Company’s Continued Quad 3.0 Transformation Drives
Increased Net Sales
Company Expects to Complete Acquisition of
LSC Communications, Inc., in Mid-2019
Quad/Graphics, Inc. (NYSE: QUAD) (“Quad” or the “Company”) today
reported results for its fourth quarter and full year ending
December 31, 2018.
Financial Highlights
- Increased full-year 2018 net sales 1.5%
to $4.2 billion with integrated services revenue now
accounting for approximately 20% of net sales.
- Achieved full-year 2018 net earnings of
$8 million, diluted earnings per share of $0.16, Non-GAAP
Adjusted Diluted Earnings Per Share of $1.79, and full-year 2018
Non-GAAP Adjusted EBITDA and Adjusted EBITDA Margin of
$415 million and 9.9%, respectively.
- Generated cash flow from operations of
$261 million and Free Cash Flow of $164 million for
full-year 2018, which reflects the Company’s decision to increase
long-term strategic investments.
- Reduced debt and capital leases by
$24 million during 2018 and Debt Leverage Ratio to 2.11x, net
of excess cash, which is at the low end of Company’s long-term
targeted range of 2.0x to 2.5x.
- Provides 2019 guidance, which includes
the acquisition of Periscope, one of the nation’s top five
independent creative agencies by annual revenue.
- Declares quarterly dividend of $0.30
per share.
“2018 was a truly pivotal year in our Quad 3.0
transformation as reflected by last week’s announcement to evolve
our brand from Quad/Graphics to Quad,” said Joel Quadracci,
Chairman, President & CEO of Quad. “While maintaining our focus
on preserving our high-quality, low-cost producer status, we made
strategic investments to accelerate our transformation as a
marketing solutions partner by acquiring Ivie & Associates,
increasing our investment in Rise Interactive to a majority
ownership and, in January 2019, acquiring Periscope. Our
integrated services revenue, including Periscope, has grown to
approximately 20% of our net sales, and represents over 40% growth
since 2017.”
Quadracci added: “Our Quad 3.0 strategy creates more value
for clients by expanding our offering beyond print and content
production to include an integrated stack of higher margin
marketing services, which, in turn, drives incremental revenue
across our print product categories. This integrated marketing
solutions platform helps our clients reduce the complexity of
working with multiple agency and vendor partners, while improving
process efficiencies and enhancing marketing spend effectiveness.
At a time of incredible media disruption, we remain confident that
our Quad 3.0 strategy will create greater value for our
clients and shareholders over the long-term.”
“We expect to complete the acquisition of LSC Communications in
mid-2019,” Quadracci said. “We remain enthusiastic about the value
this transaction will create for all clients and shareholders. This
business combination will enhance our highly efficient print
platform to fuel our Quad 3.0 transformation and strengthen
the role of print in a multichannel media world.”
Fourth Quarter 2018 Summary Results
Net sales increased 1.5% during the fourth quarter 2018 to
$1.2 billion, reflecting the impact of the Ivie &
Associates and Rise Interactive investments as part of Quad’s
continuing transformation as a marketing solutions partner. Organic
sales declined 4.6% for the quarter after excluding acquisition
sales impact of 4.3%, increased pass-through paper sales of 2.5%,
and a 0.7% unfavorable foreign exchange impact. The organic results
reflect ongoing print industry volume and pricing pressures, and
are consistent with the Company’s expectations.
Net earnings attributable to Quad’s common shareholders
decreased during the fourth quarter of 2018 to a loss of
$21 million, and diluted earnings per share declined to a loss
of $0.42 per share as compared to an earnings per share of $1.06 in
2017. Excluding restructuring costs, Non-GAAP Adjusted Diluted
Earnings Per Share for the fourth quarter 2018 was $0.53 per share
compared to $0.57 per share in the fourth quarter 2017. Fourth
quarter 2018 Non-GAAP Adjusted EBITDA was $110 million
compared to $122 million in the fourth quarter of 2017, and
Adjusted EBITDA Margin was 9.3% compared to 10.5% in 2017. The
Adjusted EBITDA variance to prior-year primarily reflects the
impact from the organic sales decline of 4.6%, a $10 million
impact from strategic investments made to increase hourly
production employees’ wages, partially offset by the earnings
impact from the growth in Quad’s integrated services revenues and a
$6 million gain from a sales tax litigation settlement in
Peru.
Full-Year 2018 Summary Results
Net sales increased 1.5% during the year ended December 31,
2018, to $4.2 billion. Organic sales declined 3.8%, as
expected, after excluding acquisition sales impact of 4.3%,
increased pass-through paper sales of 1.4%, and a 0.4% unfavorable
foreign exchange impact, reflecting ongoing print industry volume
and pricing pressures.
Net earnings attributable to Quad common shareholders for the
year ended December 31, 2018, decreased to $9 million, or
$0.16 per share. Excluding a non-cash charge of $22 million
for an employee stock ownership plan contribution as part of the
benefit of tax reform and restructuring charges, Non-GAAP Adjusted
Diluted Earnings Per Share was $1.79 per share during the year
ended December 31, 2018, which is flat as compared to 2017.
2018 Non-GAAP Adjusted EBITDA was $415 million compared to
$448 million for 2017, and Adjusted EBITDA Margin was 9.9%
compared to 10.8% in 2017. The Adjusted EBITDA variance to
prior-year primarily reflects the impact from the organic sales
decline of 3.8%, a $20 million impact from strategic
investments in hourly production wages and marketing talent and
infrastructure to support Quad 3.0 transformation, partially
offset by the earnings impact from the growth in Quad’s integrated
services revenues and cost savings initiatives.
Net cash provided by operating activities was $261 million
for the year ended December 31, 2018, compared to
$344 million in 2017, and Free Cash Flow was $164 million
as compared to $258 million. Free Cash Flow decreased due to
the Company’s long-term strategic investment decisions to increase
capital expenditures in manufacturing automation, increase wages
for hourly production employees in the Company’s most competitive
labor markets, and transaction-related costs for the pending
acquisition of LSC. Additionally, given paper supply pressures, the
Company intentionally increased paper inventories to ensure
uninterrupted client service.
“We are pleased to report that our Net Sales and Adjusted EBITDA
full-year results were in-line with our expectations as we
continued to invest in our business and execute on our strategic
priorities for long-term growth and shareholder value,” said Dave
Honan, Executive Vice President & Chief Financial Officer of
Quad. “Our Debt Leverage Ratio, net of excess cash, was 2.11x as of
December 31, 2018, which is at the low end of our long-term
targeted range of 2.0x to 2.5x. The strength of our balance sheet
provides us with the ability to deploy our capital between
investing back into our business, making strategic acquisitions and
returning capital to our shareholders through our consistent
dividend and share repurchases.”
Quad’s next quarterly dividend of $0.30 per share will be
payable on March 8, 2019, to shareholders of record as of
February 25, 2019.
2019 Guidance
The Company provided the following 2019 financial guidance:
U.S. $ 2018
Actuals 2019 Guidance Range Net Sales $4.2
billion $4.05 billion – $4.25 billion Adjusted EBITDA
$415 million $360 million – $400 million Free Cash Flow
before LSC-Related Payments(1) $164 million $145
million – $185 million
(1)
LSC-related payments are expected to be
between $20 million - $30 million and are primarily related to
incremental interest expense associated with the amended financing
and transaction costs expected to be incurred prior to completing
the acquisition.
“Our 2019 guidance does not reflect the pending acquisition of
LSC,” Honan said. “We will continue to execute on our strategic
priorities and work toward the successful completion of the LSC
transaction, which represents a compelling opportunity for the
achievement of $135 million in net synergies, excluding
non-recurring integration costs, in less than two years. In
anticipation of the mid-2019 closing, we recently announced the
successful completion of the amendment and extension of our debt
facilities, which will provide us with the appropriate liquidity
and structural flexibility to complete our pending acquisition and
maintain a strong, flexible balance sheet to create future value
for all shareholders.”
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
environment creates downward pricing pressures and potential
underutilization of assets; the impact of digital media and similar
technological changes, including digital substitution by consumers;
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 successfully identify, manage, complete
and integrate acquisitions and investments, including the proposed
acquisition of LSC Communications, Inc. (“LSC”); the inability of
the Company to reduce costs and improve operating efficiency
rapidly enough to meet market conditions; the impact of increased
business complexity as a result of the Company’s transformation
into a marketing solutions 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 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 failure to attract and
retain qualified talent across the enterprise; significant capital
expenditures may be needed to maintain the Company’s platforms and
processes and to remain technologically and economically
competitive; the impact of changes in postal rates, service levels
or regulations; the fragility and decline in overall distribution
channels, including newspaper distribution channels; the impact of
the various restrictive covenants in the Company’s debt facilities
on the Company’s ability to operate its business; 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; the
impact on the holders of Quad’s 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 intangible assets; the impacts that the
proposed acquisition of LSC may have on the Company, both prior to
and following consummation of that acquisition; and the other risk
factors identified in the Company’s most recent Annual Report on
Form 10-K, which 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 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, equity in
(earnings) loss of unconsolidated entity and net earnings (loss)
attributable to noncontrolling interests. 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 earnings (loss) before income taxes and equity in
(earnings) loss of unconsolidated entity excluding restructuring,
impairment and transaction-related charges, employee stock
ownership plan contributions, loss (gain) on debt extinguishment,
and adjusted for income tax expense at a normalized tax rate,
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’s performance and are
important measures by which Quad’s 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
Quad (NYSE: QUAD) is a worldwide marketing solutions partner
dedicated to creating a better way for its clients through a
data-driven, integrated marketing platform that helps clients
reduce complexity, increase efficiency and enhance marketing spend
effectiveness. Quad provides its clients with unmatched scale for
client on-site services and expanded subject expertise in marketing
strategy, creative solutions, media deployment and marketing
management services. With a client-centric approach that drives its
expanded offering, combined with leading-edge technology and
single-source simplicity, Quad believes it has the resources and
knowledge to help a wide variety of clients in multiple vertical
industries, including retail, publishing and healthcare. Quad has
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.QUAD.com.
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Three Months Ended
December 31, 2018 and 2017
(in millions, except per share data)
(UNAUDITED)
Three Months Ended December 31, 2018
2017 Net sales $ 1,181.6 $ 1,164.2 Cost of
sales 978.5 928.5 Selling, general and administrative expenses 93.6
113.4 Depreciation and amortization 57.1 57.0 Restructuring,
impairment and transaction-related charges 63.0 37.9
Total operating expenses 1,192.2 1,136.8
Operating income (loss) (10.6 ) 27.4
Interest expense 19.3 17.5 Net pension income (3.1 ) (1.8 )
Earnings (loss) before income taxes and equity in earnings
of unconsolidated entity (26.8 ) 11.7 Income tax benefit
(5.9 ) (42.8 ) Earnings (loss) before equity in earnings of
unconsolidated entity (20.9 ) 54.5 Equity in earnings of
unconsolidated entity (0.3 ) (0.8 )
Net earnings
(loss) (20.6 ) 55.3 Less: net
earnings attributable to noncontrolling interests 0.2 —
Net earnings (loss) attributable to Quad common
shareholders $ (20.8 ) $
55.3 Earnings (loss) per share attributable
to Quad common shareholders Basic $ (0.42 ) $ 1.10
Diluted $ (0.42 ) $ 1.06
Weighted average number
of common shares outstanding Basic 49.4 50.1
Diluted 49.4 52.3
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended December 31, 2018
and 2017
(in millions, except per share data)
(UNAUDITED)
Year Ended December 31, 2018
2017 Net sales $ 4,193.7 $ 4,131.4 Cost of sales
3,429.3 3,259.4 Selling, general and administrative expenses 372.1
423.8 Depreciation and amortization 230.7 232.5 Restructuring,
impairment and transaction-related charges 103.6 60.4
Total operating expenses 4,135.7 3,976.1
Operating income 58.0 155.3 Interest
expense 73.3 71.1 Net pension income (12.4 ) (9.6 ) Loss on debt
extinguishment — 2.6 Earnings (loss) before
income taxes and equity in earnings of unconsolidated entity (2.9 )
91.2 Income tax benefit (9.8 ) (16.0 ) Earnings
before equity in earnings of unconsolidated entity 6.9 107.2
Equity in earnings of unconsolidated entity (1.0 ) —
Net earnings 7.9 107.2 Less: net loss
attributable to noncontrolling interests (0.6 ) —
Net earnings attributable to Quad common shareholders
$ 8.5 $ 107.2
Earnings per share attributable to Quad common
shareholders Basic $ 0.17 $ 2.16 Diluted $ 0.16
$ 2.07
Weighted average number of common
shares outstanding Basic 49.8 49.6 Diluted 51.6
51.8
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2018 and 2017
(in millions)
(UNAUDITED)
December 31,
2018
December 31,
2017
ASSETS Cash and cash equivalents $ 69.5 $ 64.4 Receivables,
less allowances for doubtful accounts 528.7 552.5 Inventories 300.6
246.5 Prepaid expenses and other current assets 47.8 45.1
Total current assets 946.6 908.5 Property, plant and
equipment—net 1,257.4 1,377.6 Goodwill 54.6 — Other intangible
assets—net 112.6 43.4 Equity method investment in unconsolidated
entity 4.0 3.6 Other long-term assets 93.9 119.3
Total assets $ 2,469.1 $ 2,452.4
LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable $
511.0 $ 381.6 Accrued liabilities 292.3 316.7 Short-term debt and
current portion of long-term debt 42.9 42.0 Current portion of
capital lease obligations 5.1 5.6 Total current
liabilities 851.3 745.9 Long-term debt 882.6 903.5 Capital
lease obligations 10.3 13.7 Deferred income taxes 32.1 41.9 Other
long-term liabilities 232.6 225.0 Total liabilities
2,008.9 1,930.0 Shareholders’ Equity Preferred stock — —
Common stock 1.4 1.4 Additional paid-in capital 861.3 861.1
Treasury stock, at cost (56.6 ) (52.8 ) Accumulated deficit (211.4
) (162.9 ) Accumulated other comprehensive loss (152.2 ) (124.4 )
Quad’s shareholders’ equity 442.5 522.4 Noncontrolling interests
17.7 — Total shareholders’ equity and noncontrolling
interests 460.2 522.4 Total liabilities and
shareholders’ equity $ 2,469.1 $ 2,452.4
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended December 31, 2018
and 2017
(in millions)
(UNAUDITED)
Year Ended December 31, 2018
2017 OPERATING ACTIVITIES Net earnings $ 7.9 $ 107.2
Adjustments to reconcile net earnings to net cash provided by
operating activities: Depreciation and amortization 230.7 232.5
Employee stock ownership plan contribution 22.3 — Impairment
charges 26.5 12.0 Loss on debt extinguishment — 2.6 Stock-based
compensation 15.6 16.4 Gain on the sale or disposal of property,
plant and equipment (17.8 ) (6.9 ) Loss on the sale of a business —
7.7 Gain from property insurance claims (18.3 ) (5.0 ) Settlement
loss on pension benefit plans — 0.8 Deferred income taxes (14.5 )
(22.5 ) Other non-cash adjustments to net earnings 2.5 3.5 Changes
in operating assets and liabilities 5.7 (4.3 ) Net cash
provided by operating activities 260.6 344.0
INVESTING
ACTIVITIES Purchases of property, plant and equipment (96.3 )
(85.9 ) Proceeds from the sale of property, plant and equipment
32.7 23.9 Proceeds from the sale of a business — 14.1 Proceeds from
property insurance claims 14.5 8.0 Loan to an unconsolidated entity
— (7.3 ) Acquisition of businesses—net of cash acquired (71.4 ) —
Net cash used in investing activities (120.5 ) (47.2 )
FINANCING ACTIVITIES Proceeds from issuance of
long-term debt 7.8 375.0 Payments of long-term debt (33.2 ) (522.9
) Payments of capital lease obligations (6.3 ) (7.6 ) Borrowings on
revolving credit facilities 2,563.7 718.5 Payments on revolving
credit facilities (2,561.1 ) (736.0 ) Payments of debt issuance
costs and financing fees — (4.7 ) Purchases of treasury stock (36.7
) (3.8 ) Proceeds from stock options exercised 4.2 2.6 Equity
awards redeemed to pay employees' tax obligations (9.0 ) (6.0 )
Payment of cash dividends (62.9 ) (62.5 ) Other financing
activities — (4.3 ) Net cash used in financing activities
(133.5 ) (251.7 ) Effect of exchange rates on cash and cash
equivalents (1.5 ) 0.1 Net increase in cash and cash
equivalents 5.1 45.2 Cash and cash equivalents at beginning
of year 64.4 19.2 Cash and cash equivalents at
end of year $ 69.5 $ 64.4
QUAD/GRAPHICS, INC.
SEGMENT FINANCIAL INFORMATION
For the Three Months and Years Ended
December 31, 2018 and 2017
(in millions)
(UNAUDITED)
Net Sales Operating
Income (Loss)
Restructuring,
Impairment and
Transaction-Related
Charges (1)
Three months ended December 31, 2018 United States Print and
Related Services $ 1,079.0 $ 51.4 $ 6.1 International 102.6
(9.6 ) 17.3 Total operating segments 1,181.6 41.8 23.4 Corporate —
(52.4 ) 39.6 Total $ 1,181.6 $ (10.6 ) $ 63.0
Three months ended December 31, 2017 United States Print and
Related Services $ 1,059.3 $ 37.7 $ 35.9 International 104.9
4.3 1.5 Total operating segments 1,164.2 42.0 37.4 Corporate
— (14.6 ) 0.5 Total $ 1,164.2 $ 27.4 $ 37.9
Year ended December 31, 2018 United States Print and
Related Services $ 3,806.6 $ 154.0 $ 37.8 International 387.1
1.5 22.2 Total operating segments 4,193.7 155.5 60.0
Corporate — (97.5 ) 43.6 Total $ 4,193.7 $ 58.0
$ 103.6
Year ended December 31, 2017 United
States Print and Related Services $ 3,740.1 $ 194.3 $ 53.6
International 391.3 19.6 3.3 Total operating segments
4,131.4 213.9 56.9 Corporate — (58.6 ) 3.5 Total $ 4,131.4
$ 155.3 $ 60.4
______________________________
(1) Restructuring, impairment and
transaction-related charges are included within operating income
(loss).
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND
ADJUSTED EBITDA MARGIN
For the Three Months Ended
December 31, 2018 and 2017
(in millions)
(UNAUDITED)
Three Months Ended December 31, 2018
2017 Net earnings (loss) attributable to Quad common
shareholders $ (20.8 ) $ 55.3 Interest expense 19.3 17.5 Income tax
benefit (5.9 ) (42.8 ) Depreciation and amortization 57.1
57.0 EBITDA (Non-GAAP) $ 49.7 $ 87.0 EBITDA
Margin (Non-GAAP) 4.2 % 7.5 % Restructuring, impairment and
transaction-related charges (1) 63.0 37.9 Net pension income (2)
(3.1 ) (1.8 ) Equity in earnings of unconsolidated entity (3) (0.3
) (0.8 ) Net earnings attributable to noncontrolling interests (4)
0.2 —
Adjusted EBITDA (Non-GAAP) $
109.5 $ 122.3 Adjusted EBITDA
Margin (Non-GAAP) 9.3 % 10.5 %
______________________________
(1)
Operating results for the three months
ended December 31, 2018 and 2017, were affected by the
following restructuring, impairment and transaction-related
charges:
Three Months Ended December 31, 2018
2017 Employee termination charges (a) $ 5.8 $ 13.7
Impairment charges (b) 10.5 11.0 Transaction-related charges (c)
7.1 1.3 Integration costs (d) 0.6 — Other restructuring charges (e)
39.0 11.9 Restructuring, impairment and transaction-related
charges $ 63.0 $ 37.9
______________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, as well as other
capacity and strategic reduction restructuring initiatives,
including $5.0 million of impairment charges for machinery and
equipment in Peru during the three months ended December 31,
2018.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities, including $6.4 million of legal fees
incurred related to the proposed acquisition of LSC Communications,
Inc. (“LSC”) during the three months ended December 31, 2018,
and $1.0 million of legal fees incurred related to the sale of
a business during the three months ended December 31,
2017.
(d)
Integration costs were primarily related
to the integration of acquired companies.
(e)
Other restructuring charges includes costs
to maintain and exit closed facilities, as well as lease exit
charges, and is presented net of gains on the sale of facilities.
Included in other restructuring charges during the three months
ended December 31, 2018, was a $32.1 million
increase to the Company’s multiemployer pension plans (“MEPPs”)
withdrawal liability and $10.0 million in charges for certain
legal matters and customer contract penalties related to the
Company’s operations in Peru. A $6.7 million loss on the sale
of a business was recorded during the three months ended
December 31, 2017.
(2)
As required by United States GAAP, pension
components other than service cost are required to be excluded from
operating income. The Company has also excluded pension income from
the calculation of Adjusted EBITDA, which is reflected in all
periods presented.
(3)
The equity in earnings of unconsolidated
entity includes the results of operations for an investment in an
entity where Quad has the ability to exert significant influence,
but not control, which is accounted for using the equity method of
accounting.
(4)
The net earnings attributable to
noncontrolling interests is the portion of the net earnings not
owned by Quad for an investment where Quad has a controlling
financial interest.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND
ADJUSTED EBITDA MARGIN
For the Years Ended December 31, 2018
and 2017
(in millions)
(UNAUDITED)
Year Ended December 31, 2018
2017 Net earnings attributable to Quad common shareholders $
8.5 $ 107.2 Interest expense 73.3 71.1 Income tax benefit (9.8 )
(16.0 ) Depreciation and amortization 230.7 232.5
EBITDA (Non-GAAP) $ 302.7 $ 394.8 EBITDA Margin
(Non-GAAP) 7.2
%
9.6 % Restructuring, impairment and transaction-related charges (1)
103.6 60.4 Net pension income (2) (12.4 ) (9.6 ) Employee stock
ownership plan contribution (3) 22.3 — Loss on debt extinguishment
(4) — 2.6 Equity in earnings of unconsolidated entity (5) (1.0 ) —
Net loss attributable to noncontrolling interests (6) (0.6 ) —
Adjusted EBITDA (Non-GAAP) $ 414.6
$ 448.2 Adjusted EBITDA Margin
(Non-GAAP) 9.9 % 10.8 %
_________________________________
(1)
Operating results for the years ended
December 31, 2018 and 2017, were affected by the following
restructuring, impairment and transaction-related charges:
Year Ended December 31, 2018
2017 Employee termination charges (a) $ 23.0 $ 26.9
Impairment charges (b) 26.5 12.0 Transaction-related charges (c)
8.2 3.1 Integration costs (d) 1.3 — Other restructuring charges (e)
44.6 18.4 Restructuring, impairment and transaction-related
charges $ 103.6 $ 60.4
________________________________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, as well as other
capacity and strategic reduction restructuring initiatives,
including $5.0 million of impairment charges for machinery and
equipment in Peru during the year ended December 31, 2018.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities, including $6.4 million of legal fees
incurred related to the proposed acquisition of LSC during the year
ended December 31, 2018, and $1.0 million of legal fees
incurred related to the sale of a business during the year ended
December 31, 2017.
(d)
Integration costs were primarily related
to the integration of acquired companies.
(e)
Other restructuring charges includes costs
to maintain and exit closed facilities, as well as lease exit
charges, and is presented net of gains on the sale of facilities
and a gain related to the Company’s Argentina Subsidiaries’
settlements with vendors through bankruptcy proceedings during the
year ended December 31, 2017. Included in other restructuring
charges during the year ended December 31, 2018, was
a $32.1 million increase to the Company’s MEPPs
withdrawal liability and $10.0 million in charges for certain
legal matters and customer contract penalties related to the
Company’s operations in Peru. A $6.7 million loss on the sale
of a business was recorded during the year ended December 31,
2017.
(2)
As required by United States GAAP, pension
components other than service cost are required to be excluded from
operating income. The Company has also excluded pension income from
the calculation of Adjusted EBITDA, which is reflected in all
periods presented.
(3)
The Company made a $22.3 million non-cash
contribution to the Company's employee stock ownership plan during
the year ended December 31, 2018.
(4)
The $2.6 million loss on debt
extinguishment recorded during the year ended December 31, 2017,
related to the second amendment to the Company’s April 28, 2014
Senior Secured Credit Facility, completed on February 10, 2017.
(5)
The equity in earnings of unconsolidated
entity includes the results of operations for an investment in an
entity where Quad has the ability to exert significant influence,
but not control, which is accounted for using the equity method of
accounting.
(6)
The net loss attributable to
noncontrolling interests is the portion of the net loss not owned
by Quad for an investment where Quad has a controlling financial
interest.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
FREE CASH FLOW
For the Years Ended December 31, 2018
and 2017
(in millions)
(UNAUDITED)
Year Ended December 31, 2018
2017 Net cash provided by operating activities $ 260.6 $
344.0 Less: purchases of property, plant and equipment (96.3
) (85.9 )
Free Cash Flow (Non-GAAP) $
164.3 $ 258.1
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
DEBT LEVERAGE RATIO
As of December 31, 2018 and 2017
(in millions, except ratio)
(UNAUDITED)
December 31,
2018
December 31,
2017
Total debt and capital lease obligations on the condensed
consolidated balance sheets $ 940.9 $ 964.8 Divided by:
Adjusted EBITDA for Quad for the year ended (Non-GAAP) $ 414.6 $
448.2 January 1, 2018 to February 20, 2018 pro forma Adjusted
EBITDA for Ivie (Non-GAAP) (1) 2.9 — Adjusted EBITDA
for the year ended (Non-GAAP) $ 417.5 $ 448.2
Debt Leverage Ratio (Non-GAAP) 2.25 x
2.15 x Debt Leverage Ratio—net of excess
cash (Non-GAAP) (2) 2.11 x 2.03
x
______________________________
(1)
As permitted by the Company’s senior
secured credit facility, certain pro forma financial information
related to the acquisition of Ivie & Associates (“Ivie”) was
included in calculating the Debt Leverage Ratio as of December 31,
2018. As the acquisition of Ivie was completed on February 21,
2018, the $2.9 million pro forma Adjusted EBITDA represents the
period from January 1, 2018, to February 20, 2018. Adjusted EBITDA
for Ivie was calculated in a consistent manner with the calculation
above for Quad. Ivie’s financial information has been consolidated
within Quad’s financial results since the date of acquisition. If
the two months of pro forma Adjusted EBITDA for Ivie was not
included in the calculation, the Company’s Debt Leverage Ratio
would have been 2.27x as of December 31, 2018.
(2)
The Company had $70 million and $64
million in cash and cash equivalents at December 31, 2018 and 2017,
respectively. Based on the Company’s typical year-end cash balance
of approximately $10 million, Quad had $60 million and $54 million
of excess cash at December 31, 2018 and 2017, respectively. If the
excess cash in each year was used to further pay down debt, the
Debt Leverage Ratio would have been 2.11x and 2.03x at December 31,
2018 and 2017, respectively.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE
For the Three Months Ended
December 31, 2018 and 2017
(in millions, except per share data)
(UNAUDITED)
Three Months Ended December 31, 2018
2017 Earnings (loss) before income taxes and equity
in earnings of unconsolidated entity $ (26.8 ) $ 11.7
Restructuring, impairment and transaction-related charges 63.0
37.9 36.2 49.6 Income tax expense at
normalized tax rate (2) 9.1 19.8 Adjusted net
earnings (Non-GAAP) $ 27.1 $ 29.8 Basic
weighted average number of common shares outstanding 49.4 50.1
Plus: effect of dilutive equity incentive instruments (Non-GAAP)
1.5 2.2 Diluted weighted average number of common
shares outstanding (Non-GAAP) 50.9 52.3
Adjusted diluted earnings per share (Non-GAAP) (1)
$ 0.53 $ 0.57
Diluted earnings (loss) per share attributable to Quad common
shareholders (GAAP) $ (0.42 ) $ 1.06 Restructuring, impairment and
transaction-related charges per share 1.24 0.72 Income tax benefit
from condensed consolidated statement of operations per share (0.11
) (0.82 ) Income tax expense at normalized tax rate per share (2)
(0.18 ) (0.38 ) Equity in earnings of unconsolidated entity from
condensed consolidated statement of operations per share — (0.01 )
Net earnings attributable to noncontrolling interests from
condensed consolidated statement of operations per share — —
Adjusted diluted earnings per share (Non-GAAP)
(1) $ 0.53 $ 0.57
______________________________
(1)
Adjusted diluted earnings per share
excludes the following: (i) restructuring, impairment and
transaction-related charges; (ii) discrete income tax items; (iii)
equity in earnings of unconsolidated entity; and (iv) net earnings
attributable to noncontrolling interests.
(2)
A normalized income tax rate of 25% was
used for the three months ended December 31, 2018, based on rates
resulting from the enactment of the Tax Cuts and Jobs Act in
December 2017. The Company used a normalized income tax rate of 40%
for the three months ended December 31, 2017, consistent with the
normalized rate used prior to the enactment of the Tax Cuts and
Jobs Act.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE
For the Years Ended December 31, 2018
and 2017
(in millions, except per share data)
(UNAUDITED)
Year Ended December 31, 2018
2017 Earnings (loss) before income taxes and equity in
earnings of unconsolidated entity $ (2.9 ) $ 91.2
Restructuring, impairment and transaction-related charges 103.6
60.4 Employee stock ownership plan contribution 22.3 — Loss on debt
extinguishment — 2.6 123.0 154.2 Income tax
expense at normalized tax rate (2) 30.8 61.7 Adjusted
net earnings (Non-GAAP) $ 92.2 $ 92.5 Basic
weighted average number of common shares outstanding 49.8 49.6
Plus: effect of dilutive equity incentive instruments 1.8
2.2 Diluted weighted average number of common shares
outstanding 51.6 51.8
Adjusted diluted
earnings per share (Non-GAAP) (1) $ 1.79
$ 1.79 Diluted earnings per
share attributable to Quad common shareholders (GAAP) $ 0.16 $ 2.07
Restructuring, impairment and transaction-related charges per share
2.01 1.17 Employee stock ownership plan contribution per share 0.43
— Loss on debt extinguishment per share — 0.05 Income tax benefit
from condensed consolidated statement of operations per share (0.19
) (0.31 ) Income tax expense at normalized tax rate per share (2)
(0.59 ) (1.19 ) Equity in earnings of unconsolidated entity from
condensed consolidated statement of operations per share (0.02 ) —
Net loss attributable to noncontrolling interests from condensed
consolidated statement of operations per share (0.01 ) —
Adjusted diluted earnings per share (Non-GAAP) (1)
$ 1.79 $ 1.79
______________________________
(1)
Adjusted diluted earnings per share
excludes the following: (i) restructuring, impairment and
transaction-related charges; (ii) employee stock ownership plan
contribution; (iii) loss on debt extinguishment; (iv) discrete
income tax items; (v) equity in earnings of unconsolidated entity;
and (vi) net loss attributable to noncontrolling interests.
(2)
A normalized income tax rate of 25% was
used for the year ended December 31, 2018, based on rates resulting
from the enactment of the Tax Cuts and Jobs Act in December 2017.
The Company used a normalized income tax rate of 40% for the year
ended December 31, 2017, consistent with the normalized rate used
prior to the enactment of the Tax Cuts and Jobs Act.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings Per Share. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating Quad’s performance and are important measures by which
Quad’s 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190219006003/en/
Investor Relations ContactKyle EganDirector of Investor
Relations and Assistant Treasurer,
Quad414-566-2482kegan@quad.com
Media ContactClaire HoManager of Corporate
Communications, Quad414-566-2955cho@quad.com
Quad Graphics (NYSE:QUAD)
過去 株価チャート
から 6 2024 まで 7 2024
Quad Graphics (NYSE:QUAD)
過去 株価チャート
から 7 2023 まで 7 2024