Quad Reports 2Q, Year-to-Date 2019 Results

Quad/Graphics, Inc. reported results for its second quarter ending June 30, 2019.
 
Net sales decreased 1.2% during the second quarter of 2019 to $1 billion. Organic sales declined 2.4%, after excluding sales related to the January 2019 acquisition of Periscope. The organic results reflect ongoing print industry volume and pricing pressures, and a negative impact from foreign exchange, partially offset by new revenue generated from the company’s Quad 3.0 growth strategy and an increase in paper sales.
 
“Our second quarter results were in-line with our expectations and we remain on track to achieve our full-year 2019 guidance as we continue to transform our company as a marketing solutions partner focused on creating more value for all our stakeholders,” said Joel Quadracci, chairman, president & CEO. “Our recent investment and partnership with the dtx company builds on a series of strategic investments, including the acquisitions of Periscope and Ivie & Associates, and a controlling ownership interest in Rise Interactive, which have all been designed to accelerate our transformation. dtx, which was founded by Tim Armstrong, formerly CEO of Oath and AOL and a senior leader at Google, empowers consumers and companies to build direct relationships. Through our partnership with dtx, we will help consumers discover and interact with direct-to-consumer brands, and help those brands acquire and retain customers with personalized, multichannel programs.
 
“As we announced last week, we mutually agreed with LSC Communications to terminate the merger agreement under which Quad would have acquired LSC,” Quadracci added. “The US Department of Justice’s decision to sue to block the transaction added delay, uncertainty and costs that likely would have eroded a considerable amount of the expected benefits of the acquisition. Independent of that outcome, we have continued to develop exciting innovations in print and integrated marketing solutions that reduce complexity, improve efficiencies and enhance marketing spend effectiveness.”
 
Net loss attributable to Quad common shareholders during the second quarter of 2019 was $14.8 million, or $0.30 diluted loss per share, as compared to earnings of $9.4 million, or $0.18 diluted earnings per share in 2018. Non-GAAP adjusted diluted loss per share for the second quarter of 2019 was $0.09 per share compared to earnings per share of $0.23. Second quarter 2019 non-GAAP adjusted EBITDA was $75 million compared to $90 million in second quarter 2018, and adjusted EBITDA margin was 7.5% compared to 8.8% in 2018. 
 
Net sales increased 1.3% during the six months ended June 30, 2019, to $2 billion, primarily from the impact of the Ivie and Periscope acquisitions and the investment in Rise. Organic sales declined 1.5% after excluding acquisition sales impact of 2.8%. 
 
Net loss attributable to Quad common shareholders for the six months ended June 30, 2019, was $37.3 million, or $0.75 diluted loss per share, as compared to earnings of $5.9 million, or $0.11 diluted earnings per share in 2018. Year-to-date non-GAAP adjusted EBITDA was $145 million compared to $200 million for 2018, and adjusted EBITDA margin was 7.2% compared to 10.1% in 2018. 
 
Net cash provided by operating activities during the second quarter of 2019 was $75 million compared to $38 million in 2018, and free cash flow was $51 million in 2019 as compared to $9 million in 2018, representing an increase of $42 million. Net cash provided by operating activities was $16 million for the first six months of 2019 compared to $41 million in 2018, and free cash flow was negative $50 million in 2019 as compared to negative $13 million in 2018. 
 
“We made several strategic investments in 2019, such as the acquisition of Periscope, resulting in a debt leverage ratio of 3.06x, temporarily above our long-term targeted range of 2.0x to 2.5x,” said Dave Honan, Quad EVP and CFO. “However, we anticipate that the debt leverage ratio will decrease significantly by year end to be less than 2.8x due to continued strong free cash flow generation of the business as we benefit from our Quad 3.0 integrated services offering.