Quad/Graphics, Inc. (NYSE: QUAD) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results; the provided text does not give a clear standalone fourth-quarter financial summary.
Business context
Quad provides integrated marketing services alongside commercial printing, logistics and related services. Its United States Print and Related Services segment generated approximately 89% of 2021 sales; International generated approximately 11%. The company said it was continuing its shift toward a broader marketing-solutions platform while managing secular print declines, pandemic effects and supply-chain constraints.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $2,960.4 million | $2,929.6 million |
| Operating income (loss), continuing operations | $92.8 million | $(46.0) million |
| Operating margin | 3.1% | (1.6)% |
| Net earnings (loss) attributable to Quad common shareholders | $37.8 million | $(128.3) million |
| Diluted EPS | $0.71 | $(2.53) |
| EBITDA, non-GAAP | $264.2 million | $122.4 million |
| Adjusted EBITDA, non-GAAP | $246.0 million | $260.4 million |
| Cash from operating activities | $136.5 million | $190.2 million |
| Free cash flow, non-GAAP | $86.5 million | $129.2 million |
| Cash and cash equivalents at year-end | $179.9 million | $55.2 million |
At December 31, 2021, total debt and finance lease obligations were $803.7 million, versus $928.2 million a year earlier; reported debt was $800.5 million. Net debt was $623.8 million, and the company’s non-GAAP Debt Leverage Ratio was 2.54x, down from 3.35x. Total liquidity was $576.6 million, including $179.9 million cash and up to $396.7 million available on the revolving facility; availability under the most restrictive debt covenants was $314.6 million.
Changes versus 2020
- Sales rose 1.1%, reflecting higher print volume and pricing and growth in marketing and imaging services, partly offset by divestitures and lower pass-through paper sales.
- Operating income improved substantially, but the comparison benefited from $105.2 million less in restructuring, impairment and transaction-related charges and $24.5 million in sale-and-leaseback gains. Other favorable items included higher paper byproduct recoveries and lower depreciation.
- Adjusted EBITDA declined $14.4 million despite higher reported EBITDA, reflecting the effect of adjustments including restructuring and sale-and-leaseback items.
- Operating cash flow fell $53.7 million, primarily from lower cash from earnings and increased inventory. Free cash flow fell $42.7 million.
- Debt and finance lease obligations decreased $125 million during 2021. The company also sold its third-party logistics business and, in January 2022, sold its Plural investment after recording a $32.1 million impairment in 2021.
Outlook, risks and unusual items
- Management expected inflationary pressures and supply-chain shortages potentially to continue through fiscal 2022. It cited higher paper, materials, freight and labor costs, labor shortages, and distribution disruptions; it said it was passing price increases to clients.
- The company stated that operating cash flows and current liquidity should be sufficient for operating needs and debt and pension obligations over the next 12 months and beyond. This is management’s assessment, not a guarantee.
- The November 2021 credit-facility amendment extended portions of the term loan and revolver to November 2026, but $211.5 million of 7.0% senior unsecured notes remained due May 1, 2022. The company reported compliance with debt covenants at year-end.
- Material risks include continued digital substitution and print-industry overcapacity, pricing pressure, client demand and retention, raw-material and labor availability and costs, postal rates and service, COVID-19 uncertainty, cyber and privacy risks, and debt covenants. Dividends had been suspended since the second quarter of 2020; resumption depended on stabilization of the operating environment.
- Unusual or potentially nonrecurring items included $24.5 million in sale-and-leaseback gains, $18.9 million in net restructuring, impairment and transaction-related charges, and a $32.1 million impairment of the Plural investment. The company expected further restructuring costs.
Most important facts for investors to verify
- How much of the 2021 earnings improvement reflects sustainable operating performance versus lower restructuring charges, asset-sale gains and other unusual items.
- Whether pricing increases can offset inflation in labor, freight, paper and other inputs without weakening customer demand or margins.
- How the May 2022 senior-note maturity was addressed and the company’s liquidity and covenant position after year-end.
- Whether inventory levels, working capital and operating cash flow improve, and whether leverage moves toward management’s 2.0x–2.5x target range.
- Progress in growing marketing services as print volumes face secular decline, and any subsequent effects from the logistics and Plural divestitures.
The financial statements received an unqualified audit opinion; the auditor also issued an unqualified opinion on internal control over financial reporting.