Quad Attributes Proactive COVID-19 Response to 'Strong' First Quarter 2020 Results
Quad/Graphics, Inc. reported results for its first quarter ended March 31, 2020.
Recent Highlights
- Developed and launched Quad’s Safe-at-Work Program to proactively protect employee health and well-being during the COVID-19 pandemic, as the Company continued to operate as an essential business.
- Delivered strong first quarter despite reduction in near-term client demand due to the COVID-19 pandemic.
- Swiftly implemented risk-mitigating efforts and cost reductions across the Company, which supported a $103 million increase in net cash provided by operating activities and a $116 million increase in Free Cash Flow compared to the first quarter of 2019.
- Reduced net debt by $49 million in the quarter and reduced the Debt Leverage Ratio to 3.0x as of March 31, 2020, net of excess cash.
- Maintained significant liquidity as of March 31, 2020, including $208 million of cash on hand and up to $636 million in unused capacity under Quad’s revolving credit agreement.
- Created new innovative solutions to help clients during these unprecedented times while maintaining quality and on-time delivery.
Joel Quadracci
“Our first quarter performance exceeded our expectations until mid-March when we started to feel the initial disruption from COVID-19. Since then, we have seen a meaningful impact to customer demand in certain end markets, primarily in retail, as a result of the pandemic. As this unprecedented situation continues to evolve, our main priority is protecting our employees’ health and well-being, and serving our clients while also ensuring the financial health of the Company. We were able to deliver strong first quarter results, in part, by taking early and swift action to align our cost structure to lower volumes in certain product categories, thereby protecting our balance sheet, and preserving cash flow and liquidity. We have historically treated almost all costs as variable, and demonstrated our agility to react in real-time during the pandemic to reduce costs. We are focused on taking care of our employees through Quad’s Safe-at-Work Program and are continuing to monitor and respond to the ever-changing economic landscape,” said Joel Quadracci, Quad Chairman, President and CEO.
“Throughout this disruptive time we have leveraged our unique integrated marketing platform to better serve our clients,” Quadracci continued. “This includes innovative in-store marketing solutions that promote shopper safety through social distancing, and content creation and execution for clients who have had challenges staffing critical functions during the pandemic.
"I am proud of Quad’s ability to continue to quickly innovate new products, services and solutions for our clients — and for our employees — to help navigate the impacts of the pandemic. For example, to protect our employees at work, we began producing our own hand sanitizer and designed our own non-medical face masks, which are being mass-produced on our existing printing press equipment.”
Quadracci concluded: “We are currently planning for the reopening of the economy under multiple scenarios based on our clients’ advertising and marketing needs. We expect this to be a gradual ramp-up over time to a ‘new normal’ as the economy emerges from the pandemic. We believe our experience in managing significant change over the last decade has prepared us to be agile and decisive as needed, and I am confident in our leadership team’s ability to manage through the current economic disruption. Our Quad 3.0 strategy provides us with the right tools and platform to be stronger than we were prior to the pandemic, supported by our diverse product portfolio and the cash flow needed to continue to accelerate our long-term strategic transformation as a marketing solutions partner.
"In the meantime, I am extremely proud of our team’s ability to come together, and act quickly and decisively to navigate this unprecedented period in history, all while maintaining employee safety and delivering high quality and innovative products.”
COVID-19 response actions taken by Quad as outlined in its Q1 investor presentation.
Summary Results
Results for the three months ended March 31, 2020, included:
- Net Sales (excluding discontinued operations) — Net sales were $823 million in 2020, down 14.4% from 2019. Organic sales declined 13.3% during the quarter, after excluding the impact of the sale of the Omaha packaging plant. The organic results reflect ongoing print industry volume and pricing pressures, including the initial impact from COVID-19 pandemic, and a negative 0.4% impact from foreign exchange.
- Net Loss From Continuing Operations — Excluding the results from discontinued operations, net loss from continuing operations was $9 million in 2020, or $0.17 diluted loss per share, as compared to net loss from continuing operations of $13 million in 2019, or $0.25 diluted loss per share.
- Adjusted EBITDA (excluding discontinued operations) — Adjusted EBITDA was $75 million in 2020, as compared to $78 million in 2019, while Adjusted EBITDA margin improved to 9.2% in 2020, as compared to 8.2% in 2019. The variance in Adjusted EBITDA to prior year primarily reflects the impact from the organic sales decline of 13.3%, a $9 million decrease in print profits from the reduction in market price for paper byproduct recoveries, a $4 million increase in hourly production wages due to strategic investments made to increase starting wages, partially offset by a $9 million net non-cash benefit from a change in vacation policy, an $8 million reduction in worker’s compensation reserves from improved production safety initiatives, and savings from other cost reduction initiatives.
- Net Cash Provided by Operating Activities — Net cash provided by operating activities increased by $103 million and was $45 million in 2020, as compared to net cash used in operating activities of $58 million in 2019, primarily due to improvements in working capital.
- Free Cash Flow — Free Cash Flow increased by $116 million and was $16 million in 2020, as compared to negative $101 million in 2019, primarily due to improvements in working capital and a $16 million decrease in capital expenditures. As a reminder, the Company generates the majority of its Free Cash Flow in the fourth quarter of the year.
Dave Honan, Executive Vice President and CFO, concluded: “In the midst of this pandemic, we responded quickly with multiple cost reduction and cash conservation efforts to deliver strong first quarter operating and cash performance, including the generation of $16 million of Free Cash Flow and lowering our Debt Leverage Ratio to 3.0x, net of excess cash. We have significant liquidity and no material maturities in our debt capital structure until May of 2022, which allows us to have significant financial flexibility to adapt to the uncertain economic impacts of the COVID-19 pandemic.”
The preceding press release was provided by a company unaffiliated with In-plant Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of In-plant Impressions.
