing Activities | ($117.1) | ($99.9) | | Net (Decrease) Increase in Cash | ($27.8) | $14.2 | | Cash at End of Period | $27.4 | $92.9 | Notes to Condensed Consolidated Financial Statements (Unaudited) Provides detailed disclosures on accounting policies, revenue, discontinued operations, and debt covenant amendments - The company's Book business results are reported as discontinued operations for 2020 periods following its sale, which was completed in 2020[29][41] Restructuring, Impairment & Transaction-Related Charges (in millions) | Charge Type | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Employee termination | $1.0 | $3.3 | $8.5 | $25.4 | | Impairment charges | $0.3 | $— | $2.0 | $4.2 | | Other restructuring (income) | $6.1 | $5.4 | ($14.3) | $16.4 | | Total | $7.4 | $9.8 | ($3.4) | $49.0 | - On November 2, 2021, subsequent to the quarter's end, the company amended its Senior Secured Credit Facility to extend the maturity of a portion of its revolving credit and term loan facilities to November 2026 and modify certain covenants[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2021 financial performance, strategic priorities, market trends, and liquidity Overview Outlines the company's strategic priorities and discusses key industry trends and operational challenges - The company's strategic priorities include expanding client relationships, growing in key verticals (e.g., healthcare, direct-to-consumer), making disciplined investments, and strengthening its core integrated marketing platform[145][146][147] - Management highlights significant industry headwinds, including digital substitution, excess manufacturing capacity, and competitive pricing pressure[139][163] - The company is experiencing inflationary cost pressures and supply chain shortages in raw materials, distribution, and labor, which are expected to continue through at least the end of 2021[171][172] Results of Operations Analyzes Q3 and YTD 2021 operating results, highlighting sales growth, increased operating income, and EBITDA Q3 2021 vs Q3 2020 Operating Results (in millions) | Line Item | Q3 2021 | Q3 2020 | $ Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $706.1 | $679.3 | $26.8 | | Total Cost of Sales | $574.1 | $543.3 | $30.8 | | Operating Income | $28.0 | $6.3 | $21.7 | - The increase in Q3 operating income was primarily driven by higher print volume, a $10.8 million gain from a sale and leaseback, a $9.1 million net benefit from property insurance claims, and a $6.1 million decrease in depreciation and amortization[174][180] EBITDA Reconciliation (Non-GAAP, in millions) | Period | Net Earnings | Interest | Taxes | D&A | EBITDA | | :--- | :--- | :--- | :--- | :--- | :--- | | Q3 2021 | $14.3 | $15.0 | $2.3 | $38.7 | $70.3 | | Q3 2020 | $1.6 | $17.9 | ($12.0) | $44.8 | $52.3 | | YTD 2021 | $58.9 | $45.1 | $4.1 | $119.3 | $227.4 | | YTD 2020 | ($34.3) | $52.2 | ($17.5) | $138.9 | $139.3 | Liquidity and Capital Resources Assesses liquidity, cash flow, and debt leverage, noting a decrease in operating cash flow and improved debt ratio - Total liquidity was $490.6 million as of September 30, 2021, with no borrowings outstanding on the $500.0 million revolving credit facility[251] Free Cash Flow (Non-GAAP, in millions) | Line Item | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22.1 | $107.4 | | Less: purchases of property, plant and equipment | ($41.6) | ($50.7) | | Free Cash Flow | ($19.5) | $56.7 | Debt Leverage Ratio (Non-GAAP) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Debt & Finance Leases | $826.1M | $928.2M | | Less: Cash | $27.4M | $55.2M | | Net Debt | $798.7M | $873.0M | | Trailing 12-Mo Adjusted EBITDA | $254.0M | $260.4M | | Debt Leverage Ratio | 3.14x | 3.35x | Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks including interest rates, foreign currency, credit, and commodities, and their mitigation strategies - The company manages interest rate risk on its variable-rate debt by using interest rate swaps to effectively fix the rate on $380.0 million of its debt[281] - The economy in Argentina has been classified as highly inflationary since June 30, 2018, requiring the functional currency of its Argentine subsidiaries to be the U.S. Dollar[286] - Commodity risk is primarily related to paper, ink, and energy, with the majority of paper supplied by clients and most ink produced in-house, mitigating price and supply volatility[290][291][292] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - The company's management concluded that disclosure controls and procedures were effective as of the end of the reporting period[296] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[297] PART II — OTHER INFORMATION Presents other required information, including risk factors, equity sales, and exhibits Item 1A. Risk Factors States no material changes to previously disclosed risk factors from the 2020 Annual Report - No material changes to risk factors were reported compared to the disclosures in the 2020 Form 10-K[299] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or share repurchases during Q3 2021 - The company did not repurchase any of its Class A common stock during the third quarter of 2021[301] - As of September 30, 2021, $100.0 million remained authorized for future repurchases under the existing program[301] Item 6. Exhibits Lists exhibits filed with the report, including CEO/CFO certifications and iXBRL financial data - The exhibits filed with this report include certifications from the CEO and CFO as required by the Securities Exchange Act of 1934, and financial data in iXBRL format[303]