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Quad/Graphics Reports Second Quarter and Year-to-Date 2018 Results

July 31, 2018

SUSSEX, Wis.--(BUSINESS WIRE)--Jul 31, 2018--Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics” or the “Company”) today reported results for its second quarter ending June 30, 2018. For full financial results, please see the accompanying information.

Second Quarter Financial Highlights

Increased net sales 5% to $1 billion. Increased net earnings by $2 million to $9 million and diluted earnings per share by $0.05 to $0.18. Achieved Non-GAAP Adjusted EBITDA and Margin of $90 million and 8.8%, respectively, and generated Non-GAAP Adjusted Diluted Earnings Per Share of $0.23. Repurchased $37 million of Quad/Graphics stock and launches a new $100 million share repurchase program authorized by the Board of Directors. Declares quarterly dividend of $0.30 per share.

“Our results for the second quarter of 2018 were in-line with our expectations and reflect the positive impact on revenue from our transformation to a marketing solutions provider,” said Joel Quadracci, Quad/Graphics Chairman, President & Chief Executive Officer. “Our integrated marketing platform is unique and enables our clients to strategically plan, produce, deploy, manage and measure their marketing content across traditional and digital channels. By having a fully integrated offering, we reduce complexity, improve process efficiencies and enhance marketing spend effectiveness for our clients.”

Quadracci added: “Our investments in Ivie & Associates and Rise Interactive continue to strengthen our integrated marketing platform and the client value we create. Recent wins validate that our strategy is working, especially in the digital marketing and technology solutions spaces. For example, one of our large national retail clients recently partnered with Quad for digital services including paid search, social and display placement, spend optimization, and analytics reporting in addition to the traditional services we already provide for them including creative, production, media planning, printing and distribution. As we move ahead, we will continue to strengthen our integrated marketing platform to ensure our products and services continue to help our clients and generate additional revenue across all our businesses.”

Summary Results

Net sales increased 5.4% during the second quarter 2018 to $1 billion, reflecting the impact of the Ivie & Associates and Rise Interactive investments as part of the Company’s transformation to a marketing solutions provider. Organic sales declined 2.2%, after excluding acquisition sales impact of 6.2%, increased pass-through paper sales of 1.6% and a -0.2% foreign exchange impact. The results reflect ongoing print industry volume and pricing pressures, and are consistent with the Company’s previous guidance. Net earnings increased 40% during the second quarter 2018 to $9 million and diluted earnings per share improved by $0.05 to $0.18 compared to $0.13 in 2017. Non-GAAP Adjusted Diluted Earnings Per Share for the second quarter 2018 declined 4% to $0.23 compared to $0.24 in the second quarter of 2017. Second quarter 2018 Non-GAAP Adjusted EBITDA was $90 million compared to $94 million in second quarter 2017, and Adjusted EBITDA Margin was 8.8% compared to 9.7% in 2017.

Net sales increased 1.1% during the six months ended June 30, 2018. Organic sales declined 3.7%, after excluding acquisition sales impact of 4.1% and increased pass-through paper sales of 0.7%, reflecting print industry volume and pricing pressures. Net earnings for the six months ended June 30, 2018, decreased $26 million to $6 million, or $0.11 per share, and included a special non-cash charge of $22 million for an employee stock ownership plan contribution as part of the benefit of tax reform and $21 million in higher restructuring charges. Excluding the special contribution and restructuring changes, Non-GAAP Adjusted Diluted Earnings Per Share improved 5% to $0.80 during the six months ended June 30, 2018, compared to $0.76 for 2017. Year-to-date Non-GAAP Adjusted EBITDA was $200 million compared to $213 million for 2017, and Adjusted EBITDA margin was 10.1% compared to 10.8% in 2017.

Net cash provided by operating activities was $41 million for the first six months of 2018 compared to $112 million in 2017, and Free Cash Flow was negative $13 million. The decline to 2017 was primarily due to expected timing differences in 2018 versus 2017 for cash generated from working capital, which will be weighted more toward the fourth quarter, and includes an intentional build-up in paper inventories in anticipation of supply constraints. As a reminder, the Company generates the majority of its Free Cash Flow in the second half of the year.

“We delivered second quarter results in-line with our expectations and we remain on track to deliver on our 2018 financial guidance,” said Dave Honan, Executive Vice President and Chief Financial Officer for Quad/Graphics. “Our Debt Leverage Ratio of 2.34x remains well within our long-term targeted range of 2.0x to 2.5x and includes the impacts from $37 million of share repurchases in the quarter and $71 million in strategic investments made for Ivie and Rise in 2018. We believe the strength of our balance sheet gives us the ability to balance our use of capital between investing back into our business and returning capital to our shareholders, including our consistent dividend and our share repurchases. We are pleased to announce our Board of Directors authorized a new $100 million stock repurchase program to provide sufficient capacity for us to repurchase shares in the future. We remain stringently focused on transforming our business and driving shareholder value as we move forward.”

Quad/Graphics’ next quarterly dividend of $0.30 per share will be payable on September 7, 2018, to shareholders of record as of August 20, 2018.

Quarterly Conference Call

Quad/Graphics (NYSE: QUAD) will hold a conference call at 10 a.m. ET on Wednesday, August 1, to discuss second quarter 2018 results. The call will be hosted by Joel Quadracci, Quad/Graphics Chairman, President & Chief Executive Officer, and Dave Honan, Quad/Graphics Executive Vice President & Chief Financial Officer. The full earnings release and slide presentation will be concurrently available on the Investors section of Quad/Graphics’ website at http://investors.qg.com.

Participants can pre-register for the webcast by navigating to http://dpregister.com/10120920. Participants will be given a unique PIN to gain immediate access to the call on August 1, bypassing the live operator. Participants may pre-register at any time, including up to and after the call start time.

Alternatively, participants without internet access may dial in on the day of the call as follows:

U.S. Toll-Free: 1-877-328-5508 International Toll: 1-412-317-5424

Telephone playback will be available shortly after the conference call ends, accessible as follows:

U.S. Toll-Free: 1-877-344-7529 International Toll: 1-412-317-0088 Replay Access Code: 10120920

The playback will be available until September 1, 2018.

Forward-Looking Statements

This press release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other things, our current expectations about the Company’s future results, financial condition, revenue, earnings, free cash flow, margins, objectives, goals, strategies, beliefs, intentions, plans, estimates, prospects, projections and outlook of the Company and can generally be identified by the use of words or phrases such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “project,” “believe,” “continue” or the negatives of these terms, variations on them and other similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those expressed in or implied by such forward-looking statements. Forward-looking statements are based largely on the Company’s expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control.

The factors that could cause actual results to materially differ include, among others: the impact of decreasing demand for printed materials and significant overcapacity in the highly competitive commercial printing industry creates downward pricing pressures and potential underutilization of assets; the impact of electronic media and similar technological changes, including digital substitution by consumers; the inability of the Company to reduce costs and improve operating efficiency rapidly enough to meet market conditions; the impact of changing future economic conditions; the failure of clients to perform under contracts or to renew contracts with clients on favorable terms or at all; the impact of increased business complexity as a result of the Company’s transformation into a marketing services provider; the impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, privacy and environmental laws; the impact of fluctuations in costs (including labor and labor-related costs, energy costs, freight rates and raw materials) and the impact of fluctuations in the availability of raw materials; the failure to attract and retain qualified production personnel; the impact of changes in postal rates, service levels or regulations; the fragility and decline in overall distribution channels, including newspaper distribution channels; the failure to successfully identify, manage, complete and integrate acquisitions and investments; the impact of risks associated with the operations outside of the United States, including costs incurred or reputational damage suffered due to improper conduct of its employees, contractors or agents; significant capital expenditures may be needed to maintain the Company’s platform and processes and to remain technologically and economically competitive; the impact of the various restrictive covenants in the Company’s debt facilities on the Company’s ability to operate its business; the impact on the holders of Quad/Graphics class A common stock of a limited active market for such shares and the inability to independently elect directors or control decisions due to the voting power of the class B common stock; the impact of an other than temporary decline in operating results and enterprise value that could lead to non-cash impairment charges due to the impairment of property, plant and equipment and other intangible assets; and the other risk factors identified in the Company’s most recent Annual Report on Form 10-K, as such may be amended or supplemented by subsequent Quarterly Reports on Form 10-Q or other reports filed with the Securities and Exchange Commission.

Except to the extent required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

This press release contains financial measures not prepared in accordance with generally accepted accounting principles (referred to as Non-GAAP), specifically Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio and Adjusted Diluted Earnings Per Share. Adjusted EBITDA is defined as net earnings (loss) attributable to Quad/Graphics common shareholders excluding interest expense, income tax expense (benefit), depreciation and amortization, restructuring, impairment and transaction-related charges, net pension income, employee stock ownership plan contributions, loss (gain) on debt extinguishment, and equity in (earnings) loss of unconsolidated entity. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales. Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment. Debt Leverage Ratio is defined as total debt and capital lease obligations divided by the last twelve months of Adjusted EBITDA. Adjusted Diluted Earnings Per Share is defined as net earnings (loss) excluding restructuring, impairment and transaction-related charges, employee stock ownership plan contributions, loss (gain) on debt extinguishment, equity in (earnings) loss of unconsolidated entity, discrete income tax items and net (earnings) loss attributable to noncontrolling interests, divided by diluted weighted average number of common shares outstanding.

The Company believes that these Non-GAAP measures, when presented in conjunction with comparable GAAP measures, provide additional information for evaluating Quad/Graphics’ performance and are important measures by which Quad/Graphics’ management assesses the profitability and liquidity of its business. These Non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net earnings (loss) as a measure of operating performance or to cash flows provided by operating activities as a measure of liquidity. These Non-GAAP measures may be different than Non-GAAP financial measures used by other companies. Reconciliation to the GAAP equivalent of these Non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

About Quad/Graphics

Quad/Graphics (NYSE:QUAD) is a leading marketing solutions provider. The Company leverages its strong print foundation as part of a much larger, robust integrated marketing services platform that helps marketers and content creators improve the efficiency and effectiveness of their marketing spend across offline and online media channels. With a consultative approach, worldwide capabilities, leading-edge technology and single-source simplicity, Quad/Graphics has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, publishing and healthcare. Quad/Graphics provides a diverse range of digital and print and related products, services and solutions from multiple locations throughout North America, South America and Europe, and strategic partnerships in Asia and other parts of the world. For additional information visit www.QG.com.

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