Quad Reports Third Quarter, Year-to-Date 2022 Results

Quad/Graphics, Inc. reported results for the third quarter ended Sept. 30, 2022.

Recent highlights:
• Achieved sixth consecutive quarter of year-over-year growth as net sales were $830 million in the third quarter of 2022, reflecting top-line growth of 18% compared to the same period in 2021. Net sales growth was driven by print segment share gains, increased pricing in response to inflationary cost pressures, and increased sales in the company’s international locations.
• Recognized net earnings of $14 million in both the third quarter of 2022 and 2021.
• Increased adjusted EBITDA to $69 million in the third quarter of 2022 compared to adjusted EBITDA of $55 million in the third quarter of 2021, when excluding a $13 million property insurance gain in 2021.
• Raised net sales guidance from 3%-7% growth to 8%-10% growth; narrowed other guidance within the previously provided ranges.
• Repurchased 3.1 million shares of Quad Class A common stock for $10 million year-to-date, representing more than 5% of Quad’s outstanding shares.

“This quarter’s results, which include a sixth consecutive quarter of net sales growth, exhibit the effectiveness of our business strategy as we have transformed into a marketing experience, or MX, company,” said Joel Quadracci, chairman, president and CEO of Quad.

“The world’s best brands increasingly recognize the unique value we provide through our holistic, multichannel, through-the-line marketing solutions,” Quadracci added. “As an MX company, we guide brands through every effort intended to drive an action, from consumer awareness and trust, to brand preference and purchase. We will continue to strategically invest in our platform to give our clients a more streamlined, flexible and frictionless way to go to market and reach consumers while enhancing our competitive position to drive profitable growth.

“As a result of investments we made in the first half of the year, we are able to deliver industry-leading client service, and drive sales and profitability higher during our seasonally busier second half of the year,” he noted. “Additionally, our team continues to work diligently to mitigate the impacts of persisting macro-economic headwinds, such as cost inflation and supply chain constraints that impact productivity. This includes implementing inflation-offsetting price increases, the next of which will be effective January 1, 2023.

“As we close out the year, we remain focused on serving our clients effectively. We will continue to prioritize growth while improving productivity and reducing debt, consistent with our commitment to create a better, more purposeful and sustainable way forward for all our stakeholders,” Quadraci concluded.

Results for the three months ended Sept. 30, 2022, include:
• Net Sales — Net sales were $2.3 billion in the nine months ended Sept. 30, 2022, up 11% from the same period in 2021, or up 14% excluding the impact of the QuadExpress divestiture. Net sales growth was achieved due to print segment share gains, increased pricing in response to inflationary cost pressures, and increased sales in the company’s international locations.
• Net Earnings and Adjusted EBITDA — Net earnings were $18 million in the nine months ended September 30, 2022, as compared to net earnings of $59 million in the same period in 2021. The decrease was primarily due to non-recurring gains in 2021, including $25 million in gains from the sale and leaseback of two production facilities ($18 million, net of tax) and a $13 million property insurance gain ($10 million, net of tax).
Adjusted EBITDA was $173 million in the nine months ended Sept. 30, 2022, a decline from $201 million of Adjusted EBITDA in the same period in 2021. The decline was primarily due to cost inflation, investments made in hiring and training labor in the first half of 2022 in advance of the peak production season in the second half of the year, the negative impact of supply chain disruptions on the Company’s productivity and a $13 million property insurance gain in 2021, partially offset by increased earnings from Net Sales growth.
• Net Cash Provided by (Used in) Operating Activities and Free Cash Flow — Net cash used in operating activities was $30 million for the nine months ended Sept. 30, 2022, compared to $22 million during the same period in 2021. Free cash flow for the nine months was negative $80 million, a decrease of $60 million compared to the same period last year. The decline was primarily driven by higher working capital in 2022, including increased receivables from higher net sales and increased inventory levels from higher costs on commodities as well as supply chain challenges with resulting longer lead times
• Net Debt — Debt less cash and cash equivalents increased by $91 million to $715 million at September 30, 2022, as compared to $624 million at Dec, 31, 2021, primarily due to investments in working capital, talent and equipment to enable continued sales growth.

“Our focus on reimagining the marketing experience for our clients continues to drive top-line growth, including segment share gains and new client wins, and as a result, we are raising our full-year net Ssales guidance range to 8% to 10% growth,” said Tony Staniak, CFO of Quad. “The proactive investments we made in labor, inventory and equipment during the first half of 2022 are proving effective during our seasonally higher production period in the second half of the year, as evidenced by the year-over-year and sequential increase in quarterly adjusted EBITDA.

“We are positioned to achieve higher year-over-year earnings in the fourth quarter as well, despite ongoing challenges from inflationary costs and supply chain disruptions,” added Staniak. “From a capital allocation perspective, we repurchased 3.1 million shares of our common stock for $10 million year-to-date, which is more than 5% of Quad’s total common stock. The fourth quarter is expected to generate strong free cash flow and our focus will be on debt reduction to achieve our year-end debt leverage guidance of approximately 2.25x, which is in the middle of our long-term desired debt leverage range of 2.0-2.5x.”