QUAD

Quad/Graphics, Inc. 10-Q Summary: Q2 2026

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026. Quad/Graphics, Inc. (Quad) operates as a marketing experience (MX) company providing print, logistics, and digital marketing services. The company is structured into two reportable segments: United States Print and Related Services (approx. 91% of sales) and International (approx. 9% of sales). The company continues to execute a transformation strategy to align its cost structure with market realities, including facility consolidations and capacity reductions.

Key Financial Metrics

Note: YTD figures represent the six months ended June 30.

Material Changes vs. Prior Period

• Revenue: Q2 2026 net sales increased 1.0% year-over-year (YoY) to $577.5 million, driven by a 0.8% increase in product sales and 1.5% increase in services. However, YTD sales decreased 3.6% due to lower print volumes and the impact of the European operations divestiture in early 2025.
• Profitability: Q2 operating income rose 8.8% to $14.9 million, and net earnings turned positive ($3.7M) compared to a loss of $0.1M in Q2 2025. This improvement was aided by a $4.3M decrease in interest expense and lower depreciation.
• Restructuring: Restructuring, impairment, and transaction-related charges increased to $9.7M in Q2 2026 (from $9.2M in Q2 2025) and $18.1M YTD (from $15.8M YTD 2025). This includes $6.7M in employee termination charges for the quarter.
• Cash Flow: Net cash used in operating activities was $40.9M for the six months ended June 30, 2026, compared to $41.6M in the prior year period. Free Cash Flow (non-GAAP) was negative $66.2M for the period.

Outlook, Risks, and Contingencies

• Guidance: The filing does not provide specific numerical guidance for the full year 2026. Management expects seasonality to continue, with higher sales and operating income in the second half of the year.
• USPS Impact: The company faces headwinds from the United States Postal Service (USPS), including an 8% temporary rate increase effective April 2026 and the expiration of catalog insights promotions. These factors are expected to negatively impact catalog volumes for the remainder of 2026.
• Debt Covenants: The Net Debt Leverage Ratio of 2.03x is slightly above management's target range of 1.50x to 2.00x. However, the company remains in compliance with all debt covenants, including a Total Leverage Ratio of 2.00x (limit 3.50x).
• Contingencies:
  • European Sale Note Receivable: The buyer of the European operations has not paid the first annual note receivable of $6.2M due in February 2026. The company believes the note is collectible but is evaluating remedies.
  • Mexico Tax Litigation: A final decision was reached on a 2011 audit assessment. The company has adjusted its reserve to $17.4M ($12.1M income tax/interest, $5.3M VAT/interest).
• Risks: Key risks include declining demand for print, overcapacity in the industry, rising raw material costs (paper, ink, energy), and the ability to pass cost increases to clients.

Investor Verification Checklist

• European Note Receivable: Verify the status of the $6.2M past-due payment from the European operations buyer and the likelihood of collection.
• USPS Rate Impact: Assess the quantitative impact of the 8% USPS rate increase and the end of catalog promotions on Q3 and Q4 volume forecasts.
• Restructuring Progress: Monitor the execution of the restructuring program, specifically the $11.1M in employee termination charges YTD, to ensure anticipated cost savings are realized.
• Liquidity Position: Review the cash burn rate given the negative operating cash flow and the reduction in cash equivalents from $63.3M to $7.4M over the six-month period.
• Debt Leverage: Track the Net Debt Leverage Ratio to ensure it returns to the target range of 1.50x–2.00x to maintain financial flexibility.