Quad/Graphics(QUAD) - 2023 Q1 - Quarterly Report

FORM 10-Q Filing Information Provides essential identification details for the company's quarterly report filing Registrant Information This section provides the basic identification details for Quad/Graphics, Inc.'s Form 10-Q filing for the quarter ended March 31, 2023, including its incorporation state, address, contact number, and SEC filing status - Quad/Graphics, Inc. is a Wisconsin-incorporated company, filing a Quarterly Report (Form 10-Q) for the period ended March 31, 2023[2] Title of each class, Trading Symbol(s), and Name of each exchange on which registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Class A Common Stock, par value $0.025 per share | QUAD | The New York Stock Exchange | Outstanding Common Stock Shares as of April 28, 2023 | Class | Outstanding as of April 28, 2023 | | :----------------- | :------------------------------- | | Class A Common Stock | 39,153,019 | | Class B Common Stock | 13,556,858 | | Class C Common Stock | — | PART I — FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and related disclosures for the reporting period ITEM 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Quad/Graphics, Inc. for the three months ended March 31, 2023 and 2022, including statements of operations, comprehensive income (loss), balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, revenue recognition, restructuring charges, and other financial instruments Condensed Consolidated Statements of Operations (Unaudited) Details the company's revenues, expenses, and net loss for the three months ended March 31, 2023 and 2022 | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (YoY) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | | Net sales | $766.5 | $744.2 | +$22.3 (+3.0%) | | Products | $607.9 | $580.9 | +$27.0 (+4.6%) | | Services | $158.6 | $163.3 | -$4.7 (-2.9%) | | Total cost of sales | $617.5 | $619.6 | -$2.1 (-0.3%) | | Selling, general and administrative expenses | $89.2 | $79.1 | +$10.1 (+12.8%) | | Depreciation and amortization | $33.7 | $36.5 | -$2.8 (-7.7%) | | Restructuring, impairment and transaction-related charges | $26.0 | $3.6 | +$22.4 (+622.2%) | | Operating income | $0.1 | $5.4 | -$5.3 (-98.1%) | | Interest expense | $16.3 | $9.3 | +$7.0 (+75.3%) | | Net loss | $(24.6) | $(1.0) | -$23.6 (-2360%) | | Basic and diluted loss per share | $(0.50) | $(0.02) | -$0.48 | | Weighted average common shares outstanding (in millions) | 49.2 | 51.5 | -2.3 (-4.5%) | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Reports the net loss and other comprehensive income components for the three months ended March 31, 2023 and 2022 | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net loss | $(24.6) | $(1.0) | | Other comprehensive income, net of tax | $7.2 | $1.9 | | Comprehensive income (loss) | $(17.4) | $0.9 | Condensed Consolidated Balance Sheets (Unaudited) Presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2023, and December 31, 2022 | Asset/Liability Category | March 31, 2023 (in millions) | December 31, 2022 (in millions) | Change (QoQ) | | :----------------------------------- | :--------------------------- | :------------------------------ | :----------- | | Cash and cash equivalents | $8.7 | $25.2 | -$16.5 | | Total current assets | $642.1 | $704.5 | -$62.4 | | Total assets | $1,626.9 | $1,701.8 | -$74.9 | | Total current liabilities | $760.4 | $795.4 | -$35.0 | | Long-term debt | $478.9 | $506.7 | -$27.8 | | Total liabilities | $1,472.4 | $1,528.9 | -$56.5 | | Total shareholders' equity | $154.5 | $172.9 | -$18.4 | Condensed Consolidated Statements of Cash Flows (Unaudited) Summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 | Cash Flow Activity | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash used in operating activities | $(50.6) | $(16.9) | | Net cash used in investing activities | $(26.4) | $(18.7) | | Net cash provided by (used in) financing activities | $60.3 | $(6.1) | | Net decrease in cash and cash equivalents | $(16.5) | $(41.6) | | Cash and cash equivalents at end of period | $8.7 | $138.3 | Condensed Consolidated Statements of Shareholders' Equity (Unaudited) Details changes in the company's shareholders' equity components for the three months ended March 31, 2023 | Shareholder Equity Component | Balance at Dec 31, 2022 (in millions) | Net Loss (in millions) | Balance at Mar 31, 2023 (in millions) | | :----------------------------------- | :------------------------------------ | :--------------------- | :------------------------------------ | | Common Stock Amount | $1.4 | — | $1.4 | | Additional Paid-in Capital | $841.8 | — | $838.5 | | Treasury Stock Amount | $(23.5) | — | $(21.2) | | Accumulated Deficit | $(518.5) | $(24.6) | $(543.1) | | Accumulated Other Comprehensive Loss | $(128.3) | $7.2 | $(121.1) | | Quad's Shareholders' Equity | $172.9 | $(17.4) | $154.5 | Notes to Condensed Consolidated Financial Statements (Unaudited) Provides additional information and explanations for the figures presented in the condensed consolidated financial statements Note 1. Basis of Presentation Explains the accounting policies and significant judgments used in preparing the financial statements - The Company's quarterly results are seasonal, with net sales and operating income typically higher in the third and fourth quarters due to increased back-to-school and holiday-related advertising and promotions[24] - Macroeconomic conditions, including weakened demand, supply chain disruptions, rising inflationary costs, labor pressures, and recessionary concerns, have impacted the Company's products and services[26] Note 2. Revenue Recognition Details the company's policies and disaggregated revenue streams from contracts with customers Disaggregated Revenue by Segment and Offering (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Category | United States Print and Related Services (2023) | International (2023) | Total (2023) | United States Print and Related Services (2022) | International (2022) | Total (2022) | | :------------------------------------------ | :---------------------------------------------- | :------------------- | :----------- | :---------------------------------------------- | :------------------- | :----------- | | Products | | | | | | | | Catalog, publications, retail inserts and directories | $360.9 | $57.3 | $418.2 | $341.7 | $60.5 | $402.2 | | Direct mail and other printed products | $142.0 | $45.9 | $187.9 | $149.2 | $26.9 | $176.1 | | Other | $1.6 | $0.2 | $1.8 | $2.4 | $0.2 | $2.6 | | Total products | $504.5 | $103.4 | $607.9 | $493.3 | $87.6 | $580.9 | | Services | | | | | | | | Logistics services | $64.4 | $5.1 | $69.5 | $71.0 | $5.3 | $76.3 | | Marketing services and medical services | $88.7 | $0.4 | $89.1 | $86.8 | $0.2 | $87.0 | | Total services | $153.1 | $5.5 | $158.6 | $157.8 | $5.5 | $163.3 | | Total net sales | $657.6 | $108.9 | $766.5 | $651.1 | $93.1 | $744.2 | - The Company capitalizes certain sales incentives and defers contract acquisition costs for contracts over one year, amortizing them on a straight-line basis over the estimated contract life[32] Note 3. Restructuring, Impairment and Transaction-Related Charges Outlines the nature and amounts of charges related to restructuring, asset impairments, and transaction costs Restructuring, Impairment and Transaction-Related Charges (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Charge Type | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Employee termination charges | $13.1 | $1.1 | | Impairment charges | $9.5 | $0.1 | | Transaction-related charges | $0.6 | $0.2 | | Integration costs | $0.5 | — | | Other restructuring charges | $2.3 | $2.2 | | Total | $26.0 | $3.6 | - Impairment charges of $9.5 million in Q1 2023 were primarily for machinery and equipment no longer utilized due to facility consolidations and capacity reduction activities[36] - Restructuring reserves at March 31, 2023, totaled $16.8 million, with $12.6 million in short-term liabilities and $3.6 million in long-term liabilities[39] Note 4. Receivables Describes the company's accounts receivable and the allowance for credit losses - The Company recorded credit loss expense of $0.9 million in Q1 2023, an increase from $0.7 million in Q1 2022[42] Allowance for Credit Losses Activity (Three Months Ended March 31, 2023) (in millions) | Activity | Amount (in millions) | | :-------------------------- | :------------------- | | Balance at December 31, 2022 | $26.4 | | Provisions | $0.9 | | Write-offs | $(0.7) | | Translation | $0.2 | | Balance at March 31, 2023 | $26.8 | Note 5. Inventories Provides a breakdown of the company's inventory components Inventory Components (March 31, 2023 vs. December 31, 2022) (in millions) | Inventory Component | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :--------------------------- | :------------------------------ | | Raw materials and manufacturing supplies | $150.6 | $173.7 | | Work in process | $44.4 | $38.3 | | Finished goods | $44.3 | $48.7 | | Total | $239.3 | $260.7 | Note 6. Commitments and Contingencies Discloses the company's legal, environmental, and other contractual obligations and potential liabilities - Management does not expect current lawsuits or environmental remediation obligations to have a material impact on the condensed consolidated financial statements[45][46] Note 7. Debt Details the company's debt instruments, interest rates, and compliance with debt covenants - The Company transitioned its Senior Secured Credit Facility reference rate from LIBOR to SOFR effective February 1, 2023, with no material financial statement impact[47] - In Q1 2022, the Company repurchased and canceled $2.4 million of its 7.0% Senior Unsecured Notes due May 1, 2022, to reduce interest expense[48] Note 8. Income Taxes Explains the company's income tax expense, effective tax rate, and unrecognized tax benefits - The estimated annual effective income tax rate for Q1 2023 differs from the statutory rate primarily due to estimated non-deductible expenses, foreign branch income, and increases in valuation allowance reserves[49] - The Company anticipates a $0.2 million decrease in its liability for unrecognized tax benefits within the next twelve months due to audit resolutions or statute expirations[51] Note 9. Financial Instruments and Fair Value Measurements Describes the company's financial instruments, including derivatives, and their fair value measurements - The Company holds one active interest rate swap contract with a notional amount of $130.0 million, fixed swap rate of 2.40%, and termination date of March 28, 2024, which transitioned from LIBOR to SOFR in Q1 2023[53][54] - Two interest rate collar contracts, effective February 1, 2023, with a notional amount of $75.0 million each, were entered into to reduce interest payment variability on variable-rate debt[56] - The fair value of the Company's total debt was approximately $0.6 billion at March 31, 2023, and December 31, 2022, measured using Level 2 inputs[60] Note 10. Employee Retirement Plans Provides information on the company's pension and multiemployer retirement plans Net Pension Income Components (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Component | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Interest cost | $(4.4) | $(2.4) | | Expected return on plan assets | $5.0 | $5.6 | | Net periodic pension income | $0.6 | $3.2 | | Amortization of actuarial loss | $(0.2) | — | | Net pension income | $0.4 | $3.2 | - The Company has withdrawn from all significant Multiemployer Pension Plans (MEPPs) and accrued a withdrawal liability of $27.3 million as of March 31, 2023[66] Note 11. Loss Per Share Details the calculation of basic and diluted loss per share for the reporting periods - Due to net losses in Q1 2023 and Q1 2022, all equity incentive instruments were anti-dilutive and excluded from diluted loss per share calculation[68] Loss Per Share (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss (in millions) | $(24.6) | $(1.0) | | Basic weighted average number of common shares outstanding (in millions) | 49.2 | 51.5 | | Diluted weighted average number of common shares outstanding (in millions) | 49.2 | 51.5 | | Basic and diluted loss per share | $(0.50) | $(0.02) | Note 12. Equity Incentive Programs Describes the company's equity-based compensation plans and related expenses Total Equity Incentive Compensation Expense (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Expense Type | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Restricted Stock ("RS") and Restricted Stock Units ("RSU") equity awards expense | $0.9 | $1.7 | | RSU liability awards expense | — | $0.2 | | Deferred Stock Units ("DSU") awards expense | $0.1 | — | | Total equity incentive compensation expense | $1.0 | $1.9 | - Total future compensation expense related to equity incentive programs as of March 31, 2023, is estimated at $10.7 million, primarily for RS and RSU awards[70] Note 13. Shareholders' Equity Provides details on the company's common stock classes, share repurchases, and equity components Common Stock Shares (in millions) (March 31, 2023 vs. December 31, 2022) | Class | Authorized Shares | Outstanding (Mar 31, 2023) | Treasury (Mar 31, 2023) | Total Issued (Mar 31, 2023) | Outstanding (Dec 31, 2022) | Treasury (Dec 31, 2022) | Total Issued (Dec 31, 2022) | | :------------------------ | :---------------- | :--------------------------- | :---------------------- | :-------------------------- | :--------------------------- | :---------------------- | :-------------------------- | | Class A stock ($0.025 par value) | 105.0 | 40.1 | 2.4 | 42.5 | 39.2 | 3.4 | 42.6 | | Class B stock ($0.025 par value) | 80.0 | 13.6 | — | 13.6 | 13.6 | — | 13.6 | | Class C stock ($0.025 par value) | 20.0 | — | 0.5 | 0.5 | — | 0.5 | 0.5 | - Class A common shares have one vote per share, while Class B and Class C common shares have ten votes per share; liquidation rights are equal for all three classes[74] - The Company repurchased 64,271 shares of Class A common stock for $0.3 million in Q1 2023, with $89.8 million remaining under the authorized repurchase program[76] Note 14. Accumulated Other Comprehensive Loss Presents the changes in components of accumulated other comprehensive loss Changes in Accumulated Other Comprehensive Loss (Three Months Ended March 31, 2023) (in millions) | Component | Balance at Dec 31, 2022 (in millions) | Other Comprehensive Income before Reclassifications (in millions) | Amounts Reclassified to Net Earnings (in millions) | Net Other Comprehensive Income (in millions) | Balance at Mar 31, 2023 (in millions) | | :------------------------------------ | :------------------------------------ | :------------------------------------------------ | :----------------------------------------- | :----------------------------------- | :------------------------------------ | | Translation Adjustments | $(88.6) | $6.5 | — | $6.5 | $(82.1) | | Interest Rate Derivatives Adjustments | $(4.1) | $0.1 | $0.5 | $0.6 | $(3.5) | | Pension Benefit Plan Adjustments | $(35.6) | — | $0.1 | $0.1 | $(35.5) | | Total | $(128.3) | $6.6 | $0.6 | $7.2 | $(121.1) | Note 15. Segment Information Provides financial data for the company's operating segments: United States Print and Related Services, International, and Corporate - Quad is a global marketing experience company with operating segments: United States Print and Related Services, International, and Corporate[80][81][82][83] Segment Net Sales and Operating Income (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Segment | Products Net Sales (2023) | Services Net Sales (2023) | Operating Income (Loss) (2023) | Restructuring, Impairment and Transaction Related Charges (2023) | Products Net Sales (2022) | Services Net Sales (2022) | Operating Income (Loss) (2022) | Restructuring, Impairment and Transaction Related Charges (2022) | | :------------------------------------ | :------------------------ | :------------------------ | :----------------------------- | :--------------------------------------------------------------- | :------------------------ | :------------------------ | :----------------------------- | :--------------------------------------------------------------- | | United States Print and Related Services | $504.5 | $153.1 | $7.3 | $22.5 | $493.3 | $157.8 | $11.8 | $1.7 | | International | $103.4 | $5.5 | $7.7 | $2.6 | $87.6 | $5.5 | $3.7 | $1.6 | | Corporate | — | — | $(14.9) | $0.9 | — | — | $(10.1) | $0.3 | | Total | $607.9 | $158.6 | $0.1 | $26.0 | $580.9 | $163.3 | $5.4 | $3.6 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Quad/Graphics, Inc.'s financial condition and operational results for the three months ended March 31, 2023, compared to the same period in 2022. It covers an overview of the business, key performance metrics, industry trends, detailed analysis of operating results by segment, and a discussion of liquidity and capital resources Cautionary Statement Regarding Forward-Looking Statements Warns readers about the inherent risks and uncertainties associated with forward-looking business projections - Forward-looking statements are subject to risks and uncertainties, including decreasing demand for printed materials, fluctuations in costs and raw material availability, macroeconomic conditions (inflation, interest rates, recession), increased business complexity, and the inability to reduce costs quickly enough[89][90][94] Overview Introduces Quad as a global marketing experience company, outlining its strategic priorities and key performance metrics - Quad is a global marketing experience company serving over 2,900 clients with approximately 15,000 employees in 14 countries, leveraging an integrated marketing platform for strategy, data & analytics, technology, media, creative, and managed services[95] - Strategic Priorities: - Walk in the Shoes of Clients: Focus on client needs, problem-solving, and strengthening relationships at higher organizational levels[96] - Grow the Business Profitably: Acquire new clients, expand existing accounts with holistic solutions, and make disciplined investments in growth and talent[97] - Advance One-of-a-Kind Integrated Marketing Platform: Continuously enhance the platform through innovation, Lean Enterprise methodologies, and strategic divestitures[98] - Empower Employees: Foster a culture of trust, innovation, and growth through flexible work, talent acquisition, training, and community engagement[101] - Enhance Financial Strength and Create Shareholder Value: Drive profitable growth, maximize Free Cash Flow, maintain a strong balance sheet, and strategically allocate capital for debt reduction, investments, and shareholder returns[106] - The Company's total liquidity as of March 31, 2023, was $330.1 million, comprising $321.4 million unused revolving credit capacity and $8.7 million cash and cash equivalents[107][162] - Key Performance Metrics: - Net sales growth: Measures ability to increase sales through existing and new clients, and expanded solutions[110] - EBITDA and EBITDA margin: Assess operating performance by increasing revenues and controlling variable expenses[111] - Net cash provided by (used in) operating activities: Evaluates liquidity for meeting obligations and funding investments[112] - Free Cash Flow: Quantifies cash available for balance sheet strengthening, strategic investments, and shareholder returns[113] - Debt Leverage Ratio: Monitors debt levels for optimal business operation and capital capacity[114][115] - Macroeconomic conditions, including rising interest rates, inflationary cost pressures on raw materials (paper, ink, energy), labor shortages, and distribution challenges, are expected to continue impacting the Company's results through fiscal year 2023[126][127][128] Results of Operations for the Three Months Ended March 31, 2023, Compared to the Three Months Ended March 31, 2022 Analyzes the company's financial performance, including sales, expenses, and profitability, for the current and prior-year quarters Summary Results (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Metric | March 31, 2022 | Restructuring, Impairment and Transaction-related Charges Impact | Other Operating Income Elements Impact | Interest Expense Impact | Net Pension Income Impact | Income Taxes Impact | March 31, 2023 | | :------------------- | :------------- | :------------------------------------------------------------- | :------------------------------------- | :---------------------- | :------------------------ | :------------------ | :------------- | | Operating Income | $5.4 | $(22.4) | $17.1 | N/A | N/A | N/A | $0.1 | | Operating Margin | 0.7% | (2.9)% | 2.2% | N/A | N/A | N/A | 0% | | Net Loss | $(1.0) | $(16.8) | $12.9 | $(5.3) | $(2.1) | $(12.3) | $(24.6) | | Diluted Loss Per Share | $(0.02) | $(0.35) | $0.27 | $(0.11) | $(0.04) | $(0.25) | $(0.50) | - Total net sales increased by $22.3 million (3.0%) to $766.5 million in Q1 2023, driven by a 4.6% increase in product sales, partially offset by a 2.9% decrease in service sales[134][135][136] - Cost of product sales increased by $13.0 million (2.6%) due to higher paper costs and print volumes, while cost of service sales decreased by $15.1 million (13.0%) due to lower freight costs and other initiatives[137][138] - Selling, general and administrative expenses increased by $10.1 million (12.8%) to $89.2 million, primarily due to higher employee-related and selling-related costs[139] - Depreciation and amortization decreased by $2.8 million (7.7%) due to fully depreciated property, plant and equipment[140] - Restructuring, impairment and transaction-related charges significantly increased by $22.4 million to $26.0 million, primarily due to higher employee termination charges ($12.0 million increase) and impairment charges ($9.4 million increase)[141] EBITDA and EBITDA Margin (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Metric | March 31, 2023 (in millions) | % of Net Sales (2023) | March 31, 2022 (in millions) | % of Net Sales (2022) | | :-------------------------- | :--------------------------- | :-------------------- | :--------------------------- | :-------------------- | | EBITDA (non-GAAP) | $34.2 | 4.5% | $45.1 | 6.1% | - United States Print and Related Services segment operating income decreased by $4.5 million (38.1%) to $7.3 million, primarily due to a $20.8 million increase in restructuring, impairment and transaction-related charges[150] - International segment operating income increased by $4.0 million (108.1%) to $7.7 million, driven by increased print volume and pricing, and cost saving initiatives, primarily in Mexico[157] - Corporate operating expenses increased by $4.8 million (47.5%) to $14.9 million, mainly due to a $3.2 million increase in employee-related costs[160] Liquidity and Capital Resources Discusses the company's cash flows, debt levels, and ability to meet its financial obligations and fund operations - Net cash used in operating activities increased by $33.7 million to $50.6 million in Q1 2023, primarily due to increased cash used in changes in operating assets and liabilities and decreased cash from earnings[164] - Net cash used in investing activities increased by $7.7 million to $26.4 million, mainly due to a $9.6 million increase in purchases of property, plant and equipment[165] - Net cash provided by financing activities increased by $66.4 million to $60.3 million, primarily due to a $64.7 million increase in net borrowings of debt and lease obligations[166] Free Cash Flow (Non-GAAP) (Three Months Ended March 31, 2023 vs. 2022) (in millions) | Metric | March 31, 2023 (in millions) | March 31, 2022 (in millions) | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(50.6) | $(16.9) | | Less: purchases of property, plant and equipment | $28.7 | $19.1 | | Free Cash Flow (non-GAAP) | $(79.3) | $(36.0) | Debt Leverage Ratio (Non-GAAP) (March 31, 2023 vs. December 31, 2022) (in millions) | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------------------------------------- | :--------------------------- | :------------------------------ | | Total debt and finance lease obligations | $640.2 | $570.2 | | Less: Cash and cash equivalents | $8.7 | $25.2 | | Net Debt (non-GAAP) | $631.5 | $545.0 | | Divided by: Adjusted EBITDA (non-GAAP) | $263.7 | $252.2 | | Debt Leverage Ratio—Net Debt (non-GAAP) | 2.39 x | 2.16 x | - The Debt Leverage Ratio increased to 2.39x at March 31, 2023, from 2.16x at December 31, 2022, primarily due to an $86.5 million increase in Net Debt, but remains within management's target range of 2.0x to 2.5x[176] - The Company was in compliance with all financial covenants in its debt agreements as of March 31, 2023, including Total Leverage Ratio (2.39 to 1.00 vs. max 3.75 to 1.00) and Senior Secured Leverage Ratio (2.37 to 1.00 vs. max 3.50 to 1.00)[178][180] - The Company repurchased 64,271 shares of Class A common stock for $0.3 million in Q1 2023, with $89.8 million remaining under the $100.0 million share repurchase program authorized in 2018[183] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section details Quad/Graphics, Inc.'s exposure to various market risks, including interest rate, foreign currency, credit, and commodity risks, and outlines the Company's strategies for managing these exposures Interest Rate Risk Assesses the company's exposure to fluctuations in interest rates on its variable-rate debt and hedging strategies - The Company is exposed to interest rate risk on $342.2 million of variable rate debt (weighted average 7.1%) and has hedged $280.0 million of variable rate debt to fixed rate using interest rate swaps and collars[188] - A hypothetical 10% increase in market interest rates on variable rate debt would not materially impact interest expense, and a 10% change in market rates would change the fair value of fixed rate debt by approximately $0.1 million[188] Foreign Currency Risk and Translation Exposure Explains the company's exposure to foreign exchange rate movements and their impact on consolidated financial statements - The Company's foreign currency exposure is limited as most operating revenues and expenses are in local currencies, but translation risk impacts consolidated financial position[189][190] - A hypothetical 10% adverse change in foreign currency exchange rates would result in an approximate $10.4 million decrease in net current assets of foreign subsidiaries[190] Credit Risk Describes how the company manages the risk of financial loss from clients failing to meet their obligations - The Company manages credit risk through client evaluations and continuous monitoring, maintaining an allowance for credit losses of $26.8 million as of March 31, 2023[193] - The Company has a diverse client base, with its largest client accounting for less than 5% of net sales in Q1 2023[194] Commodity Risk Addresses the company's exposure to price volatility and supply chain pressures for key raw materials like paper, ink, and energy - Primary raw materials (paper, ink, energy) are subject to price fluctuations and supply chain pressures; the Company mitigates risk through price adjustment clauses in contracts and natural gas hedges[196][197][199] - A hypothetical 10% change in paper and other raw material prices is not expected to have a significant direct impact on consolidated annual results or cash flows, but could influence future client demand[201] ITEM 4. Controls and Procedures This section confirms the effectiveness of Quad/Graphics, Inc.'s disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended March 31, 2023 - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[202] - There were no material changes in the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2023[203] PART II — OTHER INFORMATION Contains additional non-financial information and disclosures not covered in Part I ITEM 1A. Risk Factors This section states that 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, 2022 - No material changes to risk factors were reported since the Annual Report on Form 10-K filed on February 27, 2023[205] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activities for Class A common stock during the quarter ended March 31, 2023, under its authorized program Issuer Purchases of Equity Securities (Quarter Ended March 31, 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :-------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------- | | January 1, 2023 to January 31, 2023 | — | — | — | 90.1 | | February 1, 2023 to February 28, 2023 | — | — | — | 90.1 | | March 1, 2023 to March 31, 2023 | 403,844 | 3.98 | 64,271 | 89.8 | | Total | 403,844 | | 64,271 | | - During Q1 2023, the Company repurchased 64,271 shares of Class A common stock at a weighted average price of $3.98 per share, totaling $0.3 million, with $89.8 million remaining under the $100.0 million repurchase program[206] ITEM 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications, written statements, and financial statements in iXBRL format - Exhibit (31.1): Certification of the Chief Executive Officer[210] - Exhibit (31.2): Certification of the Chief Financial Officer[210] - Exhibit (32): Written Statement of the Chief Executive Officer and Chief Financial Officer[210] - Exhibit (101): Financial statements in Inline eXtensible Business Reporting Language (iXBRL) format[210] - Exhibit (104): Cover Page Interactive Data File (iXBRL)[210] Signatures This section contains the signatures of the principal executive officer and principal financial officer, certifying the filing of the report - The report was signed by J. Joel Quadracci, Chairman, President and Chief Executive Officer, and Anthony C. Staniak, Chief Financial Officer, on May 3, 2023[213]